There are many challenges facing the family farm in 2016, but there are resources available to create a winning plan moving forward.

Colorado State University Agricultural & Business Management Economist Jeff Tranel said many of the challenges faced by farmers is extremely low commodity prices on things like wheat and corn, which are below the cost of production.

"Cattle prices have come down significantly," he said. "A lack of short term profitability is an issue."

Drought is also an issue.

"Then there is no production," he said.

Currently the market conditions are causing the problem with commodity prices.

"Worldwide, the price of corn is down and there is a large supply of it, so demand is not where it needs to be," he said. "The price of corn probably needs to go up by 50 cents to $1 a bushel to break even."

People who shop for beef at the grocery store will still find it to be very cost prohibitive.

"Right now there are a lot of cattle on the pastures," he said. "The price of beef is high because by the time we buy that steak at the grocery store, that animal is 18 months old."

He said if you look back at the price it was then, it's coming down because there is a lot of cattle available.


"What happened because of the drought is a number of ranchers, especially in the mountain states, they sold cattle because of high hay prices and the availability of pasture," he said. "Those that had cows retained heifers to try and build the heard again."

He noted that cattle numbers are only one part of the equation when it comes to price.

"Generally across the country we've had pretty good rain and moisture, so there are a lot of cattle out there at this point," he said.

Next generation

The family is also facing a next generation that is not returning to the farm to take over when they used to.

"When the retiring generation is wanting to retire there is no one to turn it over to and the cost is almost prohibitive for a 22-year-old kid to step in," Tranel said. "Someone who's not a family member who is not given a break by mom and dad, that's an issue."

People who are able to buy, he said, are established farmers.


Tranel said the family needs to discuss what future they want when it comes to the generational issue.

"Many families are uncomfortable talking about what happens to the business," he said. "Also with farmers, they don't set aside money for retirement, the farm, the land and the equipment is there retirement."

When they sell, he said, in order for mom and dad to live the kids have to pay almost fair market value, which is prohibitive.

"They need to set some goals as a family," he said.

Tranel said the struggle he sees is a lack of communication between family members.

"They really don't sit down and have a business meeting to talk about things in a neutral setting," he said.

What is missing, he said, is the differentiation between family and business.

"They sit around the living room and dad is in his easy chair or at the head of their kitchen table and mom is doing what mom's tend to do make sure everyone is fed and watered, rather than go have the business meeting and listen to everyone's perspective and ideas," he said.

Once they start having business meetings on neutral ground, he said, the family can move forward because they are sharing.

"I just talked to a family where dad and son are doing everything on a handshake," he said.

They talk in the shop and the coral, but what they decide doesn't get shared with any other family members.

"Then there are all these questions like did dad take care of this," he said.

The question also arises about the son's risk.

"I see he just bought a tractor," Tranel said. "How is dad paying him, or how is he being compensated for that when he farms dad's land or anyone else's?"

Everything may be fine, he said, but the other family members don't know that it's fine.


He said the estate tax kicks in at about $5.5 million.

"If the estate is less than that, there would be typically no estate taxes," he said.

More than that, the tax liability can be 40 percent.

"If mom and dad share ownership in the farm and it is under $11 million, if dad dies, his $5.5 million transfers to mom," he said. "Then she now has an estate tax problem."

He said a living trust is one tool that attorneys use.

"That works for some families," he said. "Sometimes it doesn't work as well."

That depends on the family goals, along with the farm and the financial situation.

"Are they taking action in time," he said.

Elderly care

One significant issue can be nursing home costs.

"Those are averaging almost $70-80,000 a year across the state of Colorado," he said. "If one of the parents goes into the nursing home, $80,000 goes rather quickly."

Mom or dad might also live for several years.

"There's a five year look back period," he said.

Whatever her assets are Mom would have to pay nursing home costs at fair market value of those assets.

"If the farm is worth $1 million, she sells it to the grandson for $100,000, she doesn't have the $100,000 when Medicaid takes a look at it, she has the $1 million," he said. "She has to come up with that fair market value if that comes up in the five-year lookback period."

Tranel said they are taking about changing the lookback period to seven or 10 years.

"If it is greater than five years, then it's not an issue," he said.

That issue circles back to family communication.

"If mom and dad are concerned about this and the family is concerned about this, they need to transfer that farm, the assets, to the heirs before five years," he said. "At least five years prior to going into a nursing home."

If the lookback period changes to seven or 10 years, Tranel said family planning has to occur much sooner than before.


Equipment issues are an individual farm decision.

"They need to take a look at their equipment and if they are planning on a successor coming in, who starts to buy that machinery," he said. "Is it the successor or the retiring generation?"

You can set it up with leases, he said, or you can use the old tractor until it is broken down and then replace it with your own.

"There are a number of strategies that we can take a look at," he said. "I worked with that family to go through those different options and strategies to transfer that ownership."


Another major problem, he said, is giving up control which is a family problem.

"What I tell people is, you supposedly, when they start talking about the successor, my response is who trained the guy," he asked.

The answer, usually, is Dad.

"Didn't you train him well enough to let him take over," he said. "We have on the job training, but we also have training that is specific with a seminar somewhere."

If a farm obtains a new piece of equipment, you get some training.

"What are we doing with these farm kids coming back to the farm," he said. "Did we let them grow and learn how to do things over time?"

Sometimes they will forget they went away to college for four years, he said, then they worked in Chicago for another five or six years, so they've been gone for 10 years.

"Things change," he said. "What training are we providing that successor on the farm? Not just out running the tractors and moving cows, what about the business side of things?"

Taking action

Tranel runs into families that don't take the actions to make those things happen.

"I've done a number of group workshops across the State of Colorado and other states and anywhere within those workshops 50 to 75 percent of the participants do not have a will," he said.

Drawing a will easy is to do in Colorado.

"You can draw one with a crayon and a Big Chief Tablet," he said. "It doesn't have to be witnessed or anything else."

That is simple, he said, but people don't do it.

People who meet with Tranel should bring their business documents to the meeting.

"I need a balance sheet, a net worth statement and I also need on that worth statement the list of land and everything else and how all the assets are titled," he said.

They should also bring a list of creditors.

"All of the descriptions that go with the assets and liabilities on the net worth statement, I need that kind of information," he said. "I don't need to see it, but I want to know if they have a will and if they have medical power of attorney given to someone or a durable power of attorney given to someone."

He doesn't need to see them, but Tranel needs to know if they have them or not.

"In the case of powers of attorney, I need to know who that other person is," he said.

Tranel is available at 719-545-1845 and will visit Lamar this November.

Chris Frost: 719-336-2266,