The “tickle me elmo” craze occurred in Christmas 1996 whereby parents paid 500% the going rate for a chidren’s toy. They didn’t care what price had to be paid, these parents were going to do whatever it took to have the toy their kids wanted under the Christmas tree.
It was a purchasing decision made based on emotion, rather than rational thought.
Over the past decade, the same farming parents that critiqued Yuppie parents for making crazy purchasing decisions based on emotion have gone and bought land at 3x the going rate for even crazier emotional reasons. These parents will do whatever it takes to get their kids into farming.
It’s not just land that we’ve been buying based on emotion. Everything from buying new machinery, to building dream homes to multiple families drawing wages from a one family unit farm. We are simply not farming under the same mindset as the frugal farmers of the early 90’s who survived the 80’s.
Not everyone, but nearly everyone is guilty. Certainly you can throw stones at a neighbor who has been more foolish. But all that matters is what your situation and what you are going to do about it. More importantly, how can you treat this farm crisis as an opportunity to grow and expand when your neighbors are failing?
History has proven that what wins battles is the ability to change strategy mid-course and ability to focus on winning the war, not just the single battle. Sometimes you’ve got to cut losses to strategically gain. The issue is how “nimble” is your farm organization or are you cumbersome like the Titanic?
A lot of farms have been bought because parents didn’t want to say NO to their kids and will do whatever it takes to “give them a chance to get into farming”. There is a lot of farms whereby the “home farm” stretched itself thin in order to create a spin-off farm entity for a second son or daughter. For many family farms, this spin off farm has put the “home farm” in a bad financial position.
Your succession strategy seemed like a good idea at the time and was done under the best intentions, but you’ve got to face the current reality and make decisions based on the information at hand. We are no longer dealing with $7 corn and could realistically be dealing with ~$3.50 corn for the next five year cycle. For a lot of farms, they can’t cash-flow payments at these prices and it’s going to lead to a negative domino effect! These succession strategies have to be re-adjusted and for most families that may mean that some family members have to make personal sacrifices in order to keep the “home farm” financially viable.
The first thing about winning a battle as a general is understanding where you are at. From there you can understand how to re-organize your resources, by winning the battle or cutting losses. A Farm Financial Analysis done by a stranger will allow your family to OBJECTIVELY understand where you are at and then be a discussion point for changing strategy.
At Agriculture College we always were taught that the most farms that went bankrupt were the poor farm managers. In the majority of cases, this was not the situation. Many farms that went broke were the ones that were financially leveraged because the parents were trying to setup multiple siblings. Interest rates dealt the finishing blow to farms on wobbly footing. One kid might have been the victim and sometimes the whole family was brought down by stretching themselves too thin for altruistic reasons.
If something isn’t done immediately to re-correct strategy, then it all could go.
So here is the tough question: How are you going to sit down as a family and reform strategy?
What is tragic is that a lot of families will “bury their head in the sand” over the next two years because they don’t want to face the consequences and drama of renegotiating what is a bad succession strategy. However, at some point these families will have to face the music and the later you wait, the fewer options you have.
Developing a financial strategy is easy. In tough times, 80% of the challenges aren’t the numbers; it’s the joint decision making between family members. It’s dealing with emotionally charged problems and making the best well thought through, rational decisions. Having a facilitator there to make sure those conversations are constructive, not destructive can be invaluable both in terms of quality of decisions made and long term family relations. (Bias Note: This Is What I do)
Here is the real issue. How do you transform your family from a culture whereby “daddy’s going to buy you everything” to “we can’t afford this” or “son, we are going to have to sell your bike to buy groceries”?
How do you have these tough conversations and make joint decisions which everyone can live with?