Feature

November 2017 Today's Farmer

Written by webadmin on .

From prototype to production line

Written by Kerri Lotven on .

When Bob Lutz built a prototype for the Feed Train back in 1997, he was solving a problem on his own family farm. At the time, he and his nephew, Jeff Lutz, had implemented a rotational grazing system, and it often took hours to move their 30 feed bunks among 14 paddocks. Bob thought if he could make the bunks portable, he could cut down the process from hours to minutes.

So he did it. He created the first Feed Train—a system of mobile feeders that couple together similar to train cars—and now owns and operates the factory where they are manufactured.

“The idea was basically born out of necessity,” Bob said. “It was something we needed for ourselves around the farm.”

Though some may consider the task daunting, Bob said this type of construction and design has always come naturally. As a kid, he would while away time building the toy sailboats and scooters he saw in his brother’s Popular Mechanics magazines.

“I grew up on the family farm, and money was tight back then,” Bob said. “I knew that if I wanted something, I would have to build it.”

Bob’s first Feed Train was made up of 30 mobile bunks he built mostly in his farm shop. Each feed bunk sits on a two-wheel axle. The first bunk attaches to the trailer hitch of a truck, and each subsequent bunk links to the one before it, making it easy to lengthen or shorten the train as desired. In addition to its mobility, the steering system also makes the Feed Train unique. Each feed bunk closely tracks the one in front of it, making navigating turns and narrow entrances, such as gates, easy.

The original 30 cars are still being used on the family farm today, though many modifications have since been made to the original design. For example, Bob now uses a heavier-gauge steel. He jokingly blames that change on his wife, Irene. She previously worked as a steel salesperson, and that’s how the two met.

“I sold him the wrong steel,” Irene said with a grin.

Bob and Irene married shortly before they started their business, Feed Train, LLC, named after their flagship product. She now manages the front office and does the company’s accounting.

Though countless hours went into setting up a manufacturing business from the ground up, Bob said it was simply more problem-solving. In 1999, he applied for a patent on the Feed Train steering system, and in 2001 his application was granted. When the time came to set up shop and produce en masse, Bob searched near and far to locate and test the equipment that would make up his assembly line.  

“I would travel to find the people that had these machines to make the prototypes in the first run,” he explained. “I had to go all the way to Boone, Iowa, to find someone who could roll and form the bunks. Once we knew what we needed and that it would work for our purposes, we bought the equipment. The first prototypes were quite a bit different than what we manufacture today.”

When the Lutzes started the business, their 20,000-square-foot factory in Unionville, Mo., sat mostly empty, housing only one plasma cutting table, a main press break, a cold saw and a few tools Bob brought over from the farm. The factory has since filled with both machinery and workers. Feed Train now employs 21 people full time. In a small rural economy, that number is significant.

In addition to the inaugural Feed Train line, Bob and Irene have expanded their product selection to include creep feeders, ATV and UTV feeders, and mobile and stationary bulk bins and seed tenders. Though the larger items are available exclusively through MFA retailers, the ATV and UTV feeders can be shipped nationwide. Orders have even come in from Canada.

“Most everything is manufactured in house, except for the round pipe and the plastic tanks on the UTV and ATV feeders,” Bob said. “The plastic is formed by another local manufacturer in Missouri. The steel comes in sheets, and we cut it on the plasma table. Then we bend and assemble it.”

What took Bob six weeks to build as a prototype can now be constructed from start to finish in about 45 minutes. Bob said he constructs products like he would want them built for his own use.

“We kind of have the farmer mentality when it comes to construction,” he said. “We probably tend to overbuild, but it lasts.”

Now-retired MFA Farm Supply Division Manager Ben Murray said it was that concern for quality and Bob’s inventive mindset that interested him when he saw the original prototype.

“Bob’s a very innovative individual,” Ben said. “If you look at their feeder, it’s got a lot of little bells and whistles that you won’t see on others. He spends a lot of time on the products to get them where he wants them.”  

While there are cheaper products out there, MFA Farm Supply Product Manager Eric Allen said, “You may have to buy that product many times over, whereas Bob makes products to last.”

Bob said he just wants his customers to be happy.

“We want to produce quality, and we’ll service our products in the field if we need to,” he said. “Customer satisfaction is the most important thing.”

For more information on Feed Train products, contact your local MFA retailer.

Generation dedication

Written by Allison Jenkins on .

On the surface, their farms couldn’t be more different.

Adam Shetley milks 60 cows on his 160-acre dairy farm in southeast Missouri. Brothers Derek and Aaron Lowrey run a large row-crop and beef operation in the northwest corner of the state.

Look deeper, however, and you’ll see how much these young producers have in common.

For starters, they fall into the so-called Millennial Generation, defined as those born between 1980 and 2000. Looked down on by some and praised by others, millennials now exceed the number of baby boomers as the largest generation in the U.S., according to the Pew Research Center.

Millennials are one of the most studied age groups as researchers and marketers try to pinpoint what makes this generation tick. They’re often branded with negative labels such as lazy, entitled and narcissistic. None of those traits are to be found on the Shetley and Lowrey farms, however. Hard work, resourcefulness and dedication are on full display.

“My work ethic came from my parents and playing football,” Adam said. “Those values of hard work and respect are ingrained in me. I never wake up and wonder what I’m going to do today. My clock is always ticking.”

While he and the Lowrey brothers defy the stereotypes in many ways, these young farmers do embody more positive millennial mannerisms. They’re entrepreneurial. They’re frugal. They eagerly embrace new technology. They value work-life balance. They’re conscious about sustainability and social responsibility. And they have passion for what they do.

Entrepreneurial

These days, the ever-increasing cost of starting an agricultural operation is a huge barrier for first-generation farmers. That didn’t stop Adam from establishing his Little Grassy Dairy in 2014, just a couple of years after earning an animal sciences degree from the University of Missouri.

Now 28, the entrepreneur has built a brand-new dairy on land his grandparents once farmed near Fredericktown, Mo.

His father, Mark, a retired accountant who had moved away from the farm with his family at age 11, joined him in the operation.

“My junior year of college, I decided to study abroad in southern France and lived with a dairy farming family there,” Adam said. “At that point, I decided this was what I wanted to do for a living. Everything I’ve done since then has been to make this happen.”

Building the dairy meant starting from scratch. The Shetleys put in waterers, installed fencing, renovated pastures, ran electricity, built the barns and a 14-stall, swing-style milking parlor, and bought a herd of Friesian-Jersey cows.

“There was nothing here,” Adam said. “Every building you see, every fencepost in the ground, we put it here. But that allowed me to make everything the way we wanted it and not have to retrofit my vision into somebody else’s farm.”

Derek and Aaron, 30 and 28, respectively, have also made their own way in agriculture. The brothers grew up on their family farm in Laredo, Mo., and began working toward their future careers at an early age. Unlike Adam, the Lowreys didn’t have to start from scratch, but they did have to acquire enough land to support two incomes. They rented their first acreage while still in high school, and today the brothers raise corn, soybeans, wheat and hay and background several hundred beef heifers each year as they farm alongside their father, David.

“When we graduated from high school, Dad really wasn’t farming enough acres to support us all, so Aaron and I went to college so we’d have something to fall back on,” Derek said. “We kept picking up more rented ground until we could all farm full time. We knew that’s what we wanted to do, and we’re fortunate enough to get everything worked out.”

Frugal

Millennial-age farmers may be young, but they’re old enough to have seen ups and downs in the agricultural economy. The Lowrey brothers were raised with an extra sense of frugality because David began farming just as the 1980s farm crisis hit. He never forgot how tough it was to stay in business, and he taught his sons to make wise financial decisions.

“We’re not showy. We run old machinery, and we take care of it,” Derek said. “That’s the way Dad has always done it, because it was what he had to do. And we have the same feeling. That’s where a lot of young guys get in trouble. They want all that shiny paint, and it is nice, but it doesn’t pencil. You need to stay calm, keep your head on your shoulders and be proud of what you’ve got—don’t worry about what the neighbor or your buddies have.”
Adam echoes that sentiment. His dairy is designed as a forage-based operation with a rotational grazing system that makes the most efficient use of his land resources.

“To be able to jump right into this industry, especially now when big farms are getting bigger and small farms are going out of business, you really have to have a low-input strategy to succeed,” he said.

He purposely chose Friesian-Jersey dairy cattle because they perform well in a grazing situation. The breed is also known as a “Kiwi cross” because it was developed to suit grass-based dairies in New Zealand.

“Picking the right cow to fit our system was important,” Adam explained. “They have better feed-to-milk conversion than a Holstein, and they also have a smaller stature, which helps with their mobility. These girls have to work. They walk miles a day through the pastures and to and from the parlor. They also have outstanding reproduction, which is No. 1 on any dairy farm.”

Like the Lowreys, Adam has been careful with his expenditures for farm infrastructure and equipment.

“The buildings are new; the milking equipment is new,” he said. “That’s where we wanted to put our money, because that’s what is used every single day. All my farming equipment is used. We put our investments where we needed them the most.”

Tech-savvy

These young farmers are also investing in technology to improve their production and efficiency. Unlike their fathers, they grew up with technology, so it’s not surprising to find this generation embracing new advancements at a rapid pace.

For example, Adam uses a smartphone app to electronically track the herd’s reproductive cycles. Each milk cow is outfitted with a high-tech eartag that measures body temperature, activity, rumination and much more. Think of it as a Fitbit for cows.

“It’s been a game-changer for me,” the young dairyman said. “It’s 24/7 surveillance on the cows. It almost takes the place of an employee. I can tell when a cow goes into heat, so I know she’s cycling when she is bred. In a three-week window this year, I was able to breed 85 percent of the herd.”

On the Lowrey farm, Derek and Aaron have added precision technology to most of their farm equipment, including yield monitors on the combine, row clutches on the planter and automatic shutoffs on their sprayer. David, who had none of this technology before his sons started farming with him, said Derek and Aaron have “taken the farm to the next level.”

“We run old machinery, but we’ve got quite a bit of technology on them,” Derek said. “It may seem like a big upfront cost, but there’s a pretty quick payback. We’re not doing any variable-rate fertilizing or planting yet, but it’s something we want to work toward.”

The Lowreys have also started keeping electronic records through the Farm Business Management Analysis program, a service offered through the Missouri Young Farmers organization. Derek and Aaron are active in their local chapter.

“Dad had always done records on pen and paper, but we couldn’t keep up as the farm got bigger,” Derek said. “This program has been a great asset for our family. I wish we’d been using it from Day 1. Records are an absolute must. Financially, you have to know where you are and where you’re going. If you’re sliding downhill, and you don’t find out until you’re at the bottom, it’s too late to correct anything.”

Balanced

Research shows that, overall, millennials don’t want to choose between having a successful career and having a fulfilling home life. They want both. Our millennial farmers say the same thing.

Dairies are notorious for being a 365-day-per-year job, but not Little Grassy. Adam purposely runs his operation on a seasonal schedule. He synchronizes breeding so the cows all calve in a tight window in early spring, and then he shuts down the milking operation for six to eight weeks in January and February each year.

“It’s a management choice and a lifestyle choice,” Adam said. “We’re a two-man operation. I need a break. That’s when we can take a deep breath and give ourselves a little bit of down time.”

The importance of balancing work with family life is about to become even more important for Adam and his wife, Becca, a physical therapist. The couple, who married in May 2016, are expecting their first child—a son—in November.

“We are excited to raise children in this lifestyle, instilling those values of responsibility and hard work from an early age,” Adam said. “Hopefully, that will help turn them into good, productive members of society.”

Likewise, the Lowrey brothers both juggle farming and family responsibilities. Derek and his wife, Sarah, have a 3-year-old daughter, Macey, and 10-month-old son, Tyson. Aaron and his wife, Amanda, are parents to sons Cason, 7, and Gannon, 2. Keeping their farming operation to a manageable level gives the young families more quality time together.

“A lot of our management decisions come down to family time,” Derek said. “You can get to the point where the farm is too big and you can’t do a good job or you end up spending all your time working. We just want to be efficient with what we’ve got and use it wisely.”

Conscious

Studies indicate that millennials are the most sustainability-conscious generation. Most of that research is directed at the consumer market, but these farmers are also putting that consciousness into action.

On the Lowrey farm, conservation practices are standard procedure.

“Everything we farm, we treat it like we’re going to farm it forever,” Derek said. “We are 100 percent no-till. We contour- farm everything, we use terraces and we fertilize like we should. We have landowners coming to us, asking if we want to rent their ground, because they know we will farm it like we own it.”

At Little Grassy Dairy, the Shetleys also focus on best management practices such as fertilizing according to soil-test results, sowing cover crops between silage seasons and producing high-quality forages. Adam uses MFA Shield Technology in his feed rations and minerals to help keep the cows healthy and productive without the use of antibiotics, and he and his father take extra care in the milking parlor to ensure their product is as safe as possible.

“Right now, our mentality is that we want to focus on quality over quantity,” Adam said. “I want to make the dairy as efficient as I can with small numbers until I can figure out what works and what doesn’t. If we try to grow too fast, it will just bring in more stress and damper our quality. I’m still learning, and I don’t want to get in over my head.”

Passionate

When surveyed, millennials express their desire find a career that’s more than just a job—it’s something they love. Nowhere is that more evident than with these millennial farmers who have passion for agriculture as a livelihood, a lifestyle and a legacy.

“I wanted to make being around animals my life,” Adam said. “There’s something about dairy farming that drew me in, and I’ve never looked back. I was all in from the beginning. Now I’m living my dream.”

Since they were establishing a dairy from the ground up, the Shetleys could have put down roots anywhere, but they chose to return to family land.

“This is our farm. There are family ties here,” Adam said. “My desire was to be farming this ground. It just wouldn’t mean as much to me somewhere else.”

The Lowrey brothers share that desire to continue a family farming tradition and hope to pass it to the next generation.

“I know it’s a long ways off, but I want my kids and Aaron’s kids to stay around the farm, and I’m excited to see what level they will take it to,” Derek said. “That would be my ultimate goal—to keep building this farm up to where they’ll be able to take over or join in someday.”

One little environmental giant

Written by James Fashing on .

MFA Agri Services in Centralia, Mo., looks like many other ag retailers that crown the skyline with rural skyscrapers. The complex includes a mix of the traditional concrete grain elevator, new shiny metal grain bins and pole barns, all fitting snugly between the two railroad tracks that bisect this community.

Near the retail office, spray trucks are undergoing maintenance at the shop and grain trucks are on the move. Each evening by sundown, the equipment will again all be parked neatly in a row, ready for the next day.

Despite its mild-mannered appearance, this location has unique bragging rights. Centralia MFA Agri Services won the 2017 Environmental Respect Award from Crop Life Magazine, a respected ag-industry publication owned by Meister Media. Getting the award is tough. It has been more than a decade since an MFA location placed in the contest, which has been sponsored by DuPont for 27 years. The last time MFA was recognized was in 1997 as a state winner with its then-new facility in Chaffee, Mo.

Centralia MFA assistant manager Brad Toedebusch accepted the award during a July 20 ceremony in Wilmington, Del. Although Centralia had already won the regional award along with three other retailers, the MFA location was also named “Ambassador of Respect” for all of North America. That title is only bestowed on the “best of the best,” award officials stated.

“Usually you hear people say that it is an honor to just be nominated. That was truly the case here, especially after meeting the other nominees and winners from all over the world,” Toedebusch said. “I didn’t think we had a chance while at the meeting. All of the people I met were from these huge agribusinesses, and many were our competitors in the contest.”

To even be considered for such a prestigious award, a business must be state-of-the-art in all areas, be proactive on safety and training, be serious about containment and have the latest available application technology. Check, check, check and check for Centralia MFA.

Built in 1956, Centralia MFA Agri Services has been renovated many times over the years. The most recent renovation added to its grain facility capacity and speed. Among other upgrades were the building of a new maintenance shop to service equipment and keep its dry fertilizer under a roof. To further protect the area’s watershed, MFA Centralia insists on using automatic shut-off valves and direct-injection systems on its sprayers.

These updates and its employees’ commitment to environmentally friendly practices helped the older facility stand out in a crowd of larger and newer locations from across the U.S. and Canada, said Crop Life magazine editor Eric Sfiligoj. He said that over the 17 years that he has been meeting Environmental Respect award winners, the common denominator is the desire to go “above and beyond” when it comes to stewardship and protecting the community in which they do business.

“Lots of the winners are very positive about ag retail,” said Sfiligoj. “However, Jim [Gesling, Centralia MFA general manager] seemed extra special with his ability to stay calm under pressure.”

Sfiligoj interviewed Gesling for the contest the same week Centralia employees had dealt with a fire at the nearby branch in Clark, Mo. The editor was impressed with Gesling’s eagerness to make time to talk about the location’s environmental efforts. He even wrote about it in his July 2017 magazine column here: www.croplife.com/editorial/the-resilience-of-ag-retailers/.

The Environmental Respect awards process examines the facilities, fertilizer practices, water-rinsing procedures, safety, security, training/improvement, emergency preparedness, best-management practices and community outreach.

Maybe the small-town team shouldn’t have been so surprised to win the award. The location and its employees are intricately woven into the town. The Centralia MFA group works with 4-H and FFA, serves as ag experts for the local press, supports local water quality initiatives and was recently named business of the year by the local economic development group, CREDI.

Centralia MFA employees meet regularly with local firefighters to review safety, procedures and emergency plans, and the police department patrols daily, even after hours.

Employees also helped revamp the city baseball fields and perform regular maintenance. They assist the local FFA chapter with its annual mock job interviews and supervised agricultural education project judging. Centralia MFA employees also co-host the town’s annual Young Farmer’s Christmas Parade.  

The Centralia team has adopted new technology as it becomes available. They were one of the first to switch to direct-inject spray systems on the trucks, which keeps them from transporting “hot” loads of chemicals. Although the location wasn’t the first to start offering variable-rate application, employees jumped into precision when local customers and members were ready. Now, one-third of the location’s fertilizer acres are spread with some kind of variable-rate technology. Centralia also has a growing crop-consulting business.

Along with adding new technology, Gesling has focused on growing business relationships with farmers and planning for the future since becoming manager of the location in 2000.

During a recent farm tour, while visiting with Brazilian farmers who wanted to see some top Missouri farms, Gesling slipped away from the group and started tossing a football with the hosting farmer’s eighth-grade son.

“The future of Centralia football is looking good—that rascal has an arm,” he laughed after a good half-hour of playtime. “I love my job!”

When asked what the future of agriculture looks like with respect to the environment, Gesling gets a little philosophical.

“Well I’m a grandfather now, and I believe what we leave for the next generations really matters,” Gesling said. “We have a lot of challenges ahead of us in ag. Here at MFA, we focus on doing things right and putting things where they need to be, like nutrients, seed and chemicals. It should never be difficult to do the right thing.”

Minding your business

Written by Nancy Jorgensen on .

This article covers the pros and cons of various types of farm organizational structures. We provide a few general definitions and guidelines below, but we are not offering tax or legal advice. You should consult tax, legal and other experts before modifying your structure. Keep in mind that corporate law varies by state. It’s also important to note that no matter what their organizational structure, families continue to own the vast majority of U.S. farms.

Jeff Casten raised corn, soybeans, wheat, sorghum and four daughters on the family’s Quenemo, Kan., farm. He planned to farm his entire life but never thought the girls would continue the operation when he retired.

When his wife of 40 years, Joyce, died unexpectedly in 2012, plans changed.

“When my mom passed, everything turned on its head,” said Jill Casten, Jeff and Joyce’s daughter. “That tragedy changed all our lives from a personal standpoint. Dad went through the whole process of creating and establishing a trust so that if something happened to him, he would know things were taken care of from the farm perspective.”

Since then, her father has remarried, retired and reprioritized his life, Jill said. The 2017 crop will be the last one he harvests, but it won’t be the last one on the family’s farm. In the future, the farm will be operated by Jeff’s children and in-laws—Jill; Janae and her husband, Caleb McNally; and Jarah and her husband, Mike Hauger. Together, they have formed a limited liability company to keep the 1,000-acre operation in the family for a sixth generation. Their other sister, Jennifer, and her husband, Pete Roy, own a veterinary practice and decided not to join the LLC.

“I think dad realized life is short, and he wants to enjoy his new marriage in a way that doesn’t involve full-time farming,” Jill said. “He called a family meeting and told us he was going to step down. We began having conversations about what we could do, talked to an attorney about our options and consulted with people who specialize in farm transitions until we felt comfortable moving forward with forming an LLC.”

The Castens are among many other farming families who are changing or formalizing their business structure to protect their assets and operations as they grow or transition to new owners. There are several ways to go about it, but an LLC is one of the most popular options, according to Michael Sykuta, associate professor of agricultural and applied economics at the University of Missouri.

“Until about 40 years ago, the only alternatives to sole proprietorships or partnerships were C or S corporations,” Sykuta said. “In 1977, the state of Wyoming introduced a new organizational structure that offered the benefits of corporate limited liability and the income pass-through of an S corporation without all the strings of an S corporation involved. After a slow start, by 1996, LLCs became an option throughout the U.S. and quickly grew in popularity. A lot of farmers are creating LLCs. It’s easy to do.”

Another factor prompted interest in LLCs, he said.

“Farm-related liabilities have grown,” Sykuta said. “For example, environmental laws related to things like a leaking manure lagoon weren’t as stringent 20 years ago.”  

According to USDA’s 2012 Census of Agriculture, 83 percent of all U.S. farms remain sole proprietorships and another 6 percent are partnerships. But Mary Sobba, an agriculture business specialist with the University of Missouri extension, said the trend is toward more complex farm structures.

“If you look at the data from the 2002 Census of Agriculture and the 2012 Census, you see the number and percentage of sole proprietors has declined,” she said.

Roger McEowen, Kansas Farm Bureau professor of agricultural law and taxation at Washburn University School of Law in Topeka, Kan., literally wrote the book on the pros and cons of various structures in his Principles of Agricultural Law.

“Many small farms remain sole proprietorships, but many larger farms are changing their structure for various reasons,” McEowen said. “For example, a different structure could help maximize government program payments.”

For farmers who want to create a new enterprise to add value to a product, Sobba sees advantages to changing structure.

“A formal business structure can cover liability related to contracts, food safety and people on the property,” she said.   

Here are basic descriptions of the various types of structures available.

Sole proprietorship

This is the simplest structure. You are the owner and the operator, and you retain all profits. The downside: “You are personally liable for any debts and legal actions,” Sykuta said. For example, if a farmhand sustains an injury while driving your tractor on the job, the employee can sue you, placing your personal assets at risk—including your home, vehicles and investments.

Partnership

Two or more people—often family members or neighboring farmers—own this type of operation. Partnerships are easy to set up and can come with benefits.

“If you join in a partnership with your brother, for example, you can build more collateral to buy land,” Sykuta said. He recommends written agreements to assure fairness when it comes to splitting income and work responsibilities. When partnerships involve a large number of people, you probably want to name a managing partner, he added.

On the downside, Sykuta says, general partnerships offer even less liability protection than a sole proprietorship. Again, there’s no legal separation between the partners and the business.

“In addition, your share of the business’s assets may be used to satisfy a partner’s personal debts,” he said.

Limited Liability Company (LLC)

According to Sykuta, the LLC structure builds a firewall between your business assets and personal assets such as your home, vehicles and investments.

LLC governance differs from a partnership agreement primarily in that it limits the investor/partner’s liability to the amount of their investment. As Sykuta explained, LLC owners are shareholders. The owners can construct whatever type of operating agreement they think best suits their investment interests and the needs of the business operation, much like a general partnership.

“LLCs are not usually large, but they can be unwieldy,” Sykuta said, adding that the typical operating agreement looks more like a partnership than a corporation. “The beauty of an LLC is that you have more flexibility in designing the operating agreement than with a corporation.”

LLCs can also bring tax benefits. Your income may pass through the company, which means your income as the business owner is taxed just once, at the individual level, similar to a partnership or an S corporation, Sykuta said.

The LLC structure suited the Castens because the siblings and husbands plan to keep working in their full-time jobs as they run the farm together. Jeff retains ownership of the farm, leasing his land and equipment to his daughters and sons-in-law.

“Our dad has set it up in a trust so that when he passes, it gets split among us four sisters. He’s been very transparent about it,” Jill explained. “Years and years and years from now, we know the four of us will be owners of the land and assets, and we will keep on farming it in the meantime.”

S corporation

Our experts agree that, like LLCs, S corporations allow you to choose a tax structure that passes income through the corporation—shareowners are taxed only for their portion of corporate earnings at their personal income level. This structure may benefit owner-managers, Sykuta said.

“Employee taxes and benefits are taken out of your salary by the company,” he said. “Taking less in salary so that your profit income is higher allows you to move some of your earnings to non-self-employment-tax income. However, you have to be paid a reasonable salary for services rendered—you can’t just pay yourself a dollar a year to avoid taxes.”

According to Sykuta and McEowen, S corporations come with rules on who can be shareholders. The company must be based in the U.S. and shareholders must be U.S. citizens, although certain types of trusts and estates can own shares. An S corporation can have no more than 100 shareholders. In addition, S corporations restrict stock types. They may only issue one class of stock, but differences in voting rights are allowed.

“This can create problems for farm families as farms are passed from one generation to the next and more recent generations grow more separated from the farm,” Sykuta said. “Restrictions on voting shares may address some of these concerns, but such restrictions reduce the value of those shares relative to voting shares. Being able to have different classes of shares might allow for other ways of balancing the interests of actively engaged and non-actively engaged family members.”

Since S corporations must pay out dividends regularly, “it can be more difficult to build cash and equity needed to borrow funds,” Sykuta added.

McEowen sees more farming operations switching to LLCs, as S corporations carry a number of negatives.

“Accounting can be more difficult, reasonable compensation for owners is a huge IRS audit issue, and there’s not as much flexibility in allocating income and loss among shareholders,” he said. “Stock ownership restrictions come into play, particularly if the associated estate plan involves a trust.”

C corporation

In this case, Sykuta says, you are taxed twice—on your business level and on your corporate dividends as a shareholder.

On the plus side, you can create different classes of shareholders. “Extended families may choose a C corporation as it allows for different levels of voting rights,” Sykuta says.

No matter what type of structure you choose, consult with tax, legal and other experts—including your banker—before making a decision.   

“It’s important to talk with lawyers and tax experts, but they don’t always appreciate the economic impact of governance and decision-making,” said Sykuta, who works with agricultural organizations on structure issues and researches how different types affect company behavior.   

Settling on the right structure can be complex, and it can take time. Sykuta has been working with one family for four years as they work through transitioning the farm to the next generation.

The Castens know firsthand just how much paperwork and decision-making is involved in changing business structure, but they encourage other farmers to put a defined plan in place so they can avoid family drama when it comes to the operation’s succession.

“I realize how fortunate we are because we are all close as a family but also pragmatic in our approach,” Jill said. “We all want to see the success of our family farm. It’s not going to be perfect, but we have all the business aspects in place to protect ourselves. We’re optimistically looking forward to building Casten Farms in the future and maybe having our nephews and nieces be part of it someday, if they want to.”

For more information, McEowen’s chart, The Relative Advantages and Disadvantages of Various Business Forms, can be found here.

Magazine

  • Subscriptions
  • Advertising
  • This email address is being protected from spambots. You need JavaScript enabled to view it.

Support

  • This email address is being protected from spambots. You need JavaScript enabled to view it.
  • FAQ
  • Copyright Notice