Confronting the Uncomfortable : Keeping the family farm in the family
By Joshua A . Swanson
North Dakota has long prided itself in its agrarian roots and rich heritage of family farms . Part of that farming legacy is generational farm operations where sons and daughters take over the reins from mom and dad to , as stated in the Future Farmers of America ( FFA ) creed , continue those “ achievements won by the present and past generations of agriculturists .” But what happens when those future generations of agriculturists are fewer in number than in prior years because of shrinking rural populations , and only one child or grandchild stayed around on the farm .
According to the United State Department of Agriculture ' s ( USDA ) National Agricultural Statistics Service Information , in 2020 , there were 26,000 farm operations in North Dakota totaling 39,300,000 acres . The farm sizes , of course , vary statewide . According to recent data from the Bank of North Dakota , the largest average operations are in Billings County , where farms average 3,602 acres . Conversely , the smallest operations on a per acre basis are on the eastern edge of the state in Grand Forks County , where farms average 898 acres . Whether you ’ re a small or large operation , in today ’ s climate , where farm sector profits are forecast to increase in 2021 , but when adjusted for inflation , farm sector equity and assets are actually forecast to decline by about a percent from 2020 , planning for the farm ’ s future has never been more important .
The consequences in failing to properly plan for that future can quite literally cost the family the farm . “ If you don ’ t do anything , you ’ ve got mom and dad , and child , who stayed home and farmed . The child was there for good years and bad . The parents die , and the siblings are back at the funeral and say ‘ Write us a check for our share of the land .’ Nobody can cash flow that . You can ’ t make that work ,” said Sheldon Smith , a partner at Smith Porsborg in Bismarck .
Smith has four decades of experience in farm estate planning and probate . “ The idea isn ’ t that the farming son or daughter should get everything , but that farm families need to discuss how to equitably treat all the children while ensuring the farm continues as a viable operation without saddling the farming child with a debt load they can ’ t recover from ,” he said .
This is especially true considering the ever-increasing price of farmland . Creighton University ’ s Rural Mainstreet Index ( RMI ), led by prominent midwestern economist Dr . Ernie Goss , noted in its August 2021 report that , for the 11th consecutive month , the farmland price index had above-normal growth . This marked the first time since 2013 the RMI recorded 11 straight months of above neutral growth in farmland prices . In April 2021 , North Dakota State University ’ s Extension and Ag Research News reported that in 2021 , the statewide average cropland value was $ 2,274 per acre , which is slightly down from its all-time high in 2014 of $ 2,313 per acre . In the North Red River Valley region , which includes Grand Forks County , North Dakota State University reported the average per acre value of North Dakota cropland in 2021 was $ 3,196 .
To put Smith ’ s cash flow concerns into perspective , assuming the sale of an average-sized farm of 898 acres in Grand Forks County , at $ 3,196 per acre , that ’ s a total land value of $ 2,870,000 . Even in Billings County , in the southwest region , where the average-sized operation is 3,602 acres , the average per acre value of cropland is $ 1,351 . That means if the farming child in Billings County wants to purchase the farm for the average per-acre value , it will cost $ 4,866,302 . These large cash outflows are simply not doable for the vast majority of farmers .
Farms also present a challenge in estate planning because they are a business , real property , and personal property in the form of equipment , all rolled into one , and all interdependent to survive . You can ’ t have the farm without the land , and you can ’ t farm the land
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