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Risk Management Case Study: Part One

This Business of Farming

How to navigate the uncertainties of family and business relationships

Published on: July 8, 2013

On Monday Purdue kicked off its annual Top Farmer Crop Workshop with a bang: an open farmer discussion and case study on how to navigate the often tricky waters of business and family relationships. A small group of farmers gathered at the Beck Ag Center outside West Lafayette, Ind., led by assistant professor Elizabeth Yeager and distinguished Ag Economist Mike Boehlje, a mainstay at Farm Futures' past business summits.

Levi Huffman, general manager of Huffman and Hawbaker Farms: "The owners trust us and we raise the rent if its fair."
Levi Huffman, general manager of Huffman and Hawbaker Farms: "The owners trust us and we raise the rent if it's fair."

My goal this week is to offer up some take home messages from the discussion that flowed from this first session.

The focus of the study was one Levi Huffman (pictured), general manager of Huffman and Hawbaker Farms.  Levi manages an interesting and diverse farm – 2,650 acres of corn and soybean commodity crops, 450 acres of specialty vegetable crops and a contract hog business. His son, Aaron, manages the grain and hog enterprises while son-in-law Jim manages the veg crops, mainly tomato and peppers. The farm has full-time employees and needs upwards of 120 migrant workers at peak season to work the specialty crops. They own 15% of the land they operate and rent the rest. Around 60% of the acres they rent are built on arrangements that date back 40 years or more. Get a more complete picture of Huffman's farm here.

This session went beyond typical weather or price risk. It focused on the risk that surrounds business and family relationships. How do you manage potential loss of cash rented land? How do you ensure sound business agreements with input suppliers? How do you make sure you have reliable, timely migrant labor? How do you ensure your managers – who also happen to be family members – all work together as a team?

And best of all, Levi Huffman was at the session to serve as a sounding board for the discussion. Groups of farmers grabbed chairs and sat together to talk about how this farm's experiences might be useful in their own operations.

Landlord management

Huffman manages the risk of potential lost rental acreage by building relationships with landlords, networking and paying fair or above average rental rates. He and his family take time to know extended families and attend weddings or other family events. He also offers a 50-50 bonus to landlords in years when profits come in higher than the farm projected.

The farm works with 17 landowners; of those, only five are on formal contracts. "One of our landlords has 800 acres and that is a contract," he says. "Any new landlords in the past three or four years we've had contracts. The ones we've had 40 years or more are based on trust and a handshake. If I were to approach them now and suggest a written contract they might lose some of the trust they have in me.

"Some of those long-time landlords feel like part of our family," he says. "But when the next generation comes along, there probably will be a contract." In fact, one of those long time landlords proactively decided to put together a contract to make the transition smoother for their children.

What are some ways farmers can guarantee the ability to rent the same acres in the future? Our group of farmers came up with a short list:

  • Communicate what you are doing to maintain and improve the land. Be willing to fix broken tiles and keep up fertility levels.
  • If you can get multiple-year leases, make sure they don't all come up for renewal the same year.
  • Communicate with all landlords and explain your production practices. Huffman says most of his landlords trust him and don't require a lot of information, but that is different for each owner. Use technology, such as a farm website, or something simpler such as a Facebook page, to communicate with landlords.
  • Learn what is important to each landlord. For one, it may be keeping ditches mowed; for another, it may be making timber available for hunting. Yet another may want to know what kind of conservation programs are available.
  • Keep contracts simple, suggested one farmer in our discussion. "If you know what you're doing in farming over the years, you know what you need to have in that contract. I'm not crazy about bringing in a lawyer if we don't have to."
  • Choose the right personality on your management team to be the point person for each landlord. Older owners may want to hear from your senior managers, while younger landowners may find it easier to relate to someone closer to their age. That's one of the benefits of a multi-generation farm business. Find the right personalities for each landlord.
  • If landlords want to boost rates to unprofitable levels, be willing to open up your books and show projected costs and profit margins. Be ready to negotiate to a level where both of you can be satisfied.

Huffman believes more formal contracts will become common as land gets passed on to heirs. The risk of moving that agreement to a younger generation is that new heirs often see it as an opportunity to increase rental rates. That's easier to do if the new landlord only sees dollars and does not put a human face on the tenant's operational goals. Huffman makes sure landlords know his family, the operation, and the responsibilities that each person has on the farm.

Next: More on managing landowner relationships as well as labor and other business partners.