Bankruptcies of the 80s

[foragefarmer]

Flea, just a few questions you have ask yourself, and things to consider IF any of this applies to you.

If your in your 30's, your parents are more than likely still involved. Are you the only one entitled to the farm or are there other siblings going to farm with you or are they entitled to some of the farm through inheritance.

If you are the only one entitled to the farm and will not have to be buy out siblings, and your parents are willing to help out on the farm for the next 10 years, (which is very important) it's more than likely do able. At some point are your parents wanting you to purchase their share of the farm out right?

Again I don't know your situation but these are issues that come up in generational farms.

The biggest question you have to ask yourself is, can you survive if you have multiple crop failures in a row and if the cattle (if you have any) carry the load.

Just trying to make you aware nothing else!

[dmlfarmer]

I agree on the price cycle and depending on when you were born.
I believe (in Sask anyways) there has been (at least) 4 events that have changed the price cycle.

1- Land in Sask was lagging a long way behind world trends and values.
2- The end of the CWB (good or bad please don’t turn this into a CWB thing) which allowed access to markets for people to sell product to service debt, in a timely manner.
3- Enter investors and Investment companies who are looking for a return on money and hopefully some capital appreciation. Right now they are on the sidelines but I think a 15-25% land price correction and they’ll be back big time.
4- Historically low interest rates


In my opinion these events have thrown the price cycle into turmoil, and I don’t know what the normal price cycle is any longer. I didn’t think the run up in prices could last this long or reach these levels.

I believe you missed the biggest influence on Saskatchewan land prices: government policy on ownership. At one point only Saskatchewan residents could own farm land which kept farmland prices below that in other provinces. Even today, although foreigner individuals and corporations supposedly can own no more than 10 acres of farmland, there are multiple exemptions and appeal process which have effectively removed the 10 acre limit increasing demand for farmland and therefore price.

[Grahamp]

To Fleabeetle

Go for it, with a few caveats. Don’t jeopardize what you currently have, but don’t be afraid to fail and have to sell the newly acquired land with say a 30% decrease if everything goes completely wrong.

There is a mindset with farmers that anyone who is optimistic, thinks land prices are going up, or thinks things are going to get better is a young whippersnapper who needs take a big loss, get humbled or even ruined. Then the old wise millionaire farmers who got their land for free can shake their wise heads and proclaim they knew this was going to happen. Don’t listen to them, anyone can succeed who inherited or bought really cheap land. For every story of someone who went broke paying too much for land there are 10 of people who paid too much at the time and now it is worth far more than they paid.

If that land you are looking at goes up $500 per acre over 10-15 years you are up $500,000. So what are the chances the new land bankrupts you? I am guessing extremely low, and 3% compounded over 24 years is a double. So if you keep doing what you are doing when you are 60 you’ll have made a living farming and I am guessing the land is 1000-2000 an acre so you’d be up an additional 1-2 million. Those are very attractive numbers and not only attractive but maybe the difference between the next generation staying on farm or not. If land does nothing you’ll still have the land paid for then which is nothing to sneeze at.

I did absolutley everything and I mean everything wrong. Just as the ridiculous wet years started, expanded way too fast, got way too big, I am sure mocked by many locals, had to sell some land and machinery to shrink farm by 1/3rd to survive. I am sure to an outsider that looks like a failure. Yet I am still far far ahead of where I would have been if I had just stayed the same size as when I when I took over because I left myself enough of a buffer. Going from 2 to 20 and then back to 10 is still way ahead of staying at 2. As long as you have a few years of payments saved up and decent equity going in I wouldn’t be afraid to pull the trigger. If you bite off more than you can chew, be quick to sell half to 2/3rds of the newly acquired land and you are still ahead. I wish you the best.

[flea beetle]

Flea, just a few questions you have ask yourself, and things to consider IF any of this applies to you.

If your in your 30's, your parents are more than likely still involved. Are you the only one entitled to the farm or are there other siblings going to farm with you or are they entitled to some of the farm through inheritance.

If you are the only one entitled to the farm and will not have to be buy out siblings, and your parents are willing to help out on the farm for the next 10 years, (which is very important) it's more than likely do able. At some point are your parents wanting you to purchase their share of the farm out right?

Again I don't know your situation but these are issues that come up in generational farms.

The biggest question you have to ask yourself is, can you survive if you have multiple crop failures in a row and if the cattle (if you have any) carry the load.

Just trying to make you aware nothing else!

Parents have pretty well retired with savings and no debt. They put in around 100 acres just to say they are still farming. I rent the land off of them at a very favourable family rate. Have enough to keep myself plus a hired man busy. Possibly too busy depending who you ask.

Have three siblings that want nothing to do with the farm. I am in the process of buying the equipment off of my parents. They are financing me and selling the equipment for what they have left in their capital cost allowance as to keep the farm strong and not give Trudeau money to waste.

I had a few quarters of my own, plus just bought a few more from my parents when they “retired”. (They still come most days for a few hours). The rest of the land as I understand will be split between the 4 children later on. I will most likely rent it from my siblings except possibly a few quarters from one brother.

I would have had minimal debt by 2025 had i not purchased the land and now the equipment off of my parents. I pretty well had my own line of equipment, but now will have doubles of most things. A few items are close to needing updating. Most are reasonably new enough to run for at least ten years.

The kicker here is that I was managing income tax well enough by pre buying all inputs, plus carrying grain over if need be. But now with basically doubling farm size by taking over my parents side of the farm, tax has become a major issue to be managed. Ending up carrying over 25%+ of inventory every year from the last 5 to avoid tax, plus prepaying all expenses. All the while still giving Trudeau 6 figures.

I think incorporation is in my future, but accountant had advised against it. Said if a child does not want to take over, it is very expensive and exhausting to wind down the business without paying more tax than if had kept it personally? I am not savvy enough to know what would happen. And I even went to get a second opinion on that, and that accountant basically just said you turn it into a holding company if no kids want to run the business. But sooner or later, that business has to be wound down, no? And he couldn’t satisfactorily answer what would happen at that point.

If child wants to take over, then I can see the benefit of incorporation. Seamless transition from parent to child. I just can’t get the straight answer on what happens if there is nobody to pass it on to?

So back to a want or a need at this point. Could live very comfortably without it. Probably more comfortably than by buying it. But not in my nature to sit around either. And...it is touching the home quarter. Some land decent, some marginal.

[highwayman]

Timing is everything. Opportunity varies by location obviously. Made my first purchase in 1981 at 250/acre. Some friends and family declared me certifiable, including my employer at the time. Some Dry years followed but young ambition and perseverance prevailed. Sideline as heavy duty mechanic helped not to mention some good lentil crops. 1989 purchased 1600 acres with yard we still live on as home base. Averaged 300/acre. Subsequent purchases in 95, 02, 09, 14 and 17 were all agonizing decisions at the time. Most recent acquisition was 2000/acre. Older gentleman farmer once told me while in my youth ,when given the opportunity don’t be afraid to invest in good quality farmland. Grateful for his wisdom and thankful we didn’t stand on the sidelines. Perhaps to aggressive for some. Markets and values are forever changing but solid opportunity still exists imo. Looking back, no regrets whatsoever on any purchase. Now able to reap the rewards of ownership as retirement approaches.
Everyone’s situation will vary but time is still our most precious commodity. Only wish we could all have more of it. Lol ( sorry for the lol).

[flea beetle]

Fleabeetle, your making management decisions based on income tax. I don't like that.

You're young and incorporating could be very beneficial. Although I do see it as a tax deferral anyway.

If you have to wind it down....manage it.

Growing the farm will be easier but the piper needs paying sooner or later, even if the "burden" is passed to the next generation.

6 figures to Ottawa.....are you FÚCKING nuts? You need better advice in my "opinion". Unless two of those figures are to the right of the decimal point.

Other than incorporating, what could I have done differently? Already have more than a years income stored in the bins before the next year starts, and growing. Don’t have anywhere to keep the stuff already. Have been waiting for a bad year to come to unload some, but hasn’t happened. And all inputs paid for. How else could I have minimized tax? Not into buying equipment just because.

Try writing that cheque to Ottawa and see how it feels. Makes me sick every year.🤮

[flea beetle]

Land here went up some in the seventies. Then it crashed in the 80’s. And stayed crashed for 30 years. How old will you be in 30 years if it happens again?

I worry about today’s sustainability in ag. I don’t think it is sustainable. In several ways. If land hadn’t taken this run up, I can’t imagine the equipment and bins etc, that would not have been bought with high land values. When most farm growth is fuelled by land value increases alone, it is a bit worrying. My own banker told me this spring, it isn’t farm income buying the land, it is paid for land, wives jobs, grandpas kindness, dads co-signing, that is buying the land. It is most certainly not the kids buying it alone and on their own. His words, not mine.

Now, you have to make your own decision on buying neighboring land. Each farm has different financial issues. We don’t know yours. Flush farmers will always say buy buy buy. I am not flush so have a different view.

How flush are you? How many millions of debt are you cozy with? Do you have to buy it all? Do you have to buy it to remain feasible? Is it really needed, or is it that having someone else buy it will drive you crazy?

I bough a section of adjoining land before the run up. Thankful for it. Had I not gotten it, i would have not been close to feasible. So I felt I needed to buy it. If prices then, were as they are now, I’m thinking I would have had to be a farmer in the footnote of history, because I simply couldn’t afford land at these prices. And these prices are way lower than most areas are.

If land dropped in half, WHEN it drops in half, it wouldn’t affect me, because I didn’t base my future on high land values, nor did I borrow against land equity to buy anything.

Land could drop in half. Don’t kid yourself.

Make your own decision, not rely on a forum, with a bunch of wealthy farmers. Use your own reality. Not theirs.

Yes sheep. That is my reservation. I can cash flow it, but is it the right move? Could I buy double in 5 years for the same $?

[flea beetle]

Edit in...God I hope you're kidding

We do pay taxes....corporately.

Waiting for an income failure.....what if it never comes?

Just cause you sell the grain(corporately) doesn't mean you have to spend the money either.

Deferring grain sales or storing graiin and prebuying alot of expenses to avoid paying personal tax....you won't win that game. Only seems to become more unmanageable.
Think of those two management decisions as two lines......you're hoping they stay parallel, maybe converge a bit but they might only continue to diverge....getting further and further apart. You become cash poor because your money is in deferred grain sales or inventory or all used up to prebuy tax saving expenses. You are running a business on "personal" income with punishing regressive tax rates at high incomes above what is needed to live day to day.

Edit in again.....so you wouldn't sell $12 canola, $17 flax, $8.00 wheat and any other commodity you grow that might have a real good price to avoid paying the crippling high personal tax? Who is your accountant?

Well that is the only place left to turn. Not sure if I can defer 2 years out? After that, I’m screwed. I usually sell the high priced crops and hold the lower stuff. (ie- have lots of wheat to sell)

So what you are saying is that I am pretty well forced to incorporate...

Edit in, accountant was a guy that retired a few years ago that dad had been using for years. Maybe too old and long in the tooth?

Guy I went to for second opinion was a well respected mid aged guy that does almost strictly farm accounting. He was gung hoe to incorporate, but like I said couldn’t answer what would happen to wind it down. If in the end more tax would be paid.

What if the govt changes the corporate tax from 17% to 30% to pay for this Covid deal? Now you have no cash accounting to hide with, plus no tax benefit for being a business. I realize that is a stretch, but don’t underestimate the govt to change the rules half way through for their benefit.

Remember, they aren’t going to get it from the personal tax payers that aren’t working...

[Sodbuster]

You need to incorporate, deferring and storing grain for tax purposes is a poor idea. If you have good prices on grain you want to take advantage of it. You still might end up paying six figures for tax but at least you can average you income easier. Don’t be afraid to pay tax, I pay my wife and me around 115 each every year no matter what the year was like, take rrsp’s hat brings you to the top of 2nd bracket about 95. Let the Corp pay tax on $500 every year have a poor year use optional grain inventory to boost income to 500, have a good year use your optional inventory to reduce income. Always pay tax on 500 every year to optimize and average tax.

[STR1]

WOW!! This thread took a positive turn, as most do not........Started of as “Bankruptcies of the 1980s” and is ending on “paying too much income tax in 2020!!!!”
This thread says it all........farming has changed!!!