Succession Planning Concerns

Coming off winter in Western Canada, we arrive at a time when farm families spend more time in meetings and communicating. As I meet with clients, I’m interested in seeing progress around succession planning. Unfortunately, it’s a lack thereof I also see.

Ensuring a farm remains generational starts long before it is passed down. When the next generation takes over the farm from their parents, ideally planning is already in place for the next transfer. This allows for a long transitional time period to determine how the succession may or may not happen. Prioritizing that time window is a great opportunity to set everyone up for success.

When I see families suffering through a farm succession process, it is almost always because expectations are not being met. Whether this disappointment lies within the child or the parent, there is no need for this. Those struggling through this process now can make it through. But let’s end that cycle here.

If we raise our kids to expect everything for nothing, how can we be shocked when their adult decision making becomes skewed with this notion? If we raise our kids to be creative, entrepreneurial and independent, how can we be shocked when they push for the transition to happen sooner than we wished for? I do not believe the way we raise our kids has 100 per cent control over who they become, but it sure plays a role in it.

If a farmer has three children while there is likely only enough farm business for one to take on, succession planning and discussions should be introduced at a young age. The family can begin discussions early around how things may look in the future and introduce all the important succession details, including the fair versus equal concept. As parents, we can begin to overview some options for our kids’ futures, including what it might look not to farm. We also cannot pressure our offspring by saying, “This farm has been in the family for 100 years, I sure hope I do not have to sell out because one of you does not want to farm.” Regardless of their age, that is a tough message with potential for harm.

I feel privileged in working with a wide range of clients to support them through succession, nearly all of them the benefactor of a succession. One commonality I see in my clients is a lack of desire to repeat the type of succession plan they had from their parents. For farmers over the age of 40, it’s likely their transition was abrupt and happened early in life, often with minimal communication and at times even as early as at age 18. I have worked with clients, now 45-to-55-years old, who were making key decisions on their parents’ farm at the age of 16. These same producers now have kids aged 18 and older with nowhere near that same responsibility placed upon them.

Unfortunately, I’m seeing farms today taking a more cautious approach to their succession and waiting longer to fully engage that next generation. What is driving this lag? We’d like to think the

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numbers are higher, but I would argue that once inflation and time are accounted for, the numbers and risk would be comparable for a transition now similar to that of 1985. One might even argue that a transition today holds less risk. Where between 1980 and 2005 farming tended to be less profitable, since 2007 it’s trended more positively to where a young farmer can make a few mistakes and still come out on top today.

If it is clear succession is going to take place, approaching the process as early as possible is best. Good plans start with a solid partnership between farming parent and farming child that can become 50-50 as quickly as possible and then, when mom and dad are ready, they can increasingly shift to the farming child.

As the next generation are helping out on the operation even in their teen years, discussions can take place around the entire aspect of farming beyond just the labour component. As they reach adulthood, they should have a solid understanding of the labour aspect of the farm, but also good knowledge of the income and expense statements. They should also have gained a general understanding of production, marketing and expenses. The balance sheet should be openly shared and understood in terms of what all the assets and debt details are. Viewing this as the farm’s business, rather than a personal holding, can help families be transparent.

I encourage families to keep transition in mind from the time the children are young. At the end of the day, regardless of the way any farm will transition, the parents’ leadership makes all the difference.

By: Paul Kuntz

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In the genetics business, we spend a lot of time focused on individual performance, and performance relative to other individuals. Historically breed associations have collected a lot of data, particularly on weight and growth traits and have made tremendous progress in this area.

For our customers in the commercial industry the picture is a little bit different, as their revenue is largely generated on a group basis. They may note a particular individual or retain a select group of replacement heifers, but profit is made from the overall performance of the group. Total saleable weight at weaning drives a lot of our selection and management focus on the commercial side.

It makes complete sense in this context that seedstock breeders have focused on improving growth rate and performance and the genetic trend in Gelbvieh and most other breeds reinforces this. Ironically, research has shown that average weaning weight in the commercial industry has remained relatively static for several years. Do genetics work? What is going on?

Firstly, seedstock provide or transmit genetic potential to their offspring. This is a very apt description as calves have the potential to reach certain levels of performance. The caveat is that potential must be nurtured. Just like an athlete requires coaching, cattle may require help to reach their complete potential. Examples of this type of help might include creep feeding, greater milk production from mom, or a complete vaccination program. In other words, much of the restriction on weaning weights may be due to environmental factors limiting the expression of potential. Certainly if we look at the feeding industry with limited environmental restrictions, cattle today are achieving greater, more efficient gains than at any point in modern history.

Are we stuck at the ranch level? How do we raise weaning weights and performance? You may notice that many of the options listed above such as creep feeding and increased milk production, come with a monetary cost. Additionally, selection for continued growth will tend to result in larger cows that eat more and have a higher cost structure. Fortunately for the seedstock sector which is geared towards individual selection one of the answers lies in the fact that our customers require groups of cattle. Let me explain…

We will use a 100 head cow herd for our example. It may not be exactly representative or your or your customers’ situation, but it does illustrate the point and makes the math understandable. Let’s assume in our cowherd that the average weaning rate is 95% and weaning weight is 500 pounds. We will also roughly assume that each year we have a 50% heifer and 50% steer crop, we retain our own replacements and sell all non replacement calves at weaning. The cow herd has a 20% replacement rate. Our total weaned weight from our cow herd would be 47,500 pounds (95 weaned calves x 500 pounds), or 475 pounds per cow.

If we dig into the numbers a bit deeper, we may find that our heifer calves wean at 490 pounds and the steers are 510 pounds. Also, we may find that the calves from our first calf heifers are 50 pounds lighter than those from mature cows and that second calvers are 25 pounds lighter than the mature cow group.

So what is the best way to increase our weaning weight in this cow herd? The logical approach from a genetic perspective may be to use a bull with a higher WW EPD, but perhaps the environment is the reason that this weight has stalled at 500 pounds per calf. In fact, the environment may not be allowing expression of genetics that are already present. Another approach might be to select for more milk, thus improving the environment for the calf and potentially allowing more growth expression. Again, the environment may limit milk production and too much pressure on this trait may result in more open cows (fewer calves), higher replacement rate and a higher cost cow herd.