Despite two tough years, these brothers make their farm partnership work
No one knows a man like his brother. Siblings who grow up playing together learn the importance of solidarity. They might be rivals in the sandbox, but they are comrades against the world.
That alliance is serving brothers Ryan and Chad Esther well as they close the books on the second of two tough years in farm partnership. As part of the Farm Journal Legacy Project, the Esther family of Beardstown, Ill., is transferring the farm operation from parents Chet and Lori Esther to their sons.
Despite all the planning, goodwill and historically high crop prices, the brothers have suffered two of the worst cropping seasons in the farm’s history, with corn yields 50 bu. under average due to excessive summer rainfall and flooding.
"The timing was pretty poor for us to start farming together," says Ryan, 34, who is three years older than his brother, Chad. "We’ve been around farming long enough to know you are going to have bad years, but two in a row is rough. Even Dad says he hasn’t seen crop years like these."
The bright side is that these brothers are going through the bad together. Ryan and Chad are equal partners and owners in Esther Farms, which includes 1,800 acres of corn and soybeans, of which 150 acres is owned by the brothers. The farm business (EFFCO) that encompassed 4,700 acres owned by Ryan and his father still exists for Chet’s financial and estate planning purposes, but leases are slowly being transferred to the brothers’ partnership. Any growth going forward is solely through Esther Farms. This allows Chad and Ryan to develop their business on an equal footing.
Good and Bad. Luckily, the partnership started on solid financial ground and higher crop prices are softening the blow of lower yields. While the brothers won’t make what they had budgeted at the beginning of the year, there will still be some money available to reinvest and apply toward capital purchases.
A few more years under their belt and more equity in the business sure would have made things easier, Chad says. He and his wife, Tanya, just celebrated the birth of their second daughter, Jocelyn. This summer, they finished building their dream home. He admits the stress of the farm situation is working on him.
"I tend to worry more than Ryan, but I’ve not been farming as long either," Chad says. Chad went to work as a forester after graduating from college and returned home to the farm three years ago. Ryan came home to farm with his dad shortly after college.
Both brothers agree that the two bad years in the beginning might provide good perspective later in life. "The bright side is it will keep us grounded," Ryan says. "If we started our farming careers with a blockbuster year, it might be hard to resist purchasing new vehicles and expanding the operation."
Going through the good and bad together is one of the reasons advisers with the Legacy Project have been guiding the brothers toward establishing their own farm partnership. "It’s important for Chad and Ryan to start out as equals," says Josh Sylvester, a Certified Financial Planner and member of the Legacy Project team. Allowing the sons their own space and freedom to farm also sent a message to landowners about Chet’s faith in their individual abilities.
An important part of the Esther family succession plan is transferring lease agreements from Chet to his sons. Currently, Chet’s farming operation, EFFCO, leases about 1,000 acres from Chet’s brother, Joe. Two years ago, Chet and Joe transferred the lease agreement from EFFCO to the new partnership for Chad and Ryan to farm.
Just because there is family financing doesn’t mean they are immune to the reality of higher commodity prices. In 2011, rent on this land rose $100 an acre.
"Cash rents around here have skyrocketed," Ryan notes. "There are ads put in the local paper by farmers offering $400 an acre minimum in cash rent. Landlords see those ads and automatically think they should get higher rents. That’s hard to compete with when you are starting out in farming."
Allowing Esther Farms to assume land lease renewals from EFFCO effectively reduces the size of Chet and Lori’s estate, which is helpful for estate planning concerns, Sylvester says. This is not an immediate transfer, however. The plan establishes a five-year ownership transition wherein Esther Farms takes over all of the leases and the equipment to coincide with Chet’s retirement option—the date when he plans to exit the operation. Originally, this exit date was when Chet reached 55. However, due to the losses in farm income, the transition is being extended a few more years, Sylvester says.
Liability Reduction. To minimize startup costs, the existing company, EFFCO, leased equipment to the brothers’ operation. It also established formal lease and rental agreements between the new partnership and the Esthers’ construction company. Both Ryan and Chad secured operating loans based on input costs per acre and other factors.
EFFCO had purchased new equipment in the past few years. If the brothers’ partnership continues leasing equipment from EFFCO with the intent of purchasing, the value of the newer equipment will depreciate.
"This gives Ryan and Chad time to gain some financial strength in their balance sheet before making other substantial equipment purchases," Sylvester adds.
One of the big benefits of starting a new partnership to bring Chad into the operation is that it will not generate income tax or estate tax liability, notes Kevin Spafford, Farm Journal succession planning expert.
"There are really only the startup costs of a new business, and those are substantially reduced because the boys can lease from the existing company," Spafford says.
The family is not putting the profitable EFFCO business at risk. EFFCO is not lending capital or incurring debt to bring Chad into the operation, which reduces liability for the entity, Sylvester says.
Making a Name. Ryan and Chad have been known as "the Esther boys" their entire lives. They live and work in the same community where they grew up competing on the ball diamond. Now that they run a business together, they’re working to get involved in the community to create their own identity. Ryan has been on the Schuyler County Fair board for six years and is a board member with the county Farm Bureau. Chad is running for a local Farm Service Agency committee.
"It’s invaluable for the brothers to get involved in the community and develop leadership roles outside of the farm," Sylvester says. "Their father has been and still is a great mentor. The more the boys can start to get involved in leadership roles on their own, the better they will be prepared to fully take over all of the farm business."
Like many farm partners, the Esther brothers have different skill sets and motivations that can both enrich their business and create problems, Spafford says. Early in the transition planning, he encouraged the Esthers to complete an Individual Directions Inventory, which helps measure motivations. Understanding what makes each other tick is helping the family define responsibilities that provide the highest satisfaction.
The inventory showcased the following characteristics about the brothers: Chad enjoys being efficient, organized and paying attention to detail. He likes creating order out of chaos. Ryan is more comfortable with flexibility and disorder. However, he also enjoys being in charge.
Smooth Transition. One of the most heartening aspects of this family farm transition story is how well Chet has managed the transition out of the day-to-day working of the farm. He has turned his attention to farm organization leadership, is traveling extensively and serving as a board member for Growmark, Inc. "Dad wants to help us in the spring and fall on the farm, but I think the days of 50 hours a week, 52 weeks a year are over," Chad says.
As a result, Ryan and Chad have taken over more management of the family’s truck service and sales business. They are learning to make management decisions without Dad around.
With so many farm businesses struggling with the simple transition from father to son, the Esthers are feeling good about their family farm legacy. The past two years haven’t been easy, but going through it with your lifelong friend makes it much more tolerable.
"As brothers and partners, we have the best of both worlds," Ryan says. "I trust Chad, and we get along really well. I wouldn’t want to do this without him."
The Esthers on TV
Beyond the pages of Top Producer, you can learn more about Ryan and Chad Esther by watching the second and third episodes of "Leave a Legacy TV." Visit www.FarmJournal LegacyProject.com/tv.
Are you the next Legacy Project Case Study?
Decades ago, the generational transition was simple and direct. The oldest son got the farm. End of conversation. Today, it’s not so easy. Times have changed and so has the level of wealth, opportunity and risk in agriculture.
The Farm Journal Legacy Project is a catalyst for this process to begin and is devoted to cultivating multigenerational success. A key part of that is the unique and unprecedented chronicling of three case-study families (the Esthers in Top Producer, the Dells in Farm Journal and the Moeses in Dairy Today) as they work through their individual succession planning processes.
As the Esthers wind up three years of successful farm transition work, the timing is right to learn from a new farm family. This doesn’t mean we won’t check in with the Esthers, as the succession process never fully ends. But Top Producer is looking for a new family ready to create a lasting legacy for their farm business and family members.
If you’d like to be one of the families that Farm Journal Media works with in the Farm Journal Legacy Project, please send a letter that shares an overview of your operation, your succession planning frustrations and your goals to LegacyProject@farmjournal.com. For more details, call (877) 523-7411.