Farm Succession: A Case Study

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If enthusiasm is an asset in the family business, then the dairy operated by Nate Heusinkveld is in good hands. On an early summer day, Nate has plenty of help feeding milk to the calves at the dairy started by his grandparents near Spring Valley, in southern Minnesota.

The two children are the fourth generation on the farm

His son Lucas, 12, and daughter, Kensie, 9, proudly show off how familiar they are with the routine. The children move down the line of individually penned calves, pouring and then watching the animals eagerly lap up bucket-loads of milk.

“We have always joked that Lucas could take over the farm at age 12,” says Nate’s wife, Misty. “And Kensie is getting there. She’ll stand on her five-gallon pail so she can reach the cows. They aren’t afraid to just walk in the barn to chat or lend a hand.”

The two children are the fourth generation on the farm. Nate’s father, Jeff Heusinkveld, still works there while Jeff’s father, 90-year-old Cleon, plays well the role of grand patriarch.

“It is fun to see the kids out working right along with Dad and G-Pa,” says Misty. “Great G-Pa Cleon has had his share also. I often say ‘I wonder why the kids know so much?’ Well, they are out there in the thick of it and everyone that works here takes the time to tell them.”

Steady As She Goes

The ability to adapt, use new technology and plan for the future are valuable in any business, but this is particularly true in agriculture, especially if your farm—by 21^st century standards—isn’t large. The Heusinkvelds grow corn and alfalfa on 550 acres and milk 375 cows. All their crops are fed to the cows. They were named Fillmore County Farmers of the Year in 2013.

As with any agricultural operation, a dairy isn’t immune to the ups and downs of economic cycles. Even with planning, luck—good and bad—can play a role. The Heusinkvelds expanded their herd to roughly the present size in 2008-2009, when milk prices were low.

“After we expanded, milk prices went way up,” says Nate. “The timing worked out well. The business has taken off from there.” Operating efficiently and watching costs is key.

While the period from 2010-2014 was a good one for milk prices, that came to a sudden halt in 2015. “Milk prices are volatile from year to year,” says Marin Bozic, an agricultural economist and associate director of the Midwest Dairy Foods Research Center at the University of Minnesota. “Those producers face that volatility every day, every quarter.”

In 2014, dairy operations benefited from record high milk prices, as much as $24 per hundredweight. “We had never seen a year as profitable as that in the past 25 to 30 years,” Bozic says. “Now prices are $15 to $17 per hundredweight, 30% to 40% lower than last year.” Likewise, in 2009 a “perfect storm” of sluggish milk exports and an oversupply here forced prices as low as $10 per hundredweight.

The Heusinkvelds maintain a steady-as-she-goes attitude, knowing that the dairy business is as cyclical as crops—if not more so. “Prices are pretty low,” says Nate. “But they are steady. We’ve seen better, but we’ve seen worse.”

Laying the Groundwork

Short-term conditions aside, the Heusinkvelds are in it for the long haul—they have worked toward transitioning the business to new generations over the past decade-and-a-half. Much of the groundwork was laid when Nate, 38, was entering the business and his grandfather Cleon was stepping away.

Now that Jeff Heusinkveld, 64, can see his own retirement coming, he wants to make sure there is opportunity for Nate’s children, Lucas and Kensie, to be involved as they reach adulthood. “We kind of set up a plan 18 years ago, using an LLP [limited liability partnership], that allowed Nate to buy more shares of the LLP over time,” says Jeff. “Nate is also in the process of buying out the shares of my brother, Steve, who was also in the operation when Dad (Cleon) retired.”

The regular purchasing of shares functions as a kind of 20-year pension plan for Steve and Jeff Heusinkveld. “This plan also helps on taxes,” says Nate. Steve and my Dad don’t get a big tax bill in one year as a result of a huge buyout.”

That kind of long-term approach is exactly what helps make estate planning and generational transfers easier to navigate, according to Joel Green, a business and estate-planning attorney with AEGIS Professional Services in St. Louis, Mo.

“I’ve always advised clients that a considerable amount of sound planning can be accomplished using a window of time that looks 10 to 15 years ahead,” says Green, who doesn’t know the Heusinkvelds. “So, in general, they are doing what we would recommend.”

Additionally, the planning process should bring in key advisors who can share in the vision and outline strategies. Those advisors might include an attorney, insurance representative, financial advisor, banker and accountant.

The Heusinkvelds have also been good about talking openly among family members as to how they want their family operation to survive and how best that might happen. “Successful transition and succession plans always involve open and continuous communication,” says Green. “Absent good communication the plan is doomed to fail.”

“My parents were never set in their ways,” says Nate. “I’ve always felt that we could talk. That I can bring something up or they can bring it up when talking what we wanted for the future.”