Simulation of farm transition strategies across multiple U.S. farm prototypes

Abstract

Approximately 30% of family-owned U.S. farms and ranches will survive a generational transition; when transitioning to subsequent generations, the likelihood of success continues to decline. Reed et al. (2019) simulated the effects of five commonly used farm transition strategies on a prototypical Oklahoma farm to determine the probability of successful transition under each strategy. This project expands upon Reed's work by creating seven additional prototypical farms to represent the predominant production systems and regions in US agriculture to determine how those same strategies impact each farm type by simulating each farm using the Reed model. The California specialty crops, Illinois corn, and Iowa hog operations all had very high rates of success. However, the Kansas wheat, Texas cattle, Georgia poultry, and Wisconsin dairy operations had significantly lower probabilities of success. A high asset-turnover ratio, as well as high net farm income, is an indicator for success, as the operation generates enough cash flow to meet the demands of most strategies. Federal and state tax structures will influence the rates of successful transition, as well as government payments to farming operations. Moving forward, many of the things that are held constant in this model can be changed to evaluate the outcome: the age of death of the primary operator, the number of heirs, and narrowing the scope of the prototypical farm

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