South Dakota farm stories of resilience succession, expansion and relocation
November 4, 2015
Expansion of family run livestock operations has been happening for a while in the US. The reason is oftentimes attributed to the economies of scale which give farms greater leverage with suppliers and clients and helps them keep up with inflation. One other reason that compels farms to expand or relocate is the desire for the next generation to join the operation and eventually take over.
There is oftentimes a transition period before this next generation becomes the main owner/operator. In addition, there's frequently the need to generate enough net income to supplement the older generation's budget during retirement.
When I discuss family farms, I'm talking about those operations where the majority of the business is owned by the operator and his or her relatives. This is also the USDA's official definition.
In South Dakota, 98 percent of the livestock farms are family owned and managed.
By the numbers: the state of family farms in South Dakota
Commercial small farms in the state are disappearing at a constant rate of 3.5 percent per year.
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Bear in mind that these figures constituted 24 percent of all 2012 farms (31,989) or a loss of 276 farms per year. According to the U.S. census of agriculture, between 2002 and 2012, small South Dakota commercial farms, with gross sales between $10,000 and $99,999, decreased at a constant rate of approximately 3.5 percent per year. On the other hand, those farms with a gross income between $100,000 and $499,999 have seen only a 0.35 percent yearly reduction in numbers.
According to the USDA "average small-farm financial performance lags well behind that of large farms, suggesting that production will continue to shift to larger operations". (To read more on this go to http://igrow.org/agronomy/profit-tips/farms-tipping-point-in-south-dakota/ "Farm's Tipping Point in South Dakota").
According to a 2010 USDA report, farms selling less than $100,000 will likely continue to disappear and production shift to larger farms.
Small farms have to improve production, increase livestock numbers or relocate to increase their likelihood of remaining in business.
According to the USDA ERS (2010): "Farmers who want to make a living from farming, and who can operate a larger crop operation, have a strong incentive to expand because larger operations, on average, show better financial performance". Small South Dakota farm operators who want to live exclusively on their farm income need to enhance their gross sales. The second approach is for one or more of the family members to work elsewhere thus contributing to the total family income with off the farm funds.
According to a recent USDA report "Larger farms have a competitive advantage over smaller farms in most commodities because the average cost of production per unit declines as the size of the operation grows (referred to as economies of size)".There are numerous stories that exemplify how farms have faced these challenges with success. One such story is that of the Krause family who farm near Clear Lake.
The Krause family knew they needed to expand in order to make room for the second generation on their farm. To do this, Laron Krause, while still in high school, partnered with his father, Edwin to raise feeder pigs.
He has been involved in the business ever since.
In 1997 Laron and four neighbors partnered to form "Supreme Pork." The 1,650 sow farrow to finish operation has grown to 3,300 sows.
As Supreme Pork partners, the Krause's have 4,800 finishing spaces plus another 2,400-head barn owned by one of the other partners. Manure from the finishing barns fertilizes the corn of their operation. The Krauses also raise soybeans and wheat on their 3,300-acre farm.
Laron and his wife, Jolene have two sons, Adam and Brent. The boys attend South Dakota State University and plan to return to the family operation. To accompany now the third generation to return to the farm, the family plans to build a 3,600-head contract nursery for Supreme Pork. Construction will begin spring of 2016 – at the same time that Adam graduates from SDSU. Brent will join one year later.
Whether the farm is large or small, SDSU Extension works to provide research-based information to farm families to help them make decisions that will keep them on the farm and help with the transition from one generation to the next. To learn more, visit iGrow.org.
To read more examples about how South Dakota farm families are making room for the next generation to join them on their farm, read the rest of this column on iGrow.org.