A retiring couple's journey to find a successor to the family farm

For nearly 50 years, Carroll and Kathy Hoksbergen have cared for and improved their row crop and hog operation. Situated in southern Iowa, the 225-acre farm has been in the family for four generations.

In January 2019, as age and changing priorities started to creep up, the couple decided it was time to transition out of farming.

Because their three children had pursued careers outside of agriculture and had advanced to the point where taking over the farm was not in their future, the Hoksbergens knew they would have to reach outside their family to pass the farm on.

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Two homes were included in the sale of Hoksbergen Farm, which is located in Marion County, Iowa.

"We were determined to help committed, ambitious young people take over our operation," Carroll says.

With a timeline and goals in hand, the couple sought appraisals and set a date for an equipment sale. They also developed a marketing plan, which included a website that provided details about the operation as well as improvements made through the years.

"We soon garnered a lot of interest," Carroll says. "Two brothers, Jay and Justin Boot, who were part of a family farm operation about 20 miles away, rose to the top. Not only were they passionate about agriculture and hardworking, but they also had agricultural degrees, established farm-family support, and an existing modern operation."

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Terms of the sale were discussed, and the Boots agreed to purchase the farm for the appraised value, which included 120 acres of tillable land, 90 acres of pasture, and two modern hog facilities.

Hoksbergen Farm includes two modern finishing buildings that hold approximately 2,400 hogs.

"For a young farmer, an opportunity like this is hard to find," says Justin Boot. "Cash talks, and many people are going to sell the farm to the highest bidder, or it will be sold or transitioned to a family member."

When a chance like this comes along, you must act quickly.

"The window of time for jumping on a farm for sale is often very small, and the purchaser or the seller do not always have the luxury of time for a lengthy process," Carroll says.

With a purchase agreement in hand, the brothers began connecting with lending institutions, including the FSA Beginning Farmer loan program as well as their local bank.

As they worked on projected cash flows, the Hoksbergens shared information as needed.

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"Since Jay graduated in 2010, he was a little more established than me. I had just graduated from college in 2018 and had only been working a year. I had no capital or cash reserves built up because I had been paying off college. Basically, there wasn't much to fall back on," Boot says. "Because of our situation, we knew FSA was the path we wanted to go down for financing."

In a state like Iowa, land is often a starting place for many to get into agriculture. Seen as a good investment, land is also a very capital-intense purchase for a beginning farmer.

"An average price of $10,000 per acre is hard to pencil out for a new guy that also requires machinery and traditional input costs," says Christa Hartsook, small farms program manager, Iowa State University Extension and Outreach.

How the next generation will farm when land values won't cash flow is a concern Jeff Akers, an ag/commercial loan officer at Leighton State Bank, has voiced numerous times. Headquartered in Pella, Iowa, Leighton State Bank is an independent community bank.

"Down the road, I can see beginning farms renting all or at least a majority of the land they farm. Ownership will continue to be more elusive due to the purchase price," says Akers, who has known the Boot brothers for six years. "At current market prices, beginning farmers will find it more difficult to own land unless it is inherited. This is due to the fact that it generally won't cash flow."

Greta Kelderman, the then 12-year-old granddaughter of Carroll and Kathy Hoksbergen, enjoyed helping with the piglets on her grandparents' farm.

Reasonable level of risk

Even though FSA programs are designed to take on risk, Brian Gossling says the agency is always trying to balance what is a reasonable level of risk.

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"This was a sizable purchase for relatively young farmers. No one wants to get a customer into a deal that's not going to work out," says Gossling, chief program specialist for FSA farm loan programs in Des Moines, Iowa. "The No. 1 lesson we learned from the '80s is that you must have a sound repayment plan."

On average, Gossling says their loan officers make around 300 loan decisions each year. (See "Loans to Iowa's Beginning Farmers See Steady Increase.")

Two questions the agency fields a lot:

1. What do I need for a down payment?
2. What do you have to have for collateral?

These two elements are often nonexistent for beginning farmers. "Net worth is your fallback if it doesn't work out, so what do you have that might be able to mitigate that weakness to lessen the risk? It could be a job in town that gives you a steady source of income. It could be the fact that you won't have any machinery costs because you're trading labor for machinery use with a neighbor or a parent," Gossling says.

While neither brother had an off-farm job, they did have some machinery of their own and access to machinery and labor through their family's farm.

"I knew there was going to be a hiccup with financing the hog facilities because FSA wants a fair amount of collateral for them. Basically, I didn't have any," Boot says. "But isn't that the point of being a beginning farmer … you don't have collateral?"

There is also a $600,000 cap on a direct farm ownership loan through FSA per borrower.

Unable to secure a loan after four months, and with planting season upon them, the brothers decided the farm purchase had to take a back seat.

"From our perspective, it was an uphill battle that seemed fraught with discouragement and very guarded reception," Carroll says. "At that juncture, the Boots sadly agreed we should open the sale of the farm to others who had expressed interest. It was a difficult period for all of us."

Over the next few months, the Hoksbergens met with others interested in the farm. For various reasons, a deal never came together. The sale of the farm equipment was completed in April 2019. By the middle of May, the couple were once again talking with the two brothers.

"We were more determined than ever to make this transition work. We all made adjustments, and Jay and Justin went back to FSA with new figures and new determination," Carroll says, including a reasonable adjustment in price.

When applying for a loan, Akers says it's rare that there aren't adjustments.

"Multiple cash flow scenarios were run in the attempt to develop a workable solution for the Boots' request," he says. "When one scenario doesn't work, you start over at square one."

As the process droned on, the stress of the situation began to take its toll.

For the Hoksbergens, it manifested itself in stress-related health issues. As before, the couple drew on their faith through this period of waiting and uncertainty.

"The brothers had their own set of urgencies, not the least of which was that Jay, after farming for several years, was running out of time to be eligible for the FSA Beginning Farmer loan program," Carroll says.

Anyone who has been farming for 10 years or less is considered a beginning farmer, according to USDA.

While the length of the process depends on the individual applying for the loan, Gossling says the agency's goal is to wrap up an application in about 30 days.

"What kind of knowledge and skills is that customer bringing when he first comes to us? Is it somebody who can put a balance sheet together and understand what it is? Does he understand tax returns and how profitable his farm operation must be? If you get someone who is pretty business savvy, that helps the process," he says. "When we're making a loan, the bottom line is that we're looking at risk and how to mitigate it."

Applying for a loan, Gossling adds, is like applying for a job.

"You want to put together a narrative or some bullet points about you. Basically, things you've done that should help you be a successful farmer," he says. "It's also a good idea to have references who can vouch for what you've done on the farm and can speak to your skills."

With years of on-farm experience, the Boots had a lengthy resume. Growing up, the two were involved in many aspects of running their family's farming operation.

• READ MORE: How to plan a family farm transition

"My dad always made my brother and I feel like we were a part of the business. We didn't make the decisions, but he welcomed our opinions and didn't look at us like we were young and dumb," Boot says. "Since I can remember, we'd sit in on Dad's tax appointments. He wanted us to know what was going on in case something happened to him. If you pay attention, you can pick up on a lot."

While he understands that FSA has established parameters, Justin says every farmer has his own set of circumstances, so each applicant must be looked at as an individual and evaluated that way. It's a belief Gossling shares.

"We train our loan officers to assess collateral relative to experience of the client, financial strength of the client, and the dollars he wants to borrow. Ultimately, we are trying to identify characteristics that will make a loan successful," he says, adding that what was appealing about the Boots was their background and farm experience — both from growing up on a farm and from their experience on their own farms.

"They also had parents to serve as mentors and provide support to their operations, if needed," he says.

Additionally, Gossling notes that he doesn't get hung up on an elaborate business plan. "Rather than a 50-page industry analysis, I prefer a farmer write down some goals, how he plans to track them, and what he's going to do if Plan A doesn't work. Has he thought about the fact that there are going to be unknowns," he says.

Yet, no system is perfect, and Gossling says there is always room to improve processes.

"One of the challenges we face is ensuring a farmer understands that if we say no, we have invested the time to make certain it is the correct decision, and then offer alternatives. While we may not be able to do what you asked for, we might be able to do something else," he says.

That's ultimately what happened with the Boots' application. To make the deal work, Hoksbergen Farm was divided into three sections.

Nearly a year after first approaching the brothers, one farm transaction closed in December 2019; the other in January 2020. In addition, the Hoksbergens sold the hog operation to Justin on contract.

"I personally appreciated that Justin was willing to work with us on options, so we could provide financing," Gossling says. "There were challenges along the way, but he stayed with it."

Without the commitment and fortitude of everyone involved to help the two young farmers, this deal might not have happened.

"It took dogged determination, valuable fleeting time, hard work, a ton of pencil pushing, and the cooperation of lending institutions to get these young farmers started," Carroll says. "We know that getting into any business takes all those things, but just having a more collaborative process and knowing how or where to turn would be so helpful."

However difficult and lengthy the process was, the Hoksbergens accomplished what they set out to do — transition their farm to the next generation.

"At the time, we were frustrated because it wasn't getting approved," Kathy says. "As hard as it was on everyone, it ultimately worked out the way it was supposed to."

How many beginning farmers are there?

Each year Congress targets a percentage of farm ownership and farm operating loan funds to beginning farmers.

A beginning farmer is defined as anyone who has farmed for 10 years or less, according to the USDA.

In 2017, there were 908,274 producers who identified as beginning farmers, which is 27% of the 3.4 million producers across the United States.

Loans to Iowa's beginning farmers see steady increase

Because FSA offers attractive programs for farm ownership and operating loans, Brian Gossling says Iowa's beginning farmer portfolio has seen a steady increase in the past 15 years.

"At the end of fiscal year 2007 (October through September), we had 900 beginning farmer accounts, which totaled $83 million. At the end of 2021, we had just under 4,500 accounts totaling $794 million. About 65% of those accounts include a land loan," says Gossling, chief program specialist for FSA farm loan programs in Des Moines, Iowa.

• READ MORE: Tax credit program helps beginning Iowa farmers rent land

Experts offer advice for beginning farmers

There are specific things beginning farmers need to keep in mind as they go through the loan application process. To help make the experience as seamless as possible, experts offer these tips.

1. Understand basic jargon. "When working with a loan officer or other professional, it's helpful to have a basic understanding of common loan terms, so you can make a more informed decision when borrowing money," says Kitt Tovar Jensen, Beginning Farmer Center coordinator, Center for Agricultural Law and Taxation at Iowa State University.
2. Communicate your idea. "When you conceive an idea, talk to your banker. Be as prepared as you possibly can be," says Jeff Akers, an ag/commercial loan officer at Leighton State Bank. "Based on what you're trying to do, they can run cash flows on different scenarios and direct you to the right financial resources that best meet your needs."
3. Create a list of goals. Rather than a 50-page industry analysis, Brian Gossling prefers farmers write down some goals, how they plan to track them, and what they are going to do if Plan A doesn't work. "Have you thought about the fact that there are going to be unknowns?" asks Gossling, chief program specialist for FSA farm loan programs in Des Moines, Iowa.
4. Examine cash flow carefully. Akers says one of the first things a banker is going to look at is cash flow. "If the operation cannot cash flow, whatever the purchase is, then it's almost doomed to fail because they're not going to be able to make the payments," he says.
5. Establish collateral. "If we're able to structure things in such a way that the cash flow works, then the next step is to define whether there is sufficient collateral to cover the loan," Akers says.
6. Highlight your qualifications. "You want to put together a narrative about you," Gossling says. "Basically, you should write down things you've done that would help you be a successful farmer."
7. Provide references. "Create a list of people who know you, who know what you have done on the farm, and can tell me about your skills," Gossling says.
8. Find a mentor. A mentor helps you stay focused on your career and improve your skills, network, and self-confidence. "Studies have shown having a mentor is valuable to success," Gossling says. "We all need a mentor, including a beginning farmer."
9. Take advantage of resources. Each state has a beginning farmer and rancher coordinator who can help with questions about working with USDA. "Don't try to do it alone," Tovar Jensen says. "Make sure you're getting the right team in place to help guide you and offer advice, because the process can be difficult to navigate."

An additional resource to take advantage of is the conference for young farmers and ranchers hosted by the Farm Credit Administration and Colorado State University. The National Forum on Serving Young, Beginning, and Small Farmers and Ranchers will be held March 22-24, 2022. Find more information online at fca.gov.