Legal advice: Attorney may be best farm partner

Originally published in the November 13, 2009, print edition.

By Dick Hagen The Land Staff Writer

The Land — Ask an Extension educator or an agricultural attorney if there is one particular legal challenge surfacing most frequently for Minnesota farmers and you simply don’t get a single issue. That in a nutshell explains the business/legal complexity of today’s high-powered, highly financed world of farming.

Gary Hachfeld, University of Minnesota Extension agricultural business management educator, does, however, identify two areas often troublesome to farmers today.

“Contractual agreements, especially for swine producers during these extremely discouraging financial times, has become a big issue,” he said, adding that grain delivery contracts with local/terminal grain handlers also raises concerns in view of the liquidity of some of these facilities.

“And perhaps a growing concern this fall and winter is the financial health of farmers after this costly and difficult cropping season, especially with commodity markets significantly lower now than last winter when they were putting figures to their 2009-10 marketing year.

“The issue becomes what are their legal options once they reach that point of being maxed out on their credit line. If they become delinquent on their loans, they do have the option of applying for farmer-lender mediation,” Hachfeld said. He specializes in farm transfer and estate planning.

Because of the high input costs of farming today, debt servicing is an ongoing issue.

“Buying inputs to keep the business going is fundamental, however when unexpected costs occur, bankers need to understand that the very best farm business plan needs some flexibility. This year, for example, crop drying costs up to $100 per acre wouldn’t have been reasonable when farmers put their cropping programs together last winter.”

Mortgage foreclosure might be another area with more activity ahead. “We hear of farmers maxed out on their credit lines,” Hachfeld said. “In some cases they have sufficient liquidity to satisfy their lender. But I’m aware of hog producers who have lost two-thirds of their equity, even more in extreme examples. Take that much equity out of the business and it becomes very difficult for a banker to refinance. The end result is the bank has to sell those assets to satisfy the loan. And that’s why farmer-lender mediation is so important.”

Like many farm lenders, Hachfeld is concerned about the declining liquidity of agricultural operations, especially in the livestock sector. With both dairy and hog prices projected to show some increase this summer, he believes some of these producers thought they could ride out the current slump. The price recovery hasn’t happened, however, so a “red-ink” year appears inevitable for both pork and dairy producers.

He thinks most crop producers “probably will be OK” but there will be some in financial straits. Crop insurance is the safety umbrella likely to be employed by many farmers, he said.

Renville County attorney Steve Hettig said his firm has more business over proper descriptions and property lines. “This has nothing to do with current economics of farming but everything to do with the more stringent survey requirements that counties are imposing and also the more sophisticated, the more precise survey techniques now available,” he said, acknowledging that they are seeing a few more issues on grower contracts also.

“Back in the old days when someone sold off a building site we’d just have someone come out with a wheel for measuring and hopefully run the lines as far away from the building as we could reasonably do,” Hettig said. “Yes, maybe we were off a foot or two, but it wasn’t that big a deal. Today the bank, or the county, wants those property lines precisely surveyed to make absolutely certain there is no infringement on the other person’s property.”

So do today’s farmers accept the need for a working relationship with their local attorney as a necessary part of doing business?

“Absolutely,” Hachfeld said. “It’s an acceptance and a realization that good legal help is a necessary ... part of farming today. I know most farmers don’t feel comfortable in an attorney’s office but sometimes they have no recourse.”

Hettig agreed. “Today’s farmer is more sophisticated. He’s running a big business and I think much better understands that an attorney can be, maybe should be, his most important ‘working partner.’” Hettig gives credit to farm media for making farmers much more cognizant of the value of legal advice.

His firm, like many other Minnesota legal offices, got involved in farmer-lender mediations back in the 1980s. “So far we’ve seen very little of this activity currently, and I think that’s good news for farmers in our area at least.”

When “shopping” for an attorney, start by talking to your neighbors or ag business friends, Hettig suggested. Ask them how comfortable they were working with that particular attorney. “You’ve got to be comfortable with the person you’re dealing with.”

Hachfeld even suggested that you “interview” the attorney.

“They potentially are going to be working for you so find out what his/her specialty is,” he said. “Do they have experience in agricultural law? If so, that would be one to latch on to.”

Don’t be bashful about asking your potential attorney, or current attorney, to come to your farm so that they get a better understanding of your particular situation. “I recognize most farm families are very self-sufficient and private,” Hachfeld said. “Farmers, however, need to understand that a typical attorney’s ‘time clock’ starts as soon as he starts his drive to your farm. If this particular attorney has an agricultural background, visiting you on your farm can be helpful.”

Hettig agreed that an “on-farm” visit with an attorney usually helps develop a comfort level for both the farmer and the attorney.

Hettig said most legal expenses are tax deductible, as long as they relate to the farming business, or to taxes of the business. “But if it strictly relates to estate planning such as drawing up a will or your property transfer within your family, it would not be a deductible business item,” he said, suggesting certain farm invoices are best shared with the farmer’s accountant for determination of tax consequences.

Hettig’s advice, especially to younger farmers eager to adopt new innovations, or farmers getting into new ventures and agreements with parties not well known, is to have your attorney check the paperwork before you put your signature to a particular document.

“Like it or not, it’s smart business to have a working agreement with a good attorney. Farming has become too big a business to ignore the ‘protection’ of a good attorney.”

To assist farm families with establishing a basic understanding of the many legal issues facing them today, the University of Minnesota Extension is providing a farm legal series. The 16-piece series includes topics related to termination of contract for deeds, tax considerations in liquidation and reorganization, security interests in personal property, mortgage foreclosures, bankruptcy, production and marketing contracts and more. All are available at no charge at www.extension.umn.edu/distribution/businessmanagement/DF7291.html. Pieces in the series can be downloaded individually, or as a complete set. All relate specifically to Minnesota law.