Dr. Kevin Bernhardt, University of Wisconsin
Dr. Kevin Bernhardt, University of Wisconsin
MADISON, Wis. – When it comes to owning a dairy operation, getting started might be the hardest part, involving careful planning and a good understanding of financials. While the task can seem daunting, especially to the person with no family connection to farming, plenty of resources and opportunities exist to help the young dairy farmer get his or her start.
Gary Sipiorski, independent business and financial consultant, and Dr. Kevin Bernhardt, professor of agribusiness at the University of Wisconsin-Platteville School of Agriculture and a University of Wisconsin Extension farm management specialist, shared strategies young producers should consider when getting started in the industry during a Professional Dairy Producers Dairy Signal titled, “Thoughts for a young dairy farmer.”
“The earlier you can set your goals, the better,” Sipiorski said. “You also need to have a love for dairy cows. Cows have to come first – not land, pickup trucks or machinery. It’s the cow generating the income. You have to focus on that and be patient.”
Raising capital is a logical but scary place to start for many young people who do not have the investments to buy assets like cows, tractors and land. Except for cows, Sipiorski and Bernhardt recommend renting or leasing assets versus buying.
“The best place to put your money is in the milk cows,” Bernhardt said. “If your desire is to milk cows, put it there.”
Sipiorski agreed.
“Land is important, but it’s a very poor investment for a young producer because it doesn’t give much of a return,” he said. “Those dairy cows give you the best return. And there are certainly people who do custom work, so you don’t need to own a lot of machinery.”
A database from the University of Minnesota providing five-year averages from 2016-2020 revealed the average dairy farm consisted of 430 acres with breeding livestock worth $477,000, land valued at $697,000 and machinery worth $646,000 for assets totaling $2.9 million.
“If you’re thinking about getting to that level someday, you have to start smaller,” Bernhardt said. “You have to start figuring out incrementally how you might be able to get there.”
A starting place could be a family operation, extended family operation or working as a farm employee.
“If it’s possible to transition into a family operation, that’s a fantastic resource and great way to get started in farming,” Sipiorski said. “If you’re the son or daughter of a farm owner, make sure you take advantage of the opportunities there and realize not everyone has those opportunities. And for goodness sakes, don’t blow it. Don’t take it for granted.”
Opportunities with an extended family operation, such as that owned by a grandparent, uncle or aunt, are also possible. But, how does one get involved in farming if they have no family who farm?
“You have to start small, really small,” Bernhardt said. “It might be through employment on someone else’s farm. There are places you can work where all you’re going to be is an employee. For some, that might be good enough. For others the question is, can you get involved with an operation where there’s potential of being able to work yourself into ownership? It’s not super common but is becoming more so all the time.”
For the person with no family operation to fall back on, starting within their neighborhood and talking to people they know is the best option for finding a farm to work with. Bernhardt said there are services for matching someone who is getting closer to retirement and does not have an heir to take over with someone who is young and wants to start farming. Talk to lenders, county extension agents, technical college agricultural instructors and people from other areas who can recommend farms and help make an introduction.
“I’ve seen the farm employee thing work pretty successfully in a number of situations,” Sipiorski said. “Sometimes the employee earns not only a wage but also earns cattle or equity in the business. If you get involved in something like that, try to get things in writing.”
Internships with dairy producers is something Sipiorski also encourages.
“Having a mentor is extremely important,” he said. “Find a producer who is able to spend time with you and share what they know. Those relationships are very beneficial. Attending industry meetings is also helpful. Put together some type of plan and certainly take time to understand the financials.”
How does one get financing, particularly a young person without many dollars in their pocket? A person can use his or her own money and build it up over time or get financing from a bank or another organization that can offer credit. Or, a person may choose to do a combination of the two. Sources of equity include personal savings, gifts, inheritance, retained earnings from another business or partnerships.  
A person looking to purchase 140 acres at $6,000 per acre would need $840,000. A 20% down payment would equal $168,000, but some programs require less for a farmer starting out. If the person is saving $12,000 per year, how long would it take to save $168,000? Assuming a 5% annual return, it would take about 20 years to come up with the cash.
“Waiting until you have enough equity yourself may not be the quickest way to get involved in a farming operation,” Bernhardt said. “It’s part of the mix but by itself will probably not get you there. However, it’s not necessary to start with 140 acres. Maybe you buy 10 acres to get started.”
Partnerships offer more possibilities by pooling peoples’ equity. Partnerships could be formed with a parent, grandparent, aunt, uncle, sibling, friend or business colleague, etc. If partnering with an older person, which is often the case, the younger person provides much of the work, and their partner provides most of the equity. A partnership comes with its own set of risks; therefore, getting things in writing is important. Finding a favorable renting arrangement is another option to consider.
“I’ve been involved with a number of operations that brought younger people in and worked together for a year before transferring any assets,” Sipiorski said. “They earn a wage and see how the chemistry works. When you reach a point where it looks like it’s a possibility it could work out, that’s when you need to find a good ag attorney. There’s a number of them who do this type of work.”
Before reaching that point, spend time with a financial consultant knowledgeable about farms. There are also people at extension to tap into. In addition, a state’s department of agriculture can help outline what the partnership would look like.
According to Bernhardt, young people should work on building credit. When it comes to borrowing money, sources include commercial banks, the farm credit system, Farm Service Agency or a private individual. Direct and guaranteed programs from the FSA can provide the financing for younger people coming into an operation. These programs are directly focused on those who have been farming less than 10 years.
“Many lenders have programs for beginning farmers, and it’s important to ask just what’s available,” Sipiorski said. “Get to know a loan officer at one of the lenders in your area. Tell them your thoughts as a young producer and ask where you should start and what they recommend you do.”
The presenters shared that direct programs have $400,000 in operating loans available to use for cattle or machinery and $600,000 available for farm ownership to purchase buildings or real estate. Interest rates are between 1.5% to 3%. Check with an FSA office for the current loan amounts available as amounts, interests and terms do change.
“Private financing from family members is popular too,” Sipiorski said. “There are people who can help and dollars out there to be borrowed. I’ve seen people coast to coast in the U.S. who really didn’t have much 30 years ago and today have a very nice dairy operation. They had patience and did the right things.”
Opportunities abound for the young person whose heart is bursting to become a dairy farmer and own an operation.
“When graduating from UW-River Falls, I knew somebody who started out with 12 cows,” Sipiorski said. “I know times were different, but he had an idea and desire to milk cows and put his emphasis on that. Today, his family milks 500. His two sons and their families are involved, and it’s just a wonderful place to raise those new families coming on. Things are possible.”
Bernhardt agreed.
“Twelve cows might give you that foothold to have a place to start,” he said. “It’s not going to be your income, but you could be doing that while working for someone else. Don’t get discouraged. The business of ag is wonderful, and there are all kinds of opportunities in production agriculture for young folks. Don’t be afraid to go for it.”
Bernhardt gave listeners an immediate task – think of three people who would be helpful in giving advice. Get on the phone and make an appointment to talk with them. Then ask those three people, “Who else should I talk to?”
“We need young people to be part of this industry,” Sipiorski said. “If you really have a desire to be part of the dairy business, I want you to know there are ways of doing it. So don’t give up on your dreams, but make sure you’re looking at enough places and talking to the right people. Keep your mind open and recognize there are doors to be opened.”