Co-hosted with Jacob Grace from the Savanna Institute, this episode features Paul Dietmann, Senior Lending Officer in the Emerging Markets Loan Program at Compeer Financial, who works with farmers marketing their products directly to consumers or in value-added agriculture.
JASON FISCHBACH 0:00
This is a podcast about new crops. You’re gonna love it. Join us on The Cutting Edge, A Podcast in Search of New Crops for Wisconsin.
Paul Dietmann 0:09
The work that I’m doing right now is so exciting. It’s so rewarding to me because we’re bringing in a new generation of farmers. They’re first generation farmers. They didn’t grow up on farms. They don’t have a farming history in their family and in a lot of cases, a lot of the farmers I work with are women. And they’re not farm wives. They are farm operators. And you know, it’s just it’s been fantastic.
Steffen Mirsky 0:49
Welcome to another episode of The Cutting Edge, A Podcast in Search of New Crops for Wisconsin. I’m your co host Steffen Mirsky with UW Madison Extension. In this episode, we tried something a little different and collaborated with our friends and partners at the Savanna Institute. Co-hosting with me today is Jacob Grace, who hosts their podcast Perennial AF, Perennial Agroforestry that is. The Savanna Institute is a nonprofit based in Spring Green, Wisconsin that works to scale up agroforestry in the Midwest. We’ll put a link to their podcast in our show notes. Our guest today is Paul Dietmann, author of Fearless Farm Finances and Senior Lending Officer at Compeer Financial, who works to provide loans and other assistance to emerging market farmers in southern Wisconsin and northern Illinois. In this interview, we asked Paul what financial advice he has for farmers getting into emerging markets. And we get the scoop on what enterprises are the most profitable, and which to maybe reconsider. We also spend a fair bit of time talking about the pros and cons of buying land, which is perhaps a reflection of what Jacob and I have been thinking about. Before we get started, I’ll just mention that there is some wind noise on Paul’s recording since he was talking to us outside on his farm.
Jacob Grace 2:14
My name is Jacob Grace, I work with the Savanna Institute, which is a nonprofit working to support agroforestry in the Midwest, and I host the Savanna Institute podcast.
Paul Dietmann 2:26
I’m Paul Dietmann, and I’m with Compeer Financial. And I’m the co-leader of the emerging markets loan program at Compeer, which is a loan program for farmers who market their products directly to consumers or who are doing something of value added agriculture.
Steffen Mirsky 2:39
Paul, I was wondering if you could just kind of give us a little background of Compeer Financial, the history of the company, what it does and who it serves?
Paul Dietmann 2:48
Sure. Yeah, Compeer is part of the nationwide farm credit system, which is a network of farmer-owned farmer-led cooperatives that was actually started in 1916 by the federal government. So we’re a government sponsored enterprise although there’s no government money in the system at this point. The system was started because farmers didn’t have access to reliable and affordable credit back then. And that’s still really our mission today is to is to provide financing to farmers.
Steffen Mirsky 3:17
And so your role is as an emerging markets loan provider. Can you just describe a little bit what your what kinds of investments fall under the emerging umbrella and maybe some examples of different people you’ve worked with in the past?
Paul Dietmann 3:34
Yeah, our emerging markets program. We started that five and a half years ago at the time of the merger that created Compeer Financial. Compeer was the result of a merger of three different farm credit system associations. I was with Badgerland Financial prior to the merger, which was the association that serves southern Wisconsin. And now we serve about two thirds of Wisconsin, the eastern half of Minnesota and northern half of Illinois. We started the the emerging markets program because we wanted to make sure that small scale farmers didn’t really get lost in the shuffle when the merger happened. And it’s really designed to work with farmers who are operating in local and regional food systems. So we work with a lot of small scale vegetable growers, CSA operations, a lot of direct to consumer meat operations, a lot of small value added businesses that get some meat processing businesses in my portfolio, I’ve got some cheese plants, other manufacture products or value added agricultural products. Get a little bit of indoor agriculture, not a whole lot, but pretty much anything outside of of traditional corn, soybeans, dairy, we’ve either looked at it or we’ve got it in our portfolio.
Jacob Grace 4:47
Great. And one of the ways that people may have encountered you is that you’ve co-authored a book called Fearless Farm Finances which is now around 10 years old, and I know there have been a couple different editions of it. Would you like to say a little bit about how that came together? And what some of the things were that you changed in the updated version?
Paul Dietmann 5:11
Yeah, the impetus behind the book was I was serving on the board of MOSES, Midwest Organic and Sustainable Education Service, which has now become Marbleseed. And at the annual conference, the annual organic farming conference, which is one of the biggest organic farming conferences in the country, they have a bookstore and they sell a lot of books. I was on the board at the time, I think it was probably $40,000-50,000 worth of books they would sell during the course of a three day conference. And we had a board retreat shortly after the conference one year. We were talking about the bookstore and talking about the fact that there were really very few books about farm business management, and even the ones that were out there, And there, it was a handful, like maybe two or three is about all that were out there. And they only got about as deep as enterprise budgeting. So a couple of us on the board and Jody Padgham, who was the Finance Director of MOSES at the time, started talking about how we really need a publication or a book that that covers every aspect of farm financial management from balance sheets, income statements, cash flows, investment analysis, record keeping, pretty much anything that you, any topic you can think of that pertains to farm financial management should be in one reference material. And that’s really what led to us writing the book. We got a grant from the USDA Beginning Farmer Rancher Development Program to write the first edition of Fearless Farm Finances, which as you said, Jacob, came out probably 10 years ago, we rewrote the book and came out with a second edition. That was maybe five years ago or so. We’ve taught a lot of workshops based on the contents of the book. I don’t even know how many copies it has sold at this point. But it’s really been widely accepted, which I’m, I’m happy about, we tried to write it in a way that it was technically accurate, that has followed the recommendations of the Farm Financial Standards Council, which is kind of an organization that came out of the farm crisis in the 80s. And it was an attempt to get get lenders and accountants and foreign financial educators all on the same page and agree on a set of standards that everyone follows to look at balance sheets, and analyze ratios, and look at cash flows and income statements, all those sorts of things. So we wrote the book in a way that’s technically accurate, that follows the recommendations of the Farm Financial Standards Council. But we wanted to write it in a way that it didn’t look like a textbook and didn’t feel like a textbook, but it was more farmer friendly. And that a farmer could pick it up and read it and sort of see themselves in it and figure out easily how they can get a hold of the finances of their farm operation.
Jacob Grace 7:49
Yeah, I can, I can say it definitely doesn’t feel like a textbook. And I know, over the last month, Steffen and I have both had copies of Fearless Farm Finances, and we’ve been looking through it. And it’s very easy to open it to any page and immediately start learning things and to immediately kind of engage and there are pictures and there are people and quotes and stuff. So I was really impressed with how easy it is to read and how engaging it is.
Paul Dietmann 8:16
Well thanks. Yeah, I’m glad that you found it that way.
Steffen Mirsky 8:19
And, Paul, you mentioned that you came out with a second edition five years ago, I think it was. Can you just like talk about what some of the revisions are that you made?
Paul Dietmann 8:30
So yeah, after the first edition came out, we taught quite a few workshops based on the content of the book. And some of the questions that kept popping up over and over again, we were taking notes and keeping track of those things and realize that we needed to maybe go back and revisit the book and try to rewrite some sections, maybe add some sections, try to explain things maybe a little bit more clearly. And so we really did a pretty extensive rewrite of the book, basically every chapter, we went back and at least rewrote a piece of it. And then we added a few chapters. We built out the chapter on how to work with a lender. We added a chapter on how to exit farming if if you reach a point in your career where you’ve decided to go a different direction, or maybe things aren’t going well financially and you need to make a change. How do you exit the business? Which is it seems a little odd, you know, it’s a book that’s really written for beginning and maybe kind of early career farmers, to be writing about how do you exit the business but we felt that it was important to touch on that subject too because it does come up.
Steffen Mirsky 9:34
Sure. So I’m just wondering if you can kind of give a broad overview of the process of getting a loan and financing a project. So yeah, from the point in time where somebody comes up, dreams up an idea of a business they have to approaching you about it and then to actually being approved for the loan. What does that process look like?
Paul Dietmann 9:57
The process can can vary depending on the situation, but in general, we’re going to ask for a balance sheet, a very simple business plan, and a cash flow projection at minimum, under our micro loan, or under our emerging markets program. I should say we have a micro loan and that’s from $5000 to $75,000. Pretty easy underwriting standards. It’s, it’s really designed for folks who maybe have never accessed commercial credit before, maybe they’re relatively new in farming, maybe they’ve been financing their farms with credit cards or out of pocket. We wanted to keep the barrier to getting a loan out of that program pretty low. And so we have a different set of underwriting standards that are pretty relaxed compared to our traditional lending standards. We, for example, we pull a credit report, but we don’t actually use credit score as part of the underwriting criteria, we only use the credit credit report to verify the debts on the balance sheet. We don’t expect people to come in with everything perfectly polished. People will sometimes come in, they’ve never even heard of a balance sheet. So a lot of times we’re sitting down, helping them put their balance sheet together, maybe taking a really rough cash flow and and working with them to fine tune it. The business plan is, we ask for a very simple business plan, one to two pages. We don’t want that to be a hurdle to applying for a loan. So pretty easy to apply for a loan under the the emerging markets micro loan. Once we have a completed application, I do a write up or my colleague Sai Thao, who’s really my business partner in this project or this loan program. We do a write up, we send it to our boss, he’s got sole lending authority under the program. And so it’s usually a pretty, pretty quick process. If I get an application and everything is ready to go, I can usually give a person an answer in a day or two. And we can close the loan generally, two or three business days after that. So it is pretty quick. And when we close the loan, we fund it right away. So you know, there are times I go out to sign loan documents, I’m bringing the check along and then handing it to the farmer at that point. We actually, we have lower interest rate in that program, it’s slightly below our typical market interest rate. So really, it’s our main entry point into the emerging markets program. Once we go above $75,000, we get into more traditional underwriting standards. But there’s really two ways that we process loans, we have something called a scorecard where we just have to gather some very basic information and plug it into a computer, hit a button to score the loan. It runs an algorithm behind the scenes and kicks back a yes or no. We process probably 80 plus percent of our loans that way. It’s a very fast, very efficient way of doing things. If something doesn’t pass scorecard or maybe the loan application isn’t quite up to to our traditional lending standards, and we have to send it through traditional underwriting. And that can take a little longer. It could take a week or two kind of depending on what the underwriters have on their plate at the moment.
Jacob Grace 13:00
Yeah, I can go ahead and jump in with a question here. And this is coming from a podcast episode I did that I was interviewing a farmer named Greg Galbreath. And I had asked him a question about beginning dairy farming basically. And Greg had referenced a recommendation from you, Paul, in which he said that you recommended a beginning dairy farmer don’t buy the land unless you absolutely have to. And we talked about how this seems a little bit counterintuitive. A lot of people who want to start farming, they think the first thing to do is to buy the farm. But could you say a little bit more about that and whether there are other things that people might be in a hurry to buy or heard to invest in that it might be better to wait on
Paul Dietmann 13:48
Yeah, it’s generally a good idea when you’re getting started farming to keep your your capital investments as low as you possibly can, you know, get your production system down. Rent equipment, if you can rent equipment, borrow equipment if you can, and don’t buy land if you don’t absolutely have to. And if you absolutely have to, don’t buy more than then you absolutely need. Land right now especially after the last two years where we’ve seen land values increasing at 10-20%, which is higher than it has been historically. Historically land goes up about 4% a year. The conventional ag economy has been really strong last two years and farmers have money to spend and they’re bidding up land even with interest rates double what they were a year ago. Land is right now not a very good investment. You know, especially for beginning farmers that maybe cash flow is tight. So if you can avoid buying land, if you can rent the land instead, you’re going to be much better off. I understand that people want to own land. I didn’t actually grew up on a farm. I wanted to farm my whole life. I’m sitting on my own farm right at the moment today which is my favorite place to be in the world. So I get it. I understand why people would want to own land whether it’s a good investment, whether it makes sense from a cash flow standpoint, but when you’re getting started farming, you don’t have that luxury, you have to really, really think about very strategically what you’re doing with your money and where you’re investing it. That’s going to give you the best return for the for the buck.
Jacob Grace 15:18
Okay. I have a follow up question, which is maybe more of a personal question, which is, you know, I’ve heard things recently about people purchasing farmland as an investment, basically, you know, and heard people talk about, like, I guess recently, buying farmland has had a better return than the stock market, for example, but it sounds like looking at it long term, you’re saying farmland is not going to be that much of that good of an investment vehicle, if we can call it that. But maybe that’s why we’re seeing some of the trends the last few years? Or do I have that completely wrong?
Paul Dietmann 15:58
No, I think that’s true. People have seen farmland as a good investment, you know, if you can, if you can buy land, especially if it’s all tillable, if you can buy it, and you can rent it out for 2-3% of what you paid for it. And it’s been going up, like I said, historically, it goes up about 4% a year in value. You know, people are looking at that and saying if we can get a 6 or 7% return on our investment, and it’s relatively safe, it’s it feels better than investing in the stock market. Maybe people were jumping in and it probably made sense to do it. And especially, you know, if they were expecting four and then last year went up at 15. You know, that was a great investment. But I think where we’re at right now in the cycle, and land value is running in cycles, you know. We think, oh, land could never go down in value, it always goes up. Well, there are years that it stalls out. And there’s periods of the time, and they tend to be in 50 year cycles where land values decline, and they can decline pretty significantly. You know, I mentioned earlier, the farm prices for the 80s. Land values plummeted during the farm crisis of the 80s. Back in the 20s, in then in the early 30s, land value plummeted. Go back to the 1870s, land value plummeted. I mean, it tends to run in these 50 year cycles, where land value goes up and up and up and up, and then all of a sudden, it kind of falls off a cliff. I’m not saying that, that I expect that to happen in the next year or two. Or maybe it’ll never happen, I don’t know. You know, maybe we’re gonna break that 50 year pattern. But yeah, I think people have seen it as an investment. But it seems like now with interest rates going up, people can invest their money in other things and be more liquid. Or you could put money into a CD and get 5% and only have to lock your money up for a year. So would you buy land that maybe is going to stall out in value? Maybe it’s only going to give you a 2% return cash on cash. And have it tied up where you can’t access it when you need it. You have to try to sell it. I don’t know. it doesn’t feel like right now is is a great time to be investing in land.
Jacob Grace 18:05
Okay, so it sounds like you’re saying the any trend of people investing in farmland as kind of part of an investment portfolio is probably not going to keep spiraling out of control. If we want to say that it’s more of kind of like a boom and bust cycle like anything else.
Paul Dietmann 18:24
Yeah, I think so. And it, it does, it runs in these long cycles there. You know, 50 years is a long time. I kind of, you know, I look at what’s happened with land values and where they’re at right now. And, and I work with a lot of beginning farmers. And it’s tough, I mean to try to for a beginning farmer to buy land if you you know, if you really want to buy land or you feel like you really have to buy land at today’s prices, it’s just really, really difficult and then put on top of that interest rates that are double what they were a year ago, that there is when we finance land, and we still finance a lot of land, there’s still a lot of people buying land. If it’s a beginning farmer we almost always partner with the USDA Farm Service Agency and into a joint financing arrangement under their beginning farmer downpayment loan program. So there’s it’s kind of an exception to you know, I’m saying you shouldn’t buy land, but if you’re in the right window, where you can buy under that FSA beginning farmer downpayment program, you can get a blended interest rate between our interest rate on our part of the loan and FSA’s interest rate, which is one and a half percent locked for 20 years on the FSA side, and they’ll finance 45% of the purchase. We financ 50%, the down payments is only 5%, you will get the blended rate, it’s cheaper than than the rate on a consumer home loan right now. So if you’re looking at buying just a relatively small acreage with a house and some buildings or something, you know, then then I would I would say it probably makes more sense to look at buying some land if you really if that’s what you want to do and that’s what you need and end up with a mortgage that’s about like you would have on a house in the Madison suburbs or something like that.
Jacob Grace 20:04
Okay. Thanks, sorry if I took us down a rabbit hole there, but Steffen, you can get us back on track.
Paul Dietmann 20:11
No, I think it’s a really important question. And it’s a question that comes up every day, you know?
Steffen Mirsky 20:16
Well, one thing that stuck with me and that I heard at a workshop at the Marbleseed Conference this year was that it’s, it’s not a good investment to buy more land than you’re actually going to farm. Because you’re not making money on the land that you’re not farming, and you’re still paying costs associated with it. Is that, would you agree with that?
Paul Dietmann 20:40
Yeah, I would agree with that. If you’re taking on debt to buy the land. You know, if you’re paying cash for it, we talked a little bit just a minute ago about if you’re an investor coming in, and you’re paying 100% cash, you’re not taking on any debt to buy the land, and you can get a 2% cash return and another 4% out of out of increase in market value. Not a terrible investment, you know, but if you have to take on some leverage, and you’re, you’re paying interest on that, and the interest rate now is going to be between 7 and 8%, it makes no sense to borrow money at 7 or 8%, to invest in something that’s gonna give you a 6% rate of return, you know, it just doesn’t make any sense. So yeah, I don’t think if you’re a beginning farmer, or an active farmer, I should say, not even just the beginning farmer, to buy land right now and take on that debt, especially if you’re not going to be farming it yourself is, it’s a really tough decision to justify. Having said that, we have people doing it all the time. And there’s other reasons that they do it, you know, you talk to a farmer, and they say, well, the neighbor’s 40 acres came up for sale, it’s right up next to my property. I don’t want to take a chance of someone buying it and building their starter castle in the country, and then we don’t have access to it anymore. We can’t rent it. And they’re complaining about spreading manure and that sort of stuff. I get it. I mean, there, there’s other circumstances that come up where it feels like, boy, I know, it’s not a good investment. But I still have to do it if I can cashflow it.
Jacob Grace 22:17
Yeah. Yeah, I can go again here do maybe more of a lighthearted question, which is just for fun. If someone wanted their farm business to fail as quickly and dramatically as possible, what are the top three to five things that they should do?
Paul Dietmann 22:35
Well, then you should definitely buy as much land as you can possibly imagine buying. Take out as much debt as you possibly can. Don’t worry about your balance sheet. Don’t worry about income statements or cash flows, don’t think about a return on investment. Yeah, that’s what I would do.
Jacob Grace 22:59
Okay, and maybe you’ve seen some people who took that strategy? I don’t know.
Paul Dietmann 23:07
Yeah, occasionally. We try to stop them from doing that, you know, we don’t, we’re not going to make a loan to somebody in that situation. We don’t want to set somebody up for failure. You know, I worked for a co op. And we worry about our members and we care about our members. And, and I don’t, I don’t want to make a bad loan, because that, you know, it costs everybody, it costs all of our members, if I’m making bad loans. So yeah, in farm lending is really, it’s a relationship business. So you know, we’re not just looking to make a loan, we want to we want a relationship that we’re going to be with that farmer for their whole career. And so yeah, we don’t we want to make sure that they’re not getting themselves into trouble.
Jacob Grace 23:47
Yeah, I guess to follow up on that. Now, I’m thinking of conversations I’ve had with Marie Raboin. And it makes me think, how do you talk to people, if they’re saying, I know, this isn’t a great idea financially, but it’s my dream, and this is what I want to do, and I just need to make it happen.
Paul Dietmann 24:06
I have that conversation with folks a lot. And I guess my thinking is, I have to give them my best advice, you know, and so I’m going to look at it. And if it’s a bad investment, I’m going to tell them, you know, there’s probably other things you could do with your money that would be a better investment than this. And if they’re bound and determined to do it, and they can cashflow it, I’m probably still going to be with them. You know, a lot of times you got folks that have outside income, they got off farm income. So it may not make sense to buy a piece of land like we keep talking about land, but it could be a piece of equipment or something else. It may not make good financial sense to do it. But they’ve got the cash flow to do it. And it’s what they dream about doing and they want to do it. I’m sitting here, I’m on a farm that is not cash flowing. And so I’m preaching this. I’m married to a CPA who asks me every year, like is this thing ever gonna cash flow? No, but I’m at a stage in my life where I’ve made other good investments, and I have a good job. And, this was what I love doing. It’s what I’ve always wanted to do since I was a little kid. So, yeah, we bought it, we don’t have debt on it. I mean, it’s, you know, and I come out here and I’m cutting brush today, I’m trying to rebuild my fences for managed grazing yet this season. And so it’s what I love to do. So I get it. I mean, I’m, when I have that conversation with people I totally understand because I’m in exactly the same situation. But as long as it cash flows, that’s key. And if you go in and know, this probably isn’t my best investment that I’ve ever made. And you want to do it, then who am I to say you shouldn’t do it?
Jacob Grace 25:48
Okay, I’m gonna take one more question on here. Sorry, Steffen. But this is reminding me of a question I had during our last conversation, which is, could you just talk a little bit about the difference between cash flow versus income? And how how the two play out differently as people are making financial decisions?
Paul Dietmann 26:10
That’s an important distinction. There’s, there’s cashflow, and there’s profitability. And you really need both to be a sustainable business long term. So cash flow is, is cash coming in and cash going out on a monthly basis. So where’s the cash coming from? How much is coming in each month? How much is going out each month? How much do you have at the end of the month, which then begins to balance for the next month. And so in our microloan program, we’re asking for a month by month cash flow projection, we’re helping our folks put those together, but we want to, we want them to really be cognizant of the fact that when you’re farming, there are months that there is no cash flow from the farm, or they may be years that there’s no cash flow from the farm. But there’s still debts, and there’s still operating expenses that have to be paid. And so how do you how do you pay the bills, while you’re waiting for the cash to come in? So that’s cash flow. Profitability is is the rate of return on investment. So it’s rate of return on assets rate of return on equity? It’s asking the question, was this a good use of my cash? So did I make a good investment here or not? So we’re, you know, we want to figure out, and again, some people don’t really even think too much about profitability. If it cash flows, it cash flows, then they’re going to do it. And maybe profitability matters and maybe it doesn’t, you know. For a lot of folks, it’s like, well, okay, if, if this farm generates a 1% rate of return rate of return on assets, I should say, am I going to sell it and go buy a farm in North Dakota, because I can get a 5% rate of return on assets? Probably not. Where it comes into play is at certain stages in your farming career, it’s when you’re making another capital investment, you want to put up a building or you want to, you know, buy more land or whatever it is, then we have to see if it’s if it’s profitable, and doesn’t make sense to take on debt if you have to take on debt, in order to make that investment. The other time that it really comes into play is when it’s time to transfer the farm to the next generation. You may not know if the farm is profitable, maybe the farm has not been profitable for 20 years, but it’s cash flowed, you’ve had enough cash, you didn’t have any debt. Kids are grown, they’re out of the house, we don’t have that drag on your household cashflow. So the older generation, maybe the farmer has been cash flowing just fine. The next generation comes in if they have to take on some debt to try to keep this thing going. And they have to pay market value for all the assets. There’s no way they can do it because the farm hasn’t been profitable, and they can’t be profitable. And then they also can’t cashflow it. So they’re both important things to know. Cashflow is more critical on a month by month, year by year basis. But profitability is also really critical and the business won’t be able to sustain itself long term if it’s not profitable. That’s where we see farm assets a lot of times transfer at less than market value. Because the business wasn’t profitable. There’s no way that that next generation can pay full market value and have it as a growing business.
Jacob Grace 29:08
So if I were to try to make a farming analogy from that, could I say that cashflow is about like trying to keep something alive and making sure it hasn’t died. Whereas profitability is about making sure that it’s growing bigger and getting bigger every year or some years at least.
Paul Dietmann 29:27
Yeah, I think that’s a good analogy.
Jacob Grace 29:31
Okay, I’ll look for it in the next edition of Fearless Farm Finances.
Paul Dietmann 29:38
I’ll quote you.
Steffen Mirsky 29:40
I want to I want to see a little schematic of that too little diagram. But speaking of cashflow, so Jacob and I both work with a lot of perennial systems in agroforestry systems where crops are not going to be providing any cash flow for several years. So like if somebody comes to you and wants to plant some, some berry crops or hazelnuts, or even maybe chestnuts that that’ll take 10 to 15 years to produce anything. How do you?
Paul Dietmann 30:19
Yeah. Can we finance something like that? Would that be part of the question too?
Steffen Mirsky 30:24
Paul Dietmann 30:25
Yeah, perennial crops present a bit of a challenge, because you still have to cashflow those. And if you’re, you know, if you’re taking on any debt for it, we have to have a loan payment every year, you know. We can do sometimes interest only. We have something called a preferred capital line. I haven’t done a lot of those. I’ve written a few in there for perennials, I’ve done them with perennial crop farmers, where it’s interest only for a period of time. And it can be a pretty lengthy period of time, like even five years or more, and then converts to a term loan after a certain period of time when there’s a crop coming in and providing some cash flow. Otherwise, a lot of folks are cash flowing with non farm income. So as long as there’s there’s household cash flow, we don’t just look at the farm cash flow, we look at at all cash flow from the farm household. So as long as there’s enough cash flow to, to cover the loan payments, we can still make loans in that situation. A lot of times, folks are staggering their plantings so that, you know, they’re not taking on too much all at once, especially if they’re taking on debt, because they want to get to a point where they’ve got some cash flow, and not taking on, you know, not taking on a debt load, but really drawing so much on their family household income.
Steffen Mirsky 31:41
Just to follow up on that a little bit. So would you say that perennial systems and agroforestry systems are viable with without any off farm income, or is the off-farm income a really important component of getting a loan?
Paul Dietmann 32:00
Typically it’s important in most situations, unless you also are growing annual crops too that are providing some cash flow, or you’re more established, if you’ve had, you know, if you’ve done plantings, you’ve financed them out of pocket for four or five years and now you’ve got some crops coming in to sell. And you’re taking on some debt load to expand the operation that makes it a little bit easier to cash flow from the business. But yeah, otherwise, it is important if you’re going to take on debt to have some cash flow to be able to make make the debt payments.
Jacob Grace 32:34
Steffen, if you want to keep going, I think I’ve gone through most of my questions.
Steffen Mirsky 32:39
Okay, sure. I’ve got another one for you, Paul. So I’m wondering if you can just give us a few examples of some of the most profitable ventures that you’ve financed, and maybe some of the least profitable ones that people should steer clear from?
Paul Dietmann 32:58
Yeah, there’s, you know, it’s surprising, I work with mostly really small farms, a lot of first generation farmers. Some of the more profitable ventures are things like small scale vegetable operations. A lot of them have been pretty profitable. They’re a lot of work. I mean, it’s very labor intensive. I’ve got some flower farms in my portfolio that are doing pretty well. A lot of my small scale livestock producers are doing well if they especially if they’ve got access to reliable processing, that’s always been the been a big hurdle or gotten worse since COVID, finding processing space. So those are some of the more profitable things. Anything that doesn’t require a huge capital investment is is a lot more likely to be profitable. And to be able to cash flow. The least profitable ventures that I’ve worked with are things that require a huge capital investment to get started. Aquaponics is one that is just historically been really, really tough to make a living at. Especially here in Wisconsin, a lot of times they’re they’re growing tilapia and those systems. Tilapia is a tropical fish and you’re growing it in Wisconsin in an unheated greenhouse. It’s just really tough to make something like that work. From a lender standpoint, it’s really tough to finance too because the, the infrastructure for an aquaponics operation, there isn’t much collateral value. It’s plastic pipes and tanks and pumps and things like that, and, you know, maybe a hoop house over the top, there’s just really not much there for collateral values. So you pretty much have to self finance an aquaponics operation. That’s probably the the single toughest business I’ve seen to make work. It’s just a really, really hard thing to do. Other types of indoor agriculture, so I’ve got some greenhouses in my portfolio that are doing really well, you know, that raise bedding plants, things like that. So, I don’t know, people will find a way to do pretty much anything and make a living at it. But the other some, some ventures are tougher than others. Goat dairy is another one that tends to be a really tough business to make a living at. Just because there’s sort of a low barrier to entry to get into the business. And there’s not a lot of infrastructure built out. We don’t have a lot of feed people who really understand goat rations. And we have some veterinarians who understand goats, but not a lot. So there’s just a whole host of issues with the goat dairy business that makes that one kind of a tough one, too.
Steffen Mirsky 35:32
You mentioned indoor agriculture being kind of a tough one. But it seems like that’s becoming more and more important with with climate change and climate variability. And I know there’s been more indoor agriculture popping up. And I’m just wondering, what, what what do you see as the future of those?
Paul Dietmann 35:56
I think people are eventually going to figure it out. But I don’t think we’re there quite yet. There’s been a ton of venture capital that’s gone into indoor agriculture and some pretty sizable indoor agriculture ventures. I think people look at it, and they, they love the technology of it. And it seems like it makes a lot of sense to be able to grow food year round in a big city. But in reality, there’s, as much venture capital has been invested, there’s been a lot of venture capital lost in that business, too. It’s just been a really tough one to, to make go. Again, I think at some point, people are gonna figure it out, you know, whether it’s using more renewable energy, it’s more efficient lighting, it’s, you know, trying to figure out ways to keep the capital cost down. But right now, we’re, it’s just not there. It’s just a really, really tough business right now.
Steffen Mirsky 36:49
Speaking of renewable energy, seems like agrovoltaics is getting a lot of attention. And it seems like the economics of it have gotten a lot better recently. Do you work with people who are looking to put in renewable energy systems on farms?
Paul Dietmann 37:06
Yeah, we work with some folks, some folks who are doing solar, and we can finance solar operations, small scale. If it’s field scale, that’s a little tougher, because it’s seen as taking land out of agricultural production. But if it’s solar installations on a building that’s supporting the agricultural operation, yeah, we can finance that. We also do some tax leasing, we have a tax lease program. We do a lot of construction projects using the tax lease program. And we can we can do tax leases on solar installations do.
Steffen Mirsky 37:40
You know, I was wondering, Paul, if you could just give like a broad assessment of whether or not now is a good time to be getting into farming in terms of emerging markets, just looking at the economy kind of broadly, with commodity prices and inflation and input costs. Yeah, what’s your perspective on that, and what the trend is?
Paul Dietmann 38:05
I do think it’s a good time to get in, in emerging markets agriculture, the types of stuff that I do, the types of stuff that you do, you know. It’s those markets have tended to be pretty resilient, if it’s direct to consumer agriculture, where you’ve got more of an ability to set your own prices. That type of agriculture just exploded during COVID. You know, people had more time to cook, they went to the grocery store, and the shelves were bare, and the meat case was empty, and they started looking around for where they could buy meat locally, and realized that there was someone five miles down the road that was selling pork, that was better quality than they could get in the store. And it was just as cheap. Some that’s backed off now, but you know, the market in general has been pretty resilient. People buying directly from the farm, and like, knowing where their food is coming from. So I think that there’s there’s always good opportunities. The nice thing about this type of agriculture too, is that it generally doesn’t take a huge amount of land. So if you’re grazing or something, you can rent grazing land. So you can get into it at a reasonable cost. And if it doesn’t work out, if you decide that there’s, you know, you want to go back to working full time off farm or something, it’s easy to get out if you need to, without taking down your finances with you, you know, so yeah, it’s amazing how resilient this business is. So it always seems like it’s a pretty good time to get into this type of agriculture.
Jacob Grace 39:43
That’s great. And that reminded me of something we talked about. The last time we recorded one of these conversations, which was lost and we won’t talk about that because it was my fault that it disappeared. But you talked a little bit about how you’re an ag lender and you were starting your career in the 80s, I believe during the farm crisis. Can you just say a little bit about what it was like then and what it was like to be starting a career at that time?
Paul Dietmann 40:10
That was a really, really tough time and agriculture, obviously, it’s, and I think back on it, and I think we lost two generations of farmers back in the 80s. We lost those folks who went broke and lost their farms. But we we lost the next generation of the folks who managed to make it through the farm crisis of the 80s. Because they told their kids don’t come into agriculture, there’s no future, in this business, get out of agriculture. I lived in a house my senior year with 10 other guys, and all but one were ag majors. And I think only, I think there’s only two of those guys that are still farming at this point, or even ended up farming. Most of them decided to go a different direction. So we lost a lot of folks in agriculture. I can tell you, I had a heck of a time trying to find a job coming out of school in 1986 with a degree in agricultural economics. And not having been raised on a farm, which was a big, big, negative for me trying to get a job. I ended up in Wisconsin, I thought I’d stay two years and go back to Illinois. I shouldn’t even mention that I’m from Illinois. I don’t broadcast that around here. But yeah, I’ve stayed, I love Wisconsin, our small towns are vibrant. There’s so many things about Wisconsin, but I just fell in love with the last two years when I thought I was just waiting to go back. So this, the work that I’m doing right now is so exciting. And so, so rewarding to me, because we’re bringing in a new generation of farmers. And it’s folks who, as I mentioned before, they’re first generation farmers, they didn’t grow up on farms, they don’t have a farming history in their family. And in a lot of cases, a lot of the farmers I work with are women. And they’re not farm wives, they are farm operators. And, you know, it’s just, it’s been fantastic. It’s, it’s a whole new group of people that are that are coming into this, this space, and, and they’re making a living at it, and they’re showing other people how it can be done. You know, they tend to be very collaborative, they’re, yeah, they’re just, they bring a different skill set than our traditional farmers might have. In terms of marketing and other things. I mean, it’s, it’s just been great. It’s great to see so many new people jumping into agriculture. And they’re doing well at it and they’re not jumping in and, you know, and then just making a subsistence subsistence living for a period of time and then leaving. And they’re not hobby farmers, which I have to sometimes remind my colleagues at the office, these are small farms, but they are farms, they are farmers. They are not hobby farmers. This isn’t a hobby.
They’re not gardeners either.
Oh, right, yeah.
Jacob Grace 43:00
All right. Steffen, did you have, was that all your questions?
Steffen Mirsky 43:03
I have one more. And that is what resources would you recommend, Paul? In terms of people learning more about this process? You know, besides Fearless Farm Finances, are there other things out there like workshops or books or articles that people can learn from?
Paul Dietmann 43:24
Yeah, one of the great things is that there there are a lot of resources for beginning farmers, especially beginning farmers who are interested in, in doing the type of agriculture that we’re talking about – direct to consumer value added. We talked about Marbleseed, and the Marbleseed Conference is fantastic. Well worth the time to go every year, the Grassworks Conference. If you’re interested in grazing, that conference almost died probably 10 to 15 years ago, but boy, they have revitalized. It is a fantastic conference. This year I think there were 500 people, great presenters, great networking opportunities. We’ve got things like the Stateline Farm Beginnings Program to help train beginning farmers not just in the financial side of things, but in in marketing and business planning and all those sorts of aspects of farming too. There’s just there’s just a ton of stuff. There’s a lot of field day, a lot of pasture walks. You know, if you’re a military veteran, they’re their organizations and programs specifically for that segment of agriculture. Yeah, there there are tons of resources if you’re interested in perennial agriculture, the Savanna Institute obviously is the number one place to go for that sort of information. UW Extension, your position, Steffen, I mean, it’s, yeah, I think it’s fantastic. I was a county extension agent for 11 years, and we didn’t have that kind of resource when I was an extension. So yeah, it’s there. There’s a lot of support out there for this segment of agriculture.
Steffen Mirsky 44:55
Okay, thanks for the plugs, Paul.
Paul Dietmann 45:02
I’d say it even if we weren’t talking to each other.
Jacob Grace 45:07
Well, good. We can wrap up with some agroforestry “Would you rather”? So these are some things that I like to ask people that come on the Savanna Institute podcast. So we can ask you, Paul, and then Steffen, if you want to chime in to your you’re more than welcome to. So, first one is would you rather raise goats pigs or chickens and why?
Paul Dietmann 45:35
Pigs for sure. Yeah. Okay. Yeah, I worked on a hog. Actually, I worked on a few hog farms when I was younger. And I just, I don’t know why, but I like hogs. And, you know, from a profitability standpoint, I like hogs because they you can turn groups several times a year, you know, and it provides more cash flow. There aren’t a lot of people that would probably say pigs number one out of that group, I think a lot of people would say goats or chicken. But that also means that there’s there’s really good market opportunities if you’re willing to do it. People are always looking for farm raised pork.
Jacob Grace 46:14
Yeah. All right. Stephen, do you want to weigh in?
Steffen Mirsky 46:21
Sure, I mean, without considering the economics of any of those, because I really have no idea, I would just say, I would say goats just because I like their personality. And I’ve worked on a few goat dairies and just really enjoyed milking them and got to know them. Got to know the individual goats well, and they’re just, they’re just fun to work with. And there’s, you can just let them, let them browse. They’ll eat pretty much anything.
Jacob Grace 46:52
Yeah, all right.
Paul Dietmann 46:54
Yeah personality wise goats definitely, definitely take it. But yeah, pigs are, they can be miserable to work with. I spent an entire summer working in a confinement hog operation. And I always say I never ate so much pork as I did that summer, and it was purely out of revenge.
Jacob Grace 47:16
Steffen, when you start your goat dairy, you can go talk to Paul about why it’s not a good idea.
Steffen Mirsky 47:23
It’ll be a labor of love.
Jacob Grace 47:27
All right. Well, those are good answers. Okay. Would you rather work in a place that had frequent flooding, constant drought or frequent wind storms?
Paul Dietmann 47:48
Yeah, boy I don’t know. Yeah, that’s, that’s like, Would you rather be hung or shot?
Jacob Grace 47:59
Steffen, do you have any thoughts?
Steffen Mirsky 48:01
First thing that comes to mind would be drought, because you can always irrigate. Well maybe not always.
Jacob Grace 48:08
I’ve asked a few different people. So it’s been across the board, there hasn’t been any consensus of which is the best or which is the worst. So yeah, Paul you can you can reserve your opinion, because there isn’t a right answer, at least that I found yet. Yeah, we can go to the last one here. And that is? Would you rather work with someone who doesn’t know how to use any of your equipment or someone who is always grouchy?
Paul Dietmann 48:41
Yeah, I’d rather work with someone that doesn’t know my equipment. And I do that I have two sons who come out and help. And I’m slowly training them to use stuff. At least they can be taught, you know, they always are fun to have around and yeah, I’d rather teach somebody how to use stuff than have to put up with them complaining all day long.
Jacob Grace 49:04
You mean, your sons don’t complain all day long?
Paul Dietmann 49:06
They’re generally pretty good when we’re out here. If I can get them out.
Steffen Mirsky 49:15
Yeah. Yeah, I’d have to agree with Paul on that one. No doubt about it.
Jacob Grace 49:23
That makes sense. All right. Well, thank you both for for putting up with that. And thank you, Paul, for taking the time to talk with us a second time.
Paul Dietmann 49:32
Oh, you’re welcome. Yeah, it’s good talking to you guys.
Steffen Mirsky 49:34
JASON FISCHBACH 49:43
Brought to you by the University of Wisconsin Madison Division of Extension.
Transcribed by https://otter.ai