The prices one can receive from growing organic grain have increasingly attracted more farmers. Organic corn can fetch two to three times the conventional price, and prices for organic soybeans are usually double that for conventional soybeans. But farmers wanting to transition from conventional to organic production should be prepared to be problem-solvers, says Jon Jovaag, who farms with his wife, Ruth Jovaag, near Austin, Minnesota.
Jon Jovaag shared their experiences with transitioning to organic crops during a Midwest Organic and Sustainable Education Service organic-farming podcast and virtual field day. Joining him was Paul Dietmann, senior lending officer with Compeer Financial.
The Jovaags started their organic journey with a 12-acre field that had been in hay. Because they hadn’t applied any conventional inputs in the previous 36 months at that point, they didn’t need to transition the land. They grew organic corn the first year.
But they had a steep learning curve with cultivation in particular, Jovaag said.
“The yield wasn’t great but we made a better profit off that little field than in our conventional fields,” he said.
At that point he was motivated to transition all their acreage to organic.
“I thought to myself, ‘If I can turn a little profit by making many, many mistakes, imagine if I only made half as many mistakes?’” he said.
Yet price alone isn't enough motivation for transition, Jovaag and Dietmann both said.
“If price is the main reason for transitioning, farmers probably won't be successful,” Dietmann said. “They must be interested in all aspects of organic production and be willing to learn.”
Jovaag said, “People who want to transition need to like solving problems, and really understand and buy into organic. They need to think about it like they want to have an entire regenerative organic system to produce food in a really sound way. Understanding the system's approach to organic production and believing in its value will help when one runs into glitches and hurdles. One needs to solve the problems rather than saying, ‘We’ll just spray it.’”
The process of transitioning opens a farmer’s eyes to some things he or she didn’t really like about conventional farming, such as spraying, Dietmann said. People often will see the benefits of organic production after starting the transition; the transition time helps them to view farming as managing a system.
When thinking through the economics of transitioning to organic, a farmer should start with a balance sheet. He or she needs to gain understanding of working capital, or current assets minus current liabilities, Dietmann said.
“A farmer will want to have a 2:1 or 3:1 ratio of current assets to current liabilities,” he said. “That will give the farmer an idea of how much cash to work with as a starting point.”
The farmer should then build enterprise budgets for the transition years. Once the farmer is certified organic, he or she can build that into a multiyear cash-flow projection. That will help the farmer think through what month's cash will be coming into the operation and what month's cash will be going out. It also will help the farmer determine how to cover living costs during the transition, how to make loan payments during the transition, where there will be deficits during that time and what plans to make for times when cash is short.
The Organic Grain Resource and Information Network’s Compass tool can help farmers develop a balance sheet as well as enterprise budgets and a multiyear cash-flow projection. It’s a free Excel-based tool to help farmers run their financial plans for 10 years. It also can be used for building in capital purchases. Visit ograin.cals.wisc.edu/resources/ograin-compass to access it.
Jovaag advises farmers to consider finances for the long term.
“A 40-acre field might not cash-flow that well, but you’re looking at it in a five- to seven-year timeframe,” he said. “The reason for doing that is to becoming entirely certified so you have that value added.”
Rather than focusing on how each field in transition will cash flow, he said he thinks in terms of the entire farm. One needs to think through cash flow and profitability during the transition years for an entire operation. Profit is a return on assets and a return on equity that includes non-cash expenses such as depreciation.
Cash flow is cash that goes in and out, and excludes non-cash expenses, Dietmann said.
“If you look at profitability during the transition years you might be intimidated,” he said. “But you might find the cash flow isn’t as bad as profitability during the three-year transition time. It’s important to think long-term as one transitions to organic production, both in terms of production and economics.”
Start planning early
Farming organically requires a lot of knowledge. For those considering a transition to organic, Dietmann recommends planning a year ahead of stopping conventional farming.
“Attend the upcoming Collaborative Conference on Organic and Sustainable Farming, attend field days, talk to other organic farmers, talk to transitioning farmers, talk to suppliers and gather information before making the first practical effort toward transitioning,” he said.
The Jovaags had attended the Midwest Organic and Sustainable Education Service's Organic Farming Conference and the Minnesota Organic Conference a couple of years before starting their transition. They also sought experienced organic farmers to answer questions.
“Find somebody who knows more about it than you do … it’s easy to do when you don’t know much,” Jon Jovaag said. “The key to success is to find a good mentor and learn as much as you can.”
The Midwest Organic and Sustainable Education Service’s Farmer-to-Farmer Mentoring Program also offers one-on-one support for beginning and transitioning farmers, from seasoned organic farmers in their region.
Dietmann advises farmers not to transition too many acres at one time.
“You need to rebuild knowledge of things such as cultivation,” he said. “Try maybe a fifth of your acres; don’t bite off more than you can chew.”
Jovaag said, “Sometimes we wished we had transitioned faster, but looking back there’s a lot to learn. You don’t have the band-aids you do in conventional.”
The Jovaags started with a 12-acre hayfield; they haven’t transitioned all their hayfields. Some fields are more-difficult to access or can’t be grazed so they’re not as suitable for forage-based transitions. For those fields they've started the first-year transition with field peas and oats they grind for feed.
After harvest Jovaag plants a winter-rye cover crop. In the spring he roller-crimps the rye and no-tills non-genetically modified soybeans for the second year of transition. The non-genetically modified soybeans allow him to earn a little premium. His yields are comparable to genetically modified soybeans, he said. He then grows organic corn in the first year of organic certification.
“The easiest way to transition is hay but we have other ways too,” he said.
Dietmann said, “Hay is a great transition crop if you have a market for it. From a cash-flow perspective it provides more cash and takes less cash out than if one’s trying to transition non-genetically modified soybeans, for example.”
To decide which fields to start transitioning some farmers start with their best fields. Others start with their worst fields, thinking if it doesn’t work the risk is buffered by strong yields in other fields.
Jovaag started the transition by whichever field happened to be in hay; after that he looked at what fit crop rotations best.
“It was more of which way I could most quickly convert everything to organic in terms of rotation rather than thinking through best or worst fields,” he said.
Dietmann said it’s important to talk with one’s lender to ensure the lender understands organic production. Compeer Financial has developed an organic-transition loan program. It’s a declining-balance operating loan designed by the way cash flow typically works.
“We know cash will be short by 'x' number of dollars so we take that cash shortage and set that up as an operating loan,” he said.
During transition farmers need only pay interest on the operating loan. Typically principal and interest would be paid to zero each year because it should be paid out of operating income.
“It’s basically an eight-year loan," he said. "The first three years it’s an interest-only operating loan. The last five years it’s a term loan with regular principal and interest payments.”
In many cases farmers don’t need specific loan programs to help them transition to organic, he said.
“Once farmers get into the transition, they realize cash isn’t going to be as short as they thought it was going to be,” he said.
Social aspects addressed
Organic farmers often talk about being the only organic farmer in a neighborhood and how that can be isolating. There’s pressure to have "clean” fields. Fortunately there’s a growing community of organic farmers who freely share knowledge and experience.
Organic farming can allow one to work at a more manageable family scale, Dietmann said.
“You don’t have to run 3,000 acres this year, and 3,500 acres to 4,000 acres the year after, and outcompete the neighbors for land,” he said.
Jovaag farms with his father, who has a lot of experience farming and has long been involved in conservation farming. After seeing the success of the initial 12 acres they transitioned, his father was agreeable to transitioning all their acreage to organic.
Navigating the family dynamics of transitioning to organic can be a challenge for some farmers. Sometimes it helps to point out the environmental benefits of organic production if the family values environmental stewardship and conservation. Others might need to calculate the numbers to see how organic grain production can financially benefit their farms.
Visit www.ams.usda.gov/market-news/organic for histories of organic commodity prices.
The Collaborative Conference on Organic and Sustainable Farming will be held virtually Feb. 22-27 this year. Visit mosesorganic.org for more information.