Credit For Start-Up Farmers

DANIEL LOOKER Updated: 04/06/2014 @ 4:59pm Business Editor

We all know that many farmers don’t retire. One reason some give is that young people aren’t attracted to the hard work.

Don’t tell that to Alison and Jim Deutsch of Osseo, Wisconsin. Neither one grew up on a farm. They spent 10 years looking for land to rent before starting a hog operation in 2007. By 2010, they were able to buy 160 acres from retiring dairy farmers, only to have their first corn crop hailed out. A mediocre year was followed by two years of drought. Yet, they’re still going, building a business that sells meat to consumers as far away as Milwaukee and pork to upscale Niman Ranch.

Don’t tell that to Dave and Annette Hill, either. Dave did grow up on a farm near Rushford, Minnesota, but, as he puts it, “I graduated in the mid-1980s, and there really wasn’t an opportunity for me.” He became an electrical engineer, working for IBM in Rochester. One day, he visited a nearby farmers market, talking to a beef producer who was living comfortably on 80 acres selling directly to consumers. From the farmer’s prices, “I figured out, holy smokes, this guy is grossing five grand an animal,” he recalls. 

The FSA helping hand to beginners

Dave saw an opening. He, too, could start raising beef for direct sales. He found a farm for sale 5 miles from his parents. With a good job and his farm background, “I arrogantly thought I’d have no problem getting a loan,” he recalls. 

When he applied at AgStar, a Farm Credit System lender, he was told he needed a bigger down payment and his debt-to-asset ratio was too low. “I didn’t own enough stuff,” he says. He contacted several banks. “They never got back to me; they didn’t even call,” he says. 

Eventually, the Hills moved to Holy Cross, Iowa, and rented land that had been in Annette’s family. Three years later, they got a beginning farmer loan from USDA’s Farm Service Agency (FSA) to buy the 150-acre crop and hay farm.

“Without the beginning farmer program, we wouldn’t have been able to get a loan,” Hill says. 

The Hills and the Deutsches are FSA beginning farmer loan borrowers. 

FSA beginning farmer programs got some improvements in the new farm bill. They’re often the only way young farmers with modest resources can start owning land. Banks do make beginning farmer loans. They’re the biggest partners in one FSA program, beginning farmer down payment loans. The Farm Credit System loans almost seven times as much to farmers with less than 10 years experience, the USDA definition of a beginner. (USDA has no age cutoff.) 

Yet, FSA remains, as the agency calls it, the “Agricultural Lender of First Opportunity.”

New and improved

For years, the National Sustainable Agriculture Coalition worked to improve FSA services to young farmers, getting USDA to devote a large share of FSA loans to beginning farmers and ranchers. 

Ferd Hoefner, the group’s policy director, describes new improvements. The farm bill makes permanent a microloan program – seven-year term loans of up to $50,000 for livestock, equipment, and operating costs. It raises the total value for farm ownership down payment loans to $666,000, which works out to $300,000 loans from FSA. The starting farmer must put down 5% of the purchase price, FSA covers 45%, and a lender (bank or Farm Credit) provides 50%.

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