By Gigi DiGiacomo
Edited by Kristine Moncada, Nicole Tautges, and Craig Sheaffer
Updated 2026 (originally published 2017)
This narrative is a decision case study based on a real-life story of farmers in the Upper Midwest. Decision case studies are designed with several plausible conclusions so that readers can decide what they would do in the situation.
Case overview
Nate and Angie Walter began transitioning their 240-acre farm and 100-cow milking herd to organic management two years ago. The Walters grazed their animals outside year-round and raised an additional two-thirds of needed supplemental feed. However, during the third and final year of the transition period, organic feed prices skyrocketed. The Walters’ calculations showed that feed costs would soon exceed revenues, and cash flow into the farm would be negative. The Walters needed to decide whether to reduce their herd size or give up on organic certification altogether.
Case objectives
- Understand organic grain and feed prices and market volatility
- Consider the unique problems faced by growers who are concurrently managing transitioning livestock and cropland
- Understand how farm cash flow, assets, and debt affect the bottom line of organic farms
Dilemma
Nate and Angie Walter began transitioning their 240-acre farm and 100-cow milking herd to organic management two years ago. Prior to transition, the Walters “were always doing 85% of the organic work and just not getting paid for it,” says Angie. “We weren’t typical conventional farmers before transition.”
Nate grew up on the dairy farm that he and Angie now manage. Nate and Angie purchased the Walter family farm in 2002 at full market value from Nate’s father: 160 acres of pasture/cropland, 80 cows, 80 young stock, equipment, and buildings. They gradually added another 20 cows and 80 acres of land. All purchases were financed with a long-term Farm Ownership Loan guaranteed by the Farm Service Agency (FSA).
After researching organic production for several years, Nate and Angie decided to transition their farm in October 2010. “We decided to switch after meeting with our Farm Business Management instructor,” recalls Nate. “He showed us numbers and said that the farm would have grossed another $180,000 [in 2009] if we’d been organic.” The Walters began transitioning their land in spring 2011 and their cows in the fall of 2012 so that their land and animals could be certified together in October 2013.
The Walters raised all of their own replacements (two-year-old female cows raised on the farm from birth to replace older, non-productive milk cows). They developed their own three-way cross of Norwegian Red-Guernsey-Red Holstein cows to achieve genetics that they believe are better suited to organic management (e.g., good at converting grass to milk and living year round outside).
Nate grew the feed, managed pastures, and performed the milking, while Angie handled calf feeding and helped out with other chores.
The Walters ran a six-year rotation that included two years of corn and four years of alfalfa hay. Their management strategy was to raise all forage and the majority of needed grain on the farm for their 100-cow herd.
The Walters fed all the corn that they produced, supplying approximately 60 percent of the herd’s energy ration. They had to purchase additional needed grain and straw. This meant that while transitioning the herd, the Walters would have to buy 40% of their organic feed for the dairy herd at premium prices while selling their milk at conventional prices. Learn more about Organic Livestock Requirements in the USDA Organic program.
Uncertainty and volatility in the organic market
The Walters anticipated that they would need to purchase 3,000 bushels of certified organic corn, 2,000 bushels of organic field peas/barley to supplement the feed they raised on the farm. In addition, the Walters planned to purchase 200 bales of certified organic straw.
Nate says they were “nervous” about having to buy organic feed during transition, echoing the concerns of many transitioning farmers. “We [got] a slight transition premium for milk [from Organic Valley] during our third year [of transition] but it [wasn’t] enough to compensate for the [higher organic] feed prices.” The Walters found they couldn’t afford to purchase the needed organic feed and straw. At 2012 prices, the Walters estimated they’d need approximately $61,000 to purchase the required organic feed and bedding.
The Walters’ cash flow crunch wasn’t the result of poor planning. Organic grain prices are considered very volatile due to relatively low trading volumes and lack of price transparency (publicly reported prices). When the Walters began transition, organic corn prices were $7.04/bu, according to Farm Business Management (FBM) annual financial reports. By the time they were ready to transition the herd, organic corn prices had jumped 98 percent to $13.91/bu while conventional milk prices had only grown by 19 percent from $16.27/cwt to $19.42/cwt (Tables 1 and 2).
| Corn | 2010 | 2011 | 2012 | Average |
|---|---|---|---|---|
| Conventional ($/bushel) | 4.59 | 5.71 | 6.50 | 5.61 |
| Organic ($/bushel) | 7.04 | 10.53 | 13.91 | 10.47 |
| Milk | 2010 | 2011 | 2012 | Average |
|---|---|---|---|---|
| Conventional ($/cwt) | 16.27 | 20.08 | 19.42 | 18.71 |
| Organic ($/cwt) | 25.91 | 26.85 | 29.28 | 27.46 |
The Walters were being squeezed; their projected cash flow was negative (they wouldn’t have enough income to cover their expenses). They knew that the dairy enterprise would turn a good profit once they became certified organic. See Table 3 for a comparison of conventional and organic dairy enterprise returns. Net returns per cow (profit) on conventionally-managed Minnesota dairy farms averaged $342.35 in 2010-2012. By comparison, net returns per cow on organically managed Minnesota dairy farms averaged $669.36 (after accounting for higher feed costs). The Walters idea of going organic was a good one, however, they weren’t sure they could financially survive the transition.
| Enterprise variable | Conventional | Organic |
|---|---|---|
| Number of cows | 169 | 70 |
| Milk produced per cow (lbs) | 22,417 | 13,678 |
| Feed cost per cow ($) | 2,037.87 | 1,694.38 |
| Feed cost per cwt ($) | 9.09 | 12.39 |
| Total direct expenses per cow ($) | 3,057.79 | 2,402.41 |
| Total direct expenses per cwt ($) | 13.64 | 17.56 |
| Total overhead expenses per cow ($)* | 572.32 | 499.90 |
| Total overhead expenses per cwt ($)* | 2.55 | 3.66 |
| Average milk price ($/cwt) | 18.55 | 27.46 |
| Net return per cow | 342.35 | 699.36 |
As a solution, the Walters considered a short-term operating loan to help pay for feed expenses but were hesitant to take on more debt (in addition to their existing term-debt acquired when purchasing the farm). They prepared a business plan and ran some numbers. Initial calculations suggested that they wouldn’t be able to cover any additional debt payments at conventional lending rates, again due to cash flow constraints. They had to choose between continued organic management and additional debt, and abandoning their dreams of organic farming. What should the Walters do?
Discussion questions
- Could the Walters have done anything differently to avoid purchasing expensive organic feed during the transition period (e.g., transitioned fewer cows, etc.)?
- What resources did the Walters have to finance organic feed needs?
- What inherent risks do the Walters face by borrowing money to pay for organic feed?
- Why is the organic feed market so volatile? How does the price premium affect farmers when certified, versus when they are in the transition period?
- What particular issues are faced by transitioning dairy farmers, compared to row crop operations? Compared to livestock-only producers?
- Should there be any public or private programs to support growers transitioning both livestock and cropland to certified organic production? What services should those programs offer? How should they be financed?
- Would you have made the same choices as the Walters when transitioning? Given the choices they made, what would you advise?
Acknowledgments
This project was supported by the U.S. Department of Agriculture, National Institute of Food and Agriculture, Organic Transitions Program under award number 2013-51106-21005.
This project was also supported by the U.S. Department of Agriculture, Agricultural Marketing Service, National Organic Program under the Transition to Organic Partnership Program (TOPP) in the Midwest region.
Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy.