For decades, the relationship between a dairy farmer and a lender was often built on a firm handshake and a look at last year’s tax returns. But in the modern dairy landscape, the handshake has been replaced by a high-speed data transfer.
To the uninitiated, the mountain of spreadsheets, herd monitoring reports and feed inventories required for a loan might feel like a bureaucratic hurdle. To Ashley Vande Zande, senior credit officer for Compeer Financial, and Gary Sipiorski, an independent dairy financial consultant, that data is something much more powerful: It is a story.
Painting the Picture
“Detailed data helps paint a picture of your farming operation,” Vande Zande says.
When a loan moves from a farmer’s kitchen table to a lender’s desk, it travels through a gauntlet of departments from origination to underwriting to final funding. In those back offices, the people making decisions haven’t walked your pens or seen your new parlor.
The data acts as their eyes. Accurate, complete and detailed records allow a lender to develop financial trends. These trends aren’t just numbers; they are an analysis of the borrower’s balance sheet and earnings that identify hidden strengths and calculate true borrowing power.
Without the data, the picture is a blur; with it, the lender can see exactly where the operation stands today and, more importantly, where it can go.
The Cow-Side Connection
One might wonder why a credit officer cares about herd monitoring records or cow flow. For Vande Zande, these metrics are the leading indicators of financial success.
“Submitting herd monitoring or feed information allows us to drill down into the operation’s herd health and production,” she explains.
Consider a farmer who invests in improved cow comfort or a more precise ration. The immediate result is a spike in milk production. In the eyes of a data-savvy lender, that spike isn’t just a win for the cows; it’s a forecasting tool. Improved production trends suggest higher future revenue, which leads to better efficiency ratios. This historical data cements past performance and allows the lender to structure a loan that suits the operation’s specific repayment ability.
Furthermore, these records turn “invisible” assets into collateral. Detailed machinery listings and inventory spreadsheets provide a clear understanding of the assets available to secure a loan, giving the farmer more leverage and the lender more confidence.
The Consultant’s Checklist
Sipiorski, who has spent decades navigating the bridge between the barn and the bank, views data as the ultimate tool for financial soundness.
“Financial data are the only way a lender can determine a farm’s profitability,” Sipiorski says. “As long as a farm wants to borrow money, lenders will demand data.”
Sipiorski notes that while technology like RFID tags and computer outputs are great for management, the lender is looking for four financial pillars:
- Solvency — Can the farm survive a market hit?
- Liquidity — Can the farm pay its bills on Tuesday?
- Profitability — Is there actual net income after the dust settles?
- Repayment ability — Can the operation cover principal and interest without breaking?
Lenders may evaluate as many as 25 different items, ranging from debt per cow to the increasingly vital metric of debt per hundredweight (cwt) of milk. These numbers ensure that a loan is a ladder, not a weight. As Sipiorski bluntly puts it: “No lender wants to set up a farm to fail.”
The Partnership Model
At the heart of this data obsession is a shift in the philosophy of ag lending. For lenders like Compeer Financial, the goal isn’t just to be a source of capital but rather a partner in the operation’s future.
“We really want to partner with our clients, so they understand every aspect of their finances,” Vande Zande says. “We’re here to help crunch the data so they know where they stand today and where they can go in the future.”
By sharing data, the adversarial nature of the bank-client relationship disappears. Instead of a farmer asking for money and a banker looking for reasons to say no, the two parties work together to establish specific steps to work toward long-term goals. The data allows the lender to understand the industry factors, both positive and negative, that have affected the operation, allowing them to build a loan structure that survives the volatility of the dairy market.
The Bottom Line
Combing through data and financial planning can be an overwhelming part of running a dairy, but it is the only way to move from surviving to thriving. In today’s modern era, the most successful dairy farmers aren’t just experts at cow comfort or crop yields; they are masters of their own farm information.
When you hand over your data, you aren’t just fulfilling a requirement; you are giving your lender the tools they need to help you win.
Your Next Read:
Data, Dirt and the 100-Year Legacy: Inside Rib-Arrow Dairy’s Tech Revolution
