Yes, you can start farming in Normal mode. Yes, even in Nightmare, Hell and (as far as I know, Inferno- although I haven't got that staff set up yet). Once you have the Staff, you can upgrade to the different "modes" and still have the ability to go back and farm lower level gears/gold (I am running Hell right now, I have not stepped up to the Inferno....I know, bad alto....)
But the question is, how in the hell do you get the Staff of Herding that allows this? Easy. A quick google search a while back brought me to about ten different sites, all with valuable information to pull this off. It wasn't until the last place I looked (isn't that where you always find it though?) that I found this full detailed video (for a written walkthrough, scroll down to the bottom of the page- however, I recommend you to at least listen to the video, as the author did a great job speaking the steps):
Sure, it's 12 minutes long, but alt/tab back and forth from this video to your game screen. I already had a few of the items needed to create the staff, and you probably do as well. So do yourself a favor. Check first, and don't over farm for an item that is already in your inventory.
Now, the same author has a video as well on "how to upgrade" your Staff of Herding...
I hope this helps you on your quest for killing ponies and making gold in D3!
For the feint of heart that just wants to read, here you go:
*courtesy of DiabloWiki: http://diablo.wikia.com/wiki/Whimsyshire
Step 1 (Acquire all items)
Black Mushroom, which spawns on the first level of Tristram Cathedral in Act 1.
Leoric's Shinbone which is located randomly in the fireplace in Leoric's Manor in Act 1.
Liquid Rainbow is found in a Mysterious Cave within Dahlgur Oasis. The cave is opened by Zaven the Alchemist after he has been saved from a pack of Deathly Haunts. The item is located within a Mysterious Chest. Neither Zaven nor the chest are guaranteed to appear.
Wirt's Bell is sold from Squirt the Peddler in Caldeum Bazaar in Act 2 for 100,000 gold. May not always be found as being sold.
Gibbering Gemstone drops from Chiltara within the Caverns of Frost in Act 3.
Plans: Staff of Herding drops randomly from Izual in Act 4.
Step 2 (Build Staff of Herding)
Teach Haedrig how to build the staff. The recipe includes all of the items found previously, as well as a one-time injection of 50,000 gold.
Step 3 (Talk to the Ghost of the Cow King)
Put the Staff of Herding in your inventory (it's not necessary to equip it). Note that the staff is permanent and it is not consumed, infact you can replay the whimsyshire level as many times as you like.
If necessary change quest and select ACT I (e.g. "A Shattered Crown" or later).
Take The Old Ruins waypoint (Act I) and head west down Old Tristram Road, hug the south wall. There should be a Skeletal Corpse (resembling a cow) and a "rift" in one of the crevices in the ground. If you have the Staff, the Ghost of the Cow King will appear with a quest above his head. Once finished click on the rift which should be now glowing red, blue, yellow, etc. (rainbow colors), to enter whimsyshire.
The whimshire difficulty is one notch higher than the campaign you are playing; e.g. if you are playing the normal campaign expect whimshire difficulty to be almost nightmare.