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Kentucky tobacco growers might cut production again

By TIM THORNBERRY
Kentucky Correspondent

SHELBYVILLE, Ky. — With tobacco growing season coming, growers have more to contend with now than ever before, including a bad economy and the prospect of cutting back on production.

The cutbacks aren’t just driven by input costs – in fact, compared to the last two years, fuel and labor costs have come down. This season many growers will have to cut back because of tobacco company rules.

The tobacco quota system ended five years ago on the premise that producers could grow as much as they wanted, provided they could sell it. But the contracts many signed with large companies such as Philip Morris came with a scorecard, of sorts: The producers were graded on their crops’ performance and delivery amounts, which dictated how much of the crop they could grow under the following year’s contract.

Two years of bad curing conditions have lowered production for many, which may lower overall production in the state for another year, a trend that has continued since the federal quota buyout.
Dr. Will Snell, an agricultural economist with the University of Kentucky College of Agriculture, spoke with the U.S. House’s Subcommittee on Rural Development, Biotechnology, Specialty Crops and Foreign Agriculture this spring about the state of tobacco and voiced some of his concerns.

“The tobacco economy has changed dramatically in recent months,” Snell told the committee.

“Global needs for U.S. burley tobacco are being adversely impacted by an increasing value of the U.S. dollar, a global economic downturn and increasing foreign supplies of lower quality tobacco.
“Domestically, tax increases, smoking restrictions, health issues, shifts to smokeless tobacco products, increasing availability of imports, movement of cigarette production overseas and possibly anticipated FDA (Food and Drug Administration) regulation are reducing domestic needs for U.S. burley.”

Snell told the representatives his analysis indicates that there is now more of a balanced supply/demand scenario, or possibly an oversupply situation, than an excess demand for U.S. burley.
He also said the downturn in dark tobacco contract volume expected in 2009 is more of an oversupply issue than a demand issue, following a massive excessive expansion in 2008.

So, the decline in dark acres this year will enable the industry to get back in a more favorable supply-to-use scenario, to take advantage of anticipated growing product demand.

“In response to these changing market conditions, U.S. tobacco buyers have been reassessing their buying strategies during the past few weeks. Some of the better growers may actually see production opportunities expand, but most will see their levels reduced, while others may not be given an opportunity to renew their contracts in 2009,” said Snell.

The number of tobacco farms in Kentucky was more than 40,000 before the 2004 buyout. Today they number just over 8,000, according to 2007 ag census information, leaving fewer producers to grow more – something Ray Tucker, a producer in Shelby County, has experienced.

“Just six years ago I was producing 13 acres of tobacco; now I’m at 110. But, tobacco production as we know it as far as 2009 goes, has changed. If people think 2009 is bad, I do think 2010 is going to be worse,” he said.

“If we have another bad curing year like we’ve had the last two years, I don’t know what that is going to do. It’s a whole different ballgame that what it used to be.”

Tucker noted farmers are paying the price in production cuts in some cases by no fault of their own. “It’s out of the farmers’ control with what has happened. We can’t control the weather,” he said.
Tobacco farmers are picking up their game and working tirelessly to keep yields up, trying different varieties and paying close attention to plant health. No longer do they depend on the plant, which has been known as forgiving, to take care of itself. Tucker said he will be in the fields if not every day, every other day, until the crop makes it to the barn later this summer.

“We’re working on some things on our farm, doing things differently, trying to get our quality up even if we do have a dry curing season,” he said.

One of those things includes introducing steam into tobacco barns while the plant is still green, to keep moisture levels up.

“We are really competing against our neighbors now. A farmer like me who is trying to expand every year and keeping up my quality, I’m going to try and do better than my neighbor down the road so I can get those pounds,” said Tucker.

“The markets are tighter and we have to have those yields to make our farm payments. We have to make sure we have to get all we can out of the crop but at the same time, we have to make sure it’s a usable crop that we can sell.”

One thing producers need is a marketing plan to make a go of it in today’s market. Snell said with growing concerns over a wide variety of factors, those producers contemplating upping production or considering raising a crop again should consider some sort of marketing strategy.

“While most farmers without a marketing plan have been able to find a profitable home for their tobacco during the recent excess demand period, I am not confident that alternative marketing outlets can absorb a significant boost in production in 2009 without some major price adjustments,” he said.

Going into the season without a contract is concerning, he said. “Although burley demand may be off 10 to 20 percent this year, U.S. burley acreage is virtually unchanged from the 2008 crop, which could result in some burley, especially low-quality leaf, not being purchased or sold at a discounted price.”

5/6/2009