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Overseas tobacco pressuring U.S. producers even further

 

 

By TIM THORNBERRY

Kentucky Correspondent

 

FRANKFORT, Ky. — Burley tobacco growers in Kentucky have long been regarded as the best producers of the crop in the world, having the right climate, the right soil and the most knowledge of how to grow stellar plants year after year.

But the business of growing tobacco is not easy. It is extremely labor-intensive and selling is subject to a volatile world market that gets tougher to navigate with each season.

Last year, tobacco producers saw prices rise to levels that had not been seen since the federal quota buyout of 2004, as tobacco companies were more in need of the crop.

This year is different, with some contracts having been cut as supplies increased and demand continues to decrease.

So, producing an exceptional crop has become even more important, as is growing with a contract. Will Snell, an ag economist at the University of Kentucky College of Agriculture, Food and Environment, said those producers growing without a contract this year may run into problems getting a good price.

"We have excess global supplies and work production is up about 35 percent. Good tobacco, I think, will still do well in the $1.90s or $2 a pound, but tobacco without a contract or lower-quality tobacco that goes to the auction is going to be very vulnerable," he said.

Snell recounted a conversation with a county extension agent who informed him some auctioned tobacco had been selling in the $1.30s, at least at one market, for decent quality leaf.

"We’ve been warning growers about this situation to come, being able to withstand not having contracts just due to the fact we had a tight worldwide supply. But now with a supply increase relative to demand, it’s going to be a challenging market for some of these growers," he said.

Rod Kuegel, board president of the Council for Burley Tobacco, has been pleasantly surprised with the price being paid at contract buying stations. But for those selling without benefit of a contract or with less than top-quality tobacco, the news will not likely be as pleasant.

"I think tobacco is going to represent itself. When the supply chain is tight, like it was last year, we had a lot of tobacco making first quality that really wasn’t," he said. "It pleased us, but it wasn’t first quality, and what we have experienced here thus far this year, they are grading tobacco for what it is."

Those with quality leaf have been receiving $2 per pound or more, said Kuegel. "I thought it might be more of a buyers’ controlled market but seems to be very fair. I hope all the companies will react the same."

He noted lesser-quality tobacco will likely sell for what it is, as it did during the days when all tobacco was sold through the auction system.

Like Snell, Kuegel said his concern is for those producers raising tobacco without contracts. Having a surplus of burley is not only bad for those individual growers but for the market in general, he emphasized.

From a growing perspective, the season has not been without its challenges, but producers have managed to get a mostly good crop in the barn. The latest information from the USDA’s National Agricultural Statistics Service (NASS) reported stripped tobacco conditions to be 22 percent fair, 57 percent good and 13 percent excellent.

Some producers pulled in a late crop. By the first week of October, NASS reported 89 percent of Kentucky tobacco had been harvested. "Anytime you’re harvesting after the first of October, you know you’re taking a chance," said Kuegel – late-harvested tobacco is usually off in color and producers will likely be docked in pay when the crop is taken to be sold.

Growers here may have more to worry about than docked pay on green tobacco. Growing world production, especially from tobacco-producing countries in Africa, has increased supplies and made a once-bulletproof American market vulnerable to foreign crop being used in tobacco products.

Kuegel said generally that leaf coming from other countries did not replace the premium burley grown here, but tobacco users have shown they are cost-conscious and at some point tobacco grown elsewhere may indeed make a difference.

He also thinks the real over-supply is in flue-cured tobacco – but what happens in flue-cured happens in burley.

Brian Furnish has seen the tobacco marketing situation from two sides: as a grower and as a tobacco company owner. Early in the season he said market conditions were going to be different and non-contracted tobacco could have a difficult time finding a home.

The early markets have shown just that. He said the best tobacco on one auction floor only brought $1.35 per pound, far below what contracted growers are receiving for similar quality burley.

"There’s no way to get a handle on exactly how many (are growing without a contract) but there are a lot this year. There’s going to be a lot of pounds without a contract," he surmised.

12/3/2014