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Market may be slim pickings for Kentucky tobacco growers

 

 

By TIM THORNBERRY

Kentucky Correspondent

 

FRANKFORT, Ky. — The final production numbers from last year’s burley tobacco crop reflected something producers already knew: Production exceeded demand.

Kentucky growers produced 163 million pounds, a 10 percent increase over 2013. Average yield was 2,150 pounds per acre, up 150 from the 2013 crop, and acreage harvested was up 3 percent from 2013 at 76,000 acres, according to information from the USDA’s National Agricultural Statistics Service (NASS) Kentucky field office.

Across the Burley Belt producers raised a total of 213 million pounds, up 11 percent from 2013. However, while production went up, prices came down – average price per pound was estimated at $1.94, down 12 cents from the previous year, noted NASS.

This year’s planting intentions report denoted a decline in expected production, but not a huge drop; 70,000 acres for harvest for state growers and 93,700 acres for the Burley Belt. But those numbers may change as the season shakes out.

Many producers lost their contracts for 2015, something that could be considered the kiss of death for them in a highly volatile market. This could prove to be a tough season for those still holding contracts – and nearly impossible for those who don’t.

Rod Kuegel, board president of the Council for Burley Tobacco (CBT), said across the board there were probably cuts in contracts of about 20 percent.

"The tragedy in all that is there’s a lot of people that just got cut out, especially with the move by PMI (Philip Morris International, Inc.) to Universal (Corp.). Anyone who did not have that three- or five-year contract were just about eliminated and a lot of these people have been producing tobacco for three or four generations," he said.

Last November PMI announced its decision to adopt a new leaf-buying model in the United States. According to a statement from the company, it was transitioning from directly purchasing tobacco through contracts with U.S. growers to purchasing through two suppliers, Alliance One International, Inc. (AOI) and Universal with this new purchasing model taking effect April 1, 2015.

Kuegel doesn’t know what those who lost contracts can do and there is likely nowhere else they can go get another contract. "It’s a sad situation and an evolving time for our tobacco farmers," he said.

He said after 10 relatively good years with up-and-down cycles, the supply has now caught up to the demand, and that can cause some real problems.

One thing that has been a mainstay for burley producers here is a robust export market. That too could be changing as increases from foreign production, less product demand and a stronger U.S. dollar are affecting the once thriving American burley export market.

Will Snell, an agricultural economist at the University of Kentucky College of Agriculture, Food and Environment, wrote earlier this year that a 30-35 percent increase in global burley production over the past two years, coupled with blended cigarette sales falling 5 percent or more in many traditional U.S. cigarette markets, abruptly changed the favorable supply/demand balance this past marketing season.

He went on to say export demand for U.S. leaf is off by more than 20 percent, due not only to lower blended cigarette sales, but also in response to an abundance of lower-priced leaf and an increasing value of the U.S. dollar. Collectively, these factors threaten to generate lower U.S. tobacco prices and contract volume for 2015 – something farmers have ultimately seen.

Kuegel said U.S tobacco companies should be committed to American producers and not shrink those suppliers any faster than the market will dictate. He also said he’s not sure the partnership environment that once existed between growers and tobacco companies when demand was high is still around now that the market has changed.

5/21/2015