By TIM THORNBERRY
Kentucky Correspondent

LEXINGTON, Ky. — The tobacco industry has long been an economic staple for the Kentucky grower. Even in an era of declining production following the federal quota buyout, and new U.S. Food and Drug Administration oversight, tobacco is still a force to be reckoned with on the agricultural stage.

A new company is giving farmers another avenue through which to sell their crop. The Burley Tobacco Growers Cooperative (BTGC) has launched the US Growers Tobacco Co. (USGTC) to give farmers an option in selling their crop, when more conventional means are not suitable.

Most producers sell to large tobacco companies through yearly contract, but many have seen their contracts shrink due to poor crop quality or a saturated market.

The growers are also at the mercy of what the tobacco companies are willing to pay, a side effect of the free-market system which took over in 2004 with the buyout. Price supports in place before the buyout went away with that federal legislation.

Brian Furnish, general manager of the USGTC, said over the last couple of years he has seen a situation in which farmers had more tobacco to sell once contracts had been fulfilled, and felt the new company could be a way for producers to sell any extra tobacco.
“We thought this might be a way to let farmers move their tobacco without giving it away,” he said. “We saw some really good tobacco last year that brought 75 to 80 cents a pound in clean-up sales, and we felt like the tobacco was better than that and that farmers ought to have the opportunity to do something with it.”

The new company will take any type of tobacco and grade, process and store it while producers wait for prices to become more favorable. In return, tobacco owners will pay USGTC 10 cents per green pound for the services, plus the normal storage and processing fees. Owners will be paid once their tobacco has been sold and processing and storage fees are deducted.

“We can’t buy all the tobacco that might be available, we just don’t have the resources, but we thought this was a service we could offer and it could help some farmers,” said Furnish. “This isn’t perfect for everybody, because some people have to have their money, but we thought we would create this and see what happens.”

Furnish, who serves in the same capacity for the co-op, also said while other commodities can be stored on the farm for later sale, tobacco was more difficult to store.

“If farmers get to the point where they have exhausted all their opportunities to sell their tobacco and have not been offered a fair price for it, they can deliver it to us at no cost. We’ll pay for the processing, storage and will insure it, and when it is sold at hopefully a better price when there is not a flood of U.S. tobacco on the market, then we will take out the cost,” he said.

Furnish added the company will be able to search markets all over the world in order to find the best price for the tobacco.
Roger Quarles, a tobacco producer and president of the BTGC Assoc., said the venture has produced some questions but that is to be expected.

“The tobacco market has always been subjective; it’s like selling cattle at the stockyards, but you can run into situations where there are local markets that are far undervalued for a short period of time,” he said.

“This gives the person trying to sell tobacco an opportunity to properly store it and avoid those localized markets with distressed prices. Typically, that will show up at the end of the marketing season when contract stations close.”

Quarles also said he expects to see some lower quality tobacco that has been rejected by the contract stations, a situation with which the USGTC can work. He noted the global price of tobacco doesn’t change drastically in a given time of year like some other commodities, such as corn.

But corn farmers can store their product on the farm in bins or at the grain elevator until those prices are better.

“As far as the disadvantages to the program, of course the farmer cannot have money that day, but at the same time, we’re issuing a certificate that will have a grade or quality on it and it will have the pounds on it,” said Quarles.

He added with that certificate in hand, it is the company’s hope that a farmer could take it to a lender and convince them to make an equity loan against the crop. That’s something lenders haven’t warmed up to because, as Quarles put it, they don’t fully understand the system yet.

“Quite frankly, this equity-type loan is far more secure, in our opinion, than the production loans issued to farmers at the beginning of a year which are based on luck and a prayer,” he said.
In an era where tobacco farmers are under more pressure than ever to fulfill their contract or face getting their poundage reduced, the only way to guarantee it is to buy tobacco on the open market, if a producer comes up short or overproduces, said Quarles.
“Most people overproduce in order to have their contract pounds and then, of course, they have as much tied up in those overage pounds as in what they sold. This is an effort to get them back as much money as possible,” he said of the new company.

To schedule delivery time or to receive more information on USGTC, call 859-231-9856.