Flue-cured production costs expected to rise by 3 percent

The cost of producing flue-cured tobacco is expected to be up about 3 percent over costs from 2005, according to Bill Givan, University of Georgia Extension agricultural economist.

Flue-cured acreage in Georgia was 18,000 in 2006, a slight increase over 2005, states the state’s Agricultural Statistics Service.

“It is difficult to foresee many input prices this far in advance of the production season,” said Givan. “The prices of some items may be below 2005. But there is always the chance that some prices will be higher. A result is an estimated increase of 3 percent.”

Georgia’s tobacco yields for 2006 averaged approximately 2,100 pounds per acre or 365 pounds more than the 2005 average yield of 1,735 pounds per acre. Some tobacco had quality problems, with fields being damaged by tomato spotted wilt virus. Production for 2006 was estimated at 37.8 million pounds or 36 percent more than in 2005.

A big unknown as producers approach the 2007 season is whether or not contract prices will increase enough to cover the rise in production costs, says Givan.

“The on-farm market for flue-cured leaf is different from three years ago,” he says. “The contract price offers of the last two years have been less than total per-pound production costs. But last year’s acreage increase yield tells us that tobacco growers must have felt flue-cured leaf is still a good crop alternative.”

The reason producers might feel flue-cured tobacco is still a good alternative, says Givan, is because if they already have production equipment in place, the use of this equipment still gives a greater return above variable cost than many other crops.

“Our cost estimate per-pound of hand-harvested tobacco in 2007 (2,200 pound yield) is $1.39 and the machine-harvested cost is $1.32 per pound. A contract price of $1.45 gives a return per acre above variable costs for both harvest systems. This is not enough to cover all fixed costs, but it lets us use these facilities and equipment that would be unused with no tobacco production,” he says.

As might be expected, says Givan, there is little possibility of profit with flue-cured yields of less than 2,200 pounds per acre, even with prices greater than they have been in the past two years.

“We see a small profit with a 2,200-pound yield with prices at $1.45 per pound and above. But this is small given the amount of work required to grow an acre of tobacco. Plus, this amount is the return to fixed resources — except land — used in growing tobacco.”

Once growers reach yields of 2,400 pounds per acre and above, they see more returns to these fixed resources, he says. “We know yields are highly dependant of a variety of factors, particularly tomato spotted wilt virus and the weather, including too much or too little rain,” he says.

It is still worthwhile, however, for growers to work within production guidelines to try and obtain these yields, says Givan. “Tobacco production takes a lot of money and time. So let’s plan as best we can to get these yields and, in turn, a higher quality leaf.”

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