Leaf sale to China brightens tobacco outlook

Richard Jenks has been growing flue-cured tobacco for most of his 68 years. But the 2005 market was so disappointing that he very nearly got out of the business.

“It just about got that bad,” says Jenks, who farms near the town of Apex a few miles south of Raleigh N.C. “I sold my leaf at the cooperative auction in Wilson, and I averaged $1.29 a pound. That was just a little above my cost of production, which I figured to be $1.27 a pound, and that was including nothing for depreciation, which you can’t do without for long. The outlook was beginning to look pretty bleak.”

Then, just when tobacco growers needed a bit of hope, it came in the form of a big sale to a customer that has not been a significant buyer of U.S. leaf in more than a generation.

The import arm of China’s state tobacco monopoly sent a delegation to the

United States this past October, and it bought just short of 13.6 million pounds of tobacco (about 20 million pounds farm sales weight) from Flue-Cured Cooperative, the grower cooperative for that type. About 10.3 million pounds came from existing 2004 stocks, and 3.3 million pounds came from the 2005 crop, which already had been sold by that time. This tobacco, valued at approximately $35.3 million, will be shipped by February 2006.

In addition, an estimated 3.8 million pounds were purchased from leaf dealers so that the total flue-cured tobacco purchased from the United States by China was approximately 17.4 million pounds processed weight or about 24 million pounds farm sales weight. That would be just over 6 percent of the USDA’s estimate of 384 million pounds of flue-cured production at the farm level in 2005, enough to cause quite a stir in the American tobacco market any year.

This agreeable turn of events chased away any thoughts Jenks had of quitting. “I am definitely going to plant tobacco one more year,” he says. “We have a good chance to build a working relationship, and I’d like to be a part of it. If we can just honor the requests they are making, we might have a 100-million-pound market with them. You can just imagine what the benefits of that would be for our farmers.”

Jenks has been a director on the board of the flue-cured cooperative for 22 years and an acknowledged leader among growers for most of that time, and he would like to see the organization get even more involved in the U.S.-Chinese trade. But even if future of sales of U.S. leaf are made by independent dealers, or for that matter even if manufacturers like Philip Morris took some of the market with cigarettes made with more American leaf, the farmer here would come out better.

In the recent past, China has purchased about 110 million pounds annually of flue-cured tobacco from Zimbabwe and Brazil. “China is looking to replace Zimbabwe as a source of flue-cured tobacco,” says Arnold Hamm, general manager of the cooperative. “Their assessment is that Zimbabwe will not have any meaningful supply of flue-cured tobacco until changes are made.”

What we are seeing now is that China is trying to replace Zimbabwean flue-cured with U.S. flue-cured.

“This is our opportunity,” says Hamm. “We have to plan carefully. This is a growth market that can help begin to turn around years of decreased U.S. flue-cured production.”

That has been difficult before, but thanks to the lower prices that have resulted from the termination of the federal price support program, U.S. tobacco is much more competitive on the international market.”

“We have to take every advantage to capture this vast market that is opening up,” says Hamm. “There are 300 million smokers in China versus 50 million in the United States. China smokers consumed 2.4 trillion sticks last year, and 99 percent are made with 100-percent flue-cured.”

There will be a learning curve associated with growing flue-cured for the Chinese market, says Jenks, who visited with the delegation in October.

“Their cigarettes are all flue cured: They don’t blend in any burley or Oriental tobacco,” he says. “Evidently, they need different types of flue-cured leaf to make up for that. They asked a lot about our ‘white’ tobacco, by which they meant lemon leaf.

“We may need some changes in our production program to produce what they are looking for. Maybe we would use a little less fertilizer. And we might need to pull our leaf a little earlier.

“We might also start to sort out cutters. They haven’t been in high demand in a long time, and a lot of farmers have gotten in the habit of including them in their leaf grades. But it would be easy enough to separate them out.

“One thing is for sure: The Chinese don’t want much of the top part of the stalk. They are going to be a market for our primings that we haven’t had in a while.”

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