Tobacco marketing season has reached final stages

The last of the 2006 U.S. tobacco crop moved into the market early in 2007. Although a little was expected to go on sale this month, the great majority of this crop figured to be sold by the end of February.

The most memorable aspect of this year's tobacco market will no doubt be how little of the crop was sold at auction. It was clear to all observers that the lowest proportion of total volume was auctioned than in any year since the modern tobacco marketing era began in 1939. Contracting had taken over as the marketing method of choice.

To some, the time-honored tradition of auctioning leaf from a warehouse floor appeared to have moved its last bale. But growers of some tobacco types remain determined to preserve this sales option.

“Most growers value the presence of an alternative market to ensure a way to sell those pounds that are not sold through contract,” said Roger Quarles, a Georgetown Ky., tobacco grower and president of the Burley Tobacco Growers Cooperative in Lexington Ky. “The amount of tobacco sold at auction (now) pales in comparison to contract sales. But many producers are concerned about what will happen when excess pounds are no longer accepted under contract or if companies start rejecting leaf with less desirable traits.”

The general manager of the Tennessee burley cooperative said this year's sales had been very encouraging.

“We have been very pleased with the auction,” said Charles Finch of the Burley Stabilization Corporation of Knoxville Tenn. “It's been a service to the farmers.”

Both burley cooperatives indicated auctions would be back for at least one more season.

Scott Althauser, acting director of the Burley Tobacco Growers Cooperative, noted the organization's board has committed itself to having a marketing alternative to contracting in 2007. “If the warehousemen don't want to do it, we will have to find some other way,” he said.

And auctions appear to be coming back for dark tobacco, too. Auctions of Kentucky and Tennessee dark tobacco this season were an unqualified success as far as the organizers were concerned, and they hope to continue them.

“We have been pleasantly surprised: Sale prices of leaf tobacco at the auctions have been close to the contract prices,” said Kenneth Smith, general manager of the Eastern Dark Fired Tobacco Grower's Association in Springfield, Tenn. “Right now, we feel fortunate that our auctions went as well as they did. But we would like to see more tobacco on the floor next year because you need a certain amount of tobacco to keep a warehouse open.”

In the flue-cured states, auctions very nearly disappeared in 2006, and the leader of the grower cooperative questioned whether this marketing method would ever again play a significant part in marketing of this type.

“We had only a couple of auction sales, both very small,” said Arnold Hamm, chief executive officer and general manager of the Flue-Cured Tobacco Cooperative in Raleigh N.C. “They were held late in the season at Rural Hall, N.C., and Statesboro Ga., at members' request, to see if demand was strong enough to raise prices above our advance rate. There was not enough tobacco sold at either auction to attract significant interest from buyers.”

Little if any tobacco was delivered by farmers to the warehouses beyond what was covered by contracts, because it was all finding a home before it got to the warehouse.

There was a scramble among buyers for uncommitted leaf, and deliveries to the cooperative were just not enough to justify a full auction schedule in 2006, said Hamm. It is still possible auctions for flue-cured may resume next year, but an era may be over, he thinks.

“We may have auctions again next year and in future years, but in my opinion, auctions will never be as big a factor in flue-cured sales as they have been in the past,” said Hamm.

The cooperative's other marketing centers — where auctions might have taken place if a season had been mounted — were Nashville, Ga.; Lake City and Mullins, S.C.; Clinton and Williamston N.C., and South Hill and Danville Va. It accepted deliveries at all those warehouses.

By contrast, the two burley grower cooperatives were able to mount a legitimate auction season, but not at the level that had been expected. Through Jan. 18, with a few sales still to report, a total of 4.1 million pounds of burley had been sold at auction for an average price of $1.60 per pound, said Althauser.

Sales were expected to continue through early February.

All warehouses auctioning burley this year were commercial operations, but they received some support from the two burley cooperatives.

Burley Tobacco Growers Cooperative, which represents growers in Kentucky, Ohio, Indiana, Missouri and West Virginia, provided the electronic bidding system and pesticide testing services at warehouses in Danville, Harrodsburg, Mount Sterling, Lexington and Maysville Ky.

Burley Stabilization, which represents burley growers in Tennessee, North Carolina and Virginia, provided similar support to warehouses in Carthage, Fayetteville and Greeneville, Tenn., and Asheville N.C.

Of the nine markets where burley auctions were held, Danville, Ky., had by far the largest volume at 2.2 million pounds. It also had the highest average price at $1.64 per pound. It was followed by Mount Sterling, Ky., with volume of 891,783 pounds and Asheville, N.C., with 315,327 pounds.

All the Kentucky-Tennessee dark auctions took place in Hopkinsville, Ky., and were organized by the Springfield cooperative. Four regular sales were to be held in January and February, and it was expected that a cleanup sale would be needed in early March to bring in all remaining leaf, said Smith in late January.

“Through the first three sales, about 300,000 pounds moved at auction,” said Smith. “We believe there is at least 100,000 pounds to go, and maybe 150,000.”

He estimated auction prices would average around $1.40 per pound counting both lowerstalk grades and leaf.

The last auction for the 2006 Maryland crop will most likely be held in Hopkinsville.

In years past, the growers of Type 32 light air-cured leaf in Maryland normally held the last auction of the season in the spring. But since production of Type 32 in Maryland dwindled to only about 50,000 pounds in 2006 and contracts were available, no auctions will be held for this type, said Pat McMillan, assistant secretary of the Maryland Department of Agriculture.

The last Maryland tobacco auction was held in 2006 in Hughesville.

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