Is it safe to grow tobacco off contract?

As tobacco growers adjust to the shock of substantial reductions in the number of pounds offered in contracts by many of the manufacturers, a number of them have wondered about the wisdom of planting enough acres to produce leaf beyond the contracted limits.

Chris Haskins of Chatham, Va., thinks this is a bad idea.

“Tobacco is way too ‘high-input’ a crop to grow if you don’t know you have a home for it,” says the flue-cured and burley grower. “I would not even think of growing tobacco I wasn’t sure I could sell.”

He had some temptation: Haskins received a cut in his flue-cured contract for this season, as most flue-cured growers did. But the thought of making up for it by planting off-contract tobacco was not appealing at all. “That would be one of the most unsafe management decisions I could make,” he says.

Danny Peek, Virginia Extension tobacco specialist, advises growers not to plant any acres without a contract.

“You are not going to have many options to sell it,” he points out. “In southwest Virginia, our traditional burley area, we don’t have an auction warehouse anywhere near us. If you grow uncontracted tobacco and your company won’t take any overage, you are going to have a problem.”

One of the burley cooperatives might be able to buy some excess, but they will be able to take only so much, says Peek. “The tobacco industry is too unstable to take risks like this.”

Many farmers may plant a small percentage over their contract to insure they make their pounds, and that may be a good idea, says Peek. “But I don’t think you should increase production with the idea that you'll find a buyer for it.”

Paul Denton, Tennessee Extension tobacco specialist, says he would not grow uncontracted tobacco this year.

“The companies are saying they are not taking the overage,” he says. “The burley markets were weak late in the 2008 marketing season, another indication that 2009 is no year to be gambling on whether uncontracted tobacco can find a home.”

But for burley, at least, there has frequently been a market of last resort for uncommitted leaf and sometimes more than one.

That is mainly because auctions didn’t disappear in the burley states as they did in the flue-cured area. Grower Roger Quarles of Georgetown, Ky., says Kentucky has two strong burley auction markets — in Danville and Mt. Stirling — and tobacco has sold at them at prices quite close to the contract price.

“The auctions have been an excellent place to take tobacco that doesn’t have a home,” says Quarles. “I couldn’t tell you for sure who is buying this tobacco or where this tobacco is ending up, but the auctions allow farmers to turn it into money the day they deliver it.”

The Lexington, Ky., burley cooperative and some leaf dealers also buy uncontracted tobacco from farmers, he says.

But it isn’t wise to grow too much, he says. “When you are producing a product that has a very limited market, it is not a good idea to produce a lot that doesn’t have a home or a price,” says Quarles. “Personally, I try to grow 20 percent over what I have contracted. Hopefully, I can take the extra production either to the co-op or to an auction.”

For Virginia grower Haskins, even that small a percentage would be too much of a risk. To make up for lost income, he is focusing on producing quality and economizing on production costs. “But we are trying not to cut too many corners, because that can affect quality,” he says.

One strategy for 2009 is to hire no more labor than he absolutely has to. “We try to do as much as possible ourselves. For instance, last year we sent our H-2A work crew home as soon as we finished harvesting the flue-cured.”

Haskins and his father Kenneth baled the remaining flue-cured, Then, with the help of a few local people they stripped and baled the burley tobacco. “This definitely costs less than keeping the crew through the end of the burley season,” he says.

Haskins built a new burley curing structure last year, and again labor efficiency was a big part of his goal.

It is a one-tier structure, open on all sides. One worker drives the cart down one side of the barn, and another carries the loaded sticks to Haskins, who hangs them on tier poles that are about 6.5 feet off the ground.

“It costs more to build a low-profile structure like this, but we think this one will pay for itself in the long-term because it is so much easier and faster to hang,” he says.

Worker safety is another benefit: Since the tobacco is hung entirely from the ground, it is a much less hazardous process than hanging multiple tiers, says Haskins.

The structure is 28 feet wide and 270 feet long and holds four acres at 7,000 plants per acre.

He kept the cost low by using inexpensive materials. The tier poles are four-inch aluminum irrigation pipe which can be bought fairly cheaply. The posts are either electric poles or cedar posts, and the roof is covered with used tin. The only new materials were the rafters and sheeting boards.

He got a small increase in his burley pounds, so Haskins plans to add another 210 feet in length before harvest.

There is no mystery why companies cut back on contracted volumes, says Rick Smith, president of Independent Leaf Tobacco Co. of Wilson, N.C.

“Congress legislated SCHIP this year with its dollar-a-pack excise tax increase on cigarettes,” he says. “Also, domestic consumption is down, FDA legislation looms ahead and cigarette production continues to move off shore. All this doesn’t encourage companies to contract for any more tobacco than they need.”

Still, more uncontracted tobacco may be planted this year than in any year since deregulation.

“Farmers may bet the companies didn’t contract enough to meet their needs,” he says.

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TAGS: Tobacco
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