Tobacco acreage in the Southeast isn’t likely to ever reach pre-smoking ban/high tobacco tax level days in the U.S., but in recent years niche markets have provided a good source of income for leaf growers in the Carolinas, Virginia, Kentucky and eastern Tennessee.
The USDA Prospective Plantings, released on March 31, indicated U.S. flue-cured tobacco farmers intend to plant 213,000 acres for 2011. The report is based on USDA surveys of growers taken during the first two weeks of March.
By the time May transplanting season came, the March 31, planting intentions in some areas of the upper Southeast looked significantly different than in early March when the planting intentions survey was conducted.
Most tobacco transplants are in the ground now (mid-May), and there is optimism for a good crop in 2011. Long-term the optimism is more tempered by recent events that leave some growers wondering how long growing the golden leaf will be an option.
Getting seed to grow transplants in 2011 has been an interesting process for many growers. The big changes leave some wondering about the future of seed availability, or more importantly, the long-term stability of tobacco seed prices.
A recent announcement by GoldLeaf Seed left some wondering exactly what is going on in the tobacco seed business. GoldLeaf Seed, the leading provider of flue-cured tobacco seed to the U.S. domestic market, announced it will no longer be marketing varieties produced by F.W. Rickard Seed.
“F.W. Rickard varieties have been part of our catalog for many years” stated Marion Hawkins, III, vice-president of GoldLeaf, “but the growth of our own flue-cured varieties has largely replaced them.” GoldLeaf Seed is a private, family owned company based in Hartsville, S.C.
For almost two decades, GoldLeaf Seed has been the source for the majority of seed used by tobacco growers in the United States. GoldLeaf was formed from an acquisition of breeder seed and inventory from some of the oldest tobacco seed companies, including Northrup King, McNair Seed, and Coker’s Pedigreed Seed.
For example, GoldLeaf Seed produces NC 196, the leading variety in the United States, and other top varieties like NC 297, NC 72, and K 346.
F.W. Rickard Seed is a brand of Profigen, Inc., a company primarily based in Brazil, but wholly owned by Phillip Morris USA and the Altria Group. Rickard seed have been sold in the U.S. for many years, most recently by GolfLeaf.
The Altria Group recently acquired UST Inc. and its subsidiary the U.S. Smokeless Tobacco Company (USSTC). The transaction, valued at approximately $11.7 billion, added well-known moist smokeless tobacco brands Skoal and Copenhagen to Altria's portfolio.
Made worldwide news
While the brand acquisition made worldwide news, the lesser reported part of the deal may have a much more significant impact on Southeast tobacco growers. Altria gained control of ProfiGen and F.W. Rickard, two leading tobacco seed producers.
What Altria plans to do with the seed companies is not clear, leaving tobacco growers with some concerns over the long-term viability and price structure of tobacco seed.
The USDA Prospective Planting Report, released on March 31, indicates flue-cured tobacco acreage will increase slightly in 2011— from 211,000 to 213,000 acres. Based on the survey, and with an average of the past five-year yields, growers would produce about 475 million pounds.
Since the March 31estimate, the tobacco industry was hit by a new round of tobacco taxes that promise to reduce the market potential worldwide. In the heart of the North Carolina and Virginia production area, a series of tornadoes wrecked greenhouses at about the time growers were getting ready to transplant greenhouse plants to the field.
How much those two factors will influence total tobacco acreage isn’t clear, but it is fairly certain neither is a good thing for tobacco growers. However, reduced acreage may put U.S. growers in a better situation with supply and demand worldwide.
Long after growers had seeded greenhouses, some buyers reduced contract pounds. In January, buyer contracts looked to be up 20-30 million pounds. Now, it appears contracted pounds in 2011 may be down 10-20 million pounds, instead of being up.
Worldwide the news isn’t good either. Brazil’s crop, for example, may top 1.5 billion pounds, more than a 200,000,000 pound increase over projections and over last year’s crop. Quality is the equalizer, as U.S. grown tobacco is expected to have a significant advantage of the poorer quality crop harvested in Brazil.
The weak U.S. dollar is another reason for optimism. Again, compared to Brazil, U.S. growers have a trade advantage with major buying countries because of a more favorable currency value.
In 2010, U.S. flue-cured tobacco harvested acreage was estimated at 211,000 acres, down 13,000 acres from 2009.. Acreage had declined to a low of 174,500 in 2005 before it climbed to 224,000 in 2009.
Estimated 2010 average yield per acre was 2,148 pounds down from 2,346 pounds in 2009.The 2010 U.S. flue-cured crop production estimate was 453.08 million pounds, down 15 percent from 526.4, million pounds in 2009.
Expectations were that domestic manufacturers would need less tobacco in 2011 due to increased cigarette taxes and in anticipation of implementation of FDA regulation. With the 2010 crop down only 15 percent, but contracted volume perhaps down 20 percent, excess supply was problematic for the 2010 market.
A poll released recently by the North Carolina Alliance for Health finds two-thirds of North Carolina’s voters would support raising the cigarette tax by $1 a pack to cut the state’s budget deficit
According to the survey, raising the tobacco tax is the only option for addressing the budget shortfall favored by a majority of voters. While 62 percent support increasing the tobacco tax as a budget balancing measure, support jumps to 66 percent when some of the revenue is used to fund public health measures.
“At a time when North Carolina is dealing with a huge budget deficit, voters across the state understand raising the tobacco tax is a smart way to tackle this problem and, more importantly, protect our kids from smoking,” said Pam Seamans, executive director of the North Carolina Alliance for Health.
In the summer of 2010, several states raised tobacco taxes as a means to help reign in soaring government costs. In the Deep South, South Carolina raised state taxes from 7 cents a pack to 57 cents a pack. Comparable taxes in Virginia and North Carolina remain at 30 cents and 45 cents, respectively.
In New York, the same round of summer 2010 tax increases bumped the cost of a pack of cigarettes in the New York state to $9.20 and in New York City to a staggering $11 a pack.
The proverbial handwriting appears to be on the wall for North Carolina and other tobacco-growing states. Finding ways to reduce budget shortfalls have become a way of life for state legislators and cigarette smokers appear to be an easy target.