Burley auctions clinging to life

Auction marketing of burley tobacco has at least one more season to go. With a start tentatively set for mid-November, a loose coalition of grower and warehousing groups has moved boldly to give farmers who don't have or don't want a contract with a manufacturer, an opportunity to bring their leaf to the free market.

Growers in the “southern” burley states of Tennessee, Virginia and North Carolina will have the chance to sell at auctions in Asheville N.C., Greeneville Tenn., Fayetteville, Tenn., Carthage, Tenn., and Abingdon, Va. One warehouse will operate in each of those towns except Asheville, where two will have sales.

Growers in the other burley states will get the opportunity to market their leaf in warehouses in the Kentucky towns of Danville, Harrodsburg, Lexington, Maysville, Mount Sterling and Somerset.

Burley Stabilization Corporation of Knoxville, Tenn., the grower cooperative that serves growers in those three states, organized the southern auction effort. The Burley Marketing Association, which represents warehousemen, with advice from the Kentucky cooperative, has put the northern effort together, but has no direct participation.

There are differences between the Kentucky and the Tennessee/Virginia/North Carolina programs, but they will share several basic characteristics, the main one being no price support.

“No tobacco will be taken under consignment,” says Charlie Finch, managing director of the cooperative in Knoxville. “Any leaf unsold at the end of the auction will have to be taken back. But we will work with the farmer to get a buyer for all his tobacco. I don't think we will have much that doesn't get sold. But it will only bring what the market is willing to pay for it. It will be as farmer friendly as we can possibly make it.”

This initiative provides a marketing alternative for those farmers not producing under a private marketing contract and also for farmers with a tobacco crop that was grown, but not purchased, under a contract, he adds.

The Kentucky warehousemen have been a bit more proactive, in some cases giving advances to farmers to insure that they deliver their leaf. But here too there will be no price support, and the auction will operate as a free market.

The reaction from the trade to the auctions has been very favorable, says Finch. “The leaf dealers have been especially interested. They like the fact that the auctions will offer them some selectivity.”

But there is no guarantee that they will show up on opening day.

“We don't know what buyers, if any, will follow the sales,” says Danny McKinney, chief executive officer of the Lexington cooperative. “My thought is that sound tobacco of good quality will sell, probably for a good price. But leaf that the manufacturers don't want — like the bottom leaves — may not attract a buyer, or it may get a very low bid.”

Everyone involved in these programs is taking some degree of risk.

“It's an evolving market,” says Donna C. Graves, executive director of the Burley Marketing Association. “There's a lot of uncertainty out there.”

In 2004, says McKinney, with the program still in effect, the two cooperatives got about 80 percent of the leaf that was sold without a contract. “If only 20 percent of the leaf brought to the warehouses is sold this year, that will be a problem.”

But George Marks, a grower near Clarksville Tenn., and president of the Knoxville cooperative, is optimistic about this season, in part because there appears to be no surplus of burley in the world at the moment.

“I feel like the tobacco that is brought to warehouses will get a bid,” he says. “We need to take a bid if we get it. The cooperative is not going to pack tobacco in a box and try to sell it later.”

But the Lexington cooperative may move in that direction in 2006. If the demand situation warrants, the co-op might build its own receiving station and sign contracts with farmers to deliver tobacco to it, says McKinney.

“We believe we will have orders from China, and that is a country which likes to buy direct from grower cooperatives. Also, we are hearing that some small leaf dealers just can't afford to contract directly with farmers because they can't use the whole stalk. We could do a good job serving people like these.”

But the co-op was short on funds after 2004 and decided to take a wait-and-see approach.

The burley warehouses are following in the footsteps of 11 flue-cured markets that began operating in mid-August. Those warehouses are operated by the flue-cured growers cooperative in Raleigh, N.C.

There are reportedly plans to operate one auction warehouse in Hughesville, Md., to market Type-32 Southern Maryland tobacco grown in Maryland and Pennsylvania. This warehouse, which is commercially operated, was the only one serving this type in 2004. It is not known whether it will accept burley that was grown in small quantities in these states this season.

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