Flue-cured co-op increases prices

For flue-cured tobacco growers, the off-season was one of excitement and promise. A number of potential customers — most notably China — expressed interest in increased purchases of their product.

So even though the prices at the 2005 flue-cured auctions — the first since the quota buyout ended the price support program — were less than expected, the flue-cured growers' cooperative in Raleigh N.C., felt it could gear up for the 2006 season with some optimism.

And it did. In June, the Flue Cured Tobacco Cooperative of Raleigh raised the advance rate on grades for which advances are provided by two cents a pound. Though some grades — such as nondescript and poor quality grades — are not eligible for advances, this adjustment by the cooperative was in effect an increase in the overall price.

“The increase in the advance rate will help the farmer cover expenses that he has incurred by that time,” said Albert Johnson of Gallivant's Ferry, S.C., the farmer-president of the organization. “We all know what is happening with diesel fuel, natural gas, LP gas and gasoline prices.”

Also, said Johnson, some changes were needed in the way the cooperative accepts the tobacco from the grower.

“This year he will bring the tobacco in, and it will be graded,” Johnson said. “If his tobacco meets the advance grades, we will cut him a check right then. Last year it took two trips to get an advance. Now it will take only one.”

In another indication that a good market is expected, the cooperative has also agreed to purchase tobacco this year from all stalk positions, unlike 2005, when it purchased only select grades.

These changes will apply only to farmers who have contracted to sell all their tobacco through the cooperative.

The changes were announced at the cooperative's annual meeting. And that involved another change: The meeting was held for the first time at the cooperative's factory, a short distance from Timberlake, N.C.

Everyone seemed to like the move.

“The people who hadn't seen the facility before were bowled over,” said Arnold Hamm, general director of the cooperative. “It gave us a good chance to let our members see what we do.”

After the meeting, farmers streamed through the manufacturing area seeing how cigarettes and other tobacco products are made there.

Cost was a factor in the cooperative's decision to move its meeting location. The meeting had traditionally been held in the Kerr Scott Building at the North Carolina State Fairgrounds in Raleigh, but the expense of renting that hall had gotten high.

“We were able to do it in Timberlake at a much lower cost,” said Hamm. “I am sure we will be holding it here in Timberlake again in the future.”

The location did not appear to keep anyone away. About 200 attended the meeting and that was actually more than the attendance the year before in Raleigh (although in some years past the crowd has approached 500.)

Though Timberlake is a bit off the beaten path — about five miles south of Roxboro and 20 miles north of Durham — it is easily accessible from US Highway 501. It can be located by a large blue sign on the highway bearing the name of the cooperative's subsidiary U.S. Flue-Cured Tobacco Growers Inc.

The meeting was a benchmark because it fell in the 60th year of the cooperative's existence and at the end of its first year of operation in a free market.

“There have been many challenges in the past 12 months in the transition from administering the price support program to becoming a value-added marketing cooperative,” said Johnson in his address to members.

“We now have the facility to produce several value-added tobacco products, including consumer products. That translates to more income opportunities for members in the future.”

Manufacturing holds great potential for the cooperative. It is already making cigarettes and little cigars on a contract basis for several different companies. Later this year it will begin manufacturing a roll-your-own product.

But for 2006, the bright spot is prospective sales of blended strips.

“The cooperative has secured large customers for un-manufactured tobacco strips, including the Peoples Republic of China,” explained Johnson. Also, there have been “demands from international customers for a broader selection of grades.”

In 2005, China purchased 6,177 MT of flue-cured from the cooperative. Counting flue-cured leaf from other American sources, they bought a total of about 8,000 MT of US flue cured, cooperative sources said.

Shipment of China's 2005 purchases from the cooperative were completed in March 2006. The tobacco was distributed to 17 of China's largest cigarette manufacturers.

China might need as much as 10,000 MT of US flue-cured when its buyers return in October, sources at the cooperative said.

In other news from the flue-cured cooperative there is the following:

  • About 50 million pounds of flue-cured have been contracted by the cooperative this season, said Hamm, up about 25 percent from 2005.

  • The number of market towns for 2006 will be down by two. Those eliminated are Oxford N.C., where the volume of tobacco available did not justify the expense of operation, and Wilson N.C., where no suitable warehouse was available.

  • The cooperative has entered into over 800 “exclusive” and about 700 “non-exclusive” marketing agreements with its members. Exclusive contracts are those in which the farmer promises to bring all his tobacco to the cooperative's auction warehouses and receives a price advance up to the agreed-upon amount. Non-exclusive contracts involve no price advance, but the farmer is not required to deliver any certain amount to the cooperative's warehouses or indeed any at all if he chooses not to.

  • A new seal has been designed and trademarked by the cooperative to serve as a guarantee that the flue-cured tobacco it sells has been produced entirely in America.

    “If you see this symbol on a strip case, you will know it contains 100 percent U.S. flue-cured tobacco,” said Mike Lynch, director of sales and marketing for the cooperative.

    The seal shows a stylized tobacco plant in white on a red and blue background with USA in large blue letters underneath.

  • Two new members were elected to the board over the winter. Both are North Carolinians: Blythe Casey of Kinston N.C., and Richard Renegar of Harmony N.C.

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