Kentucky tobacco: A look back, a look ahead

Kentucky tobacco: A look back, a look ahead

• Accounting for the anticipated drop in burley acres, the total value of tobacco production in Kentucky may struggle to exceed $300 million in the coming years, following an average of $340 million during the 2005‐2010 post‐buyout era.

Kentucky burley farmers entered 2011 with many of the same adverse market conditions they experienced in recent years — declining domestic cigarette sales, excess world burley supply, slumping exports, and regulatory uncertainty on both the domestic and international front.

As a result, aggregate burley contract volume was likely reduced again in 2011, but some buyers actually boosted contract volume for some growers in response to tight high‐quality burley stocks following subpar‐quality crops in recent years.

In addition, some traditional burley tobacco farmers opted to exit production on their own given better returns anticipated in alternative ag enterprises.

Consequently, Kentucky farmers reduced their burley acreage by more than 10 percent (U.S. burley acreage was off 9 percent).

While some growers experienced timely moisture, burley yields were below average in response to excessive heat and dry conditions in parts of the burley belt.

According to the USDA, the U.S. burley crop for 2011 is expected to total 173 million pounds in — 8 percent below the previous year.

On the demand side, the decline in U.S. cigarette sales slowed in 2011 as consumers adjusted to recent price/tax hikes, which may boost/stabilize domestic U.S. burley demand given existing inventory levels.

Limited high‐quality stocks on the world market, combined with a continued weak U.S. dollar, enabled U.S. burley exports to stabilize in 2011, following a drop of more than 50 percent since 2007 due to excessive foreign burley supplies of lower‐quality leaf.

Lower production, tight quality stocks, stabilizing use, and a decent quality crop will likely cause top‐quality contracted U.S. burley prices to rebound back into the $1.70s and $1.80s per pound for the 2011‐12 marketing season after the extremely poor quality 2010 crop averaged $1.50 per pound.

Limited auction offerings of good‐quality burley should also sell well in this marketing environment.

Dark tobacco

Dark tobacco producers continued to benefit from growing domestic snuff sales (increasing around 5 percent annually) as consumers responded to successful marketing efforts, new products introduced by smokeless tobacco companies, smoking restrictions, and perceptions of lower health risks for smokeless products relative to cigarettes.

Following a couple years of supply adjustment, it appears the industry has moved toward an acceptable supply/demand balance.

Kentucky’s dark tobacco acreage was up 3,000 acres in 2011, and a better growing season (plus access to irriga‐tion) boosted yields.

Total U.S. dark‐fired production is pegged by USDA at 52.4 million pounds, compared to 48.4 million pounds in 2010.

For dark air‐cured, USDA is projecting a 2011 crop of 15.6 million pounds, up slightly from last year. While buyers may become more selective on some lower‐quality leaf, dark tobacco prices for top‐quality leaf will remain near recent levels ($2.25+ per pound for dark air‐cured and $2.50+ per pound for dark fire‐cured) for the 2011‐2012 marketing year.

This market situation will enable dark tobacco production to comprise around one third of the projected $320 million tobacco crop in Kentucky for 2011.

2012 outlook

Demand for burley tobacco in 2012 may show signs of stability as the domestic cigarette market easing slows, the international market rebounds in response to competitive U.S. burley prices (assuming the U.S. dollar remains weak), and quality burley stocks available to manufacturers and dealers worldwide remain tight.

But burley acreage may continue to decline (unless growers receive additional price incentives) in the midst of better income opportunities from other enterprises, expanded contract requirements, escalating labor costs, and regulatory challenges/uncertainty.

Dark tobacco prices and acreage should stay relatively constant in response to anticipated strong domestic sales of smokeless tobacco products amidst increasing supplies from the 2011 crop.

Accounting for the anticipated drop in burley acres, the total value of tobacco production in Kentucky may struggle to exceed $300 million in the coming years, following an average of $340 million during the 2005‐2010 post‐buyout era.



Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.