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SW “Ohia” | Hello All,
I attended the Burley Tobacco Growers Cooperative Association's 2017 annual meeting yesterday; January 19th, 2017.
This was held in conjunction with the Kentucky Cattleman's Association convention and trade show at Lexington, KY.
There were four guest speakers present:
Mike Spalding; Board Member, Agricultural Workforce Management Association
Dr. William Snell; Agricultural Economist, University of Kentucky
Daniel Green; President, International Tobacco Growers Association
Cliff Parker; Independent Crop Insurance Consultant, Retired Risk Management Agency Director
Mike Spalding provided an overview of the AWMA's role in assisting farmers with the H2A visa process. They have grown rapidly since their inception in 2007. That year they handled 1000 visas, in 2016 the organization completed 6000 for 569 agricultural producers across the southeast. Being a member owned association, their fees are significantly lower than other labor services. A typical visa application costs between $2,500 and $5,000 from a commercial labor sourcer; AWMA can provide them for around $1,500 and issues a yearly dividend to all of their stock-holding members. The Burley Coop owns a portion of this stock from when they formed the association.
Dr. William Snell discussed the extremely challenging 2016 marketing season. Frankly, the only positive news was that the year was over. Current USDA estimates claim 140 million pounds of Burley were harvested this past fall. This amount was considered just enough to cover the yearly market demands. UK and other tobacco industry experts believe that only 100 million pounds were harvested, mainly due to the southeast drought. Unfortunately, they do not believe this short production will have any effect on price. 120 million pounds of leaf were imported in 2016, a 23% increase from the year before. Exports were down by the same amount (23%) to 70 million pounds. This puts the Burley trade deficit at 50 million pounds, an almost two-fold increase from the previous high record.
Dr. Snell blames the strong U.S. dollar for this trend. For 2016, American cigarette production used 60% imported leaf. Burley, being a strongly flavored blending tobacco, is a major component in "American Blend" style cigarettes, which comprise between 1/4 to 1/3 of global cigarette consumption. To supply this demand, 1.25 billion pounds of Burley are produced globally, mainly coming from Brazil, USA, Argentina, and several countries in southwest Africa.
For 2017, growers can expect overall production contracts to remain the same. Input prices appear to be staying flat, outside of a $0.10 rise in H2A wages to $10.92 per hour. Final paid price will stay flat due to large inventories and a continual strengthening of the dollar. 2016 average price was roughly $1.92 per pound, which when adjusted for inflation, has declined by more than 20% since the federal buy-out in 2005. Future profitability will be directly tied to individual grower labor costs. Looking forward, growers will have a multitude of issues to discuss. Consumption is heading down, California has passed a $2 increase in tax per pack of cigarettes (California alone accounts for 10% of American cigarette sales), labor reforms will eventually occur, crop insurance changes are expected, low grain & cattle prices may push some retired growers back into the industry, the dollar will continue to strengthen, trade policy is a wildcard, the buyers are continually consolidating, as are input suppliers.
At the conclusion of Dr. Snell's presentation, two questions were asked.
The first was related to Sonny Perdue and his possible influence on the industry.
Dr. Snell discussed Mr. Perdue's background from a tobacco state, which he considered a very good positive. Georgia's flue-cured tobacco industry has shrunk in recent years but remains a part of the state's diverse Ag background.
The other question was whether NAFTA's possible repeal under President Trump would affect tobacco growers.
In summary, Mexico and Canada are both in the top three importers of American agricultural products. Neither compete directly with tobacco growers, so the repeal of NAFTA would likely be a negative for domestic tobacco production.
Daniel Green then spoke as a representative of the International Tobacco Growers Association, an organization based in Portugal that the Burley Coop has worked with for many years. There are 30 million tobacco growers globally, producing leaf in 25 different countries. The ITGA's main goal is to promote sustainability among tobacco growers around the world, that meaning they receive a fair price for their production, can afford a decent livelihood for their families, and are not unfairly legislated against by their government.
Unfortunately, the US Department of Agriculture does not keep statistics for foreign tobacco production, so we cannot know how much each country directly produces. Foreign agricultural offices rarely provide data for tobacco, and some just plain do not have government agencies or resources to keep the information. However, he did stress that the issues being experienced by American growers were not unique. To convey this situation, he provided a graph of American tobacco production going back to 1919, the first year USDA data is available. Since that time, USA growers have never produced less than 150 million pounds of Burley leaf. With 100 million estimated for this year, we have broken a record for low production. In 1992 there were 59,375 Burley growers in Kentucky. By 2012 that number was reduced to 4,700 and may be lower than that currently.
The global tobacco situation has its own subset of challenges. Countries such as Malawai swing wildly in their tobacco production, sometimes varying by tens of millions of pounds per year. This variability prevents a stable market from existing and causes prices to remain fluid. On top of that production volatility, there are only six buyers worldwide for Burley tobacco leaf. This consolidation is not unique to tobacco, but in a shrinking industry it can be easily manipulated. For growers outside the U.S., governments are often quite disparaging to tobacco producers, such as recent case in India where 500 growers were detained during an ITGA-organized protest at an Indian agricultural summit. Legislation was occurring that would regulate growers without any of them being involved in the process.
Cliff Parker presented an overview of Whole Farm Revenue Protection and its advantages for tobacco growers. He reiterated that the biggest issue in tobacco insurance was abuse, but expected changes within the next few years. Mr. Parker stated that Whole Farm Revenue Protection works well for most tobacco farmers because they typically have a small herd of livestock and perhaps some grain or another specialty crop. Mr. Parker expects this program to become more popular across the southeast due to the large number of specialty crops grown.
Following these speakers, the Burley Coop board presented its 10 annual college scholarships, each worth $2,000. Five are issued to high-school students entering college, and five are reserved for college students re-enrolling. The Coop also discussed a Young Grower Contract lottery that occurred in 2016. This program allowed for young growers to apply for a 9,000 pound production contract with the Coop. 40 applications were received, and 5 were selected through a lottery system. The Coop would like to accept all new grower requests but cannot due to already large inventories.
The next annual meeting of the Burley Tobacco Growers Cooperative Association will occur January 11th, 2018 at the Lexington Convention Center, Lexington, Kentucky.
Edited by Red Paint 1/20/2017 19:11
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Tobacco Market Outlook from the Burley Growers Cooperative Meeting
