By Chris Bickers
After a poor crop in 2010, US burley plantings may increase by 10% or more this spring, said leaders of American burley cooperatives. They have some concerns about world oversupply, but demand for good quality flavor burley remains strong, they said.
There wasn’t a whole lot of top quality burley in the 2010 US crop, said Daniel Green, chief executive officer of the Burley Stabilization Corporation in Springfield, Tn.
“We had a very challenging curing season, especially in the central and northern parts of Kentucky,” told Tobacco Asia, adding that it was a quick cure and much of the leaf turned out yellow and wasn’t very desirable. “Many farmers had large quantities of unmarketable tobacco, causing financial losses that may cause them to exit tobacco production,” he said.
But as the contracting period for US American burley began in earnest at the beginning of spring, the leaders of the two cooperatives were optimistic.
“We are looking at pretty strong contracting,” said Green. “Our cooperative will increase its contracts substantially this year. I would anticipate we will see burley acres up 10% or more based on what growers are telling me.”
The chances of selling the additional production are good.
“There is oversupply in a lot of other countries, but demand for good quality flavor burley should nevertheless be strong this year,” said Green. “We are positioned to do well for 2011 if we have at least an average growing season.”
Favorable exchange rates
Domestic consumption is up, and exports continue to benefit from the low relative value of the US dollar.
“The difference in price of imported burley and domestic burley has gotten much closer,” Green said.
“We are cautiously optimistic that we will find plenty of opportunities in the growing markets of Eastern Europe and Asia,” said Brian Furnish, general manager of the Burley Tobacco Growers Cooperative of Lexington, Kentucky.
But the market situation changes frequently. China continues to be the best target of opportunity for American burley. “Even a small piece of that market would be great for us,” said Furnish. Indonesia would be the next leading target after China.
Furnish noted one development in China that could bear fruit further on down the line. It could be that some companies are importing US burley to make cigarettes to export.
“On the supply side, there are concerns about excess inventories in Malawi and Argentina,” said Furnish. “The prices in Argentina are much higher than they have been historically, which may lessen the competitiveness of its leaf. Its quality is not as good as that of US leaf, but it is still more flavorful than a filler type and is probably our biggest competitor as far as flavor burley is concerned. Malawi leaf is cheaper than any of the major producers. But it is more of a filler burley and doesn’t substitute well for the leaf of America, Argentina or Brazil. It is a concern because of the volume Malawians can produce at cheap prices,” he said.
Furnish thinks contracts for 2011 burley will be up 10% to 15%.
“The bad crop here last year may be causing companies to increase their contracts,” he said. “Brazil has quite a bit of burley too but it is expensive.”
All indications are that the Asian markets will be buying more tobacco this year. But Green doesn’t know how much.
“It is a difficult market to guesstimate,” he said. “China is one of the leading buyers of US burley, even though the domestic market there is heavily based on the British blend. There are a few brands now with some burley, and they are performing quite well.”
Green’s cooperative has enjoyed considerable success recently.
“We doubled our business in each of the last three years,” he said. “In 2010, we were the largest buyer outside of the cigarette manufacturers.”
BSC contracted with just over 1,000 growers last year. The cooperative is very focused on trying to do things the right way, according to Green.
“This year we have put in place a ‘good agricultural practices’ program, Green added. “We encourage our growers to be careful about using only the approved crop protection agents and only in approved amounts. We continue to strive to offer a superior product.”
Superior in this context means producing the cleanest, best-quality crop that can be had at a reasonable price.
“We are trying our best to do this right--these are the kind of steps that if you are not careful about doing them you are going to be left behind,” said Green. “We are trying to make the changes on the front end that are necessary to qualify us to sell to as many customers as possible. For example, we have employed an agronomy team focused on working with our growers to comply with CORESTA standards.”
About 80% of US burley goes for export and 20% for domestic use. That is a radical difference from as recently as 10 years ago.
BSC closed its long-operating administrative office in Knoxville, Tennessee and set up offices at its receiving stations in Springfield and Greeneville, Tennessee.
“We shut down our office in Knoxville in the interest of efficiency,” he said. “We have staff at both our receiving stations that work closely with our growers to improve product integrity, and we have invested heavily in software technology and equipment to improve product traceability and quality.”
NC opens trade office in China
North Carolina recently opened an agricultural trade office in China, one of the few US states to do so, and tobacco will play a big part. Agriculture commissioner Steve Troxler and a trade delegation set it up on a trade mission in March.
“I think this puts us at the top of the heap so to speak,” Troxler said. “The idea is to have a representative there who can assist agriculture and agribusiness companies and help them navigate international trade there. This sends a signal to China tobacco and other companies over there about our commitment to trade with their country.”
The office will require an upfront expense, not necessarily a popular move during a recession. But Troxler makes no apology.
“In times like these, with a recession going on, you either sit on your hands and hope for things to get better or you go out and make things happen.”
The office will be located in the Chaoyang District near other US agricultural trade offices, said Peter Thornton, the department’s assistant director for international marketing.
“The location in the central business district puts North Carolina agricultural interests in a good position to meet with potential buyers,” he said. “The Chinese market is on the rise and many countries are competing to do business in China.
“It is important for us to have a presence here in order to have those business relationships and be the first to capture new sales leads for North Carolina farmers and agribusiness companies.”
An economist’s view
Burley contract volume was significantly reduced in 2010 because of the softness in both the domestic and international markets, reported Will Snell, Kentucky Extension agricultural economist.
The domestic market continued to suffer from hikes in retail cigarette prices and taxes, smoking restrictions and the overall weak economy.
“Plus, the uncertainty of FDA regulations likely led domestic companies to be even more conservative in their purchasing plans for 2010,” added Snell.
Internationally, the value of the dollar kept US burley price-competitive in the world market, but ample world burley supplies displaced US burley in many foreign markets.
“Despite these and other adverse factors, US burley acreage was down only 4% in 2010 due to a significant volume of non-contracted tobacco planted in the burley belt,” Snell said.
Kentucky’s tobacco outlook for 2011 hinges critically on what evolves on the regulatory front, he added.
“FDA regulations are being formulated and will likely lead to increased recordkeeping and required changes in farm-level production practices,” Snell said, pointing out that these will likely affect costs of production and eventually the number of farmers willing or able to adhere to these changes.
“But while FDA regulation is a concern for burley growers, the domestic market now comprises less than 25% of the market,” Snell said..
A more important issue confronting the US burley industry arises from potential international regulations on flavorings and other added ingredients, which are critical to making the taste of cigarettes containing burley tobacco acceptable to consumers.
“Given the regulatory uncertainty, buyers of US burley will likely continue to be very conservative in their contract offerings for 2011 especially amidst an era of ample world burley supplies,” according to Snell. “But those supplies are declining,” he added.
|Feds estimate 3% less burley acreage in 2011|
The US Department of Agriculture was somewhat more conservative when it issues its projection of prospective plantings on March 31.
Rather than an increase, it estimated that burley plantings would be 94,750 acres, down 3% from last year. This would be the lowest burley acreage on record, lower than the previous record of 97,500 acres planted in 2008.
Among the individual burley states, acreage in Kentucky is expected to decrease by seven%, while Pennsylvania is up 19%, Tennessee is up 13%, Virginia is up 3%, and North Carolina is about the same. Ohio projects the biggest decrease at 28%.
The prospective plantings report is based on a farmer survey. Among the other tobacco types, the report projects:
• Flue-cured up 1% from 2010 intentions at 213,000 acres.
• Fire-cured up 4% from 2010 at 16,250 acres.
• Dark air-cured down 7% from last year at 5,100 acres.
• Cigar types down 21% at 4,410 acres.
• Southern Maryland up 36% from 2010 at 3,000 acres.