March 31, 2011

The 2011 tobacco contracts are out. That’s good news for some growers and bad news for others.

As U.S. tobacco consumption continues to drop and export demand remains stagnant, tobacco companies cut some burley growers’ contracts this year. Some growers, however, received contract increases this year.

“World burley supplies remain relatively high compared to demand, but high quality stocks are probably fairly tight following the disastrous 2010 U.S. burley crop, along with subpar quality crops in 2007 and 2008. Thus, some companies may have boosted contracts of their higher quality growers to replenish depleted inventories,” said Will Snell, agricultural economist at the University of Kentucky College of Agriculture .

He speculated another potential reason for some contract increases is that companies may be using more U.S. burley in their cigarette blends and less imported tobacco. Also excess U.S. burley production enables additional supplies to move at lower prices through non-contract market outlets.

Tobacco contracts in 2010 also varied greatly, but probably had an overall decrease of 20 to 30 percent, with some growers’ contracts not being renewed. 

While some growers’ contracts increased this year, it doesn’t mean the demand for U.S. burley is returning.

Snell said anticipated regulations from the Food and Drug Administration and international community may not be favorable to U.S. burley. Additionally, international growers plan to increase burley production despite declining demand, and U.S. cigarette sales will continue to decline.

“The hope for U.S. burley growers is that the value of the dollar continues to be relatively low and new marketing opportunities such as China evolve,” Snell said.

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