December 6, 2000 | By: Laura Skillman
LOUISVILLE, Ky.

Burley farmers in 2001 could see their production level out and even see a substantial increase in their basic quota after several years of continuous cuts, a University of Kentucky tobacco economist predicts.

But, demand, direct contracting with farmers, a possible buyout and political and legal issues leave question marks for 2001 and beyond.

The burley tobacco outlook improved substantially for 2001 thanks to recent pool stock sales and the forgiveness by the federal government of the 1999 Commodity Credit Corporation loan, said Will Snell, UK Cooperative Extension Service tobacco economist.

Basic quotas for farmers could increase by 30 percent or more, if company buying intentions remain stable and a large amount of tobacco from the 2000 crop does not go under loan. Burley buying intentions will be announced Jan. 15 with burley quotas for 2001 to be announced Feb.1.

However, because of overproduction in 2000, the actual amount tobacco producers will be able to sell in 2001 could remain about the same as in 2000 at 350 to 370 million pounds.

Snell's comments were a part of the annual Kentucky Agricultural Economic Outlook for 2001 presented by the University of Kentucky College of Agriculture in Louisville recently. The session included a brief review of 2000 as well.

"It's certainly been another interesting, exciting and event filled year for tobacco," he said.

The year saw a quota cut, a $145 million verdict in Florida against the tobacco companies, a presidential tobacco commission established, and direct contracting among a host of other issues.

In 2000, Kentucky's cash receipts from tobacco are likely to fall below $600 million compared to the traditional $900 million. Yet, the individual tobacco farmer had a good year partially due to payments from the tobacco settlement (Phase II) and from the federal Tobacco Loss Assistance Program (T-LAP). But those payments are uncertain in the future.

"In reality we all know this mailbox money is very uncertain and the name of the game in the future is going to be getting back some of this demand that has declined," Snell said. Traditionally, demand has been at 600 million pounds, but that dropped below 500 million in 1999 and in 2000 will likely fall below 400 million pounds.

The tobacco settlement between cigarette manufacturers and states, movement of cigarette production out of the United States and larger amounts of imports are all contributing to lower demand, Snell said.

On this year's market the big news is Philip Morris' decision to contract more than 100 million pounds directly from farmers. Contracting will continue and likely will expand in 2001 by Philip Morris and perhaps other companies may experiment as well, Snell said.

But, Snell said he does not expect tobacco companies to want to directly contract all the tobacco they need from the farm.

"Some of the companies definitely like the selectivity they have on the auction floor," he said. "The question remains will that be enough to keep the auction market viable."

Another issue of importance and concern deals with a potential buyout of tobacco quotas. While the idea has support in some circles, the question is where the money would come from to finance the buyout, Snell said.

In February, farmers will vote on whether to continue the federal tobacco program, he said.

A final uncertainty to the 2001 crop and beyond, Snell said, is China and what marketing opportunities may be available there for burley tobacco.

Contact: 

Will Snell, (859) 257-7288