December 18, 2002 | By: Haven Miller
Louisville, Ky.

In an era when Kentucky’s tobacco producers have seen total cash receipts go from $900 million in 1998 to possibly below $500 in 2002, two issues are taking center stage as we head into the new year: emergence of a tobacco buyout plan and a continued decline in quota.

“Declining domestic cigarette consumption, escalating imports and dramatically lower cigarette exports have driven the decline in production over the past few years,” said Will Snell, Extension tobacco marketing specialist in the University of Kentucky College of Agriculture. “Manufacturers basically need less of our leaf.”

Snell’s comments came during a news conference held in conjunction with the recent Kentucky Farm Bureau Federation meeting in Louisville.  He said burley production in 2002 was challenging due to unfavorable growing and curing conditions.

“Consequently marketings of the 2002 crop fell short of the quota, which encouraged tobacco companies to purchase nearly 50 million pounds of the pre-2002 burley pool stocks,” Snell said.  “We also saw contract sales expand to nearly three-fourths of the crop versus two-thirds of the crop in 2001.”

Snell said a surprise early this season was the relatively large amount of leaf going into the pool. Pool intake during the first week approached 50 percent, but since has declined.  Around 30 percent had gone under loan by mid-December, which is a figure closer to about 8 percent if you factor in contract sales.

Snell said recently announced lower manufacturer purchase intentions for flue-cured tobacco of 9 percent likely indicate lower purchase intentions for burley as well.

“If 2003 burley intentions fall in the same magnitude as 2003 flue-cured intentions, then the quota formula will call for a cut of around 3 to 5 percent for the 2003 burley basic quota,” Snell said.

World burley production is expected to increase next year, but U.S. growers may not be in a position to profit from the expansion.  Domestic manufacturers could further increase their use of lower-priced imported tobacco.  While modest amounts of U.S. burley exports may be sold in non-traditional markets such as China, U.S. exports will continue to struggle for improvement. 

Snell said these adverse market conditions will put more pressure on farm group leaders and policymakers to successfully legislate a buyout.

“We’ve had a 40 percent reduction in tobacco cash receipts in Kentucky, but we haven’t reduced the number of growers, quota owners and tenants,” Snell said.  “We need to develop a buyout plan that enables those who want to get out to do that, and develop a program that can combine economic opportunities and an improved economic environment for those who want to stay in.”

Contact: 

Will Snell, 859-257-7288