July 12, 2006 | By: Laura Skillman
PRINCETON, Ky.

With 73,000 acres of tobacco planted in the state, tobacco growers continue to see the onetime king of Kentucky crops as a viable enterprise.

After the loss of the federal program that limited production in return for set pricing, some prognosticators speculated tobacco would be relegated to the past. But farmers are into their second year under a free market system, and burley tobacco acreage is up by 3,000 acres from the previous year.

Will Snell, University of Kentucky farm policy specialist, noted that when the similar peanut quota system buyout took place in the south, it took a few years for acreage to level out. Tobacco is undergoing the same process as growers and buyers navigate through this new production system.

In 2005, the first post-buyout year, more than half of growers opted not to produce tobacco. Less-than-optimal weather conditions could have sent even more farmers scurrying for alternatives. For growers without access to irrigation, crops suffered substantially, resulting in little profit from their production contracts with tobacco manufacturers.

Poor growing conditions and reduced production resulted in 2005 being the first crop valued below $300 million since the 1970s, Snell said. Yet for a number of growers who had irrigation and were no longer paying high leases under the old system, 2005 was one of their most profitable years.

At the same time, exports of U.S. burley were strong, exceeding 200 million pounds – more than the entire 2005 crop. Manufacturers made up the difference using inventory and pool stocks that tobacco cooperatives had on hand as a part of the old marketing program. Most pool stocks have been sold. Consequently, the world needs more U.S. burley, Snell said.

Early estimates were that production would again decline by double-digits in 2006, but that has proven to be incorrect based on the June 30 crop acreage report by the Kentucky office of the National Agricultural Statistics Service. Current production levels are due to tobacco companies increasing prices and offering production incentives. Also, for those farmers who had a profitable year in 2005, there was no question that they would remain in production, he noted.

Prices for this year’s crop may average in the mid- to upper $1.60s a pound and even exceed $1.70 per pound if a grower produces a top quality crop and maximizes production incentives offered by tobacco companies. Based on these prices and a 2,300-pound to 2,500-pound per acre yield, UK budgets indicate an economic return to operator labor and management of $1,000 to $1,500 per acre, Snell said. This likely induced some producers to continue to grow tobacco and add some pounds as well.

“With prices more competitive and quality leaf worldwide in short supply, there is some cautious optimism for expansion of burley production in the bluegrass for the first time in many years,” he said.

Contact: 

Will Snell, 859-257-7288