THE MYSTERY OF THIS TOBACCO MARKET: HOW MUCH U.S. LEAF WILL CHINA BUY?

Sharing a light: Two Chinese farmers take a cigarette break in the North China province of Hebei. Photo by Alamy.

THIS JUST IN:

Princeton AREC takes a direct hit from tornado. The Kentucky Research and Education Center in Princeton, Ky., was seriously damaged when it took a direct hit from a tornado Friday night. As much as 90 percent of the facilities at the station appear to be destroyed or unusable, says Bob Pearce, Kentucky Extension tobacco specialist. The center has has been headquarters for dark tobacco research and Extension activities in Kentucky and Tennessee...There may well be tornado losses in barned tobacco on farms in the western Kentucky countryside, but it will be some time before that can be ascertained.

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China is buying U.S. leaf again, making selections from the 2021 crop. It may buy more tobacco in 2022, but this is far from certain, says Blake Brown, N.C. Extension economist. “Relations between the United States and China are likely to remain strained,” Brown said at the recent N.C. State Tobacco Situation and Outlook webinar. “That is probably going to temper the Chinese appetite for U.S. products.” This may translate into some instability in sales to China. Potential problem: Most of the tobacco that China buys from the U.S. is bought by a state monopoly which is more sensitive to tensions between the U.S. and China than a commercial buyer would be.

 

Let’s not forget how U.S. flue-cured fared the last time a trade war affected U.S./China sales. Sales dropped to 238 million pounds, and the drop was entirely ascribed to the abandonment of our market by the departure of the Chinese buyers starting in the midst of the 2018 market and continuing through 2019 and 2020. They returned in 2021, and sales rebounded to 303 million pounds. Brown said a modest increase in contracted pounds may be possible in 2022.

 

Note: China bought about 60 millions pound from U.S.--or about 20 percent--in the most recent year. “So there is a bit of growth opportunity this year,” he says. But if we plan to sell to China, we should have a balanced portfolio and we should focus on countries other than China. We can always be optimistic. “It is still a growing tobacco market,” Brown says.

How to get through the current situation: Intense international competition coupled with concentration in the buying sector mean price growth at the farm level will be limited in the future, wrote Will Snell, Kentucky Extension agricultural economist, earlier in the year. “To survive, U.S. growers must be willing to

•    adapt to a changing product market,

•    produce high quality leaf with reduced health risks,

•   find ways to constrain the growth or ideally to reduce their cost structure.

“Improvements in labor efficiency, optimal input usage, and boosting yields will be critical to remain profitable,” he added.

Three burley auctions have taken place so far, all at the Farmers Warehouse near Springfield, Ky. (formerly Danville) in the Bluegrass. "Our first sale averaged $1.87, our second averaged $1.92 and the one last week averaged nearly $1.90," says Jerry Rankin, owner of Farmers Warehouse. "We have another coming up Tuesday, and we have some good tobacco on the floor for that." The highest price he has seen so far was $2.02...The quality of this burley crop has been very good, he says, but he continues to fear that the volume will be extremely short.

Deadline approaching: By January 11, members of the Burley Tobacco Growers Cooperative Association must submit amended materials that document that they are members of the settlement class in the legal action that is ending the cooperative. Note: If you are one of those members, BTGCA sent notices on November 12, so if you didn’t get a notice, don’t worry about it. But if you did, the clock is ticking. For information, please see the Important Documents page on the BTGCA website.

When does federal crop insurance end for a particular crop? Answer: With the earliest occurrence of one of the following (according to USDA-RMA):

 

• Total destruction of the tobacco on the unit; 

• Removal of the tobacco from the unit where grown, except for curing, grading, and packing;

 

• Final loss adjustment of the loss on the unit;

 

•  Abandonment of the crop on the unit.

N.C. growers approved once again their 30 year old assessment providing funding for the tobacco related research and Extension efforts of NCSU’s College of Agriculture and Life Sciences. This year’s vote, which provides for a 10 cents per 100 pounds checkoff on each pound of flue-cured and burley tobacco sold, continues the assessment through 2027.

In passing: Marion Hawkins Jr., founder of GoldLeaf Seed Co. passed away in November. He was a real visionary in the breeding of flue-cured. Good-bye to a True Tobacco Great.

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AUCTIONS END FOR FLUE-CURED, BEGIN FOR BURLEY

Buyers place their bids on the last few bales of flue-cured on sale at the last auction at the Old Belt Tobacco Sales warehouse in Rural Hall, N.C., in October. File photo by Christopher Bickers. Flue-cured auctions ended this past week. The market definitely slid. “The crop just fell off at the end of the season,” says Dennis White, owner of the Old Belt Tobacco Sales auction in Rural Hall near Winston-Salem. “It had gone through a lot of stress, and had been in the field a long time, six and a half to seven months and it just aged out.” But until that time it had been a good crop and a good market. Average at the Old Belt warehouse for the season was $1.64 pound, White says. The practical top was $1.85 for second grades, $2 on first grades. A lot sold for $1.45 to $1.75. Farmers were happy with the prices over the full season. “I had no complaint from any of my farmers about the price,” says White.

Burley close to extinction in still another moun-tain county. Just north of Asheville, Madi-son County, N.C., once had over 2,000 growers and led the state in burley production. It had a powerful effect on the economy. “The impact of this crop as an economic engine for Madison County was so strong I could write books [about it],” says Ross Young, county Extension director. “Now, there are only three burley growers in the county.” It might be a small consolation for those three, but Young says this was a decent crop, although it will be a few weeks before he has an accurate estimate of yield and production. The bitter lesson of the Eastern Belt this season: It's hard to make a good crop when you get 25 to 30 inches of rain in one month, in this case June. “Some of our leaf was hurt very badly by all that precipitation,” says Tommy Faulkner, auction manager at the American Tobacco Exchange in Wilson, N.C. At Faulkner’s warehouse, Leaf grades brought steady prices between $1.75 and $1.85 while lugs and cutters attracted bid of $1.45 to $1.55. Low quality leaf brought $.50 to $1. Sales remained strong till close to the end of the season. The first burley auction of 2021 took place last Tuesday. “We had a lot of very good tobacco,” says Jerry Rankin, owner of Farmers Warehouse. His sales have traditionally been held in Danville, Ky., but this year have been moved to the former JTI warehouse near Springfield, Ky. As best TFN can tell, the Farmers Warehouse is the only warehouse auctioning burley this season. Delivery in the Bluegrass has been slowed by very dry conditions. “We have had wind almost every day,” says Rankin. “That has prevented farmers from stripping their crops.” The leaf is so dry it crumbles, says Rankin. “On our farm, we have sprayed water in the barn and will wrap it in plastic when it gets wet.” Could Connecticut broadleaf replace burley in the mountains? “It could be a perfect crop for farmers who historically grew burley tobacco,” said Chad Moody, at the Mountain Research Station in Waynesville, N.C. “Due to our farms being smaller here in the western part of North Carolina, farmers are able to pay attention to the details, which is what it takes to grow good wrapper tobacco.” Research on cigar wrapper production by N.C. State University has been conducted at the Mountain and the Upper Mountain research stations and the Oxford Tobacco Research Station and the Central Crops Research Station in Clayton. A webinar on what the researchers have learned will be held on December 17. For more information on this and other webinars offered by the N.C. Extension, see: https://tobacco.ces. ncsu.edu/2021/11/december-webinar-series/. What to remember about crop insurance in 2021: All burley tobacco growers must have a bona fide contract with a manufacturer to obtain crop insurance. Dark air cured and flue cured tobacco producers have a two tier system. Those who have a bona fide contract will pay a different amount than those who do not have a contract to sell their tobacco crop. Contact your crop insurance agent to review your policy and make any needed changes and adjustments. New ITGA administrator: Mercedes Vasquez has been appointed new CEO of the International Tobacco Growers Association, replacing Antonio Abrunhosa, who has held the position since 1998. International report: Global cigarette sales declined by four percent in the past year, while illicit penetrations maintained their share of the market at 12 percent, said Shane MacGuill of Euromonitor International at the recent ITGA annual meeting. “The proportion of cigarettes in the total tobacco value sales mix continues to decline,” he said. “Alternatively, heated tobacco is getting established as the most important reduced-risk category.” Reasons for that include investment from companies and regulatory issues surrounding e-vapor.