Burley and Dark Tobacco Outlook: Thoughts and Observations for 2013
Economics
Will SnellAg Economist, University of KY
Burley Review of 2012
USDA: U.S. Burley Acres +14%, Production +19% (207 mil lbs ???)
Universal Leaf (190 mil lbs)
Overall Better Quality Crop
Leaf Exports Stable– Price competitive despite higher valued U.S. dollar– Exports limited due to supplies
Domestic Use Fairly Stable– Rate of Decline in US Cigarette Sales Near “Traditional Levels”– Increased Smoking Restrictions
Extremely Tight Supply/Demand Balance
Higher Prices ($1.97/lb)
Economics
U.S. Burley PricesU.S. Burley Prices
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: ERS/ NASS/USDA
EconomicsAvg. Prices Up 15-20+ Cents/Lb
98% 102% 104%
145%
337%
247%
122% 129%154%
199%222%
0%
50%
100%
150%
200%
250%
300%
350%
Source: Calculated from NASS/USDA data
Agricultural Economics
Tobacco Prices vs Prices of Other Enterprise and the Cost of Inputs
2012 as a % of 2004 levels
Kentucky Tobacco, Prices, Value for 2012
Production (mil lbs)
Price ($/lb)
Value of Production
(mil $)
Burley 151.7 $1.97 $298.8
Dark Fire 31.5 $2.56 $80.6
Dark Air 12.6 $2.28 $28.7
Totals for KY 195.8 $2.09 $408.20
Economics
Source: NASS/USDA
Value of Kentucky Tobacco ProductionValue of Kentucky Tobacco Production
0
100
200
300
400
500
600
2000 2002 2004 2006 2008 2010 2012
Million Dollars
Dark
Burley
Source: Ky Ag Stats/NASSK
Economics
What about the 2013 U.S. Burley Outlook?
• Look for Contract Lb Offers to Increase
• How Will Tobacco Growers Respond?
• Labor challenges
• Crop Insurance Challenges
• Aging infrastructure Continued Regulation uncertainty
• GAP/Contract demands
• Favorable Outlook for Other Ag Enterprises
Economics
2013 Planting Intentions
Economics
2012 Acres 2013 Planting
Intentions
Percent Change
KY 74,000 78,000 +5%
TN 16,000 14,000 -12%
PA 4,700 5,100 +9%
NC 2,100 2,100 -
OH 1,900 2,000 +5%
VA 2,700 1,900 -30%
US 101,400 103,100 +2%
Source: NASS/USDA
0
50
100
150
200
250
300
350
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
Mil
lio
n L
bs
DomesticUse
Exports
Production
Source: NASS/ERS/AMS, UK Production Estimate for 2013
U.S. Burley Production vs Disappearance (Use)
Economics
Can the Market Support a 210-220 Mil Lb US Burley Crop in 2013?
0200400600800
100012001400160018002000
2005 2007 2009 2011 2013
Million Lbs
Others
Africa
Brazil
US
World Burley ProductionWorld Burley Production
Source: Universal Leaf, September 2012
Economics
Agricultural Economics
U.S. Burley Export Value vs Brazilian Import Value
0
0.5
1
1.5
2
2.5
3
3.5
4
2003 2005 2007 2009 2011
$/lb
U.S. Brazil
Source: USDA/TMA
0
50
100
150
200
250
300
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
Mil
lio
n L
bs
Source: ERS/AMS/TMA
U.S. Burley Exports
Agricultural Economics
Agricultural Economics
2013 Burley Contract Price Schedules 2013 Burley Contract Price Schedules
Based on the following crop throw 10%Xs, 20% Cs, 40% Bs, 10% BRs and 20% Ts
Company/Buyer ---------------------------------GRADE------------------------------
1 2 3 4 5
A $2.03 $1.96 $1.80 $1.25 $1.00
B $2.03 $2.00 $1.94 $1.20 $0.00
C $2.03 $1.99 $1.90 $1.53 $1.33
D $1.99 $1.88 $1.73 $1.33 $1.00
E $2.01 $1.94 $1.78 $1.51 $1.20
F $2.03 $1.98 $1.89 $1.38 $1.19
G $2.04 $1.99 $1.90 $1.54 $1.32
What About Dark Tobacco?
405060708090
100110
1990 1995 2000 2005 2010M
illio
n Lb
s
U.S. Snuff Production
0
5,000
10,000
15,000
20,000
25,000
30,000
2005 2007 2009 2011 2013
Dark AirDark Fire
Source: NASS/USDA
US Dark Tobacco AcresUS Dark Tobacco Acres
Economics
0102030405060708090
100
2002-2003
2004-2005
2006-2007
2008-2009
2010-2011
2012-2013
Million Lbs
Dark Air Use
Dark Fire Use
Production
U.S. Dark Tobacco Use vs Production
EconomicsSource: NASS/ERS/AMS, UK Disappearance Estimates for 2011-2012
$1.25$1.50$1.75$2.00$2.25$2.50$2.75
2004 2006 2008 2010 2012
Dark Air-Cured Dark Fire-Cured
Dark Tobacco PricesDark Tobacco Prices
Agricultural Economics
Source: NASS/USDA
93,530
56,977
16,234
44,967
29,237
8,113
0
25,000
50,000
75,000
100,000
1997 2002 2007 2012
U.S. Kentucky
Number of Farms Growing Tobacco in the U.S and Kentucky
Source: USDA Ag Census
Agricultural Economics
2010 2012
KY 5,488 3,365
OH 428 216
IN 227 112
MO 71 27
WV 26 7
FSA “Reported” Farms for Burley Only
0
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mil
lio
n L
bs
Source: ERS, UK Estimates for 2013 and 2014
Kentucky Buyout Dollars (2005-2014)
Economics
Emerging Issues/Questions for 2013 and Beyond
Regulation will come at a cost, but can it be a benefit to differentiate US tobacco
Will immigration reform happen? If so what will be the “cost”?
Will we be able to adopt more mechanization/lower labor requirements?
Can we increase yields w/o sacrificing quality or industry requirements?
Will crop insurance survive and it what form?
How long can the industry go w/o significant infrastructure reinvestment?
Will consumer-accepted alternative (reduced risk) tobacco products contain less or minimal tobacco?
China – Will it become a significant market for U.S. burley?
Can tobacco growers/leadership work with health community on “reasonable” tobacco regulation and control efforts?
Will adequate funds be available to support regional collaboration on tobacco grower research and extension activities and personnel?
Will profit incentives/overcoming challenges result in an adequate # of growers