The first auction market for flue-cured tobacco since the end of the federal price support program was scheduled to open Aug. 15.
The auctions began that day at all 11 marketing centers operated by the Flue-Cured Tobacco Cooperative Stabilization Corp. and it was anyone’s guess as to how the sales would go.
“This is the first time since 1939 that we have sold flue-cured tobacco in a free market, so there is no history to give us an idea of how it will work,” says J.T. “Tommy” Bunn, executive vice president of the Leaf Tobacco Exporters Association. “We are all anxiously waiting to see the direction the market takes.”
One aspect of the sale has definitely changed, Bunn says: There will be additional buyers coming to look at U.S. tobacco now that the price support program has been terminated.
“Our leaf is considerably more attractive than it has been in the past,” he says. “What our customers are looking for is more value for their money, and they see a chance of finding that here in the United States this season.
“The situation is more encouraging now than it has been in some time, and it will be interesting to see if any new orders emerge.”
If any do, the buyers from China may be the likeliest candidates to make them.
“We are informed that Chinese buyers will be here,” says Bunn. “What will they look for? They generally like a different style than most of our buyers — leaf that is on the brighter side and very clean, as opposed to leaf that is dark and ripe to overripe. But they are extremely price sensitive, so if the price is appealing they may buy leaf that is not exactly to their preference.”
Any effect of buying by China and other non-traditional buyers may not be immediately apparent at market opening because these buyers probably will not arrive until September.
It is difficult to predict how many farmers planted flue-cured this year, but about 3,500 have entered into agreements with the cooperative to deliver leaf to the marketing centers, says Arnold Hamm, general manager of the cooperative.
About half of those are “exclusive” agreements that bind the grower to sell all his leaf to the cooperative, while the rest are “non-exclusive” agreements that allow the grower to contract with other companies as well.
Any interested buyer is welcome at these auctions, and Hamm says he expects most of the traditional buyers and a few new ones when sales begin.
The 11 cooperative marketing centers for 2005 are: Georgia — Nashville and Statesboro; South Carolina — Lake City and Mullins; North Carolina — Clinton, Williamston, Wilson, Oxford and Winston-Salem; and Virginia — Danville and South Hill.
To assist in obtaining the best leaf possible, the cooperative has tried to communicate to its growers during the season what it thinks they should know about growing a marketable product in 2005.
“We are giving them the best advice we can as to how to be successful during this transition,” says Hamm. “We recommend they separate their leaf by stalk position, make every effort to ensure the tobacco is ripe, and also to ensure that it is clean, which includes no unapproved pesticide residue and low levels of Tobacco Specific Nitrosamines.”
Under the federal program, the question of how much separation by grades was economical was always a hard decision for farmers, and it is still a gray area.
“We advise separating into a minimum of three stalk positions — lugs, cutters and leaf,” says Hamm. “It might well pay to split out a fourth position this season. There does seem to be a demand for the very top leaves, or tips. If tobacco presents itself that way, I believe the market will reward farmers for harvesting tips separately.”
This year, for the first time since 1939, a flue-cured grower whose tobacco doesn’t attract a buyer at auction will have to take it home. Hamm is hoping that won’t happen often.
“I personally believe that all sound leaf will sell at some price, assuming supply is close to demand,” he says. “I think the market will ‘clear.’ But there could be some bargain prices.”
The Leaf Exporters Association leader Bunn is optimistic about industry off take too. “My impression is that the quality of this flue-cured crop is good,” he says. “If the extreme heat in July didn’t cause too much harm, it has very good potential.”
There has been some loss of production, especially in Georgia, where heavy rains and disease hurt a lot of farmers. But his reading is that supply will be somewhere in the general area of demand, at least as far as traditional buyers are concerned.
The situation might be different for burley. About as much was contracted for production this year as was actually sold last year (not counting loan receipts). But that may not be enough.
“There is a growing demand for burley in world markets as American blend cigarettes replace blends that don’t include burley,” Bunn says. “And there is not as much burley available as flue cured.”