Auction sales seem to have regained a place in tobacco marketing after nearly disappearing just a few years ago.
Rick Smith, a leaf dealer in Wilson, N.C., said at the U.S. Tobacco Forum in Raleigh, N.C., that auctions will take only a small percentage of the flue-cured and burley sold this year.
But nevertheless they have proven their merit," said Smith, who is president of Independent Leaf Tobacco Company.
“The long-term success of the auction houses will depend, like everything else in agriculture, on the operator’s ability to make a profit. But my feeling is that auctions are here to stay, for at least as far ahead as we can see.”
Smith said he has bought leaf at flue-cured auctions for the last several seasons. As far as he is concerned, the return of the auction has been a development that has been not only desirable, but inevitable.
In flue-cured areas, no matter the crop size or quality, about five to seven per cent is going to enter the trade outside of contract stations, he said.
“We needed a means of absorption into the market for: tobacco produced without a contract, tobacco produced under a contract but beyond the contracted amount, and tobacco produced under contract but failing to meet the quality requirements of the contract," said Smith.
“There are different ways to do this, but the auction appears to have met the needs of the current market very well.”
Smith has some concerns about how the auction system will function this season.
“I am looking at the issues of traceability which has been an ongoing concern and good agricultural practice (GAP) training, which is a new concept in tobacco this year," he said.
"Both issues have been developed in the light of one grower dealing with one contracting company. But will growers delivering tobacco to auction houses without a contract get lost in the shuffle?”
Auction operators seem to have gotten ahead of the traceability problem. In an informal survey of warehouse owners who are operating this year, all said they maintain adequate records to answer any traceability question.
They are confident they can answer any traceability questions, Smith said.
"But these operators did not feel nearly as much concern about GAP certification," he said.
"That is mainly because most of their growers have contracts with one or more tobacco companies and will have been certified by those companies. And some other farmers attended GAP meetings sponsored by their respective states.”
Most farmers who sell at auction will be able to document GAP certification from some other source and that it will not be an issue for their tobacco, said Smith.
"But you just have to think there will be a few growers who show up at the warehouse uncertified.”
What will happen? Maybe nothing. "Maybe none of the buyers will care," said Smith.
"If there is a concern, the operators might elect to sell tobacco from uncertified farms separately.”
But that would not be desirable because of the likelihood of price discrimination. "So there remain questions on the GAP situation," Smith said.
Some agreement on GAP training for non-contract growers would be a good thing, said another of the Forum speakers, burley grower Scott Travis of Cox's Creek, Ky.
"Everyone needs the same set of standards to go by," he said. "It would make growers more aware of what they need to be doing. Uniformity is important.”
Travis, who said he never really felt comfortable about the contracting system, has no contract for his 12 acres of burley this season. "I will sell it all at auction and perhaps at some 'pop-up' markets along the way," he said.
From the operator's point of view, the advantage of the auction is that it puts multiple buyers together with multiple sellers, said Randy Brandon, manager of American Tobacco Exchange in Wilson, N.C.
Need more than one offer
“You need more than one offer to establish the value of tobacco.”
Dennis White, owner of Old Belt Tobacco Sales in Rural Hall, N.C., said at his auction, tobacco graded below first or second grade generally attracts a higher price at auction than at contract stations.
"We have had some better quality tobacco that sold higher than the contract price.”
So far in the new tobacco auctioning era, auctions are providing an opportunity for better-than-contract pay for some niche styles of tobacco.
"We have received some Chinese style tobacco, and buyers have fought for it," White said. "Good bright leaf has gotten a price advantage here.”
For burley growers, there is another fringe benefit of auctioning: They can deliver their tobacco in small bales.
"The fact that we take small bales is a good selling point," said Jerry Rankin, owner of Farmers Tobacco Warehouse, Danville, Ky.
"Big balers are expensive, and we have many growers who grow only three to six acres and can't afford the expense.
Smith provided the following list of warehouses he knows will hold auctions in 2013, listed by tobacco type.
Farmers Tobacco Warehouse, Danville, Ky.: Contact Jerry Rankin at 859-319-1400.
Big Burley Warehouse, Lexington, Ky.: Contact manager Darby Montgomery at 859-339-3922.
Clay's Tobacco Warehouse, Mount Sterling, Ky.: Contact Roger Wilson at 859-498-6722.
One more possibility: Kentucky King Warehouse, Maysville, Ky., may also hold auctions this year if there is enough interest. Contact Eldon Ginn at 606-782-2477.
American Tobacco Exchange in the Growers Warehouse in Wilson, N.C.: Contact Randy Brandon at 252-343-1661 or Todd Adams at 919-369-5356.
Big M Warehouse (formerly Liberty Warehouse), Wilson, N.C.: Contact Big M owner Mann Mullen or warehouse manager Greg Ray at 252-799-6061.
Flue-cured & burley
Piedmont Warehouse, Danville, Va.: Call Jim Eggleston, sales manager, at 434-489-4292.
Old Belt Tobacco Sales in Rural Hall, N.C.: Contact Dennis White at Old Belt Tobacco Sales at 336-416-6262.