Burley and Dark Tobacco Trends,
Issues, & Outlook:Will Snell,
University of Kentucky
•Changes•Concerns•Challenges
… but yet still opportunities
Agricultural Economics
59,373
44,967
29,237
8,113
0
10000
20000
30000
40000
50000
60000
70000
1992 1997 2002 2007
Number of Farms Growing Tobacco in KYNumber of Farms Growing Tobacco in KY
Source: USDA AG Census
Agricultural Economics
Agricultural Economics
Distribution of KY Agricultural Cash Receipts: Distribution of KY Agricultural Cash Receipts: 1990s vs. 20081990s vs. 2008
Source: Ky Ag Stats/NASS
1990-1999$3.4 billion
Tobacco24%
Cattle19%
Horses 17%
Other17%
Dairy8%
Soybeans7%
Corn8%
2008 Est.($4.7 billion)..
Corn16%
Cattle13%
Horses 21%
Other6%
Dairy5%
Tobacco9%
Soybeans11%
Poultry19%
59,373
44,967
29,237
8,113
0
10000
20000
30000
40000
50000
60000
70000
1992 1997 2002 2007
Number of Farms Growing Tobacco in KYNumber of Farms Growing Tobacco in KY
Source: USDA AG Census
Except for cattle/hay, more farms grow tobacco than produce any other Kentucky ag enterprise
Agricultural Economics
U.S. Tobacco FarmsU.S. Tobacco Farms(2007 Ag Census)(2007 Ag Census)
Agricultural Economics
State Tobacco Farms (2007)
% of U.S.Tobacco Farms
Change Since 2002
Kentucky 8,113 50% -72%
North Carolina 2,662 16% -66%
Tennessee 1,610 10% -80%
Pennsylvania 1,152 7% +28%
Virginia 895 6% -79%
Georgia 224 1% -73%
Others (11 states) 1,578 10% -73%
Total U.S. (17 states) 16,234 100% -72%
Adair
Allen
Anderson
Ballard
Barren
Bath
Bell
Boone
Bourbon
Boyd
Boyle
Bracken
Breathitt
Breckinridge
Bullitt
ButlerCaldwell
Calloway
Campbell
Carlisle
Carroll
Carter
Casey
Christian
Clark
Clay
Clinton
Crittenden
Cumberland
Daviess
Edmonson
Elliott
Estill
Fayette
Fleming
Floyd
Franklin
Fulton
Gallatin
Garrard
Grant
Graves
Grayson
Green
Greenup
Hancock
Hardin
Harrison
Hart
Henderson
Henry
Hickman
Hopkins
Jackson
Jefferson
Jessamine Johnson
Kenton
Knott
Knox
Larue
Laurel
Lawrence
Lee
Leslie Letcher
Lewis
Lincoln
Livingston
Logan
LyonMccracken
Mccreary
Mclean
MadisonMagoffin
Marion
Marshall
Martin
Mason
MeadeMenifee
Mercer
Metcalfe
Monroe
Montgomery
Morgan
Muhlenberg
Nelson
Nicholas
Ohio
Oldham
Owen
Owsley
Pendleton
Perry
Pike
Powell
Pulaski
Robertson
Rockcastle
Rowan
Russell
ScottShelby
Simpson
Spencer
Taylor
ToddTrigg
Trimble
Union
Warren
Washington
Wayne
Webster
Whitley
Wolfe
Woodford
Harlan
Increased Acres -25 to -40%
0 to -25% > 40% Decline
Total (Both Burley and Dark) Tobacco Acres(2005-08 Average vs 2004)
Agricultural Economics
Value of Kentucky Tobacco ProductionValue of Kentucky Tobacco Production
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008
Dark
Burley
Agricultural Economics
Source: Ky Ag Stats/NASS
Million Dollars
Dark Tobacco Trends, Issues
and Outlook
Agricultural Economics
0
20
40
60
80
100
1990 1995 2000 2005
Mill
ion
Lb
s
Agricultural Economics
U.S. Snuff Tobacco Consumption
Source: USDA/ERS and TMA
+4% to +7% Annual Growth
•Successful product marketing•Increasing number of public smoking restrictions•Reduced risk perception/reality
Entry of Cigarette Mfgs in 2007, 2008 …
0
5000
10000
15000
20000
25000
30000
2000 2002 2004 2006 2008
Dark Air
Dark Fire
Source: NASS/USDA
Agricultural Economics
US Dark Tobacco AcresUS Dark Tobacco Acres
+21%
+38%
0102030405060708090
100
2002 2004 2006 2008
Million Lbs
Dark AirProduction
Dark FireProduction
Total DarkUse
Agricultural Economics
U.S. Dark Tobacco Production vs. UseU.S. Dark Tobacco Production vs. Use
Source: ERS/NASS/USDA,
Was ExpansionToo Much?
0
5000
10000
15000
20000
25000
30000
2000 2002 2004 2006 2008
Dark AirDark Fire
Source: NASS/USDA
Agricultural Economics
US Dark Tobacco AcresUS Dark Tobacco Acres
+21%
+38%
-16%
• Domestic– State and Federal Tx
Increases– Increasing Smoking
Restrictions– FDA and other Regulations– General Economy Downturn
Agricultural Economics
What about Burley?
• Export– Higher Valued Dollar– Increasing Foreign Supplies– Global Economic Downturn
Agricultural Economics
How Did U.S. Burley Growers Respond in 2009 in Response to Reduced Demand Expectations?
2009 Burley Farmers Faced with …
• Lower ag commodity prices• Declines in dark tobacco contract needs• Off-farm job layoffs• Diminished buyout dollars• Available infrastructure• Alternative markets/decent prices for pre 2009 crops
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
10
00
Ac
res
Source: NASS/USDA
Agricultural Economics
US Burley AcresUS Burley Acres
+ 1%
050
100150200250300350400
2001 2002 2003 2004 2005 2006 2007 2008 2009
Marketing Year
Mil
lion
Lb
s
Agricultural Economics
Source: NASS/ERS/AMS/USDA
U.S. Burley Production
0
50
100
150
200
250
300
350
400
450
2001 2002 2003 2004 2005 2006 2007 2008 2009
Marketing Year
Mil
lio
n L
bs
Domestic UseExportsProduction
Agricultural Economics
Source: NASS/ERS/AMS/USDA
U.S. Burley Production vs Disappearance (Use)
Potential Needs for 2008-09? 200 Mil lbs ???
What aboout 2009-2010 ???
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Agricultural Economics
Source: ERS/USDA2006-2007 Estimates by UK
U.S. Burley Leaf Exports as a Percentage of Total U.S. Burley Disappearance (Exports + Domestic Use)
U.S. Burley Leaf Exports
0
50
100
150
200
250
300
1990 1995 2000 2005
Mil
Lb
s
Source: ERS/USDA/TMA
Agricultural Economics
U.S. Burley Leaf Exports Are Down 25% in 2008-2009 Marketing Year
1
1.5
2
2.5
3
3.5
4
2003 2004 2005 2006 2007 2008 2009
Agricultural Economics
Source: Federal Reserve Bank
Brazilian Reals to One U.S. Dollar
0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008 2009
Million Lbs
Agricultural Economics
Total World Burley ProductionTotal World Burley Production
Source: Universal Leaf
+19%
+15%
U.S. Cigarette Production U.S. Cigarette Production
0
100
200
300
400
500
600
700
800
1990 1995 2000 2005
Bill
ion
s
Agricultural Economics
U.S. Cigarette ProductionDown 12% in 2008
U.S. Cigarette Consumption May Drop Another 6 to 9% in 2009
0
50
100
150
200
250
300
350
400
450
2001 2002 2003 2004 2005 2006 2007 2008 2009
Marketing Year
Mil
lio
n L
bs
Domestic UseExportsProduction
Agricultural Economics
Source: NASS/ERS/AMS/USDA
U.S. Burley Production vs Disappearance (Use)
Potential Needs for 2009-10 at “profitable” prices … Less than 200 mil lbs ???
$1.25$1.35$1.45$1.55$1.65$1.75$1.85$1.95$2.05
2004 2005 2006 2007 2008 2009
Average U.S. Burley PricesAverage U.S. Burley Prices
•What about 2009/2010?• Better quality crop in 09 should induce higher “average” prices.• Poor quality tobacco, especially outside of contract will suffer greatly• Excess production in 2009 could enhance short-term disappearance,
but have adverse impacts on 2010 contract volume given anticipated domestic and export demand outlook
What does the immediate future hold for U.S. Burley?
• Companies Need Less Total Acres/Less Growers
• More Volatile Prices and Tight Profit Margins Especially for Low Yielding/Low Quality Leaf
• Consolidation Could Lead to Opportunities for Good Low Cost Producers of Quality Leaf to Maintain Profits and Crop Size