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