Drought threatens tobacco market
Farmers prepare to sell crops to cigarette makers
LOUISVILLE, Ky. - From start to finish, southern Kentucky farmer Al Pedigo endured difficulties in getting his burley tobacco crop ready for market.
A severe drought stretched from the summer growing season to beyond harvest — when long, bulky tobacco leaves dangled in barns to cure.
Pedigo’s anxiety grew as he prepared his first batch of burley for market this week.
Kentucky burley growers see this selling season as a telltale sign to gauge how tobacco companies will treat them without the fallback comfort of a federal safety net.
This was the most challenging growing year, they say, since the free market replaced federal production and price controls following the 2004 federal tobacco buyout.
“The quality is probably not as good as the companies would like,” Pedigo, a grower in Allen, Monroe and Barren counties, said Monday. “We’re all anxious to see what they do with this crop. All of our input costs have gone up. It’s hard to take less for the tobacco, even though the quality is down a little.”
Shelby County farmer Paul Hornback, who grows tobacco under a contractual arrangement with Philip Morris USA, thought the tobacco giant passed the test, at least for now.
Hornback said he was pleased with the price he fetched Monday — the opening of sales — for the first 35,000 pounds of leaf he delivered to a Philip Morris receiving station in Frankfort. It was some of his best burley this year, he said, and the leaf sold for an average of $1.55 to $1.56 per pound. That base price was a couple of cents per pound below a year ago, reflecting the lesser quality of this year’s drought-stressed crop, he said.
“I did think they were very lenient on what I brought in,” said Hornback, who received incentives amounting to another 12 to 13 cents per pound for meeting production goals.
At another Philip Morris receiving station at Carrollton in northern Kentucky, farmers sold about 400,000 pounds of burley Monday, about the same as opening day a year ago, said employee John Rothenburger. The overall crop was fair, he said, and farmers received an average price in the range of $1.53 to $1.56 a pound, not including the possible production incentives. The base price was down about a penny per pound from a year ago.
“After today, I think their concerns are going to be relieved,” Rothenburger, a Shelby County tobacco farmer, said of fellow growers. “They would all like to have more money, but they know the quality of the crop that we have. They’re being pretty receptive to it.”
The biggest obstacle for many growers was the mostly dry and hot curing season, leading some leaf to cure too fast, Hornback said. As a result, it didn’t acquire the deep reddish-brown tint desired by cigarette makers.
Burley tobacco is no longer the king of Kentucky agriculture, and many growers gave up on the labor-intensive crop following the tobacco buyout. But others have ramped up production, investing in additional barn space, acquiring more land and hiring extra workers.
Hornback, who still has about 200,000 pounds of leaf to take to market, has doubled production since the buyout. The price he gets for his burley is about 25 to 30 cents below what he got under the tobacco program, he said.
Since then, some costs have risen but one big expense has disappeared.
Under the tobacco program, he had to pay nonproducing quotaholders up to 70 cents per pound to “lease” their quota so he could grow more leaf. That expense is gone.
Now he can produce as much tobacco as he wants, provided he can get a contractual agreement with a company to purchase it.
But fertilizer costs have skyrocketed and labor costs are higher, he said.
“We’ll find out how bad the companies really want the tobacco, and how willing they are to support the producers in a bad growing season,” Hornback said.
University of Kentucky tobacco economist Will Snell said there are “a lot of vulnerable growers” still weighing whether to make a long-term commitment to tobacco production.
One advantage for farmers, he said, is that demand from tobacco companies, especially Philip Morris, exceeds current burley production.
“I think the companies are going to try to work as closely as they can with producers, to make sure they retain their interest in growing the crop,” Snell said.
Philip Morris USA spokesman David Sutton said the nation’s leading cigarette maker realizes that burley quality will vary from year to year, based on growing conditions.
Sutton said the company expects to meet its burley needs from this year’s Kentucky crop.
Pedigo, who expects to take about 330,000 pounds of burley to market, said his crop isn’t as good as previous years. But he’s hopeful that Philip Morris International, his contract buyer, will realize it’s due to the long dry spell.
“All this was beyond our control,” he said. “I hope the companies will step up this year and pay the farmers all they can to enable us to keep growing more.”