Even under the best of circumstances, agricultural markets are difficult to gauge at times, so as the burley tobacco season progresses and producers analyze their crops and how much damage has been done by excessive rains this year, the reality of what this tobacco will do at market time is setting in.
Will Snell, an agriculture economist with the University of Kentucky College of Agriculture said going into the year, prices were expected to be as strong if not stronger than last year.
"I think, with expectations of a shorter crop, if we have growers out there with a big crop and quality curing, companies will be very competitive for those pounds and I wouldn't be surprised if we didn't see maybe even contract schedules revised like we did last year," he said.
The 2012 burley crop finally crossed the $2 per pound threshold marking a return to a price level not seen since the 2004 federal quota buyout that sent tobacco into a truly world market environment and prices on the downturn.
How this crop will fare depends greatly on what happens weather-wise from this point on. Generally a burley crop that starts out in wet conditions will require timely precipitation to maintain a weakened root system and this crop certainly began under wet conditions.
The average rainfall for most areas in Kentucky for July is less than 5 inches. Some areas have seen more than 9 inches of rain this month with most of the state already at its yearly average.
Snell said while it remains to be seen how good the quality of this crop will be, going into the year, tobacco companies needed more acres to be grown and more pounds to make up for tight burley supplies.
"That's just not going to materialize, so for those who can survive and have a decent quality crop it could be a very favorable outcome," he said. "But we don't anticipate that prices will offset the lost of yields that many of our folks are going to experience."
Snell added that even for those producers who suffer a bit quality-wise, the market should still be favorable to them due to those short burley supplies.
Kentucky burley growers were expected to increase production this year by 4,000 acres but many of those acres went unplanted due to wet conditions through much of the spring and early summer. But across the entire burley belt an increase of only one percent was expected and nearly all of those states have experienced a wet year.
In neighboring Tennessee, the second-largest burley producing state, production is estimated to be down by 3,000 acres.
Snell said 2013 was poised to be a very favorable year from a price standpoint for growers and from an inventory replenishment standpoint for tobacco companies.
"It's premature to say but we may be in the same boat next year. I think the companies will try to entice more acres again next year," he said.
Snell also said that if a significant portion of this crop is lost, companies may have to look to other places like South America but for U.S. growers the exchange rates remain in their favor.
"We don't want to look too far down the road, but I don't see this thing turning around abruptly," he said.
Brian Furnish, a tobacco farmer and president of the International Tobacco Trading Group said he thinks this year will be a sellers' market those markets open.
"We're already in a situation where we're in short supply of what is needed," he said. "With only a 1 percent increase in acreage, really that is nothing. Then you come out with a short crop because of the growing season. From a seller's standpoint, if you can get it in the barn and cured good and delivered, it ought to be an interesting marketing season for the farmers."
Furnish said with the demand what it is right now, he feels prices will be over the $2.06 or $2.07 mark which some growers received after Christmas last year and there could be bidding wars for tobacco.
"As far as I know, every company needs tobacco even more than they have contracts for," he said. "All inventories of U.S. burley that I'm aware of are depleted. I don't know of anyone sitting on an inventory right now."
Furnish who has served as general manager of the Burley Tobacco Growers Cooperative and now heads his own buying company and has traveled the world finding markets for U.S. tobacco, said for the first time in his memory there seems to be no burley inventories anywhere.
He also said that estimating what this might mean for growers in the 2014 growing season is hard to do for the fact that burley is in a world market now and what happens in other tobacco growing countries such as Brazil and Argentina will have an impact.
"We are competing with the rest of the world and while all the tobacco is not the same as U.S. tobacco, once it gets into the supply chain it usually finds a home," he said.
Furnish noted that so far, Brazil and Argentina show no signs of increased production but for U.S. growers the issues of labor, crop insurance and finding acreage and an infrastructure to raise more tobacco are all concerns.
"It's been interesting dynamics; the change from the tobacco buyout and going through the years where growers were struggling to get contracts," he said. "Now we're at a period of time where companies are struggling to get pounds. I don't know how long this will last and what price it will take to get people back in so there are a lot of different scenarios to play out."
Furnish added that when prices are high enough, farmers typically, with most crops, will over produce but it doesn't seem to working that way right now. Enditem
