Virginia's Tobacco Crop Looks Good, Analyst Says

Source from:  Richmond Times-Dispatch  08/11/2004

Sales of Virginia's largest cash crop, tobacco, will start today after what has been a mostly favorable growing season for farmers in the commonwealth. "I think the crop looks very good," said Stan Duffer, regional market development manager for the Virginia Department of Agriculture and Consumer Services. "We have had some areas that have had plenty of rain, and we don't need any more in those areas." Excessive rain was a major problem for Virginia farmers last year. This year, crop yields are expected to be higher if the weather remains favorable throughout the harvest season. The U.S. Department of Agriculture's latest estimates have Virginia producing 23,000 acres of flue-cured tobacco, with a yield of 2,300 pounds per acre, for total production of 52.9 million pounds. In 2003, farmers harvested 18,000 acres, with a yield of 1,690 pounds per acre, for total production of 30.4 million pounds. Overall U.S. flue-cured production this year is estimated 518.4 million pounds. Virginia's effective flue-cured quota -- the amount of leaf that farmers can sell under a federal supply-control program -- is 48.7 million pounds. So if farmers produce as much tobacco as the USDA estimates, they likely will have several million pounds left over to sell next season. Tobacco auctions are scheduled to start in Danville this morning. Other markets will open tomorrow in South Boston, South Hill and Clarksville. Auction sales, traditionally the only way that tobacco growers sold their crops, have declined drastically in recent years as many farmers have switched to contracting with tobacco companies such as Richmond-based Philip Morris USA. Last year, farmers sold about 80 percent of the crop directly to companies, bypassing competitive auctions. That trend is likely to reverse somewhat this year because one of the major buyers of Virginia leaf, Chester-based tobacco company Star Scientific Inc., withdrew from contracting this season. When combined with cuts in contracting by some leaf dealers, it is likely that 40 percent of this year's Virginia flue-cured crop will be sold at auctions, Duffer said. So far this season, sales at markets in South Carolina, Georgia and North Carolina have not looked promising. At early auctions in those states, buyers passed over more than 80 percent of the tobacco offered for sale. The unsold leaf is purchased by a farmer-owned cooperative at a support price set by the federal government. The cooperative will operate two auction houses in Virginia this season. Four other auctions will operate independently. The weak sales are probably due in part to the lower quality of leaf sold early in the season, but it also reflects a continuing decline in demand for U.S.-grown leaf. Buyers have turned to cheaper leaf grown in South America and Africa. Another factor affecting demand may be the likelihood of a buyout of U.S. tobacco quotas. While Congress debates two plans to eliminate the government's price-$and supply-control program for tobacco, buyers may be reluctant to purchase much U.S. leaf this year. A buyout probably would cause prices to drop significantly next year. Enditem