Tobacco Farmers Worry About Drop in Sales

Source from:  Business By BRUCE SCHREINER, Associated Press Writer LEXINGTON, Ky. 11/17/2004

Marion Livingood leaned against a bale of tobacco that had just fetched him a record-high price Monday, but he seemed in no mood to celebrate a successful crop. Instead, the 44-year-old Nicholas County farmer grimly contemplated life without the government support price that helped secure his profit. Livingood received $2.02 per pound for the rust-colored bundle of mid-stalk leaf — the best price he'd ever gotten for that particular stalk position and a penny a pound over the government support price. A year from now, there will be no government tobacco program setting price and production controls on U.S. leaf. Livingood was already bracing for the prospect of sharply lower prices for next year's crop. "I'd say you're talking $1.50 or $1.60 at the most, if you're lucky," Livingood said of the same bundle of burley. Other bundles brought Livingood as much as $2.10 per pound — matching the best price he'd ever gotten for the top part of the stalk. Tobacco companies blend burley with other types of tobacco to make cigarettes. Anxiety hung in the air with the aroma of tobacco as a few remaining stalwarts gathered for sales at Lexington Loose Leaf Tobacco Warehouse. Available leaf at the warehouse brought an average price of $1.99 per pound. Just over half of the nearly 210,000 pounds of burley was passed over by the tobacco buyers and went into the surplus pool — which brings the government support price for growers. Across the burley belt, nine of the 30 remaining auction markets were open Monday — six in Kentucky and one each in Tennessee, North Carolina and Indiana. Kentucky growers sold 2.24 million pounds of leaf on Monday for $4.48 million, an average of $199.66 per hundredweight, according to the Federal-State Market News Service. The sales opened just weeks after Congress passed, and President Bush (news - web sites) signed, a tobacco-quota buyout that ends the Depression-era system of price and production controls. The $10.1 billion buyout will pay farmers to give up their production quotas and move into a free market. The buyout drew support from many farmers who said deep production cuts by the government put them in a financial pinch. The quota cuts reflected rising imports of cheaper foreign leaf and a decline in smoking. Most farmers had already abandoned the auction system in recent years to sell their leaf directly to tobacco companies under contracts. Those growers sticking with the auction sales wondered Monday whether the age-old system of marketing tobacco will be around next year. "We know the handwriting's on the wall," said Scott County farmer Bill Varellas. "It's over for the auctions, as well as the farmer making a decent profit." Varellas, 63, said this would be his last crop. He said he was unwilling to grow tobacco without the cushion of a guaranteed price. "I'd be better off to go to Wal-Mart and be a greeter," he said. "At least I'd know what I'm going to get at the end of every week." Fellow Scott County burley grower Bobby Watson, 74, who has taken tobacco crops to auction for 58 years, said the demise of the tobacco program was a "black day" for tobacco farmers. Will Snell, a University of Kentucky tobacco economist, said the buyout, coupled with the decline of the auction system, would bring "significant cultural change" to rural Kentucky. He predicted the ranks of burley farmers in Kentucky, now at about 40,000, will likely drop below 10,000 in the post-buyout system. Kentucky is the nation's leading burley producer. Snell said tobacco prices will fall in a free-market system, but warned that tobacco companies will have trouble finding willing growers if prices fall too much. He said farmers probably need to make $1.50 to $1.70 per pound to ensure that tobacco continues to be widely grown. Snell wasn't ready to declare the auction system dead after this season, though he said it faces serious challenges in trying to survive. He said there could be a limited role for an alternative to contract sales — if enough farmers bring in quality burley that companies are willing to purchase. Burley-belt farmers are expected to produce about 300 million pounds of leaf this marketing season, Snell said. About 80 percent of the crop was designated for contract sales directly to tobacco companies. Livingood said he wants to keep growing tobacco for sale at auction, even with the inherent risks once there is no guaranteed price and no surplus pool to take his leaf if it's passed over by tobacco buyers. "It's in my blood, I reckon," he said. "It's all I've ever known. I've been treated fairly all these years." But Livingood said the loss of the tobacco program puts farmers at the mercy of tobacco companies that can dictate the price for leaf. "In the end it's going to put all the small people out of business, including myself," he said. "They'll eventually have it down to where the price will be where they want it, down to practically nothing." Enditem