Holding on Stubbornly, Some Kentucky Tobacco Warehouses to Stay Open

Source from:  BRUCE SCHREINER Associated Press LOUISVILLE, Ky. 11/03/2005

His customers have dwindled and his profits have disappeared, yet Jerry Rankin will open his tobacco auction warehouse this month, as his family has done for decades. The 64-year-old burley warehouse owner is among the few survivors in a business that's been bypassed by major tobacco companies that now purchase leaf directly from farmers. And many of growers have gotten out of tobacco entirely, thanks to a $10.1 billion buyout of the Depression-era federal tobacco price support program. But Rankin is holding on stubbornly to his Farmers Tobacco Warehouse in Danville, believing, if nothing else, it will give growers another option for selling their leaf. "It's much better to have two choices than one," he said in a telephone interview. Tobacco warehouses - sprawling, squat structures with tin siding - used to be the lifeblood of Kentucky's burley belt. After months of work, farmers sold their leaf at auction and collected paychecks that paid mortgages, bought Christmas presents and helped put kids through college. Those days are now largely gone. In coming weeks, nine auction warehouses plan to open in Kentucky, down from 96 just six years ago. Three burley warehouses were also slated to open in Tennessee, two in North Carolina and one in Virginia. The decline has coincided with the advent of contract sales. Most leaf now is grown under contract with such industry giants as Philip Morris USA and R.J. Reynolds Tobacco Co. In Danville, Rankin remembers when eight warehouses operated in a town that by itself was a $50 million-a-year tobacco market. His is the only warehouse in town still open for auction. During the peak of auction sales, more than 8 million pounds of leaf sold at his warehouse. This year, he estimated it might be 2 1/2 million pounds. "It's hard to say," he said. "There's a lot of factors that will determine it." In the past five years, there's been little money to make as a warehouse operator from tobacco auction sales, he said. "Two of those years, I operated in the red." Yet he feels compelled to keep the family business going. "It's a heck of a challenge, but I feel like there's a need," Rankin said. "I think it will come back to a point, maybe not ever like it was." Rankin expects buyers from at least five companies to show up for sales that begin Nov. 21. A warehouse in nearby Harrodsburg also will hold sales that day, the first of the season. Another potential buyer at auctions may be the Burley Tobacco Growers Cooperative Association, which is looking to replenish stocks as it tries to nurture tobacco sales to China and other markets, said Scott Althauser, the co-op's vice president of leaf. Prices at tobacco auctions will reflect the demise of the government-guaranteed, bottom-line price. Rankin predicted that quality leaf could fetch bids in the $1.60 per pound range, well below average prices when the price-support system was intact. "We'll be competitive," he said. "I think there will be some special grades that will bring more than the contract." Will Snell, a University of Kentucky tobacco economist, predicted that demand for leaf sold at auction will boil down to a matter of quality. Limited worldwide supplies of quality burley in relation to anticipated demand could "create some opportunities for quality tobacco sold at auction," Snell said. Even with tight supplies, low-quality leaf will be "severely discounted" at auction, he said. Government forecasters predicted burley production of 135 million pounds in Kentucky as of Oct. 1, down 35 percent from last year's crop. This year's burley harvest will cover an estimated 75,000 acres statewide, compared to 106,000 acres last year. Enditem