Tobacco Auction Season Opens in Kentucky

Source from:  By BRUCE SCHREINER ASSOCIATED PRESS WRITER DANVILLE, Ky. 12/12/2005

Don Williams didn't know what would happen when tobacco buyers approached his leaf for the first time without the security of a price-support system that was scrapped a year ago. His anxiety faded when his rust-colored burley tobacco - an ingredient in cigarettes - sold for $1.54 to $1.65 per pound, enough incentive to plant another crop next year, the 74-year-old farmer said. "It's a little better than what we were expecting," said Williams, who endured dry growing and curing seasons to get his crop to market. It was a first-of-its-kind opening of the burley auction season last month for farmers who sold leaf at Farmers Tobacco Warehouse. Gone was the Depression-era federal tobacco program that set price and production controls on U.S. tobacco. Previously, growers were guaranteed a payday, even if their leaf was bypassed by tobacco buyers and went into surplus stocks. This time, there was no set minimum price and no guarantee that the leaf would be claimed - a byproduct of the $10.1 billion tobacco buyout passed by Congress last year that created a free market in the tobacco sector. "What you're seeing here today is probably the first tobacco that's been sold without a price-support program since the early '30s," said Ben Crain, a longtime tobacco warehouse operator observing the opening day. The Danville warehouse, next to Centre College in this central Kentucky city, was the first to have a tobacco auction in the state, which is the nation's top producer of burley tobacco. "I know we're going to be breaking new ground here today," said warehouse owner Jerry Rankin. Tobacco auctions used to be a staple of Kentucky agriculture but have nearly vanished now that most farmers sign production contracts with major tobacco companies. Nine warehouses in eight Kentucky cities will open for auctions this season, down from 96 warehouses just six years ago. Each market will have sales once a week, at least early in the season. Limited sales also are scheduled in Tennessee, North Carolina and Virginia. Rankin, whose father started working at the warehouse in 1937, said there is still a need for tobacco auctions as an alternative to contract sales. "I'd like to continue to have a choice," he said. "If we had no choice, if we had to buy our clothes all in one store, that would be a monopoly. We're daggone close to that right now" in tobacco. At the Danville warehouse, a few dozen farmers sold more than 100,000 pounds of leaf that brought an average price of $1.56 per pound. Last season, tobacco averaged nearly $2 a pound with the support program. The auctions still have a niche, especially in times of tight supplies, said Will Snell, a University of Kentucky tobacco economist. "You've got some export customers here that just want certain grades, they don't want to buy the entire stalk," he said. Snell said there is a chance for the tobacco sector to rebound, noting strong overseas demand for U.S. leaf. But it will hinge on how much tobacco companies are willing to pay, he said. "Our growers are not going to grow it if they can't make a profit," he said. "It appears it's going to be challenging for some of these guys to stay in business at the current structural prices." Fred Short, 48, got about $1.55 per pound on average for his 8,000-pound burley crop, about a nickel less than he had hoped. He said he was willing to take a chance at auction rather than sign up with a company. "I believe in the open market," he said. "I just didn't want to be tied to a price. I'm willing to take the chance - possibly get more, possibly get less." He wasn't mourning the loss of the tobacco program and was putting his faith on market forces to secure a decent price. "I'm relying on supply and demand," he said. Enditem