More Than 850,000 Pounds of Burley Sold at Auctions in Kentucky

Source from:  BRUCE SCHREINERAssociated PressLOUISVILLE, Ky. 12/19/2005

Farmers have sold 857,879 pounds of burley tobacco at limited auctions in Kentucky, just a fraction of the state's crop but enough to give supporters hope that such sales can survive as an alternative to production contracts pitched by tobacco giants. Growers fetched, on average, $1.61 per pound for leaf sold at auction warehouses in seven Kentucky cities since late November, the Burley Marketing Association said Friday. Donna Graves, the association's executive director, said she was encouraged by the sales and predicted leaf now hanging in barns would be auctioned off early next year. "It shows there is a need for selectivity on the buyers' part, and it shows there is support on the growers' part for an alternative market which gives them a choice," she said. Auction sales totaled nearly 1.8 million pounds in Kentucky, Tennessee, North Carolina and Virginia, she said. She predicted sales could reach 8 million pounds or more for the entire auction season, with about half coming from Kentucky - the nation's top burley producer. "There's a lot of auction pounds out there still yet to move," she said. Auctions have attracted a half-dozen or so buyers, she said. Much of the leaf will be shipped to cigarette manufacturers overseas, she said. Still, the amount sold at auction is dwarfed by leaf sold under contracts between tobacco companies and growers. Kentucky was expected to produce 135 million pounds of burley this year - which would be the state's smallest crop since 1927, a crop-reporting service said. Many growers got out of tobacco entirely following a $10.1 billion buyout of the Depression-era federal tobacco price support program. In Kentucky, the highest-volume auction market has been Farmers Tobacco Warehouse in Danville, where nearly 500,000 pounds of leaf sold before the Christmas break. Warehouse owner Jerry Rankin said he expects another 1 1/2 million pounds to be auctioned off early next year. Rankin had informed area farmers for months that his warehouse would be open. His sales totals will likely fall short of the 3 million pounds needed to break even, but he expects to open his warehouse for sales again next fall, he said. For Rankin, it's as much a cause as a business decision. "It's giving the farmers a choice," he said. "What we're doing here is pushing the competition." At Mount Sterling, 225,218 pounds sold at Clay's Tobacco Warehouse, and owner Roger Wilson expects close to another half-million pounds to sell early next year. That probably won't be enough for him to break even. Wilson was noncommittal about whether he'll reopen his warehouse next fall. And he's not sure yet about whether limited auctions will survive as a marketing option. "It's probably still too early to say," he said. "I don't know how many people are going to raise tobacco next year. There's not enough money hardly for people to raise it now." Last sales season, tobacco averaged nearly $2 a pound when the price-support program was still in effect. Elsewhere in Kentucky, auction sales also have been held in Harrodsburg, Hopkinsville, Lexington, Mayfield and Maysville in warehouses that have survived the onslaught of contract sales. Just six years ago, there were 96 auction warehouses open in Kentucky. Will Snell, a University of Kentucky tobacco economist, said auction markets have "fared fairly well so far" this year, primarily because of tight domestic leaf supplies. He said it appears that auction prices have been close to, and in some cases exceeded, contract prices, though officials have no official prices for contract leaf. As for the future of auctions, he said, "The question remains how viable will these markets be when the market is characterized as one of excess supplies or one of low-quality leaf." Meanwhile, major tobacco companies are taking in burley produced under grower contracts. Philip Morris USA spokesman Bill Phelps wouldn't discuss the amount of leaf being purchased, or at what price, by the nation's leading cigarette manufacturer. But he said the company is content with contract purchases. "We definitely think contracting is the best for our business as well as for growers," he said. "It allows us to have more interaction with growers, and as a result we think it helps us improve the quality of the tobacco that is being brought in." Enditem