A global supply-demand balance that once favored Kentucky tobacco farmers now seems to be turning against them as another market season opens in the state that leads the nation in burley tobacco production.
Burley growers reaped the benefits of strong prices a year ago in a market where tobacco companies seemed to snatch up all the leaf they could get. The outlook isn't nearly as upbeat now, at a time when global demand for burley is declining while world leaf production has been increasing.
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"The supply-demand balance for U.S. burley has taken an abrupt turn after being a seller's market for several years of tight supply," said Will Snell, a University of Kentucky agricultural economist.
The result will be a likely drop from last season's robust prices, which averaged $2.06 per pound for the 2013 crop, he said. Leaf buyers are also expected to be pickier, he said.
"It's going to be a very challenging year to make a profit," said UK extension tobacco specialist Bob Pearce.
U.S. burley growers are forecast to produce their highest per-acre yields in the decade since the tobacco buyout, which ushered in a free-market system to replace a Depression-era price support program. The nation's 2014 burley crop is pegged at 211.5 million pounds, up 10 percent from the 2013 crop, according to the U.S. Department of Agriculture. Kentucky's burley production is forecast at 161 million pounds, up 9 percent from a year ago.
Snell pointed to reports indicating world burley production rose by 22 percent in 2013 and another 12 percent this year. Most of the production growth has occurred in Africa, where lower-quality leaf could become a cost-saving substitute for some leaf buyers, he said.
U.S. burley — an ingredient in many cigarettes — is mostly grown under contracts between farmers and tobacco companies. Kentucky farmers this week started hauling their contracted leaf to receiving stations in hopes of netting good paydays for months of work.
The quality of the state's burley crop is "all over the board," Pearce said, with "some very good tobacco out there."
But for some growers, a rainy harvest hurt the quality of their leaf, he said. And a wet and cool fall in some areas hampered the post-harvest curing, when green burley tobacco leaves change to a reddish brown color desired by tobacco buyers, he said.
Robert Richardson, a tobacco farmer in Woodford County in central Kentucky, on Wednesday delivered his first batch of burley, amounting to a fraction of his 67-acre crop he sells under contract to three companies.
Overall, his first foray into this season's market fetched prices that were about 3 cents per pound less than a year ago, he said. He was satisfied with the price, he said, but returned home with four of the 32 bales he delivered.
Those four bales contained some green leaf that the buyer didn't want. So he'll pick out the green leaf, bale up the remaining batch of burley and take it back to the receiving station in hopes of getting a better price.
"The companies are going through things with more of a fine-tooth comb," he said.
R.J. Reynolds Tobacco Co., the maker of such brands as Camel and Pall Mall, contracted with about the same number of Kentucky growers this year as a year ago, said company spokesman David Howard. The leaf being delivered by the growers has been high quality, he said.
"They are supplying us with the amount that will fit our anticipated needs for the upcoming year," Howard said.
In Breckinridge County in west-central Kentucky, some farmers built more tobacco barns and made other investments in the wake of last year's strong sales season, said Carol Hinton, the county's agricultural extension agent.
The county's farmers produced another high-quality crop this year, but now they're wondering if they'll be rewarded with strong prices again, she said.
"It's nice, thick-bodied leaf that will sell well if the demand is there," she said.
Hinton has her own method of gauging the success of a tobacco sales season: how often farmers return home with empty trailers after delivering their crop to tobacco companies.
Last year, trailers came back empty, she said. In leaner years, some growers returned with tobacco bales that didn't fetch desired prices or were rejected by buyers.
"We really hope the trailers come home empty," Hinton said.