wrapped up this month on a positive note as the dark-tobacco growers of Kentucky and Tennessee held a series of very active auction sales in Hopkinsville, Ky. Though the poundage offered for sale at the auctions was lower than would have been predicted back in the growing season, organizers considered them a success.
“We have been pleasantly surprised that sale prices of leaf tobacco at the auctions have been close to the contract prices,” said Kenneth Smith, general manager of the Eastern Dark Fired Tobacco Grower’s Association in Springfield, Tenn., in January. “Through the first three sales, about 300,000 pounds moved at auction. We believe there is at least 100,000 pounds to go, and maybe 150,000.”
Smith estimated that auction prices might average around $1.40 per pound, counting both lowerstalk grades and leaf.
The Springfield cooperative organized the sales. Along with the three held in January, one more regular sale was planned in early February, and it was expected that a cleanup sale would be needed in early March to bring in all remaining leaf, said Smith. The dark types have traditionally been among the last of the American tobaccos to be marketed each year.
More leaf would probably have been brought to the warehouse, since there was considerable production in excess of what companies had contracted for. But the buyers prevented that by going to the farm and buying excess tobacco directly from the farmer.
“The companies were ‘riding the country,’ as we used to say, and buying tobacco ‘at the barn door, ’”said Smith. “There was demand for more tobacco than what was out there, and the companies didn’t want to take the chance that not enough would reach the auction.”
Scrambling for a short supply
That was the story all over the Tobacco Belt as the 2006 crop was sold. In the southern Atlantic Coastal Plain, the first region to sell tobacco every year, the demand for the 2006 flue-cured crop was so much greater than supply — and buyers were so aggressive in direct purchasing uncommitted supplies — that a planned nine-market auction season was for all practical purposes scrapped. The growers’ cooperative that conducts flue-cured auctions couldn’t amass enough leaf.
“We had only a couple of auction sales, both very small,” said Arnold Hamm, c.e.o. and general manager of the Flue-Cured Tobacco Cooperative in Raleigh, N.C. “They were held late in the season at Rural Hall, N.C., and Statesboro, Ga., at members’ request, to see if demand was strong enough to raise prices above our advance rate. There was not enough tobacco sold at either auction to attract significant interest from buyers.”
Because of the scramble among buyers for uncommitted leaf, the cooperative was itself able to sell any tobacco it acquired beyond what it actually needed itself.
“Under the circumstances, deliveries to the cooperative to date were just not enough to justify auctions,” said Hamm.
The cooperative’s other marketing centers were Nashville, Ga.; Lake City and Mullins, S.C.; Clinton and Williamston, N.C.; and South Hill and Danville, Va. It accepted deliveries at all those warehouses.
By contrast, the two burley grower cooperatives were able to mount a legitimate auction season, but not at the level that had been expected. Through Jan. 18, with a few sales still to report, a total of 4,125,075 pounds of burley had been sold at auction for an average price of $1.60 per pound.
Sales were expected to continue through January, with perhaps a few cleanup sales in early February.
“We have been very pleased with the auctions,” said Charles Finch, general manager of the Burley Stabilization Corporation of Knoxville, Tenn. “It’s been a service to the farmers. But the volume has definitely been low.”
The Lexington cooperative, which represents burley growers in Kentucky, Ohio, Indiana, Missouri, and West Virginia, provided the electronic bidding system and pesticide testing services at warehouses in Danville, Harrodsburg, Mount Sterling, Lexington, and Maysville, Ky.
Burley Stabilization, which represents burley growers in Tennessee, North Carolina, and Virginia, provided similar support to warehouses in Carthage, Fayetteville and Greeneville, Tenn., and Asheville, N.C.
Of the nine markets where burley auctions were held, Danville, Ky., had by far the largest volume at 2.2 mn pounds. It also had the highest average price at $1.64 per pound. It was followed by Mount Sterling, Ky., with volume of 891,783 pounds and an average price of $1.55 per pound and Asheville, N.C., with volume of 315,327 pounds and an average price of $1.58 per pound.
The prices from the auctions are the only prices available, since all the contracting companies have kept price information close to the vest. All the contract operators are keeping their information in house. It would be hard to quantify this year anyway, since many of the buyers offered incentive packages above and beyond the price per pound.
Do tobacco auctions make economic sense?
The amount of American tobacco sold at auction has plummeted in this decade. Is a comeback out of the question?
It is still possible that auctions for flue-cured may resume next year, said Hamm, but an era may be over.
“We may have auctions again next year and in future years, but in my opinion, auctions will never be as big a factor in flue-cured sales as they have been in the past.”
But auctions appear to be on the way back up for dark tobacco. The auctions in Hopkinsville, Ky., were an unqualified success as far as the organizers are concerned, and they hope to continue them.
“Right now, we feel fortunate that our auctions went as well as they did,” said Smith. “But we would like to see more tobacco on the floor next year because you need a certain amount of tobacco to keep a warehouse open.”
Burley growers, too, seem determined to maintain auctions as a method of selling leaf.
Scott Althauser, acting director of the Burley Tobacco Growers Cooperative, said the organization’s board has committed itself to having a marketing alternative to contracting. “If the warehousemen don’t want to do it in 2007, we will have to find some other way.”
While it is a very small part of the market, the presence of an alternative marketing method provides growers with an additional marketing option, said Roger Quarles, a Georgetown, Ky., tobacco growers and president of the cooperative. “Most growers value the presence of an alternative market to ensure a way to sell those pounds that are not sold through contract for any reason.
He added, “Many producers are concerned about what will happen when excess pounds are no longer accepted under contract or if companies start rejecting leaf with less desirable traits.”
A Report on the 2006 U.S. Crop
The 2006 U.S. flue-cured crop — which was sold entirely before the beginning of 2007 — fell short of volume expectations largely because of the effect of the tropical storms that were experienced in eastern North Carolina, said Arnold Hamm, c.e.o. and general manager of the Flue-Cured Tobacco Cooperative in Raleigh, N.C.
But the quality was better than average, he said.
“It appears to be a good usable crop that will all find a place in the market,” noted Hamm. “Our customers have seemed pleased with their preliminary tests on it. We have made some good sales already on what we bought and have moved about 65% of it.”
As the last of the 2006 burley came to market, later-planted crops seemed to have suffered more extreme conditions in the field and barns, said Scott Althauser, acting director of the Burley Tobacco Growers Cooperative. “We are seeing some muddy and green tobaccos showing up,” he said. “But, overall, the quality of this crop is above average. Most of the leaf shows a truer burley color than in recent years.”
That is probably because of better curing conditions.
Yields were average or better. Kenneth Smith, general manager of the Eastern Dark Fired Tobacco Grower’s Association in Springfield, Tenn., estimated production of the two fire-cured types grown in Kentucky and Tennessee — Type 22 Eastern dark fired and Type 23 Western dark fired — at 36 to 42 mn pounds. That would compare to the U.S. Department of Agriculture estimate for 2005 of 37.6 mn pounds.
For the two Kentucky-Tennessee dark air-cured types — Type 35 One Sucker and Type 36 Green River — he projected production of 10 to 13 mn pounds, again about the same or a little more than 2005, when the USDA estimated 11.5 mn pounds of production.
All the dark types produced a healthy crop. There was some bad weather, but it came for the most part after harvesting began.
“We had good rains in the summer,” Smith said. “But we had too much rain at harvest time, and that interfered with timeliness. As a result, there was some weather damage. When you get behind a week or two with these types, you have to double up to catch up.”
Also, there was some early frost, he added. “From a half to a million and a half pounds were caught in the field at the time.”
There has been a little shift from dark tobacco to burley in this area, and Smith said there could be some shift from fire-cured to air-cured.
Until prices go back up, air-cured tobacco at a round price of $2.20 per pound will be more appealing than burley. But it requires more management. “Dark tobacco is less forgiving,” he said. “You can’t cut it and leave it in the field: It will sunburn and the green [color] will fix.”