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April, 2007

Used tobacco production equipment sold briskly in the U.S.

Kenly, NC — In a development that suggests tobacco production is stabilizing in the United States, the market for used flue-cured tobacco machinery was unexpectedly brisk over the winter.

“It seems that any type of curing barn or harvesting machine was selling well this year,” said Loren Fisher, North Carolina Extension tobacco specialist. Farmers who think they have no future in tobacco apparently decided to sell their equipment, he said, while farmers who think tobacco still holds promise for them went looking for more equipment to expand production.

The result was frequently high prices for machinery that had no market just a few years ago.

David Hinnant, a grower in Kenly, N.C., who attended several farm equipment auctions, said the hot market for tobacco equipment showed there is still optimism about growing tobacco.

“There has to be if farmers are willing to pay these high prices,” he said.

Some farmers appear to be upgrading their equipment at these auctions, he said, especially farmers who want to convert to box barns from rack barns. Sprayers and mechanical harvesters have been other popular items, along with occasional greenhouses.

From 1998 to 2004, said Fisher, when tobacco production was declining, manufacture of new tobacco equipment ground to a near halt. “I think with demand the way it is, you will see manufacturers getting new equipment on line,” said Fisher.

The high prices on the used market result from the desire by many growers to increase acreage and make up for the income they have lost, he said.

The farmers who are buying equipment are the ones who are committed to the industry and to growing tobacco, said Hinnant. “It’s not new people coming into tobacco. They are either getting enough machinery to expand their production, or they are upgrading the machinery that they are using now.”

One effect of this transfer of machinery is greater economy of scale in the farmer corps as a whole. “But total acres planted will not necessarily increase in 2007,” said Fisher. “A redistribution among growers of flue-cured production is going on: The equipment is just moving from one farm to another.”

There has also been a geographical redistribution. “The counties of central eastern North Carolina — Wilson, Nash, Edgecombe, and Pitt — have seen large increases in acreage since the buyout and will probably see more, while the Piedmont is losing some. We could have flue-cured produced in a more compact area.”

These areas are better suited for a large expansion of production than areas that are losing production, or at least the farmers think so. Fisher said there could be a drawback to this concentration, at least from an agronomic point of view. “As production is spread over a smaller area, there would be more concern about the effects of a bad season,” he said. - (Bickers).

Weather leads to lower estimates
Jujuy — In the two major flue-cured provinces, both in the northwestern corner of the country, 70% of the crop in Jujuy and 50% in Salta had been harvested by the end of the first week in February. Hailstorms in Jujuy and excessive rainfall in Salta reduced the size of the crop by perhaps 4%, and Universal Leaf was estimating flue-cured volume for Argentina at 84 mn kgs in early February, up 3.7% from 2006.

Burley harvesting was 97% complete in Misiones province in the northeast and 90% complete in Tucuman in the northwest. Curing conditions were reportedly very good. High levels of rainfall occurred in both areas, and intense storms in Tucuman resulted in some loss of volume. Universal has reduced its crop size estimate by 1.5 mn kgs to 49 mn kgs, which would be roughly 6% below 2006. - (Bickers)

A ripe, medium bodied crop on the way
Rio de Janeiro — Flue-cured harvest was 85% complete through mid February. Compared to last year’s crop, tobaccos were reportedly riper, with more standard styles, and they were more medium-bodied, according to Universal Leaf’s World Summary. The company’s estimate of the size of this crop has been increased by 25 mn kgs to 625 mn kgs (green).

Burley harvest was complete by early February, and curing conditions were good, according to Universal Leaf. This crop has more medium-bodied styles than last year, and the leaf is a normal and uniform tan in color. The crop size estimate has been increased by 4 mn kgs to 108 mn kgs (green). - (Bickers)

Central America
Mexico, Guatemala both project 11 mn kg crops
Mexico City — Through mid February, Mexico and Guatemala each were expected to produce volumes of about 11 mn kgs of burley, according to Universal Leaf. This holds to the pattern of the last five years: As recently as 2003, Mexico produced half again as much burley as Guatemala, 17 mn kgs to 11 mn kgs. But as Mexico’s burley production has declined to the 11 mn kg range, Guatemala’s has stabilized at that level, making it an equal force in burley export south of the U.S. border and north of the Panama Canal.

For this crop, harvest of the dry-season burley crop in Mexico was under way in mid February. Weather conditions had been cooler than in previous years. The 11 mn kg estimate, which includes both rainy and dry season production, will be about 15% below 2006 if it is achieved.

In Guatemala, harvest was complete in the Zacapa Valley by early February, and deliveries were reportedly of good quality. In the Pacific Coast regions, harvesting had just begun. Volume of burley, the only type produced in a significant quantity in this country, has been very stable: The 11 mn kg estimate for this season is about the same as in 2006, and indeed very close to the volume produced every season since 2003. - (Bickers)

Early harvest above average
Lilongwe — The quality of the early harvested burley was average to above average, but tobacco in the field appeared patchy and uneven, a leaf dealer report said. Because there were some delays in applying fertilizer because of problems with a government-sponsored fertilizer scheme and because of heavy rains across the country, Universal Leaf reduced its estimate of burley volume by 9.5 mn kgs to 113 mn kgs, 8% below 2006.

In early February, harvesting, curing, and packing of flue-cured tobacco were well under way, though field operations were hampered by daily rainfall. Cured leaf shows a traditional Malawi soft-natured style. Volume was estimated at 24 mn kgs, down 20% from 2006. - (Bickers)

United States
Replacing heat exchangers a challenge
Raleigh, NC — A major machinery issue looms just over the horizon for American flue-cured growers, said Graham Boyd, executive vice president of the Tobacco Growers Association of North Carolina, at his organization’s winter meeting.

That issue is how to address the degradation of heat exchangers that were retrofitted early in the decade — often in a slap-dash manner — to reduce nitrosamines in cured tobacco.

“Many of the initial units are approaching six years or greater in age,” said Boyd. “That means efficiency loss, increased breakdowns, or even the need to be completely replaced, all of which will be expensive.”

The original retrofit campaign was largely financed by the buyers, but there has not yet been an indication that such assistance would be available again. - (Bickers)

United States
Burley marketing winds up
Danville, KY — The burley marketing season was substantially complete by the third week of February. Although a few “clean up” sales were planned for mid March, nearly all the crop that was destined to be sold at auction had been marketed by Feb. 21.

Growers were well satisfied with the performance of the auctions, which provided a market for those that didn’t sign contracts for the 2006 burley crop or who signed contracts for a specific amount but produced more.

A total of just under 5 mn pounds went across auction warehouse floors this season, selling for a total of $7.8 mn at an average price of $1.58 per pound.

But that was only about 2% of total burley production in 2006. By far the majority was sold on contract and perhaps a small percentage in direct sales from farms outside contracting.

For the second year, Danville, Ky., was the market leader, accounting for 2.4 mn pounds of sales at an average price of $1.64 per pound. Mt. Sterling, Ky., was second with a million pounds and an average price per pound of $1.52, followed by Asheville, N.C., and Lexington, Ky., with just under a half million pounds each and average prices per pound of $1.57 and $1.49 respectively.

A year ago, in the first auction season after deregulation, Asheville had been a close second to Danville in pounds marketed. But marketings dropped to only about a fourth of the volume sold from the 2005 crop.

The main reason for the falloff was probably the drop in acres of burley in western North Carolina between 2005 and 2006. Also, one warehouse that held auctions in 2005 converted into a contract receiving station in 2006 and no doubt siphoned away many pounds that would otherwise have gone on auction.

Grower cooperative officials said that Asheville nevertheless remained an important market and would probably host auctions again next season.

The other markets with auctions in 2006-07 were Harrodsburg and Maysville, Ky.; and Greeneville, Carthage, and Fayetteville, Tenn.

The last sales were scheduled to take place in Mt. Sterling on March 14 and Danville and Harrodsburg on March 15. - (Bickers)

United States
Growers enter RYO, cigarette business
Raleigh, NC — The cooperative association of flue-cured growers in the United States has begun manufacturing and marketing a roll-your-own product and plans soon to market a cigarette under the same brand name.

Called “1839,” the two products both feature a high percentage of top-quality U.S. flue-cured.

The RYO was formally introduced last July, with marketing starting in earnest in November. The upper Midwest has been the initial marketing area.

“Some work remains to be done on packaging,” said Arnold Hamm, c.e.o. and general manager of the Flue-Cured Tobacco Cooperative located in Raleigh, N.C. “When that is completed, we will expand our marketing area.”

Three different blends of 1839 are offered: Full Flavor, Mild, and Exotic. All are “American” blends in that they contain burley and Oriental along with flue-cured, said Hamm. But he emphasized that the flue-cured content would be very high.

“Sales are rising,” he said. “It is not the cheapest roll-your-own mix out there, but the high quality makes it a good value.”

It is currently available in six- and 16-ounce bags.

Sometime this spring, the cooperative also plans to introduce an 1839 cigarette.

“We hope to introduce it in April or May,” said Hamm. “We are working on market research and regulatory compliance now.”

The cigarette blend will also be in the American style with plenty of flue-cured. But the percentages of flue-cured, burley, and Oriental may not be the same as in the RYO blend.

The brand name 1839 commemorates the year when the process for curing bright tobacco was discovered, according to the company’s Web site, www.1839ryo.com.

The flue-cured growers are not the only ones in the United States who plan to make and sell an end product using their own leaf. Burley Stabilization Corp., a cooperative of burley farmers in Tennessee, Virginia, and North Carolina, is working with Wind River Tobacco Company of Jackson Hole, Wyo., to make “Nashville,” a cigarette whose burley component will be 100% American grown, said Charles Finch, managing director of Burley Stabilization Corp. in Knoxville, Tenn. - (Bickers)

United States
Kentucky farmers warned about importing plants
Lexington, KY — Exasperated by three consecutive seasons in which plants bought in Florida appear to have infected the Kentucky burley crop with the fungal disease blue mold, farmer leaders have warned growers to stop the practice.

“It has been well documented that the 2006 blue mold epidemic was directly linked to mini-plugs brought into Kentucky from Florida,” said Dean M. Wallace, executive director of the Council for Burley Tobacco. The early outbreaks in Kentucky “strongly suggest that for the past three years, the blue mold was introduced from Florida and not from wind-blown spores.

“Less than 1% of our tobacco plants were imported from Florida, but that 1% put 100% of our growers at risk.”

Blue mold cost Kentucky farmers at least $7.3 mn in lost production and increased chemical costs in 2006, he said in a statement from the council. He advised farmers to grow their own plants if at all possible. If it’s not, he recommended buying them from neighbors. - (Bickers)

Market situation up in air
Harare — Conditions were ideal for tobacco growth toward the end of the flue-cured season, reported Universal Leaf. The irrigated crop had been harvested by mid February, and reaping of the dryland crop was under way. The quality of both was reported good.

The flue-cured crop size was estimated at 73 mn kgs by Universal, about the same as in 2005 but considerably more than the 55 mn kgs produced in the disappointing 2006 season.

As usual in recent years, the marketing situation was chaotic at press time. The opening of the auctions had been moved up at the request of growers, who thought a better currency situation could be obtained in March than in April, the traditional month for opening tobacco sales.

But when the agreed-upon date of March 14 arrived, sales had to be indefinitely postponed.

“There is no point in opening when there is no tobacco to sell,” the technical director of the Tobacco Industry and Marketing Board told the Harare Herald. “The vast majority of growers are only expected to start bringing in their produce later because they planted late in the 2006 growing season. There are [also] issues of grower viability that are still being addressed.”

Among those issues, reported the Herald, are a longstanding dispute between farmers and the Reserve Bank of Zimbabwe over the exchange rate for tobacco and the farmers’ insistence on an average price of US$4 per kg at a rate of about Z$500 per one U.S. dollar. That would be a considerable increase, on paper at least, from last year’s US$1.99 per kg at an exchange rate of Z$105 per U.S. dollar.

The marketing board official had no idea when sales would begin. “We are going to be assessing the situation with growers, and only then will the floors open,” he said. - (Bickers)

Tobacco International - April, 2007

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