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December, 2008

BMJ

Is the Leaf Pendulum Swinging Away from Undersupply?
By Chris Bickers

Increasing prices to farmers may spark a gradual easing of the tight supply situation.

As leaf marketing for calendar 2008 comes to an end, world tobacco stocks have continued to remain at low levels, as they have for several years. Demand has generally remained strong, leading to upward pressure on producer prices.

But there is reason to think that situation may be coming to an end in the not-too-distant future. The executives of the two leading leaf dealers in the world both said in November that supply may catch up with demand sooner, rather than later.

Robert E. “Pete” Harrison, Chief Executive Officer of Alliance One International (AOI), said, “As a result of the increasing green prices for tobacco occurring this year, we expect to see a gradual easing of the current tight supply situation.”

That doesn’t mean that supplies right now are not still tighter than in many years, said Joel Thomas, AOI Treasurer. “But we are optimistic about the coming year. The worldwide crop that we are currently selling is of good quality. Demand is good, and things are moving reasonably well.”

George Freeman III, Chairman, President, and Chief Executive Officer of Universal Corporation, said the two major leaf types could possibly swing from shortage to oversupply in the next 12 months.

“Signs are beginning to point to a very large burley crop in Africa next year, and those expected crop levels could cause world production to approach or exceed the recent peak levels produced in 2004,” said Freeman. “That would be enough to replenish [burley] inventories and move worldwide supply to a balanced position...or perhaps even a slight oversupply.”

Flue-cured tobacco supply should also increase and could reach levels produced in the 2005 crop, he said. “The overall flue-cured supply is expected to remain mostly balanced, but the increased supply could lead to excess in the market.”

Dark tobacco supplies are definitely on the way up, due in large part to increased US production. On the production side, demand has been spurred by a number of new smokeless tobacco products that are now on the market.

Oriental production in 2008 has been estimated to be 10.3% above that of 2007 worldwide, and up 25% in exporting countries for an estimated 168.2 mn kg, a 26.1% increase over the 2007 estimate of 133.4 mn kg.

Trading in leaf is a relatively stable business once again, and dealers will be able to respond to any increase in production they encounter.

“While supplies have been tighter, global stocks are meeting demands,” said Thomas. “We are confident about production in the countries where we operate.”

Who is headed up in leaf production in 2009?
Note: The following review is based on data from Universal Leaf in its World Leaf Production Summary for June 2008 and October 2008 and from the US Department of Agriculture.

Flue-Cured
World production in 2009 is projected at 4,055.7 mn kg, a 2.8% decrease from the 2008 estimated production of 4,172.7 mn kg. Total 2009 production by exporting countries (excluding the PRC) is projected to be 1,776 mn kg, a 7.3% increase over the 2008 level of 1,655.3 mn kg.

Among the top 10 producers, the trend for 2009 is predicted to be:

  1. Brazil: Up 8% increase in production is expected, up to 635 mn kg. Through the end of September 2009, crop transplanting was 75% complete, and harvesting had just begun in the state of Santa Catarina.
  2. India: Up 9% to 294 mn kg. Through October 14, about 14.85 mn kg of the 2008 Mysore crop had been sold at average of nearly Rs 102 per kg. Some planting had begun.
  3. The US: Up 15% to 261 mn kg. The 2008 crop was substantially harvested by November 1, shortly after the first killing frost in most parts of Virginia and North Carolina.
  4. The EU: Up slightly from 2008 at 132 mn kg.
  5. Argentina: Up 6% at 87 mn kg. Through October 2009, transplanting was complete in Jujuy and nearly complete in Salta, the two leading states.
  6. Tanzania: Up 16% at 59 mn kg.
  7. Zimbabwe: Up 17% at 56 mn kg. Some growers chose to carry over their tobacco to the 2009 crop, due to an unviable exchange rate offered at the 2008 auction market, which ended in October. Universal estimated this amount at 8 mn kg.
  8. Bangladesh: Up 6% at 56 mn kg.
  9. Indonesia: No change from 2008, when it produced 43 mn kg.
  10. Philippines: Up 21% to 43 mn kg.
Burley
World production in 2009 is projected at 814.4 mn kg, 9.5% above the 2008 production level of 743.6 mn kg. Total 2009 production by exporting countries is projected at 759.9 mn kg, a 10.6% increase over the 2008 estimate of 687.1 mn kg.

Among the top 10 burley producing countries, the trend for 2009 is predicted to be:

  1. Malawi: Up 12% at 190 mn kg. Markets have closed with final sales of 169.2 mn kg at average US$ 2.37 per kg.
  2. The US: Up 10.7% at 113 mn kg. Harvesting of the 2008 crop was complete in September.
  3. Brazil: Up 13% at 113 mn kg. As of the end of September, 2009 crop transplanting was 60% complete.
  4. The EU: Up slightly at 66 mn kg.
  5. Argentina: Up 24% at 52 mn kg. As of the end of September, 2009 crop transplanting was 65% complete in Tucuman and 76% complete in Misiones.
  6. Mozambique: Up 9% at 48 mn kg. Seed distribution for the 2009 crop has been finalized, with most farmers already sowing their seedbeds. Fertilizer deliveries to all agronomy distribution points are ongoing.
  7. Thailand: Up 25% at 45 mn kg.
  8. PRC: Down 25% at 28 mn kg.
  9. India: Up 8.6% at 25 mn kg. Transplanting of the 2008 Yeleshwaram crop was complete in October.
  10. Mexico: Up 20% at 12 mn kg. Most transplanting of the dry season crop was expected to be complete by early November.

    Oriental
    Oriental production in 2008 has been estimated at 261.9 mn kg, 10.3% above the 2007 production level of 237.5 mn kg. Production by exporting countries has been estimated at 168.2 mn kg, a 26.1% increase over the 2007 estimate of 133.4 mn kg.

  11. Turkey: Up 35% at 95.9 mn kg, an increase of 25 mn kg over the 70.9 mn kg produced in 2007. The Izmir crop is estimated at 60 mn kg, up 56% over 2007. Harvesting ended in September, and quality is expected to be average to above average. The Samsun crop is estimated at 10 mn kg, an increase of 12% over 2007.
  12. Bulgaria: Up 20% at 21.9 mn kg, an increase of 3.7 mn kg over the 18.2 mn kg produced in 2007. The 2008 Krumovgrad crop is estimated at 18.4 mn kg, up 15% over 2007, and the quality is expected to be notably better than the last few crops. The East Balkan crop is estimated at 1.1 mn kg, an increase over the 0.7 mn kg of 2007. The Basma crop is estimated at 0.4 mn kg.
  13. Macedonia: Up 35.8% at 23.1 mn kg, 6.1 mn kg over the 17.0 mn kg produced in 2007. The 2008 Prilep crop is estimated at 12.6 mn kg, up 2.6 mn kg over 2007. Lower stalk quality is average to above average, while middle and upper stalk quality is above average. The Yaka crop is estimated at 6.8 mn kg, up 36% over 2007. Overall quality is above average. The Basma crop size is estimated at 3.7 mn kg, up 85% over 2007.
  14. Greece: Up slightly at 21.5 mn kg. The 2008 Basma crop is estimated at 10 mn kg, up one mn kg over the volume of 2007. Harvesting was expected to be completed in October. The Katerini crop is estimated at 11.5 mn kg, up 1.1 mn kg over 2007. Of that, about 9.5 mn kg was produced in the classic areas of Katerini, and two mn kg from non-classic areas.
Dark Tobacco Air-Cured
World production in 2008 is forecast at 136.6 mn kg, a 6.7 % decrease from the 2007 estimated production level of 146.4 mn kg. Among the leading producers: Cuba expects to again produce 30 mn kg; Dominican Republic, down 20.8% at 9.1 mn kg; Brazil Galpão down 9% at 10 mn kg; Brazil Cigar Types down 24% at 3.8 mn kg, US Snuff/Chewing Types: up 41% at 9.6 mn kg, and US Cigar Types up slightly at 4.5 mn kg.

Fire-cured
World production in 2008 has been forecast at 51.2 mn kg, a 25.8 % increase over the 2007 estimated production level of 40.7 mn kg.

Among the leading producing countries: US was up 28% in 2008 at 24.5 kg, Indonesia was unchanged in 2008 at 6.5 kg, Italy was down slightly at three mn kg, and Mozambique was up 150% at 3.4 mn kg.


Tobacco International - December, 2008

Essentra


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