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Kentucky’s Burley Tobacco Outlook in the Early Post-Buyout Era

Will Snell
University of Kentucky

The following information was taken from a slideshow presented in March 2006. The original slideshow is available in MS Powerpoint at www.uky.edu/Ag/TobaccoEcon/slideshows/Winter06presentation.ppt

Kentucky’s Burley Tobacco Outlook in the Early Post-Buyout Era
  • Who would stay in?
  • How much would be grown?
  • Where would it be grown?
  • Company incentives?
  • Demand opportunities?
Presentation Overview
  • 2005 Production Review
  • Overview of the 2006 Production Outlook
  • Budget Tools/Issues
  • Factors Affecting Current and Future Production
  • Demand Opportunities for U.S. Burley Growers

2005 Production Review

U.S. Burley Acres
  • 2005 U.S. Burley Acres Down By 35%
  • Improved Yields Expected to Partially Offset Lower Acreage
  • However Challenging Growing Season Led to Below Avg. Yields
U.S. Burley Production (1997-2005)
YearUSKYTN
Million Lbs.
1997648.633470.493.33
1998582.336416.02591.545
1999555.185380.1103.95
2000362.78824371.04
2001334.065220.564
2002293.537197.24553.07
2003281.698198.27547.5
2004292.17206.746.08
2005195136.534

From 1997 to 2005, burley production decreased in the United States by -33%, in Kentucky by 34%, and in Tennessee by 26% (source: NASS/USDA).

2005 Burley Production By State
StateBurley Production (Million Lbs.)
KY137
TN34
OH6.7
NC4.95
VA4.9
MO3.1
WV0.7
PA4.8

Source: NASS/USDA

Est. % of Tobacco Farmers Exiting in 2005 (-43%)
In 2005, each area of Kentucky saw a decrease in the number of tobacco farmers. Overall, Kentucky saw an estimated decrease in tobacco farmers of 43%. Eastern Kentucky saw the greatest number of tobacco farmers exit at -62%; Purchase was next with a decrease of -57%; the Bluegrass region had a decrease of -47%; Central Kentucky had a decrease of -41%; and Northern Kentucky had a -33% decrease.

Source: KY County Agent Survey (December 2005)

Burley Production By Kentucky Crop Reporting District: 2005 vs 2004 (-34%)
Burley Production in Kentucky decreased in 2005 vs 2004 by -34%. Only the Mid Western Crop Reporting District reported an increase (+4.2%). Each of the other crop reporting districts reported decreases: Purchase: -16.8%, Central KY: -23.2%, Northern KY: -35.9%, Bluegrass: -41%, and Eastern Kentucky -55.6%.

Source: NASS/USDA

Burley Acres By Kentucky Crop Reporting District: 2005 vs 2004 (-34%)
Burley acres also decreased from 2004 to 2005 (-34%). Only the Mid Western Crop Reporting District reported an increase (+8.0%). Each of the other crop reporting districts reported decreases: Purchase: -5.5%, Central KY: -22.6%, Northern KY: -35.2%, Bluegrass: -39.8%, and Eastern Kentucky -58.6%.

Source: NASS/USDA

2005 vs 2004 Burley Production

From 2004 to 2005, the following Kentucky counties increased burley production: Henderson, Daviess, Breckinridge, Meade, Webster, McLean, Larue, Hopkins, Muhlenberg, Caldwell, Christian, Todd, Logan, Graves, Marshall, Calloway, and Allen.

From 2004 to 2005, the following Kentucky counties decreased burley production from 0 to -25%: Henry, Pendleton, Mason, Fleming, Powell, Marion, Taylor, Hart, Trigg, Simpson, and Barren.

From 2004 to 2005, the following Kentucky counties decreased burley production from -25% to -40%: Lyon, Hancock, Butler, Warren, Edmonson, Grayson, Hardin, Nelson, Washington, Green, Metcalfe, Monroe, Clinton, Wayne, Russell, Adair, Breathitt, Estill, Montgomery, Fayette, Bourbon, Nicholas, Harrison, Shelby, Owen, Trimble, Gallatin, Boon, Lewis, and Greenup.

From 2004 to 2005, the following Kentucky counties had a decrease in burley production more than -40%: Carlisle, Ballard, McCracken, Ohio, Cumberland, Bullitt, Jefferson, Oldham, Spencer, Carroll, Kenton, Campbell, Grant, Scott, Franklin, Anderson, Woodford, Mercer, Jessamine, Boyle, Casey, Lincoln, Pulaski, Laurel, Whitley, Knox, Clay, Owsley, Jackson, Rockcastle, Garrard, Madison, Clark, Lee, Wolfe, Magoffin, Johnson, Lawrence, Morgan, Elliott, Carter, Rowan, Menifee, Bath, Robertson, and Bracken.

Source: Ky Ag Stats/NASS

2005 vs 2004 Burley Acres

From 2004 to 2005, the following Kentucky counties increased burley acres: Graves, Calloway, Trigg, Caldwell, Christian, Todd, Logan, Allen, Muhlenberg, McLean, Webster, Henderson, Daviess, Meade, and Larue.

From 2004 to 2005, the following Kentucky counties decreased burley acres 0 to -25%: Marshall, Lyon, Hopkiins, Breckinridge, Simpson, Warren, Barren, Hart, Green, Taylor, Marion, Russell, Shelby, Henry, Boone, Pendleton, Mason, Fleming, and Nicholas.

From 2004 to 2005, the following Kentucky counties decreased burley acres -25 to -40%: Trimble, Owen, Gallatin, Harrison, Bourbon, Fayette, Montogmery, Lewis, Greenup, Pulaski, Clinton, Monroe, Adair, Butler, Carlisle, Edmonson, Grayson, Hardin, Nelson, Washington, and Hancock.

From 2004 to 2005, the following Kentucky counties decreased burley acres more than -40%: Kenton, Campbell, Grant, Bracken, Robertson, Carroll, Oldham, Jefferson, Bullitt, Spencer, Anderson, Franklin, Scott, Woodford, Mercer, Jessamine, Garrard, Boyle, Lincoln, Madison, Rockcastle, Whitley, Laurel, Knox, Clay, Jackson, Owsley, Estill, Lee, Breathitt, Magoffin, Wolfe, Powell, Clark, Bath, Rowan, Menifee, Morgan, Elliott, Carter, Lawrence, Johnson, Ohio, Casey, Wayne, Cumberland, Metcalfe, Ballard, and McCracken.

Source: Ky Ag Stats/NASS

Burley Yields: 2005 vs 1980-2004 Average

In 2005, the following counties increased yields vs. the 1980 - 2004 average: Graves, Marshall, Calloway, Todd, Caldwell, Christian, Hopkins, Webster, Henderson, McLean, Butler, Edmonson, Breckinridge, Wayne, Mercer, Estill, Russell, Wolfe, Breathitt, Rowan, and Kenton.

In 2005, the following counties yields declined 0 to -5% vs. the 1980 - 2004 average: Gallatin, Grant, Pendleton, Scott, Harrison, Robertson, Mason, Lewis, Fleming, Bath, Clark, Madison, Jefferson, Boyle, Casey, Rockcastle, Laurel, Cumberland, Simpson, Logan, and Muhlenberg.

In 2005, the following counties yields declined -6 to -10% vs. the 1980 - 2004 average: Warren, Allen, Barren, Monroe, Metcalfe, Adair, Pulaski, Taylor, Marion, Garrard, Grayson, Morgan, Elliott, Carter, Greenup, Daviess, Hancock, Hardin, Washington, Jessamine, Woodford, Bourbon, Owen, Henry, Trimble, and Campbell.

In 2005, the following counties yields declined more than -10% vs. the 1980 - 2004 average: Boone, Carroll, Brackern, Nicholas, Montgomery, Menifee, Lawrence, Johnson, Magoffin, Fayette, Franklin, Shelby, Oldham, Anderson, Spencer, Bullitt, Nelson, Meade, Larue, Ohio, Hart, Green, Lincoln, Russell, Clinton, Whitley, Knox, Clay, Jackson, Owsley, Lee, Lyon, Trigg, McCracken, Ballard, and Carlisle.

Source: Ky Ag Stats/NASS

Burley Production in Other States (2005 vs 2004)
20042005Difference
Indiana8.6?
Virginia8.24.86-41%
North Carolina6.64.95-25%
Ohio117-39%
Missouir3.32.8-17%
West Virginia1.70.7-60%
Pennsylvania04.8

Source: NASS/USDA

2005 Prices
  • Expected Prices:
    $1.50 - $1.55 average across stalk positions
  • Realized Prices:
    $1.55 - $1.60 average across stalk positions
  • Overall KY burley tobacco growers from areas that traditionally paid 50+ cents/lb to rent quota and who had decent yields were "pleased" with the 2005 marketing season.
Presentation Outline
  • 2005 Production Review
  • Overview of the 2006 Production Outlook
  • Budget Tools/Issues
  • Factors Affecting Current and Future Production
  • Demand Opportunities for U.S. Burley Growers

Overview of the 2006 Production Outlook

2006 Price Outlook
  • Initial contract price schedules did not change much from 2005, indicating an "expected" price of approximately $1.55 to $1.60 (if grading remains consistent with the 2005 crop)
  • Grower response was very negative, given anticipated cost of production increases
  • Revised contract price schedules indicate that grower prices could average $1.65 to $1.70 or higher, depending on incentives earned and grading
Kentucky Tobacco Acres 2005 vs 2006
Dollars/PoundProjected Acreage Change
$1.50-26.0%
$1.60-7.0%
$1.7010.0%

Source: KY County Agent Survey (December 2005)

Projected Changes in Burley Acres for 2006 (Based on $1.60/lb Price for 2006)
AreaProjected Change
Purchase-12%
Mid Western+5%
Central KY-14%
Northern KY-1%
Bluegrass-6%
Eastern KY-2%

Source: KY County Agent Survey (December 2005

2006 Burley Planting Intentions vs 2004-2005 Harvested Acres
Year200420052006
United States153150 Acres100100 Acres83500 Acres
Kentucky106000 Acres70000 Acres58000 Acres

2006 Planting Intentions Are Down 17% from 2005 and 45% from 2004.

Source: NASS/USDA

Final Thoughts on 2006 Burley Production
  • Recent adjustments in price incentives/schedules has renewed production interest, offsetting increased anticipated cost increases and rebuilding "trust" in the companies
  • Higher anticipated yields coupled with some anticipated increase in burley acres could boost production to 250 mil lbs or more
  • Plant supply could be a challenge in certain areas
  • Labor remains a concern – both cost and availability
  • BTGCA Infrastructure Program ???
  • KY will continue to see consolidation in farms growing tobacco and modest gains in expanding scale of production for remaining farms
Presentation Outline
  • 2005 Production Review
  • Overview of the 2006 Production Outlook
  • Budget Tools/Issues
  • Factors Affecting Current and Future Production

Budget Tools/Issues

General Budget Information
  • UK budgets attempt to capture the "average" production costs of the "typical" burley producer
  • Economists always allocate a "cost" for all inputs, including land, barns, and operator labor
  • Key budget components for burley
    • Labor efficiency
    • Yield
  • Go to www.uky.edu/Ag/TobaccoEcon/ and click on "Management and Budgeting" for our updated budgets
2006 Burley Production Budget
The "2006 Burley Production Budget" is a MS Excel Spreadsheet that can be accessed online at: http://www.uky.edu/Ag/AgEcon/pubs/software/budgets_tobacco-post-buyout.xls. You will need to enable macros.
Labor Cost Form
  • Labor by the Unit (default)
    • Housing - 40˘/stick
    • Stripping - 20˘/lb
    • Other at dollar amt.
  • Labor by the hour (alternative)
    • Hours of labor/acre
    • Dollar amt. per hour
Land Cost Form
  • Land Owned (default)
    • Land value set at $4000/acre
    • Interest set at 5%
  • Land Rented (alternative)
    • Enter dollar amt. per acre
Barn Cost Estimator
  • Facilities value method (default)
    • Enter value of barn
    • # of acres produced
    • Interest rate
  • Barn Rental (alternative)
    • Enter number of sticks per acre
    • Cost per stick
Distribution of Burley Costs
TransplantsChemicalsFertilizer / LimeBarns / LandTax / Interest / InsuranceHired LaborOperator LaborOther
7%9%8%12%9%32%15%8%

Source: UK Burley Budget

Burley Cost of Production By Input
LaborTransplantsFertilizer / LimeChemicalsLandBarnsCustomTaxes / Insurance / InterestMisc Cost
($/acre)
Hired106424517423220020016428389
Owner500
5270

Assumes 30% increase In Energy-Based Inputs

Source: UK Burley Budget

Burley Tobacco Per Acre Returns Above Total Costs
$1.50$1.55$1.60$1.65$1.70
1700-$804-$719-$634-$544-$464
1900-$504-$409-$314-$219-$124
2100-$204-$99$6$111$216
2300$96$211$326$441$556
2500$396$521$646$771$896
2700$696$831$966$1101$1236
Burley Tobacco Per Acre Returns Above Variable Costs
$1.50$1.55$1.60$1.65$1.70
1700$244$329$414$499$584
1900$544$639$734$829$924
2100$844$949$1054$1159$1264
2300$1144$1259$1374$1489$1604
2500$1444$1569$1694$1819$1944
2700$1744$1879$2014$2149$2284
Burley Tobacco Per Acre Returns to Operator Labor and Management
$1.50$1.55$1.60$1.65$1.70
1700$-271-$186-$101-$16$68
1900$29$124$219$314$408
2100$329$434$539$644$748
2300$629$744$859$974$1088
2500$929$1054$1179$1304$1428
2700$1229$1364$1499$1634$1748
Presentation Outline
  • 2005 Production Review
  • Overview of the 2006 Production Outlook
  • Budget Tools/Issues
  • Factors Affecting Current and Future Production
  • Demand Opportunities for U.S. Growers

Factors Affecting Current and Future Production

Long-Term Issues/Outlook Affecting Future U.S. Burley Production
  • Labor remains the #1 challenge. How will cost-saving technologies and/or mechanization evolve in burley? What about immigration reform?
  • Yield improvement
  • Age of existing growers
  • Profitability/policy of other alternative enterprises, including off-farm income.
  • Infrastructure replacement
  • Changes in contract terms
  • Confidence in the companies
  • What happens when excess production occurs? – How will that affect contract terms? Eventually will companies lower price, cut back on contract lbs of existing growers or eliminate growers?
  • Consolidation/Scale of production/Shifts in production
Historical Average U.S. Burley Yields
YearPounds Per Acre
19601639
19611820
19621993
19632231
19642022
19652116
19662437
19672274
19682372
19692488
19702590
19712213
19722552
19732028
19742350
19752265
19762376
19772298
19782396
19791868
19802024
19812199
19822374
19831645
19842256
19852247
19861936
19871942
19882108
19891975
19902205
19912110
19922163
19932115
19942300
19951863
19961940
19971934
19981896
19991829
20001957
20012032
20021861
20031850
20041908

Source: NASS/USDA

Average Burley Yield: (1980-2004)

The following counties in Kentucky averaged more than 2200 lbs burley production for 1980 - 2004: Daviess, Logan, Washington, Shelby, Henry, Trimble, Gallatin, Grant, Owen, Scott, Woodford, Fayette, and Bracken.

The following counties in Kentucky averaged between 2,101 - 2,200 lbs burley production for 1980 - 2004: Henderson, McLean, Christian, Todd, Simpson, Warren, Barren, Hart, Hardin, Hancock, Larue, Taylor, Marion, Nelson, Spencer, Lincoln, Boyle, Mercer, Jessamine, Garrard, Madison, Clark, Bourbon, Harrison, Pendleton, Campbell, Boon, Franklin, Carroll, and Oldham.

The following counties in Kentucky averaged between 2,000 to 2,100 lbs burley production for 1980 - 2004: Hickman, Carlisle, Ballard, McCracken, Marshall, Livingston, Union, Webster, Mhulenberg, Ohio, Breckinridge, Meade, Bullitt, Allen, Monroe, Metcalfe, Green, Adair, Wayne, Pulaski, Rockcastle, Bullitt, Anderson, Montgomery, Mason, and Kenton.

The following counties in Kentucky averagedless than 2000 lbs burley production for 1980 - 2004: Fulton, Graves, Calloway, Trigg, Lyon, Caldwell, Crittenden, Hopkins, Butler, Grayson, Edmonson, Jeferson, Casey, Russell, Clinton, Cumberland, McCreary, Whitley, Bell, Knox, Harlan, Letcher, Knott, Perry, Leslie, Clay, Laurel, Jackson, Owsley, Breathitt, Magoffin, Johnson, Boyd, Martin, Lawrence, Elliott, Morgan, Wolfe, Lee, Estill, Powell, Menifee, Morgan, Bath, Rowan, Carter, Boyd, Greenup, Lewis, Fleming, Nicholas, Robertson, and Jefferson.

From 1980 - 2004, Kentucky averaged 2,090 lbs/acre.

Tennessee only had one county that averaged 2,101 - 2,200 lbs during the same time period. The majority of central and eastern Tennessee counties averaged less than 2000 lbs.

Kentucky Burley Tobacco Yields: Historical Yields vs "Potential Yields"
Year2005 NASS1980-2004Potential Yield
2005 Crop195021002412

Source: KY County Agent Survey (December 2005)

Estimated "Potential" Yields with "Normal" Growing Conditions

Under "normal" growing conditions, the Purchase Area has an estimated "potential" yield of 2438, the Mid-Western Area has an estimated "potential" yield of 2799, the Central KY Area has an estimated "potential" yield of 2314, the Northern KY Area has an estimated "potential" yield of 2328, the Bluegrass Area has an estimated "potential" yield of 2507, and the Eastern KY Area has an estimated "potential" yield of 2262.

Source: KY County Agent Survey (December 2005)

Burley Production by KY Crop Reporting Districts: (1980-2004)

41% of burley production in Kentucky from 1980 - 2004 was in the Bluegrass Crop Reporting District.
25% of burley production in Kentucky from 1980 - 2004 was in the Central KY Crop Reporting District.
13% of burley production in Kentucky from 1980 - 2004 was in the Eastern Kentucky Crop Reporting District.
12% of burley production in Kentucky from 1980 - 2004 was in the Northern Kentucky Crop Reporting District.
7% of burley production in Kentucky from 1980 - 2004 was in the Mid-Western Crop Reporting District.
2% of burley production in Kentucky from 1980 - 2004 was in the Purchase Crop Reporting District.

Potential Distribution of KY Burley Production – Post Buyout
Crop Reporting AreaPercentage ChangeDistribution Percentage
Bluegrass-3% to -5%35% to 38%
Central KY0% to +5%25% to 30%
Mid-Western+5% to +10%12% to 17%
Eastern KY-5% to -8%<10%
Northern KY-2% to -4%8% to 10%
Purchase-1%1%
Presentation Outline
  • 2005 Production Review
  • Overview of the 2006 Production Outlook
  • Budget Tools/Issues
  • Factors Affecting Current and Future Production
  • Demand Opportunities for U.S. Growers

Demand Opportunities for U.S. Growers

International Supply/Demand Issues
  • Economic and Political Issues Affecting South America and Africa
  • Improved U.S. Price and Quality Competitiveness
  • Growth in the "American blended cigarette"
  • Use and Elimination of "Pool" Stocks
  • China ???

Enhanced Opportunities for U.S. Burley Growers

U.S. Burley Export Price vs Average U.S. Burley Import Prices
YearU.S. ($/kg)Import ($/kg)
19978.0026983.990326
19988.1790663.769866
19998.1790663.483268
20008.377483.350992
20018.5318023.13
20028.353.17
20038.2892963.12
20046.343.13
20056.872.93

Source: USDA/FAS

U.S. Burley Exports
YearMil Lbs
1992220.063172
1993177.349047
1994170.514787
1995160.946823
1996178.374186
1997194.092984
1998171.198213
1999165.730805
2000125.066958
2001141.127469
2002134.293209
2003142.152608
2004198.535253
2005206.736365

Source: USDA/FAS

Distribution of Burley Use By U.S. Cigarette Manufacturers
YearIMPORTED BURLEYDOMESTIC
19703503
19715515
19729535
197331533
197447519
197547510
197638490
197785495
197889503
1979113499
1980137478
1981110464
1982141444
1983135389
1984164403
1985138425
1986120402
1987162478
1988118414
1989140446
1990135475
1991166432
1992178385
1993200400
1994161468
1995149386
1996206446
1997207379
1998173352
1999219273
2000233294
2001195245
2002209221
2003230136

Source: ERS/USDA

U.S. Burley Disappearance (Use)
YearDOMESTIC
(million lbs)		EXPORTS
(million lbs)		TOTAL
(million lbs)
197050354557
197151555570
197253575610
197353387619
197451968587
197551092603
1976490117606
1977495117611
1978503121624
1979499133632
1980478106583
1981464141605
1982444135579
1983389112501
1984403154556
1985425151576
1986402165567
1987478157635
1988414164578
1989446169614
1990475199674
1991432209641
1992385183568
1993400152552
1994468159623
1995386165551
1996457209666
1997379168547
1998352169521
1999504139643
2000524142666
2001245140385
2002221149370
2003136174310
200499.1230329

Source: ERS/USDA

How many U.S. burley growers will it take to produce 300 million lbs?

According to the USDA/FSA, there were 49,343 burley growers in 2004.

Source: USDA/ERS

Average Tobacco Production for Kentucky Farms
YearAcres
1992 Census4.5
1997 Census5.7
2002 Census3.8
200513.8
200616.2

Source: USDA/KY County Agent Survey (December 2005)

Number of Growers Needed to Produce 300 Million Lbs
2300 Lb Yield2500 Lb Yield
10 Acre Average13,04312,000
20 Acre Average6,5216,000
Kentucky Tobacco Cash Receipts
YearReceipts
(Million Dollars)
1987441
1988477
1989638
1990739
1991843
1992877
1993919
1994786
1995636
1996813
1997730
1998924
1999737
2000675
2001550
2002444
2003432
2004450
2005275

Source: Ky Ag Stats/NASS

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Last Update: April 26, 2005.