Burley and Dark Tobacco Market/Policy/Economic Update Will...
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Burley and Dark Tobacco Market/Policy/Economic Update Will Snell, University of KY Economics
Transcript of Burley and Dark Tobacco Market/Policy/Economic Update Will...
Burley and Dark Tobacco Market/Policy/Economic Update
Will Snell, University of KY
Economics
Anticipated Changes Evolving
From the Tobacco Buyout
59,373
44,967
29,237
8,113 4,537
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1992 1997 2002 2007 2012
Consolidation
# of Farms Growing Tobacco in KY
25,052
15,608
8,206
1,610 935
0
5,000
10,000
15,000
20,000
25,000
30,000
1992 1997 2002 2007 2012
# of Farms Growing Tobacco in TN
Tennessee Tobacco Farms by County:
Robertson: 169 Farms (18%)
Macon: 106 Farms (11%)
Greene: 74 Farms (8%)
Montgomery: 70 Farms (8%)
Anticipated Changes Evolving
From the Tobacco Buyout
Consolidation
Increased Scale of Production
4
8
19
4
12
25
0
5
10
15
20
25
2002 2007 2012
Kentucky
Tennessee Tobacco Acres/Farm
Anticipated Changes Evolving
From the Tobacco Buyout
Consolidation
Gradual Shift in Production Location
Increased Scale of Production
Robertson, Macon, and Montgomery Counties
Pre-Buyout – Around 35% of TN Production
Post Buyout – Around 60% of TN Production
Anticipated Changes Evolving From the
Tobacco Buyout
Consolidation
Gradual Shift in Production Location
Increased Scale of Production
Volatile Production and Prices
0
20,000
40,000
60,000
80,000
100,000
120,000
2005 2007 2009 2011 2013
US KY TN
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
2005 2007 2009 2011 2013
U.S./KY/TN Burley Acres U.S. Burley Prices
2014:
Contract $2.00+
Auction: $0.40-$1.40
Economics
World Burley Production
+35%
World Cigarette Consumption
Global Cigarette Consumption Has Peaked
Global American Blended Cigarette Consumption Down >10%
since 2010
-5%
Economics
U.S. Burley Production vs
Disappearance (Use)
Source: USDA/AMS
2015 Burley Outlook
Ample World Burley Supplies
+ Appreciating U.S. Dollar
+ Declines in U.S/Global Cigarette Consumption
= Reduced U.S. Burley Contract Volume for 2015
Wild Card Issue ???
Malawi Floods Destroy Homes and Crops as
Death Toll Nears 200 – January 18, 2015
(USA Today)
“We are still assessing how much damage
has been caused by the heavy rains on
tobacco but I can safely say that many fields
have been washed away and the impact
on the economy is obvious because
tobacco is our main foreign exchange
earner.” Bruce Munthali, the Tobacco Control
Commission's chief executive -- Reuters,
January 23, 2015
2015 Burley Outlook
Ample World Burley Supplies
+ Appreciating U.S. Dollar
+ Declines in U.S/Global Cigarette Consumption
= Reduced U.S. Burley Contract Volume for 2015
What about Prices and Net Returns for 2015?
Look for some contract price reductions with greater quality/price
adjustments at grading
Less Lbs/Tighter Profit Margins
What Drives Tobacco
Budgets?
•Yields
•Labor Efficiency/Cost
•Prices Received
Average Burley Yields: U.S. vs TN
Agricultural Economics
Source: NASS/USDA
U.S.
TN
2015 Burley Outlook
Ample World Burley Supplies
+ Appreciating U.S. Dollar
+ Declines in U.S/Global Cigarette Consumption
= Reduced U.S. Burley Contract Volume for 2015
Lower Contract and Market Prices
Issues to watch
• PMI tobacco purchasing model
• Domestic and international tobacco regulations
• Trade agreements
• Crop insurance reform?
• Immigration reform
• Market demand and regs/policy for alternative tobacco products
(e.g. non-combustibles -- e-cigs, vaping, heat not burn)
What about the E-Cig/Vaping Market?
Estimated Size of the E-Cig/Vapor Market
Source: Nielsen C-Store Database, Wells Fargo Securities, LLC estimates *Other Non-Tracked channels include tobacco-only outlets and other e-cig
retail locations.
E-Cig/Vaping Issues Facing the US Burley
Tobacco Industry
• Will it Continue to Grow/Replacing Cigarettes?
• What about Marketing Strategies of “Big Tobacco”?
• How Will the Public Health Debate Evolve?
• What About Taxation and Regulation?
• Will US Tobacco Producers Benefit?
What About Dark Tobacco?
-5
5
15
25
35
45
55
65
75
85
95
105
115
1990 1995 2000 2005 2010 M
illi
on
Lb
s
U.S. Snuff Production
Source: NASS/USDA
US Dark Tobacco Acres
Economics
2014 Production (+19%)
-- Dark Fire (59.1 mil lbs)
-- Dark Air (17.5 mil lbs)
Flat Product Demand +
Larger 2014 Crop =
Contract Reduction in
Lbs for 2015 ???
Dark Tobacco Prices
Agricultural Economics
Source: NASS/USDA
Economics
