US Flue-Cured: Outlook and Situation June 11, 2010
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US Flue-Cured: Outlook US Flue-Cured: Outlook and Situation and Situation
June 11, 2010June 11, 2010
Blake BrownBlake BrownHugh C. Kiger ProfessorHugh C. Kiger Professor
Agricultural & Resource EconomicsAgricultural & Resource EconomicsCollege of Agriculture & Life SciencesCollege of Agriculture & Life Sciences
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OutlineOutline
Tobacco Production and UseTobacco Production and Use Prices and DemandPrices and Demand Farm InfrastructureFarm Infrastructure SummarySummary
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Production and UseProduction and Use
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US Flue-Cured Tobacco AcreageUS Flue-Cured Tobacco Acreage
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Flue-Cured Production: Flue-Cured Production: (million pounds)(million pounds)
20052005 20062006 20072007 20082008 20092009 20102010PROJECTEDPROJECTED
USUS11 380380 447447 504504 499499 526526 475475
NCNC11 272272 324324 377377 385385 418418 377377
BrazilBrazil22
1,5291,529 1,3931,393 1,3771,377 1,3401,340 13401340 12231223
1 USDA-NASS2 Universal Corp. Crop Reports
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Flue-Cured Domestic Use and Flue-Cured Domestic Use and ExportsExports
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Stemmed U.S. Flue-Cured Exports by Stemmed U.S. Flue-Cured Exports by RegionRegion
(metric tons, non-farm weight)(metric tons, non-farm weight)
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Stemmed Exports of U.S. Flue-cured to East Stemmed Exports of U.S. Flue-cured to East AsiaAsia
(metric tons, non-farm weight)(metric tons, non-farm weight)
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Flue-Cured Contracts & PricesFlue-Cured Contracts & Prices
• Lower Contracted Volume…of primary Lower Contracted Volume…of primary contracts: $1.75 - $1.80 per poundcontracts: $1.75 - $1.80 per pound
• A secondary contract market has A secondary contract market has emerged: $1.45-$1.50 per pound?emerged: $1.45-$1.50 per pound?
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Demand and the FarmDemand and the Farm Declining demand for tobacco:Declining demand for tobacco:
• FDA regulationFDA regulation• FCTC regulationsFCTC regulations• Increased taxesIncreased taxes• Smoking restrictionsSmoking restrictions• Shifts to smokeless Shifts to smokeless
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U.S. AverageU.S. AverageRetail Cigarette PriceRetail Cigarette Price
(US$ per pack)(US$ per pack)
Source: TMA Estimate
+20.09%
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Retail Price and Tax Retail Price and Tax Incidence Figures f0r 2009Incidence Figures f0r 2009
Retail PriceTax Incidence
Norway $13.07 71.20%UK $8.83 76.57%Singapore $7.92 70.54%Australia $7.81 60.76%France $7.54 80.39%Canada $7.17 70.73%Germany $6.70 75.82%Italy $5.73 75.16%
All Prices are in US Dollars per pack of 20.
Retail PriceTax Incidence
United States $5.5044.67%
Portugal $4.8378.29%
Spain $4.1777.59%
Japan $3.3663.06%
South Korea $2.1562.61%
Poland $1.9680.22%
China $1.2071.28%
Indonesia $0.5249.09%
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Infrastructure on the FarmInfrastructure on the Farm
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Flue-Cured Tobacco Growers: Curing Barn AgeFlue-Cured Tobacco Growers: Curing Barn Age(CTGR 2009 Survey: 254 responses)(CTGR 2009 Survey: 254 responses)
•4% of bulk barns less than 4 years old
•30% of bulk barns between 5 to 10 years old
•44% of bulk barns between 11 to 20 years old
•17% of bulk barns between 21 to 30 years old
•5% of bulk barns more than 30 years old
Source: Center for Tobacco Grower Research JHS
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Investment in new barns?Investment in new barns?
Do your profit levels justify the Do your profit levels justify the investment?investment?• $35,000 barn (installed)$35,000 barn (installed)• 10 year 10 year useful useful life, 8% interest ratelife, 8% interest rate• $490/acre annual return to barn needed$490/acre annual return to barn needed
How certain is your contract over the How certain is your contract over the next 10 years?next 10 years?
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SummarySummary Contracted volume downContracted volume down Lower domestic use and purchasesLower domestic use and purchases
• FDA near term impact uncertainFDA near term impact uncertain Export demand?Export demand?
• Exchange rates?Exchange rates?• Developed country demand downDeveloped country demand down
Curing Barn Investment DecisionsCuring Barn Investment Decisions
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Issues for GrowersIssues for Growers Do I have a contract?Do I have a contract?
• How do I cash flow?How do I cash flow? How do I cope with volume How do I cope with volume
reduction?reduction?• How much over contract do I produce?How much over contract do I produce?
How secure is my contract?How secure is my contract?• Should I replace any barns?Should I replace any barns?