Flue-cured – yields below that for 1990; prices higher in 1991 because price supports are up, supplies are tight and quality is good; loan receipts near last season; disappearance higher in 1990/91; supplies decline – U.S. Dept. of Agriculture, Economic Research Service report
With less favorable growing conditions across the tobacco belt, yields were below a year earlier. Quality is relatively good but varies throughout the belt. Excessive rain in some areas and dry conditions in others have reduced quality. As of September 12, auction prices averaged about 5.4 cents a pound higher than a year ago. Last year, prices fell 0.3 cents a pound because of lower quality caused by dry weather in South Carolina and southern North Carolina.
Prices are higher this year because price supports are up, supplies are tight, and quality is relatively good. Season average prices may be 4 to 6 cents above last season’s average of $1.673 a pound.
The 1991 marketing season began 2 days earlier than a year ago. The Georgia-Florida market opened on July 15 and was followed on July 17, 22, and 29 in the other three belts. Similar to last season, the market opened earlier than in recent seasons because of early transplanting and larger production than in 1986-1989. Weekly sales were near sales opportunities (USDA-sanctioned schedules) during the first few weeks of sales. Maturity is ahead of normal and harvesting is progressing more rapidly than usual.
So far this year, price support loan receipts have been similar to last season. Despite tight supplies and strong leaf demand because of increased cigarette production, poor quality leaf in some areas has caused larger loan takings than anticipated.
At auctions through September 12, flue-cured prices averaged $1.684 a pound, 5.4 cents above the average for the same number of sales days last season (table 14). By September 12, about 64 percent of the crop had been sold, a larger share than for the same number of sales days a year earlier.
Loan Receipts Near Last Season
The price support for the 1991 flue-cured crop averages $1.528 a pound, 4 cents above last year. Even though crop outturn is below projected disappearance, about the same share of the crop has been purchased by manufacturers and dealers so far this season. Loan receipts through September 12 totaled 25 million pounds, about 4.5 percent of producers’ marketings. By this date in 1990, about the same percentage of producer marketings was under loan.
To receive price support, flue-cured tobacco growers must certify that pesticides used on tobacco have been approved by the EPA and used according to label directions. They also must certify, in writing, that any tobacco they deliver to market contains no concealed foreign materials, or tobacco of inferior grade, quality, or condition. And they must designate one or more warehouses within 100 miles of their county seat for selling their crop. Also, to be eligible for price support, growers must contribute to a no-net-cost account and a budget deficit marketing assessment totaling 1 cent a pound in 1991 for both purchasers and growers.
Under quota legislation, growers, receive price support on marketings up to 103 percent of their farm poundage quotas. However, marketings above the poundage quota are deducted from the following year’s quota. For marketings above 103 percent, growers must pay a penalty of $1.25 a pound (75 percent of the average market price for the preceding year.)
Based on the September estimate, 1991 production will total about 898 million pounds. Growers carried over about 25 million pounds from the 1990 crop because of insufficient quota, so around 923 million pounds are available for sale. However, enough quota is probably available to sell only about 880 million pounds in 1991 because individual growers cannot sell more than 103 percent of their quota without being heavily penalized. Lease and transfer of flue-cured has applied since 1988 for disaster conditions only.
Disappearance Higher in 1990/91
Last season, disappearance of flue-cured tobacco totaled 1.01 billion pounds, about 6 percent above the previous year, and the largest in 10 years (table 16). Both domestic use and exports rose. The 7-percent increase in domestic disappearance reflects increased cigarette output, due to higher ports. Despite increased cigarette exports, domestic disappearance during 1991/92 might decline a little from 1990/91 because tight domestic supplies could result in greater use of imported leaf.
Flue-cured exports rose last year (1990/91) for the second consecutive year following declines the 2 previous years. The increase probably reflects rebuilding of supplies in some countries, the continuing shift to American cigarette blends throughout the world, and the larger relatively good quality 1990 marketings. Still, exports were somewhat below levels of 1980-85. The lower levels result from semi-processed tobacco exports, once classified as leaf exports, being declared as smoking tobacco in bulk. Also, some countries such as Egypt and Iraq, reduced takings because of a shortage of funds. Iraq’s imports were stopped because of an United Nations embargo. Among leading importers, Germany, Thailand, Italy, and Switzerland took more, while the United Kingdom, Hong Kong, Taiwan, and Denmark took less. Japan’s purchase were about unchanged.
For 1991, U.S. exports could decline slightly because U.S. supplies have tightened considerably and quality is lower in some areas. Still, world supplies have tightened and this year’s crop is of relatively good quality, so demand for U.S. leaf is strong. However, U.S. export prospects continue to be affected by stagnant or declining cigarette consumption in major importing countries, reduced leaf use per cigarette, and quotas and tariffs that discriminate against U.S. tobacco in some countries.
Supplies Decline
A smaller 1991 U.S. crop and carryover has dropped flue-cured supplies for 1991/92 below last season. Flue-cured acreage for harvest is about 2 percent smaller than a year ago and the national yield is estimated 2 percent lower. Yields are down in North Carolina, Georgia, Virginia, and Florida, but up in South Carolina. Total U.S. flue-cured production is forecast at 898 million pounds, 4 percent below 1990. Output is down in the Georgia-Florida and Eastern North Carolina belts but up in the North Carolina-South Carolina Border belt and the Old and Middle belts of North Carolina and Virginia.
The domestic flue-cured carryover on July 1, 1991, totaled 1.22 billion pounds, 7 percent below a year earlier. The supply–indicated marketings plus carryover–is about 2.1 times prospective use. This is below the traditional benchmark level and represents the closes supply and demand relationship in many years. Marketings this year may fall short of use, so carryover next July 1 will decline further.
Despite the reduced stock-to-use ratio, favorable prices, and production that is below use, domestic manufacturers are purchasing a smaller quantity of tobacco from the crop this auction season because production is lower. But, because of the smaller crop, the proportion that will be purchased this season is likely larger.
Loan stocks have been reduced because of discount prices, buyer incentive programs, reduced marketing quotas, and the loan stock buyout prescribed in the Reconciliation Act. By September 1, uncommitted stabilization stocks of flue-cured tobacco–a component of carryover and supply estimates–were 126.5 million pounds, down 36.5 million from a year earlier. With an anticipated smaller volume from this year’s crop, unsold loan stocks on January 1, 1992, are expected to fall below the 210 million pounds of last January 1.
Use of foreign-grown flue-cured tobacco rose about 30 percent in 1990/91, but was still below its 1988/89 level. The increase occurred because larger cigarette production pulled down domestic stocks. Stocks of foreign-grown flue-cured were 1 percent higher on July 1 than a year earlier.
Table 18–U.S. flue-cured tobacco exports: Percentage stemmed form of total, 1982-91 (unstemmed equivalent basis)
Year ending All
June 30 destinations
Percent
1982 88.1
1983 89.1
1984 88.6
1985 91.5
1986 91.2
1987 92.8
1988 92.6
1989 92.5
1990 90.4
1991 1/ 94.7
1/ Germany was 99.9 percent, Japan was virtually 100 percent and the United Kingdom was 96.5 percent.
COPYRIGHT 1991 For more information, contact US Department of Agriculture Economic Research Service. Phone: 1-800-999-6779 (8:30-5:00 ET).
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