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Tobacco Looks Golden Again

December 13, 2008
By: Sara Schafer, Farm Journal Media Business and Crops Editor
 
 
We all love comeback stories. The resurgence of the U.S. flue-cured tobacco industry, though, is a bigger surprise than most. Coming off a year of strong prices and exports, North Carolina's flue-cured growers appear poised to boost acreage at least a bit in 2009.

After the quota system ended in 2004, some observers predicted the demise of the industry. Instead, it stabilized, with farmers contracting leaf with cigarette companies.
Flue-cured acreage has gradually increased in the U.S. since 2005, with 226,500 acres in 2008. North Carolina dominates production more than ever, with 172,000 acres in 2008. In the peak year of 1997, however, U.S. farmers planted 458,300 acres of flue-cured and North Carolinians 313,000 acres, which shows just how much turmoil the industry has undergone.

Now, following two drought years and with enthusiasm for growing grain and cotton waning, tobacco acreage could rebound. The biggest limiting factor will be curing barn capacity, since few tobacco farmers made infrastructure investments this decade. "Tobacco is one crop with a pretty good outlook. Farmers in a low-cost production area should be competitive in the international marketplace,” says Blake Brown, North Carolina Extension ag economist.

Ron Heiniger, an Extension cropping systems specialist in North Carolina, predicts a change in farmer focus. "We will see more soybeans in 2009 because of nitrogen price and more peanuts. We'll maybe see more tobacco, even on small acreage. Anybody can get into tobacco now, with no allotment or quota,” he says. "We're going to see a shift back to crops with strong potential, and tobacco is one of them.”

Acre flux. Even with a cap on curing barn space, flue-cured acreage should increase 5% in 2009, says David Smith, head of North Carolina State University's crop science department. "North Carolina has already increased flue-cured acreage 10% over the past three years. Some farmers thought they could get away from tobacco due to high commodity prices for corn and soybeans. Now, as they look at the cost of fertilizer and the prices for those crops, they have less interest in them,” Smith says.

Tobacco was the foundation for much of the state's economy, so it's no surprise farmers are turning back to it, Heiniger says. "In times of uncertainty, it's natural for people to do what they know best. In North Carolina, tobacco is still something they can fall back on. They have confidence in their ability to get payback on tobacco acreage.”

"I've always said the best alternative to an acre of tobacco is another acre of tobacco. We could do another 5% to 10% with our existing flue-cured facilities. If input prices stay high, tobacco looks like a good alternative for next year if farmers are set up to grow it,” says Scott Bissette, North Carolina Department of Agriculture international marketing specialist.
Contracting tobacco with cigarette makers removes some of the risk. "Farmers know the price they'll get, so it's easy to work out a cash flow statement for a lender,” Smith says.

Less than 2,000 farmers now grow flue-cured tobacco in North Carolina, Smith says, down from more than 10,000 a decade ago. In the quota production days, a grower with 100 acres of flue-cured was a big farmer. Now, several North Carolinians grow more than 1,000 acres of flue-cured.

"With government programs gone, we've seen rapid consolidation,” Brown says. "Demand is good. Supplies are fairly tight. Our tobacco competes well on the global market with Brazil, our main competitor, particularly with the current exchange rate. The companies buying tobacco are multinational, and we're in a global economy.”


You can e-mail Charles Johnson at cjohnson@farmjournal.com.

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FEATURED IN: Farm Journal - December 2008

 
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