Tobacco Production, Producers Could Shrink Again In 2006
Factors that will impact growers’ decisions for 2006 will be contract prices offered by tobacco companies compared to costs of production.  Will Snell, UK Extension tobacco economist	By Laura Skillman PRINCETON, Ky. , (Nov. 23, 2005) – The number of tobacco farmers in Kentucky could dwindle again in 2006 after producers determine whether they made a profit this year. This is the first year tobacco producers have grown the crop without a federal tobacco program that had limited production and set minimum prices. The number of growers in the state dropped by 50 percent this year and is likely to drop again, said Will Snell, tobacco economist with the University of Kentucky College of Agriculture. Production likely will also move to the central and midwestern regions of the state and potentially to other lower cost regions outside Kentucky . Factors that will impact growers’ decisions for 2006 will be contract prices offered by tobacco companies compared to costs of production. Labor availability became an issue in some areas of the state in 2005, and that will weigh on farmers’ minds along with barn access and access to capital, he said.  This year has also been a difficult growing season with yields expected to be about 1,800 pounds per acre below the 2,300-pound yields many were hoping to achieve. “These observed yields coupled with some quality concerns and higher labor costs will likely result in a significant number of burley growers losing money on the 2005 crop,” Snell said. “Consequently, the U.S. burley sector could observe another noticeable exit of growers in 2006, which raises concerns about the potential supply and the number of remaining producers for the 2006 crop and beyond.” A shift in world consumer preference for blended cigarettes is creating opportunities for burley producers. Burley exports have been strong in recent years and continued to be strong in 2005. Factor in the more competitive pricing as the result of the buyout and there are renewed opportunities for burley growers, he said. But to capture those opportunities, the U.S. market must produce an adequate supply and that may prove difficult if growers continue to exit. Companies will have to offer contract prices at high enough rates to entice tobacco growers to stay in production. Without that encouragement, growers and poundage will continue to decline. Cash receipts for dark and burley tobacco production in Kentucky for this year will likely fall below $300 million compared to more than $400 million in each of the past three years. Total income into the state will be higher, however, as more than $240 million came into the state from the first installment of the 10-year tobacco buyout. Farmers have also received payments from a grower lawsuit settlement and their last Phase II check from the tobacco companies under the national settlement between tobacco companies and states attorneys general. Income attributed to tobacco in 2006 will also remain elevated as many former tobacco quota holders and growers are expected to take lump sum payments for the remainder of their buyout payments. Writer:     Laura Skillman  270-365-7541 ext. 278 Contact:   Will Snell, 859-257-7288 Return to Main News page.