Download - U.S. Tobacco Situation & Outlook
CCAAAAPPAgricultural Policy Analysis Center - University of Tennessee - 310 Morgan Hall - Knoxville, TN 37996-4519
www.agpolicy.org - phone: (865) 974-7407 - fax: (865) 974-7298
U.S. TobaccoU.S. TobaccoSituationSituation& Outlook& Outlook
Southern AgriculturalOutlook Conference
Atlanta, GA
September 27, 2006
Kelly Tiller
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U.S. Cigarette Production, U.S. Cigarette Production, Consumption & ExportsConsumption & Exports
Source: USDA, Economic Research Service
(-24%)
(-51%)
502
372
119
755
487
244
563
425
134
0
100
200
300
400
500
600
700
800
Production Consumption Exports
Bill
ion
Pie
ces
1996 2001 2006
(-34%)
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U.S. Moist Snuff ConsumptionU.S. Moist Snuff Consumption
Source: USDA, Economic Research Service
41%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Mill
ion
Pou
nds
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Per Capita ConsumptionPer Capita Consumption
0
500
1,000
1,500
2,000
2,500
3,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Num
ber
of C
igar
ette
s
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Pou
nds
of S
nuff
Cigarettes Snuff
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Tobacco Industry TrendsTobacco Industry Trends
• Cigarette consumption continuing annual decline, about 1-2%
• Moist snuff consumption continuing annual increase, about 5%
• Cigarette companies moving into smokeless categories– RAI purchased Conwood in 2006 for $3.5 billion– PM introducing new smokeless products– New spitless products on the market
• Potential for future FDA regulation still looming
• Major manufacturers regaining some market share as NPMs are edged out of the market
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Tobacco Industry TrendsTobacco Industry Trends
• States continuing to increase cigarette excise taxes– Average state excise tax is $0.96/pack (by January
2007)– 21 states above $1.00/pack, 7 states above
$2.00/pack
• Significant increases in smoking restrictions
• Some major litigation resolved in 2006 (Engle, DOJ), other new suits pending (Schwab)
• Altria appears prepared to spin off Kraft Foods and Philip Morris USA (and PMI?)
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World Flue-Cured ProductionWorld Flue-Cured Production
Source: Universal Leaf Tobacco Company, Inc., Sept. 2006
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2003 2004 2005 2006(E) 2007(P)
Mill
ion
gree
n kg
s
Brazil India USA Other Exporters ROW
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World Burley ProductionWorld Burley Production
Source: Universal Leaf Tobacco Company, Inc., Sept. 2006
0100200300400500
600700800900
1,000
2003 2004 2005 2006(E) 2007(P)
Mill
ion
gree
n kg
s
USA Malawi Brazil Other Exporters ROW
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World Market TrendsWorld Market Trends
• World cigarette market becoming more concentrated– 3 companies account for 2/3 of market
• Aggressive marketing (where permitted) fueling growth
• Generally less uncertainty and risk from litigation internationally
• Increasing taxes and smoking restrictions in some developed countries
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Distribution of Leaf in U.S. CigarettesDistribution of Leaf in U.S. Cigarettes
0
10
20
30
40
50
60
70
80
90
100
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Per
cent
Dis
trib
utio
n
Flue-cured Burley Maryland Imported
Source: USDA, Economic Research Service
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Production AssessmentProduction Assessment
• Acreage and production increasing, but not back to pre-buyout levels
• Overall, 2006 production up nearly 100 million pounds, up nearly 15% over 2005
• Number of farmers down dramatically, especially for some traditional burley regions
• Remaining growers expanding acreage
• Production expanding into nontraditional growing areas
• Domestic stocks declining as co-op stocks are depleted
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US Tobacco ProductionUS Tobacco Production
Source: USDA, NASS, Crop Production Reports
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Mill
ion
Pou
nds
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US Tobacco AcreageUS Tobacco Acreage
Source: USDA, NASS, Crop Production Reports
0
100
200
300
400
500
600
700
800
900
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Tho
usan
d A
cres
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Change in Total Tobacco AcreageChange in Total Tobacco Acreage
• Still not back to pre-buyout acreage
• Burley generally down more than flue
• Pennsylvania up significantly
• Missouri above 2004 level
2004 to 2006
1.7%
-72.5%
-21.7%
-27.8%
-3.2%
10.3%
-1.3%
-44.6%
97.5%
-18.5%
-33.9%
-32.0%
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Change in Total Tobacco AcreageChange in Total Tobacco Acreage
• Flue-cured states generally up
• Florida way down
• Mix in burley– Kentucky up some– Tennessee down 13%
• Several states no longer reported
-2.0%
-56.0%
12.5%
4.1%
0.8%
18.5%
22.2%
-8.8%
58.0%
10.0%
-12.9%
17.7%
2005 to 2006
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Flue-Cured OutlookFlue-Cured Outlook
• 2006 flue-cured production expected to be 455 to 489 million pounds– Up 18-28% over 2005
• Acreage higher in 2006, still not up to 2004 levels– Up significantly (20%) in North Carolina, mostly in the Eastern
part of the state– Moving out of Florida– Smaller expansions in Virginia, Georgia, South Carolina
• Exports may strengthen as prices adjust to post-buyout levels– 2006 exports up, first increase in over a decade
• Lower production in Brazil in 2007 may increase incentives to expand U.S. production
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U.S. Flue-Cured ProductionU.S. Flue-Cured Production
Source: USDA, NASS, Crop Production Reports
0
200
400
600
800
1,000
1,200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Mill
ion
Pou
nds
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U.S. Flue-Cured AcreageU.S. Flue-Cured Acreage
0
50
100
150
200
250
300
350
400
450
500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Tho
usan
d A
cres
Source: USDA, NASS, Crop Production Reports
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Change in Flue-Cured AcreageChange in Flue-Cured Acreage
2005 to 2006
-72.5%
-21.7%
-0.9%
-18.5%
-26.1%
2004 to 2006
-56.0%
12.5%
22.0%
10.0%
21.4%
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Flue-Cured PricesFlue-Cured Prices
• ??? – no official market reporting
• 2006 prices appear slightly higher than 2005– Average around $1.50 per pound– Prices still about 20-25% below pre-buyout levels
• Contract price range appears to have narrowed in 2006– Some lower priced companies increased prices
• Percentage of tobacco sold under contract increasing
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U.S. Flue-Cured ExportsU.S. Flue-Cured Exports
0
50
100
150
200
250
300
Mill
ion
poun
ds (
decl
ared
wei
ght)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: USDA, Economic Research Service
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Burley OutlookBurley Outlook
• 2006 burley production expected to be 225 to 249 million pounds– Up 10-22% over 2005
• Acreage– Moving out of Tennessee and traditional areas of North Carolina
and Virginia– Shifting from East/Central to Western Kentucky– New production in Piedmont and Eastern North Carolina,
Pennsylvania
• Exports may strengthen as prices adjust to post-buyout levels
• Potential to support 300 million pounds total use
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U.S. Burley ProductionU.S. Burley Production
Source: USDA, NASS, Crop Production Reports
0
100
200
300
400
500
600
700
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Mill
ion
Pou
nds
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U.S. Burley AcreageU.S. Burley Acreage
0
50
100
150
200
250
300
350
400
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Tho
usan
d A
cres
Source: USDA, NASS, Crop Production Reports
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Change in Burley AcreageChange in Burley Acreage
2005 to 20062004 to 2006
-31.1%
10.3%
-14.9%
-44.6%
-41.7%
-52.5%4.3%
18.5%
33.3%
-8.8%
-17.6%
0.0%
150.0%
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Burley PricesBurley Prices
• ??? – no official market reporting
• Additional price incentives offered in 2006– Higher prices brought in more acreage
• 2006 prices higher than 2005– Averaged around $1.50-$1.55 per pound in
2005– Averaging around $1.60 per pound in 2006– Still 20-25% below pre-buyout levels
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U.S. Burley ExportsU.S. Burley Exports
Source: USDA, Economic Research Service
0
20
40
60
80
100
120
140
Mill
ion
poun
ds (
decl
ared
wei
ght)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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Other Tobacco TypesOther Tobacco Types
• Less dramatic price declines post-buyout for dark-fired tobacco
• Adjustment to post-buyout market has been less dramatic
• Strong demand for domestic use in smokeless tobacco products
• Little movement in production areas
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Change in Dark-Fired AcreageChange in Dark-Fired Acreage
2005 to 20062004 to 2006
-46.5%
0.0%
-2.1%
11.8%
-11.7%
1.8%
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Change in Dark Air-Cured AcreageChange in Dark Air-Cured Acreage
2005 to 20062004 to 2006
28.8%
-25.9%
27.0%
-11.1%
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2006 TN-VA-NC Burley Survey2006 TN-VA-NC Burley Survey
• Mail-based survey of 6,000 burley growers in traditional areas of Tennessee, Virginia, and North Carolina
• First available market and production information post-buyout
• Surveys completed May 2006
• 813 completed responses, preliminary results available
• Follow-up Extension agent survey Dec. 2006
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Respondents Growing in ‘06Respondents Growing in ‘06
0
100
200
300
400
500
600
700
800
Total TN VA NC
Nu
mb
er
of
Re
spo
nd
en
ts
47%47%
52% 40%
No
Yes
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Average Planted AcresAverage Planted Acres
0123456789
10
Ave
rag
e P
lan
ted
Acr
es
2004 2005 2006
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’’06 Average Acreage06 Average Acreage
No53%
Yes47%
0123456789
10P
lan
ted
Acr
es
All TN VA NC
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Last Year Actively GrowingLast Year Actively Growing
0
50
100
150
200
250
# R
esp
on
den
ts E
xiti
ng
2002 2003 2004 2005
3%
11%
62%
23%
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2006 Prices, Tennessee2006 Prices, Tennessee
0
20
40
60
80
100
120
140
20
06
Pric
e D
istr
ibu
tion
(fr
eq
)
< $
1.3
5
$1
.35
-9
$1
.40
-4
$1
.45
-9
$1
.50
-4
$1
.55
-9
$1
.60
-4
$1
.65
-9
$1
.70
-4
> $
1.7
4
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2006 Prices, Virginia2006 Prices, Virginia
0
5
10
15
20
25
30
35
40
20
06
Pric
e D
istr
ibu
tion
(fr
eq
)
< $
1.3
5
$1
.35
-9
$1
.40
-4
$1
.45
-9
$1
.50
-4
$1
.55
-9
$1
.60
-4
$1
.65
-9
$1
.70
-4
> $
1.7
4
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2006 Prices, North Carolina2006 Prices, North Carolina
02468
1012141618
20
06
Pric
e D
istr
ibu
tion
(fr
eq
)
< $
1.3
5
$1
.35
-9
$1
.40
-4
$1
.45
-9
$1
.50
-4
$1
.55
-9
$1
.60
-4
$1
.65
-9
$1
.70
-4
> $
1.7
4
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Likelihood of Producing in ‘07Likelihood of Producing in ‘07
0
50
100
150
200
250
# R
esp
on
den
ts
DefinitelyYes
ProbablyYes
Not Sure ProbablyNot
DefinitelyNot
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Expected Acreage Changes in ‘07Expected Acreage Changes in ‘07
0
50
100
150
200
250
# R
esp
on
den
ts
Up>50%
Up25%-50%
Up25%
Same Down25%
Down25%-50%
Down>50%
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Likelihood of Producing in ‘10Likelihood of Producing in ‘10
0
50
100
150
200
250
300
# R
esp
on
den
ts
DefinitelyYes
ProbablyYes
Not Sure ProbablyNot
DefinitelyNot
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Likelihood of Producing in ‘15Likelihood of Producing in ‘15
0
50
100
150
200
250
300
# R
esp
on
den
ts
DefinitelyYes
ProbablyYes
Not Sure ProbablyNot
DefinitelyNot
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Other Farm EnterprisesOther Farm Enterprises
0
10
20
30
40
50
60
70
80
Per
cen
tag
e
Beef
HayDai
ry
Broile
rsG
rain
Fr & V
eg
Dark F
ire
Dark A
irFlue
CCAAAAPP
Why NOT Producing in ’07?Why NOT Producing in ’07?
• Not profitable enough (88%)
• Shortage of labor (63%)
• Age, near retirement (52%)
• Too risky without a price guarantee (37%)
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Biggest Challenges Next 2-5 YearsBiggest Challenges Next 2-5 Years
• Contract prices too low (54%)
• High costs of hiring labor (53%)
• High costs of nitrogen fertilizer (47%)
• Shortage of affordable and/or legal labor (27%)
• High costs of other production in puts (24%)
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Summary & ConcernsSummary & Concerns
• Tobacco markets beginning to stabilize and rebound following the buyout
• Exports have potential to expand, especially in flue-cured
• Increasing imports leveling off post-buyout
• Concerns about labor availability
• Working toward more mechanization in burley harvest
• High fuel prices particularly a problem for flue-cured
• Free market provides more incentives to reduce costs
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