Burley and Dark Tobacco Trends, Issues, & Outlook: Will Snell, University of Kentucky

1. Burley and Dark Tobacco Trends, Issues, & Outlook: • Will Snell, • University of Kentucky • Changes • Concerns • Challenges … but yet still opportunities Agricultural Economics

2. Number of Farms Growing Tobacco in KY Source: USDA AG Census Agricultural Economics

3. Distribution of KY Agricultural Cash Receipts: 1990s vs. 2008 Source: Ky Ag Stats/NASS Agricultural Economics

4. Number of Farms Growing Tobacco in KY Except for cattle/hay, more farms grow tobacco than produce any other Kentucky ag enterprise Source: USDA AG Census Agricultural Economics

5. U.S. Tobacco Farms(2007 Ag Census) Agricultural Economics

6. Total (Both Burley and Dark) Tobacco Acres(2005-08 Average vs 2004) B o o n e C a m p b e l l K e n t o n G a l l a t i n P e n d l e t o n B r a c k e n C a r r o l l G r a n t e T r i m b l M a s o n G r e e n u p O w e n R o b e r t s o n L e w i s H a r r i s o n H e n r y O l d h a m F l e m i n g B o y d C a r t e r N i c h o l a s S c o t t F r a n k l i n S h e l b y B o u r b o n R o w a n J e f f e r s o n B a t h E l l i o t t M o n t g o m e r y L a w r e n c e W o o d f o r d S p e n c e r A n d e r s o n F a y e t t e C l a r k M e a d e B u l l i t t M e n i f e e M o r g a n J e s s a m i n e H a n c o c k M e r c e r J o h n s o n N e l s o n P o w e l l M a r t i n B r e c k i n r i d g e H e n d e r s o n W a s h i n g t o n W o l f e M a g o f f i n D a v i e s s H a r d i n M a d i s o n E s t i l l U n i o n G a r r a r d B o y l e L e e M a r i o n M c l e a n L a r u e B r e a t h i t t F l o y d W e b s t e r O h i o P i k e G r a y s o n L i n c o l n O w s l e y J a c k s o n C r i t t e n d e n K n o t t T a y l o r R o c k c a s t l e H o p k i n s H a r t C a s e y P e r r y G r e e n M u h l e n b e r g B u t l e r E d m o n s o n L i v i n g s t o n C a l d w e l l C l a y P u l a s k i L a u r e l L e s l i e L e t c h e r A d a i r M c c r a c k e n B a l l a r d L y o n W a r r e n M e t c a l f e R u s s e l l B a r r e n M a r s h a l l C h r i s t i a n K n o x C a r l i s l e L o g a n H a r l a n T o d d T r i g g W a y n e C u m b e r l a n d A l l e n S i m p s o n W h i t l e y B e l l C l i n t o n M c c r e a r y M o n r o e G r a v e s H i c k m a n C a l l o w a y F u l t o n Increased Acres -25 to -40% 0 to -25% > 40% Decline Agricultural Economics

7. Value of Kentucky Tobacco Production Million Dollars Source: Ky Ag Stats/NASS Agricultural Economics

8. Dark Tobacco Trends, Issues and Outlook Agricultural Economics

9. U.S. Snuff Tobacco Consumption • Successful product marketing • Increasing number of public smoking restrictions • Reduced risk perception/reality +4% to +7% Annual Growth Source: USDA/ERS and TMA Entry of Cigarette Mfgs in 2007, 2008 … Agricultural Economics

10. US Dark Tobacco Acres +38% +21% Source: NASS/USDA Agricultural Economics

11. U.S. Dark Tobacco Production vs. Use Was Expansion Too Much? Source: ERS/NASS/USDA, Agricultural Economics

12. US Dark Tobacco Acres +38% -16% +21% Source: NASS/USDA Agricultural Economics

13. Domestic State and Federal Tx Increases Increasing Smoking Restrictions FDA and other Regulations General Economy Downturn What about Burley? • Export • Higher Valued Dollar • Increasing Foreign Supplies • Global Economic Downturn Agricultural Economics

14. How Did U.S. Burley Growers Respond in 2009 in Response to Reduced Demand Expectations? • 2009 Burley Farmers Faced with … • Lower ag commodity prices • Declines in dark tobacco contract needs • Off-farm job layoffs • Diminished buyout dollars • Available infrastructure • Alternative markets/decent prices for pre 2009 crops Agricultural Economics

15. US Burley Acres + 1% Source: NASS/USDA Agricultural Economics

16. U.S. Burley Production Source: NASS/ERS/AMS/USDA Agricultural Economics

17. U.S. Burley Production vs Disappearance (Use) Potential Needs for 2008-09? 200 Mil lbs ??? What aboout 2009-2010 ??? Source: NASS/ERS/AMS/USDA Agricultural Economics

18. U.S. Burley Leaf Exports as a Percentage of Total U.S. Burley Disappearance (Exports + Domestic Use) Source: ERS/USDA 2006-2007 Estimates by UK Agricultural Economics

19. U.S. Burley Leaf Exports U.S. Burley Leaf Exports Are Down 25% in 2008-2009 Marketing Year Source: ERS/USDA/TMA Agricultural Economics

20. Brazilian Reals to One U.S. Dollar Source: Federal Reserve Bank Agricultural Economics

21. Total World Burley Production +15% +19% Source: Universal Leaf Agricultural Economics

22. U.S. Cigarette Production U.S. Cigarette Production Down 12% in 2008 U.S. Cigarette Consumption May Drop Another 6 to 9% in 2009 Agricultural Economics

23. U.S. Burley Production vs Disappearance (Use) Potential Needs for 2009-10 at “profitable” prices … Less than 200 mil lbs ??? Source: NASS/ERS/AMS/USDA Agricultural Economics

24. Average U.S. Burley Prices • What about 2009/2010? • Better quality crop in 09 should induce higher “average” prices. • Poor quality tobacco, especially outside of contract will suffer greatly • Excess production in 2009 could enhance short-term disappearance, but have adverse impacts on 2010 contract volume given anticipated domestic and export demand outlook

25. What does the immediate future hold for U.S. Burley? • Companies Need Less Total Acres/Less Growers • More Volatile Prices and Tight Profit Margins Especially for Low Yielding/Low Quality Leaf • Consolidation Could Lead to Opportunities for Good Low Cost Producers of Quality Leaf to Maintain Profits and Crop Size