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US Flue-Cured: Outlook and Situation June 11, 2010

US Flue-Cured: Outlook and Situation June 11, 2010. Blake Brown Hugh C. Kiger Professor Agricultural & Resource Economics College of Agriculture & Life Sciences. Outline. Tobacco Production and Use Prices and Demand Farm Infrastructure Summary. Production and Use.

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US Flue-Cured: Outlook and Situation June 11, 2010

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  1. US Flue-Cured: Outlook and Situation June 11, 2010 Blake BrownHugh C. Kiger Professor Agricultural & Resource Economics College of Agriculture & Life Sciences

  2. Outline Tobacco Production and Use Prices and Demand Farm Infrastructure Summary

  3. Production and Use

  4. US Flue-Cured Tobacco Acreage

  5. Flue-Cured Production: (million pounds) 1 USDA-NASS 2 Universal Corp. Crop Reports

  6. Flue-Cured Domestic Use and Exports

  7. Stemmed U.S. Flue-Cured Exports by Region(metric tons, non-farm weight)

  8. Stemmed Exports of U.S. Flue-cured to East Asia(metric tons, non-farm weight)

  9. Flue-Cured Contracts & Prices • Lower Contracted Volume…of primary contracts: $1.75 - $1.80 per pound • A secondary contract market has emerged: $1.45-$1.50 per pound?

  10. Demand and the Farm • Declining demand for tobacco: • FDA regulation • FCTC regulations • Increased taxes • Smoking restrictions • Shifts to smokeless

  11. U.S. AverageRetail Cigarette Price(US$ per pack) +20.09% Source: TMA Estimate

  12. Retail Price and Tax Incidence Figures f0r 2009 Retail PriceTax Incidence Norway$13.07 71.20% UK $8.8376.57% Singapore $7.92 70.54% Australia $7.81 60.76% France $7.54 80.39% Canada $7.17 70.73% Germany $6.70 75.82% Italy $5.73 75.16% Retail PriceTax Incidence United States $5.50 44.67% Portugal$4.8378.29% Spain$4.1777.59% Japan$3.3663.06% South Korea $2.1562.61% Poland$1.9680.22% China$1.2071.28% Indonesia$0.5249.09% All Prices are in US Dollars per pack of 20.

  13. Infrastructure on the Farm

  14. Flue-Cured Tobacco Growers: Curing Barn Age(CTGR 2009 Survey: 254 responses) • 4% of bulk barns less than 4 years old • 30% of bulk barns between 5 to 10 years old • 44% of bulk barns between 11 to 20 years old • 17% of bulk barns between 21 to 30 years old • 5% of bulk barns more than 30 years old • Source: Center for Tobacco Grower Research JHS

  15. Investment in new barns? • Do your profit levels justify the investment? • $35,000 barn (installed) • 10 year useful life, 8% interest rate • $490/acre annual return to barn needed • How certain is your contract over the next 10 years?

  16. Summary • Contracted volume down • Lower domestic use and purchases • FDA near term impact uncertain • Export demand? • Exchange rates? • Developed country demand down • Curing Barn Investment Decisions

  17. Issues for Growers • Do I have a contract? • How do I cash flow? • How do I cope with volume reduction? • How much over contract do I produce? • How secure is my contract? • Should I replace any barns?

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