As the world supply of burley tobacco decreased in 2011, demand has remained strong. Those factors have strengthened the outlook for U.S. burley in the near term, say Blake Brown, an agricultural economist for North Carolina State University, and Will Snell, economist with the University of Kentucky, in their latest annual report, U.S. Tobacco Situation and Outlook. The 2012 report was released October 15.
The economists attribute the higher demand to a decline in African burley production, along with small crops in Brazil and Argentina.
"U.S. burley growers are expected to produce and market a larger crop in 2012, with improved prices, and the potential for expanded acreages in 2013," they say in the report.
Brown and Snell note that drought effected the 2012 crop but the crop did well despite the weather. The USDA crop report for October 2012 notes U.S. burley acreage is 14% greater than in 2011. The report puts the U.S. crop at 202 million pounds, up 17%, compared to 2011 levels. The economists note this puts the 2012 crop at the third largest since the 2004 tobacco buyout.
"However, housing labor challenges, along with late crops being susceptible to frost, may constrain some growers from harvesting all available acres," they say.
Brown and Snell predict prices to be higher than the $1.75 per pound average that growers received in 2011, driven by increased demand. The best grades for contracted burley in 2012 are about $1.90 per pound. Quality of #2 grades are in the low $1.80 range. But the economists say, considering the current marketing situation, contracted and auction prices could go higher if expectations of high quality hold up.
If the size of the crop doesn't live up to expectations this year, Brown and Snell say contract volumes could either stabilize or perhaps go higher; however, a number of factors could play into that scenario, including labor concerns and the regulatory situation.