Kentucky Ag News

Trying to make sense of an abruptly changing burley tobacco market


University of Kentucky College of Agriculture, Food and Environment


LEXINGTON, Ky. - As burley contracts began rolling out in recent weeks, it became obvious that 2015 will be a challenging year for burley tobacco growers. While it appears that contract prices offered by most buyers will be similar to 2014 price schedules (with a few companies reducing prices for mid- to lower-stalk leaf), U.S. burley contract volume will be reduced significantly.

Unlike during the days of the former federal tobacco program when quota changes were uniform across all growers, contract volume changes for 2015 will vary considerably across U.S. burley growers. In reality, 2015 contract volume changes range from small increases for a few growers, to 100 percent reduction for other growers with differences within a given company generally based on historical “scorecard” variables such as delivery percentages and quality factors. Some companies are extending contracts almost exclusively to their multi-year contract growers, resulting in the elimination or sharp reduction in contract volume for single-year contract growers, while others did offer “across-the-board” cuts to all contract growers.


In lieu of these abrupt changes, what will the change in U.S. burley acres be for this year? The USDA Planting Intentions report will be released on March 31, but keep in mind that these survey results are based on grower expectations as of late February and early March – prior to the roll-out of tobacco contracts. Given that grower expectations for 2015 burley contract volume were likely higher several weeks ago, I anticipate USDA burley planting intentions for 2015 to be inflated relative to actual contract volume and actual plantings. Based on what I am hearing from various individual companies and other buying interests (i.e., cooperatives), I could anticipate the call for a 30- to 40-percent or greater reduction in 2015 U.S. burley acres.

What can be made of these abrupt changes after the buying sector was so aggressive in purchasing leaf in the 2013 marketing season and relatively strong prices for 2014 contracted tobacco? Perhaps some of the adjustments can be explained by several of the following factors.

  • A global surplus of burley has rapidly materialized over the past 18 months as world burley production has increased by more than 30 percent while global burley consumption has declined.
  • Export demand is extremely weak amidst an abundance of cheaper foreign leaf and an increase in the value of the U.S. dollar, making U.S. tobacco more expensive in international markets.
  • Some buyers overcommitted in purchasing the 2014 U.S. burley crop as demand expectations did not materialize and thus will have to make additional adjustments in 2015 to correct for this imbalance.
  • The loss in Malawian burley production from recent flooding during the growing season was not as devastating as initially reported.
  • Current and forecast sales of American-blended cigarette sales continue to fall globally.
  • Tobacco companies realize U.S. growers will overproduce above contract volumes, which provides an opportunity to purchase lower-priced leaf in the U.S. and globally.
  • Tobacco companies continue to tighten burley inventories amidst a very uncertain domestic and global regulatory environment along with a small but rapidly emerging non-combustible (i.e., e-cig,vaping) market.
  • An excess supply situation provides an opportunity for companies to eliminate lower-quality growers or those who have not followed through with their previous contract obligations.

The U.S. burley growing industry has experienced drastic volume reductions in the past, followed by some stability and even some periods of growth. Perhaps this will occur in the near future, but no one can make this statement with a lot of confidence in today’s marketing environment. While the market is demanding less burley today, such drastic contraction of the industry within a single year possibly jeopardizes future U.S. burley leaf supply security for buyers if the market eventually rebounds and the overall grass-roots political support for the industry.

The remaining growers will need to realize that an excess supply market likely results in more critical grading for the 2015 crop and that non-contract tobacco production will be extremely risky. With anticipated tighter margins, growers will have to place an even greater emphasis on quality, labor efficiency, and yield to have a favorable outcome for the 2015 crop.


This article was written by Will Snell, agriculture economist at the University of Kentucky College of Agriculture, Food and Environment. The article first appeared in the March 25 edition of Economic and Policy Update.