TOBACCO April 28, 1999 April 1999, TBS-243 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- TOBACCO is published 3 times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the report -- tables and graphics are not included. Subscriptions to the printed version of this report are available from the USDA order desk. Call toll-free, 1-800-999-6779 (703-605-6220) and ask for stock #ERS-TBS, $30/year. USDA accepts MasterCard and Visa. --------------------------------------------------------------------------- Summary Cigarette Consumption Continues To Slide U.S. smokers consumed an estimated 470 billion cigarettes in 1998, 2 percent less than a year earlier. Price increases, higher State taxes, expanding regulation, and consumer awareness of links between smoking and disease combined to reduce cigarette use. Consumption per person based on a population 18 years and older declined 3 percent. Consumption is expected to decline further in 1999. Taxable removals in 1998 were about steady at 470 billion. Exports dropped from 217 billion pieces in 1997 to 201 billion. Cigarette output fell 6 percent to an estimated 680 billion pieces, about the same as in 1990. Increases in cigar consumption slowed to an estimated 6 percent in 1998 to 3.7 billion cigars. Snuff continued to gain in 1998, while use of smoking and chewing tobacco fell. In 1999, cigar use will increase at about the same rate as last year, and snuff consumption is likely to rise also. Use of other tobacco products is expected to continue declining. As of March 1, U.S. tobacco growers indicated they intended to harvest 647,850 acres of tobacco in 1999, 11 percent less than last year. Reacting to a 19-percent decrease in the 1999 effective quota, flue-cured growers indicated they would harvest 319,000 acres, down 14 percent from last season. Burley growers are planning to harvest 289,800 acres, about 8 percent less than last year. Assuming average yields, 1999 production would total 1.4 billion pounds (farm sales weight), about 150 million less than in 1998. The lower production, however, will be partially offset by slightly higher beginning stocks anticipated for the 1999/2000 marketing year, resulting in decreased supplies. Price supports for the 1999 crop are up 0.4 cent per pound for flue-cured and 1.1 cents for burley. Price supports for other kinds under quotas are up 2.0 to 3.5 cents per pound. Before the marketing season begins, the United States Department of Agriculture (USDA) sets grade loan rates for the various kinds of tobacco receiving support. Off-farm stocks of U.S.-grown leaf were up 11 percent on January 1, 1999, from a year earlier, while stocks of foreign-grown leaf were down 100 million pounds (8 percent) from a year earlier. Production shortfalls in 1998 led to a lower supply in spite of higher beginning stocks. Lower use will generate an even higher carryin in 1999. The value of U.S. leaf exports in 1998 declined due to lower volume, while the value of tobacco product exports fell because of lower cigarette shipments. The value of total exports exceeded imports (arrivals) by $5.0 billion, and was $137 million above 1997 but $900 million below 1996's record $5.9 billion. Cigarette exports declined 7 percent to 201 billion pieces--17 percent below 1996?s peak of 243.9 billion. Exports of unmanufactured leaf declined 4 percent to 467 million pounds. Abundant supplies of leaf worldwide will dampen export prospects in 1999. In 1998, unmanufactured tobacco imports (arrivals) plunged 20 percent to 544 million pounds, falling for the second year. Lower cigarette production has dampened demand for foreign leaf. Imported leaf accounted for about 26 percent of total U.S. leaf stocks on January 1, 1999, 6 percent more than a year earlier. Total disappearance of U.S.-grown flue-cured tobacco in the current marketing year is forecast down from last year's 877 million pounds. Both domestic use and exports are expected to decline. Disappearance in 1998/99 will likely exceed marketings, so carryover stocks at the beginning of 1999/2000 will decline. Production in 1999 will likely fall from 1998's 815 million pounds due to lower effective quota. Disappearance of U.S.-grown burley tobacco in 1998/99 is expected to decline from 1997/98's 548 million pounds, mostly due to lower domestic use. Exports are unchanged for the first 4 months of the marketing year. Burley auction sales in 1998/99 totaled 588.3 million pounds, 39 million less than last season. Production in 1998 will exceed total use and 1999 carryin is expected to increase. USDA set this season's burley marketing quota at 453 million pounds, 160 million pounds below last season. The 1999 effective quota, which reflects last year's over- and under-marketings, totals about 690 million pounds, about 20 percent below last year's. Mixed market prices in 1998 for other quota kinds had various impacts on 1999 allotments. The 1999 acreage allotments fell 5 percent for Kentucky-Tennessee fire-cured and remained unchanged for Virginia fire-cured. Allotments for dark air-cured types gained 10 percent and Virginia sun-cured allotments were about the same as the previous season. Allotments for cigar filler and binder tobacco fell 35 percent. Producers who did not plant tobacco in recent years may have had their individual allotments adjusted downward. Tobacco Products Domestic Cigarette Consumption Falls 2 Percent, Exports Continue Decline U.S. cigarette consumption in 1998 is estimated at 470 billion pieces, compared with 480 billion the previous year. Price increases, higher State taxes, expanding regulation, and consumer awareness of links between smoking and disease combined to lower consumption. Per capita consumption continued to decline, sliding to 2,261 pieces per person (persons 16 and over population), compared with 2,332 pieces for the same group in 1997. Premium brand cigarettes lost market share as discount brands' share of the market increased from 27.7 percent in 1997 to 27.8 percent in 1998. As recent price increases begin to affect consumption patterns, the share of discount sales may increase further. The Federal excise tax has been at 24 cents per pack since 1993. In 2000, the Federal cigarette excise tax will increase by 10 cents per pack, or $5.00 per thousand. Another increase of 5 cents per pack is scheduled for 2002. Federal cigarette excise tax collections in 1997 totaled $5.9 billion. State tax collections were even larger, at $7.7 billion. State excise taxes have risen dramatically in the past 5 years due to the number of States that increased taxes, although only six States did so in 1997. Sixteen States currently impose taxes of 50 cents per pack or more. The average State tax (weighted by sales) is 34.7 cents. On July 1, Hawaii raised its excise tax to $1.00, the only State to increase its tax rate in 1998. Maryland's cigarette tax will increase 30 cents per pack in July 1999. Calendar 1998 exports totaled 201 billion cigarettes, down from 217 billion in 1997. Shipments peaked in 1996 after rising for nearly a decade. Shipments to the European Union (EU-15) fell 3 percent. Shipments to Japan, the second largest export market, rose 5 percent, but overall shipments to Asia fell 5 percent, reflecting the economic downturn there. Shipments to Russia continued their sharp decline, but are offset slightly by increased shipments to Azerbaijan. Cigarette export volume losses of 7 percent were only partially offset by slightly higher unit values, resulting in a total 1999 cigarette export value of $4,165 million, compared with $4,408 million in 1997. Cigarette Prices Increase Manufacturers increased wholesale cigarette prices five times in 1998. The final increase of 45 cents per pack in November was the largest ever. Total price increases in 1998 boosted the wholesale price (including Federal excise tax) by 49 percent. The wholesale price of cigarettes (including Federal excise tax) at the end of 1998 was $97.20 per 1,000 cigarettes compared with $65.45 per 1,000 at the beginning of the year. Cigarette prices jumped in response to the settlement between the State attorneys general and manufacturers. Cigarette Manufacturers and Attorneys General Pact Set: Cigarette Price Increase Expected To Further Diminish Consumption On November 16, State attorneys general and cigarette manufacturers signed an agreement to reimburse the States for the costs of treating smoking-related illnesses and to reduce underage smoking. Within a few days, all 47 States and the District of Columbia (4 States settled previously) and various territories had signed on with the agreement. Unlike the June 1997 agreement, the new tobacco settlement does not require approval by Congress. The slightly narrower scope of the current agreement reflects its more limited goals: reimbursing States for smoking-related health costs under Medicaid and ending the uncertainty of continuing lawsuits for cigarette manufacturers. Key elements of the pact are: o $206 billion to be paid to States over 25 years o $1.5 billion over 10 years to support anti-smoking measures plus $250 million to fund research into reducing youth smoking o Limitations on advertising o Ban on cartoon characters in advertising o Ban on "branded" merchandise o Limitations on sporting event sponsorship o Disbanding of tobacco trade organizations The settlement, combined with expenses from the four previous State settlements, will have an ongoing inflationary effect on the price of cigarettes. The industry has already raised cigarette prices four times in 1998, leading to a 14-percent overall gain at the wholesale level. Part of the 1998 price increase was probably in anticipation of future expenses. Cigar Smoking Increases; Smoking Tobacco Use Declines Estimated consumption of large cigars (including cigarillos) increased once again in 1998, gaining 6 percent, less than in 1997. U.S. smokers consumed about 3.7 billion large cigars. Production of small cigars (those using less than 3 pounds of tobacco per 1,000 cigars) rose sharply, to 1,750 million, 18 percent above 1997. Overall cigar use should exceed 5.3 billion in 1998 and is expected to continue ascending in 1999. Smoking tobacco consumption last year totaled about 15.2 million pounds, 2 percent below 1997. Sales (including imports) of pipe tobacco (the major category) and smoking tobacco for roll-your- own cigarettes both declined in 1998 (table 8). Smokeless Use Slips As in past years, output of firm, moist, and leaf chewing tobacco all declined (between 4 and 11 percent), twist chewing tobacco was unchanged, and moist snuff output advanced 4 percent. Taxable removals of smokeless products mirrored output except that smoking tobacco removals rose. Moist snuff taxable removals gained 4 percent, more a year earlier, and chewing tobacco slipped 8 percent, more than in 1997. Part of the rise in smokeless tobacco consumption probably results from substitution for cigarettes because of increased smoking restrictions. U.S. Exports and Imports U.S. Tobacco Trade Balance Up The tobacco balance of trade the value of manufactured and unmanufactured exports less imports reversed its downward trend and increased 3 percent in 1998. Lower export values were more than offset by sharp declines in leaf import value. The value of U.S. leaf imports plunged 31 percent to $780 million from over $1 billion. The value of imported products slipped due to lower cigar imports. U.S. exports of unmanufactured tobacco and tobacco products were down slightly at $6.3 billion in calendar 1998. The total tobacco balance of trade surplus advanced from $4.9 billion to $5.0 billion. Tobacco leaf export value fell 6 percent compared with the previous year. Cigarette export value fell due to lower volume despite slightly higher unit values. The Bureau of the Census recorded 142 countries as destinations for U.S. leaf and product exports in 1998. General imports (arrivals) of unmanufactured tobacco fell 29 percent in value to $771 million, the biggest shift in the trade picture, and tobacco product imports slipped 6 percent to $437 million. The tobacco trade surplus of $5 billion was $900 million below the record high in 1995 (table 10). Leaf Tobacco Export Volume Slips in Calendar 1998 The volume of U.S. exports of unmanufactured tobacco in 1998 fell 4 percent from a year earlier to 467 million pounds, declared weight (211,828 metric tons) (table 11). Exports to Europe and Australia/Oceania rose; shipments elsewhere declined sharply. On a farm-sales weight basis, total leaf exports were 697 million pounds. Exports of all types except unstemmed flue-cured, cigar binder, and "other leaf" declined. Export demand dampened because of declining smoking rates in some major importing countries and abundant world supplies of flue-cured. European markets, which typically buy more than half of U.S. leaf exports, purchased 63 percent of total 1998 U.S. exports. Japan purchased 18 percent. Lower supplies, higher prices, and declining demand in some countries dampened calendar 1998 flue-cured exports by about 5 percent. Burley export volume slid 12 percent to 111 million pounds in spite a larger supply. Flue-cured export unit values declined while burley unit values advanced. Maryland exports fell after advancing for 2 years, ending at 3.8 million pounds. Kentucky-Tennessee fire-cured exports fell and Virginia fire- and sun-cured volume also declined. Blackfat volume fell to less than 50,000 pounds. Cigar wrapper exports fell and binder exports advanced. Shipments of stems and refuse, and other leaf both rose sharply. Exports of stems and refuse reached 60 million pounds, up 9 percent, and other tobacco rose 28 percent to 29 million pounds. Calendar Year Imports Plunge Total imports of tobacco for consumption (duty paid) fell 24 percent in 1998 after falling 3 percent in 1997, but are still at relatively high levels. Import volume totaled 495 million pounds, compared with 652 million the previous year. In 1998, the United States imported 34 percent less cigarette leaf and 24 percent less cigar leaf, while stems gained 25 percent. Cigarette scrap imports were nil, and cigar scrap imports were less than 1 million pounds. U.S. stocks of imported cigarette tobacco were down about 100 million pounds on January 1, 1999, compared with a year earlier (table 15). Imported flue-cured stocks fell 13 percent, and burley stocks fell 14 percent. Oriental stocks gained 3 percent. Imported cigar leaf stocks rose 6 percent. Tariff-Rate Quota Activity President Clinton proclaimed a tariff-rate quota (TRQ) effective September 13, 1995, for certain types of imported tobacco, primarily flue-cured and burley. The proclamation also eliminated duties on Oriental and cigar wrapper, binder, and filler tobacco. The total quantity allowed under the tariff-rate quota is 333 million pounds, declared weight, for the September 13, 1998 through September 12, 1999 year. Through March 22, 19.2 percent of the total quota allocation had been imported. The TRQ is designed to manage U.S. cigarette leaf tobacco imports, particularly flue-cured and burley type tobaccos, which are imported for the purpose of manufacturing cigarettes in the United States. Imports of cigarette leaf tobaccos (excluding Oriental) that exceed predetermined quota are subject to an import duty of 350 percent ad valorem, although a drawback provision allows most of the duty to be refunded if the imported leaf is re-exported as leaf or manufactured products such as cigarettes. U.S. Tobacco Leaf Situation and Outlook 1/ 1/ All quantities in this section are in farm sales weight unless otherwise noted. Years refer to marketing years; July-June for flue-cured and cigar wrapper (type 61) and October-September for all other types, unless otherwise noted. Domestic Supplies Increase in 1998/99 Higher beginning stocks offset lower marketings, nudging the supply of domestic leaf up less than 100 million pounds for 1998/99 (July-June for flue-cured and October-September for burley and other kinds) to 3.8 billion pounds. On January 1, 1998, domestic leaf stocks were up 6 percent from a year earlier. However, by the end of the current marketing year, stocks are expected to be higher than the 2.1-billion-pound carryover on July 1, 1997 (October 1 for burley and other kinds). With average yields, 1999 U.S. tobacco production could total 1.4 billion pounds, 8 percent lower than last year. Auction marketings of flue-cured slipped 20 percent (table 25) in 1998/99 from a year earlier. Burley marketings advanced about 2 percent. Sales of Maryland are down sharply, and fire-cured and dark air-cured are up slightly. Cigar tobacco production is expected to slide by 2.5 million pounds. All tobacco types other than Maryland, Pennsylvania filler, Connecticut binder, shade-grown wrapper, and Perique are under quotas. Except for farms on which producers in recent years have planted or received planted credit of less than 75 percent of the farm's acreage allotment, 1998 tobacco allotments are increased 15 percent for Virginia sun-cured and Virginia fire-cured, 20 percent for dark air-cured, and unchanged for Kentucky-Tennessee fire-cured tobacco. Cigar filler and binder tobacco allotments fell 20 percent. Acreage allotments unused in recent years were adjusted downward. USDA's Prospective Plantings report indicated that growers plan to harvest 647,850 acres of tobacco in 1999, 11 percent less than in 1998. In 1998, intentions were 1 percent less than the final harvested acreage and, in 1997 they were 3 percent more. Costs Expected To Rise Production and marketing costs of flue-cured tobacco will probably increase in 1999 as costs of most inputs likely will rise. Total costs per acre (excluding land, quota, and the no- net-cost and marketing assessments) are expected to increase 2 to 4 percent from a year ago. Similar increases are expected for variable costs. Burley costs are also expected to increase 2 to 4 percent. Quota rental rates in 1999/2000 may increase due to lower flue-cured and burley quotas. Since lease and transfer of flue-cured quotas were eliminated in 1988 (except when a farm experiences a natural disaster), growers have used other options to obtain quotas. These options include: (1) cash or share renting the quota and growing the tobacco on the farm to which the quota is established; (2) purchasing quota; and (3) combining more than one farm into a single farming unit. To combine farms, the operator must have complete control over the entire farm operation. Also, the same accounting system and management must be used on all tracts. Furthermore, the rental agreement must last more than 1 year and include a rotation of one or more program, allotment, or other crops among tracts. Since 1991, burley growers can both lease and transfer and purchase quota within counties throughout the burley belt. Furthermore, since 1991, Tennessee growers can lease and transfer burley quota across county lines within the State. Price Supports and Assessments in 1999 Price supports are available to eligible growers through government loans to producer associations. To be eligible, producers must pay assessments to the no-net-cost account established by the associations. Producers and buyers share the assessments for flue-cured and burley tobaccos. Growers of other kinds pay the full amount. In addition, since 1991, growers and purchasers of tobacco under the price support program are required to pay a marketing assessment. Grower and buyer contributions equal to 1 percent of the loan rate are divided equally. Growers must also certify that any pesticides applied to the tobacco crop were EPA-approved and used according to label directions. To obtain price support for flue-cured tobacco, USDA requires growers must designate to USDA a warehouse where they intend to sell the tobacco. Growers of flue-cured tobacco approved marketing quotas for the 1998, 1999, and 2000 marketing years in a referendum held January 12-15, 1998. In a referendum held February 23 - 27, 1998, burley growers voted to continue marketing quotas on a poundage basis for the 1998, 1999, and 2000 marketing years. Growers of Maryland, Pennsylvania filler, and Connecticut binder (types 51- 52) have no price supports because they turned down marketing quotas in referenda this year. Growers of Virginia fire-cured, Kentucky-Tennessee fire-cured, and Kentucky-Tennessee dark air-cured voted to accept marketing quotas for the 1997-99 marketing years in two referenda held on March 24-27, 1997. Growers of Wisconsin and Ohio filler and binder voted in March 1999, to accept quotas for the next three crops (1999, 2000, and 2001). Growers of Virginia sun-cured (type 37) voted on March 23-26, 1998 to approve quotas for the 1998, 1999, and 2000 crop years. Under the Omnibus Budget Reconciliation Act of 1990, 1998 was the last year for the marketing assessment. In 1998, the marketing assessment was set at 1.628 cents per pound for flue-cured and 1.778 cents for burley (divided equally for growers and purchasers). For other tobaccos. the marketing assessment ranged from 1.212 cents per pound for Wisconsin binder to 1.681 cents for Kentucky-Tennessee dark fire-cured tobacco (table 20). The 1999 flue-cured no-net-cost assessment is 2 cents per pound; 1 cent for producers and 1 cent for purchasers. The no-net-cost assessment for burley tobacco has not been set at this time. The Agricultural Act of 1949, as amended in 1986, requires that producers and purchasers share equally in no-net-cost assessments, to the extent possible, in maintaining the no-net- cost account for 1985 and subsequent crops of flue-cured and burley tobacco. No-net-cost assessments for the other kinds of tobacco will be announced later. USDA has set the 1999 flue-cured support level at $1.632 per pound, 0.4 cent above 1998, and the burley support at $1.789, 1.1 cents above 1998. The price supports for flue-cured and burley are calculated using the level of the preceding year, adjusted by changes in the 5-year moving average of market prices, excluding the highest and lowest (two-thirds weight) and changes in a cost- of-production index (one-third weight). For other types, maximum support rates continue to be based on changes in the average of the parity index during the 3 previous years compared with 1959. But loan associations can request reduced support if warranted by market conditions. Supports for other kinds of tobacco are up 3.4 to 5.8 cents per pound or 2.5 to 3.7 percent in 1999. Tobacco Tested for Pesticides Pesticide use has been restricted on U.S. tobacco for many years. The Food Security Act of 1985 extended the adherence standards. It requires USDA to inspect U.S.-produced flue-cured and burley tobacco for improper use of pesticides. Flue-Cured Disappearance in 1998/99 To Fall Total disappearance of U.S.-grown flue-cured tobacco (types 11- 14) in 1998/99 will slide about 2 percent from last year's 877 million pounds to about 860 million pounds (table 25). During the first half of the marketing year (July-December 1998), domestic disappearance slipped 20 percent compared with the same period last season while exports gained 8 percent. Domestic use is expected to continue its downward trend due to declining cigarette production. During the first 6 months of this marketing season flue-cured exports to European countries declined while Asian countries took more. July-December exports were 170 million pounds (farm sales weight). January 1999 flue-cured exports advanced 52 percent from the previous January, bringing the July-January total to 218 million pounds, 15 percent higher than the 7-month period a year earlier. Carryover Slips Estimated disappearance in 1998/99 is higher than marketings. Consequently, the flue-cured carryover on July 1, 1999, is projected to fall about 50 million pounds from the 1,253 million pounds of July 1, 1998. Crop Projected To Shrink in 1999 The national basic marketing quota for 1999 crop flue-cured tobacco is 666.2 million pounds, 18 percent below the 1998 quota. The quota fell by a similar percentage last season. The basic quota fell due to a sharp decline in cigarette manufacturer purchase intentions. Last-minute negotiations between cigarette manufacturers and the Flue-cured Tobacco Cooperative resulted in loan purchases of approximately 100 million pounds, reducing loan stocks. Had these purchases not occurred, the quota could have fallen as much as 30 percent. As part of the purchase agreement, the companies received a 15-percent discount and agreed to purchase at least 90 percent of 475 million pounds of flue-cured for 5 years beginning with the 2000 crop year. Other buyers were offered a discount of 7.5 percent. Overmarketings through 1998 caused a 19-percent decline in the effective quota, which is about 667 million pounds. The effective quota is obtained by adjusting the basic quota by net undermarketings. Based on the effective quota, marketings should fall in 1999. According to the March planting intentions report, 319,000 acres are expected to be harvested, 14 percent below last year's harvested acres. On this acreage, a normal yield would produce about 700 million pounds, or about 105 percent of the effective quota. Only 103 percent of the effective quota can be marketed without penalty, so marketings are limited to 687 million pounds. In 1997 and 1998, growers marketed nearly 100 percent of the effective quota. The level is likely to be higher this year. Growers marketed 95 percent of the effective quota in 1996 and 92 percent in 1995. In 1994, growers marketed 101 percent of poundage quota compared with about 100 percent in 1992 and 1993. Given projected flue-cured marketings, plus anticipated carryover, 1999/2000 supply is expected to slide about 8 percent from the 2.1 billion pounds available in the current marketing year, to about 1.9 billion pounds. This represents about 2.1 years' use, below the traditional benchmark level and the lowest in 10 years. Burley Effective Quota Drops 19 Percent The 1999 basic quota for burley totals 452.9 million pounds, 29 percent below 1998. Marketings in 1998/99 totaled 588.7 million pounds, 6 percent below 1997/98. Allowing for overquota and underquota marketings last season, the 1999 effective quota totals around 700 million pounds, 160 million below a year earlier. Manufacturers' purchase intentions for the 1999 crop are 291.0 million pounds, compared with 421.1 million in 1998. This year's price support has been set at $1.789 per pound, 1.1 cents above the 1998/99 level. Around March 1, farmers said they intended to set 289,800 acres, about 8 percent less acreage than was harvested last year. Preliminary data indicate that in 1998/99, growers marketed 74 percent of their quota, up from 71 percent the previous season. In 1996/97, growers marketed 73 percent of their effective quota, which until last year was the lowest percentage since 1990. They marketed 83 percent in 1995/96, 84 percent in 1994/95, and 87 percent in 1993/94. Of the two major growing States, undermarketings were somewhat greater in Tennessee than in Kentucky. With normal yields, 1999 production will reach 600 million pounds, 7 percent short of 1998 net marketings. Quota should be sufficient to market tobacco produced in 1999. Supply Rises in 1998/99 The 1998/99 domestic supply was 1.470 billion pounds on October 1, 7 percent above a year earlier (table 25). The supply equals about 2.6 times the estimated disappearance, slightly higher than the traditional benchmark level and in line with recent years. By October 1, 1998, total burley stocks advanced 11 percent. Crop Volume Down and Value Up in 1998/99 Opening sales for the 1998/99 burley crop were held November 23, 1998, and the market ended on March 11, 1999. There were 45 sales days, 8 less than the previous year when markets opened on November 24, 1997, and the season closed on April 9, 1998. The average price of $1.903 per pound was the second highest on record, surpassed only in 1996/97. Auction sales, including resales, totaled 638.6 million pounds and net sales, (those by producers) were 588.3 million pounds. Burley cooperatives received 72.9 million pounds, or 12.4 percent of net sales this season. Last year cooperatives took 124.5 million pounds, or 19.8 percent of net sales. About 54.7 million pounds of the 1994 crop and 232 million pounds of the 1993 crop were placed under loan. Quality was about the same as in 1997. The proportion designated as fair and low quality constituted 74 percent, slightly less than last year. Tan and reddish tan tobacco made up 85 percent of sales, less than last year. More buff-colored leaf was sold. The shift away from mixed grades continued in 1998. Southern Maryland Prices Fall Sharply Maryland auctions for the 1998 crop (sold in 1999) of Maryland tobacco (type 32) opened March 17, 1999 and closed April 15, after being open for 14 sales days. Marketings were 9.6 million pounds, 20 percent below 1997. Prices averaged $1.630 per pound, down 11 cents per pound from last year as drought adversely affected the 1998 crop. For the 1997 crop (marketed mostly in 1998), growers received $1.716 per pound at the Maryland auction. Since quotas have been disapproved by growers, Maryland tobacco does not receive price support. In a 1982 referendum, growers rejected USDA grading and its required fee. In 1998, many Maryland-type growers in Pennsylvania formed a cooperative and established an auction market. Demand for Maryland tobacco grown in Pennsylvania has been limited by the absence of major buyers. In 1998, Pennsylvania produced 41 percent of total Maryland-type production, compared with 34 percent in 1997. The increase in Pennsylvania's share was due to lower production in Maryland caused by drought. Supply Falls Acreage continued declining in 1998, and lower yields resulted in a crop of 15.4 million pounds, about 2.9 million pounds smaller than the previous season. Yields declined due to drought. Production declined in Maryland and increased in Pennsylvania. Sales of the Pennsylvania crop have been slow with very little of the crop purchased, leaving perhaps 2 to 5 million pounds unmarketed. Some Pennsylvania leaf may have been sold at the Maryland auctions and some may have been purchased by dealers after the Maryland auctions closed. The Agriculture and Food Act of 1981 mandated penalties for growing and marketing Maryland tobacco in quota areas. However, quotas do not apply to Pennsylvania seedleaf (type 41) tobacco and since seedleaf prices are lower, seedleaf growers have switched to producing Maryland tobacco. The supply of Maryland tobacco for marketing year 1998/99 is nearly 1 million pounds below than that of 1997/98. However, use is expected to slide about 3 million pounds on lower overseas demand (table 28). Farmers' March harvest intentions indicate a 900-acre decline in 1999. Yields in 1999 are likely to improve and production shortfalls will not decrease proportionately. Supplies should therefore decline little in 1999/2000. Fire-Cured Kentucky-Tennessee Fire-Cured Prices Fall Slightly Kentucky-Tennessee fire-cured (type 22-23) auction prices were mixed for the 1998 crop and lower than last season. Quality was down, and prices were lower for lower grades. Volume at auction was down about 250,000 pounds. Country sales are estimated to be slightly greater than auction sales at 20-22 million pounds. Cooperatives received 219,614 pounds in 1998, or 1.2 percent of farm sales. For the 1997 crop, cooperatives received 368,311 pounds or 1.9 percent of sales. Auction prices for types 22-23 averaged $2.037 per pound, down from $2.109 in 1997. Including barn door sales, prices for types 22-23 averaged $2.256 per pound in 1997. Farm sales prices are not available for 1998. Auctions for Kentucky-Tennessee (types 22-23) began January 19 and ended on March 3. Sales were held for 30 days, 5 days less than last season. This season's auction prices were mixed, ranging from $3.40 per pound for the best wrapper and heavy leaf grades to $1.11 a pound for the poorest nondescript. Virginia Fire-cured Prices Slide Unfavorable weather during the growing and curing seasons substantially reduced the quality crop of the Virginia fire-cured tobacco crop. However, increases in auction volume offset lower prices, resulting in a gain in total value sold. Loan receipts increased from nil last year to 7 percent of the 1998 crop. When sales ended on January 14 after 14 days (not including a small clean-up sale on January 18), volume totaled 2.2 million pounds, 17 percent more than 1998. Prices fell 19.3 cents per pound to $1.936 cents. Output of snuff, which constitutes the principal domestic use of fire-cured tobacco, rose during the past year, and should continue rising in 1999. So far this season (October-January), leaf export volume has increased over the previous year when exports were very low. However, export volume is still about half of that in 1996/97. For the 1998/99 season, total use should increase as higher exports are offset slightly by lower domestic use. Supplies in 1999/2000 are likely to decrease due to lower production. Farm Acreage Allotments Allotments fell 4 percent for Kentucky-Tennessee fire-cured and 5 percent for Virginia fire-cured. This year's U.S. farm allotment totals 16,065 acres for Kentucky-Tennessee fire-cured and 1,625 acres for Virginia fire-cured. About 91 percent of all allotments of Kentucky- Tennessee fire- cured were produced in 1998, compared with 93 percent in 1997. For Virginia fire-cured, acreage harvested as a share of allotments in 1998 was 88 percent, compared with 80 percent in 1997 and 84 percent in 1996. When compared with effective allotments (allows for productivity adjustments on leased-in acres) the percentages are somewhat higher. In 1999, Kentucky-Tennessee fire-cured acreage is projected to decrease by 520 acres and Virginia fire-cured acreage is projected to remain unchanged. Dark Air-Cured Demand Strong, Prices Slide Increased sales volume and lower quality marked the 1998 Kentucky-Tennessee dark air-cured crop. Sales began November 30, 1998, and continued through February 12, 1999. At $1.727 per pound, prices for One Sucker (type 35) were off of last year's record by 19 cents per pound. Net sales volume was up slightly to 3.3 million pounds. Net sales of Green River tobacco (type 36) gained, reaching 2.9 million pounds, compared with 2.5 million last season. Prices fell 6 cents per pound. Country (non-auction) sales are not available yet. Marketings were not quite as desirable as last year with more fair quality tobacco sold. Loan receipts were 74,282 pounds for the 1998 Kentucky- Tennessee dark air-cured crop. A less than ideal growing season led to a decline of overall quality for the 1998 crop of Virginia sun-cured tobacco. Both volume and value declined. The Dark Tobacco Sales Cooperative received Virginia sun-cured for the first time since 1994. Gross sales reached 106,627 pounds, averaging $1.709 per pound, compared with a record high of $1.908 per pound in 1997. Sales last year totaled 120,680 pounds. There were no resales during 1997 and 1998. Fair and low quality offerings were up in 1998. Sales lasted 4 days. This season's supply of dark air- and sun-cured tobacco totals 32.8 million pounds, about a half million greater than 1997 (table 30). Most dark air-cured tobacco goes into plug and twist chewing. Output of both plug and twist chewing fell in 1998. Disappearance of dark air-cured tobacco is likely to be greater than the 1998 crop, and carryover will decrease from last year. National Acreage Allotments Gain Larger 1998 production will offset lower carryin stocks, raising supplies for 1998/99. Acreage allotments for growers of dark air-cured will increase from a year earlier. Total allotments for 1999 of dark air-cured (types 35-36) are 5,587 acres, 10 percent above last year. Based on harvesting intentions, production in 1999 should rise 15 percent given normal yields. Growers intend to harvest 5,100 acres in 1999, compared with 4,440 last season. Virginia sun-cured acreage allotments, at 118 acres, are nearly the same as last season. Harvesting intentions are unchanged from last year's harvested acres at 100 acres. Cigar Tobacco Wrapper Demand Up, Other Types Mixed Most cigar tobacco producers received slightly higher prices for their 1998 crop than a year earlier (prices are no longer reported for wrapper tobacco). Most cigar leaf had been sold by early March, although Wisconsin binder markets are open through April 15. Wisconsin binder tobacco loan receipts through early April were 1.1 million pounds. Prices averaged $1.49 per pound for Northern Wisconsin cigar binder (type 55). Quality was good--about the same as last year. Southern Wisconsin binder (type 54) market information is not yet available. Some Wisconsin cigar binder was damaged by storms and not harvested. Overall cigar binder quality was very good. Connecticut binder prices have risen in recent years because of increased snuff production, and crops have been of good quality. Production in 1998 is expected to be up over 200,000 pounds because of increased acreage, rising for the second season. The Agricultural Statistics Board will release season-average prices and production data for the 1998 crop in May 1999. Overall, price support levels for this year's crop of cigar tobacco will rise 2.2 percent, less than last year's increase. Again this season, there are no price supports for Pennsylvania filler (type 41), Connecticut binder (types 51-52), or shade- grown tobacco (type 61). No-net-cost assessments for cigar binder types in 1999 will be announced shortly. High no-net-cost assessments for cigar filler types 42-44 have essentially eliminated production of these kinds. Growers of cigar filler and binder (types 42-44 and types 54-55) voted to accept quotas for the 1999-2001 crops at referenda held in March 1999. In separate referenda held March 1998, growers of Pennsylvania filler and Connecticut binder voted against marketing quotas for the 1998, 1999, and 2000 crop years. Supplies Decline Total supplies of U.S. cigar tobacco for this season are down 1 percent from the previous season. Production and beginning stocks were lower than the previous season. Carryin was lower for most types. Cigar filler supplies fell 3 percent, binder supplies fell 1 percent, and wrapper supplies rose 5 percent. Cigar leaf imports for consumption (duty paid) fell 23 percent, to 64.7 million pounds (declared weight) for calendar year 1998. Cigar wrapper, binder, and scrap arrivals all gained. On January 1, 1999, foreign-origin leaf stocks totaled 114.6 million pounds, up 6 million pounds from a year earlier. Domestic Use Declines Through the early 1980's, demand for domestically produced cigar filler and binder had declined as demand for loose-leaf chewing tobacco and cigars fell. Skyrocketing production of cigars since 1996 has increased the use of wrapper. However, overall cigar tobacco use continues to slide. Most cigar leaf is imported. In 1997, over 80 percent of tobacco used to make cigars and loose- leaf chewing tobacco was foreign-grown. U.S. cigar leaf use will not change much in 1999. Use will probably exceed 1998 production, so carryin may fall from the 33 million pounds available at the beginning of 1998/99. Cigar Filler and Binder Acreage Lower in 1999 Cigar filler and binder (types 42-44 and 53-55) acreage allotments for 1999 were lowered 1,060 acres. Based on March harvesting intentions, growers estimated cigar filler and binder acreage will fall about 22 percent from last year. However, based on the large reduction in allotments in 1999, actual production may be lower. Because of loan purchases in 1998, the no-net-cost assessment in 1999 will be 2 cents per pound for cigar binder (type 54) tobacco grown in Southern Wisconsin and 6 cents per pound for cigar binder (type 55) tobacco grown in Northern Wisconsin. Pennsylvania filler acreage is expected to fall about 2 percent, and binder acreage is expected down 3 percent. Connecticut binder (types 51-52) acreage is expected to increase nearly 200 acres, a little less than last year's gain, but Wisconsin binder (types 54-55) acreage is expected to fall 350 acres, according to March intentions. Shade-grown wrapper acreage will likely increase 200 acres due to strong demand for high-quality wrapper. Given average yields, cigar tobacco production in 1998/99 is expected to decline 4 percent from last year's crop. Combined with smaller carryover, supplies likely will decrease. Special Article U.S. Tobacco Farming Trends Tom Capehart 1/ 1/ Agricultural Economist, Economic Research Service, U.S. Dept. of Agriculture. Abstract: The number of farms growing tobacco in the United States dropped from 512,000 in 1954 to 89,706 in 1997. Of these, 65,755 were classified at tobacco farms because tobacco comprised at least 50 percent of sales. About 9.3 acres of tobacco were grown on all farms producing tobacco farm in 1997, compared with 6.7 acres in 1992. These farms averaged only 44 acres of harvested cropland and 150 acres of total farmland. Sales from tobacco farms averaged $44,000. Sixty percent of tobacco farms were owned by their operators, 29 percent were partly owned, and 11 percent were rented or leased. Key Words: Tobacco farms, tobacco acreage, farm characteristics. Introduction Total tobacco production grew from 300 million pounds in the mid- 1860's to over a billion pounds in 1909. Production continued to climb and topped 2 billion pounds as cigarette consumption grew. During the early 1900's production spread to several regions and appreciable acreage is now grown in 17 States. However, the location of tobacco production has changed little since the 1930's, when the tobacco production control program began. Techniques used for producing, harvesting, curing, and marketing have also been slow to change. However, during the 1960's, producers of flue-cured tobacco switched from the labor-intensive hand-tying of leaves to loose leaf preparation for marketing. Labor saving harvesting techniques such as mechanical harvesters were also adopted. In the 1970's burley tobacco was also sold loose on sheets. Recently, sales of baled burley have become more common. During the last season, flue-cured was sold in bales on an experimental basis. These changes have permitted increased acreage per farm and led to fewer, larger tobacco farms. The numbers reflect recently published data from the 1997 Census of Agriculture. This article describes changes in numbers of tobacco growers and summarizes characteristics of tobacco farms. Farms Producing Tobacco The number of farms growing tobacco in the United States fell from 512,000 in 1954 to 89,706 in 1997. Nine percent of the 77- percent decline occurred in the last 5 of the 43 years. In North Carolina, the major flue-cured growing State, farms growing tobacco dropped 92 percent, from 150,000 in 1954 to 12,100 in 1997. Fewer farms are growing more tobacco per farm because of changes in the tobacco program and technological changes. Between 1961 and 1987, lease and transfer of quota between farms within counties enabled tobacco acreage to be aggregated. Since 1982, sales of flue-cured tobacco quota within counties have been allowed and institutional holdings have been forbidden, both of which increased flue-cured farm size. Furthermore, new technologies, such as bulk barns and mechanical harvesters, greatly reduced labor requirements. A shift to selling all flue- cured untied in the late 1960's also hastened the consolidation in quotas and the reduction of farms growing tobacco. The number of producers in Kentucky, the major burley growing State, has declined significantly but not as dramatically as in flue-cured producing States. Mechanization has not been adopted on burley farms to the same extent because topography limits farm size and burley harvesting is more difficult to mechanize. Sales of burley loose on sheets did not begin until the late 1970's. In 1954, 29 percent of the farms that grew tobacco were in North Carolina. By 1997, the percentage had fallen to 13. Kentucky accounted for 27 percent of tobacco-growing farms in 1954. The percentage of farms growing tobacco that were in Kentucky increased to 50 percent in 1997. The relative decline in tobacco-growing farms in Kentucky was much smaller than in North Carolina. Similar changes occurred in other flue-cured and burley growing States. In 1997, tobacco per farm averaged 9.3 acres compared with 6.7 acres in 1992 and 2.7 acres in 1959 (table A-1). However, average tobacco acreage varied widely among States and types of tobacco. In 1997, average tobacco acreage per farm by State varied from 42.9 acres in South Carolina to 2.2 acres in West Virginia. Acreage also varies by tenure arrangements, topography, technology, competing crops, and availability of labor. Characteristics of Tobacco Farms About 80 percent of the farms that grew tobacco in 1997 were in North Carolina, Kentucky, and Tennessee. These States, along with South Carolina, Virginia, and Georgia, had about 90 percent of tobacco growing farms, slightly less than in 1992. These six top States comprised about 94 percent of total U.S. tobacco production. The Census of Agriculture does not provide information about all farms selling tobacco, only those termed "tobacco farms." An operation is considered a tobacco farm only if tobacco makes up at least 50 percent of its sales. In 1997, 73 percent of the farms that grew tobacco were classified as tobacco farms. They accounted for 65,755 of the 89,706 farms that grew tobacco, about the same proportion as in 1992. Tobacco farms are relatively small. They averaged 150 acres in size in 1997 and average cropland was 44 acres. Average tobacco acreage was 9.9 acres, up from 7.1 acres in 1992. Tobacco acreage per farm varied significantly among States. Burley tends to be grown on smaller farms due to labor requirements and the topography of the States in which it is grown. Farms in Tennessee (mostly burley) averaged 4 acres of tobacco, while those in South Carolina (all flue-cured) averaged 43 acres. The value of all farm products sold from tobacco farms averaged $32,700 in 1997, compared with $29,100 in 1992. However, the average ranged from $12,619 in Tennessee to $121,600 in Georgia. Also, there was considerable difference among States in the value of land and buildings, the market value of machinery and equipment, and expenditures on inputs per farm (table A-4). Sixty percent of tobacco farms were operated by full-owners, and 29 were operated by part-owners. Eight percent were operated by tenants. Full ownership was highest in States with smaller average tobacco acreage per farm, notably the burley-growing States. Flue-cured States had higher rental and tenancy rates (table A-5). Only 2.4 percent of tobacco farmers were non-white. The proportion of non-white growers was highest in South Carolina and lowest in Kentucky and Tennessee. Fifty-six percent of tobacco growers worked off-farm, about the same as in 1992. The proportion varied from 27 percent in Georgia to 61 percent in Tennessee. Growers with smaller acreage were more likely to work off-farm. The average age of tobacco growers in the United States in 1997 was 53.5 years. The average age was highest in Virginia and lowest in Kentucky. About 29 percent of operators were 44 or younger in 1997, compared with 32 percent in 1992. Twenty-four percent of tobacco growers were 65 or older in 1997, unchanged from 1992. Changes Since 1992 The number of U.S. farms growing tobacco fell 27 percent from 1992 to 1997, compared with 9 percent between 1987 and 1992. However, tobacco-growing farms fell 23 percent from 1982 to 1987. The decline accelerated in 1992-1997 because growers in Tennessee were allowed to lease and transfer quota across county lines beginning in 1991. The number of farms in Tennessee declined 35 percent while production in Tennessee declined only 23 percent. Sales of burley quota have been permitted since 1991, also contributing to aggregation of tobacco acreage in larger farms. Tobacco farms are larger in 1997 than in 1992. Average acreage increased because of aggregation and higher quotas. Value of land and buildings rose 53 percent. Value of products sold rose 42 percent due to higher tobacco prices and quota. The proportion of tobacco farms operated by full-owners in 1997 fell slightly from 1992 as the proportion of part-owners increased. The proportion of non-white operators was slightly lower. About 56 percent of operators worked off-farm, about the same as in 1992. The average age of tobacco farmers continued to rise, increasing .7 year from 1992 to 53.5 years. The 55-and-older group has increased while the 54-and-younger group has declined. Although the proportion of growers working off-farm declined between 1985 and 1992, it changed little from 1992 to 1997. Conclusions The number of farms growing tobacco declined rapidly during the last 40 years. From 1992 to 1997 farm numbers declined more than any other period since 1950 except one. This decline occurred despite a slight increase in acreage. The trend toward fewer larger farms will continue, but the rate of change will depend on several factors: policies and programs affecting tobacco, U.S. and world consumption of tobacco, and alternative crop and off- farm income opportunities for tobacco growers. END_OF_FILE