TOBACCO OUTLOOK & SUMMARY September 19, 2006 September 2006, ERS-TBS-261s Approved by the World Agricultural Outlook Board ----------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. The complete report will be available electronically about 1 week following this summary release. ----------------------------------------------------------------- Leaf Production Rebounds During the second season since the termination of the program, U.S. tobacco production recovered, gaining nearly 100 million pounds. From a low point of 647.3 million pounds in 2005, production for 2006 is projected at 743.1 million as of September 1. Sharp post-buyout declines, caused by an exodus of producers, have been overtaken by growers expanding acreage in light of favorable prices and by some expansion in nontraditional growing areas. The crop is expected to be 15 percent above last season's. As of September 1, 2006, acreage is projected at 334,150 acres, compared with 298,080 acres last season. Cigarette leaf production is expected to account for 92 percent of U.S. leaf output in 2006, slightly higher than last season. Cigar types comprised 1 percent, while dark-fired and air-cured leaf made up 7 percent of the total crop. Production for 2006-07 is higher, but beginning stocks slipped by 250 million pounds, resulting in lower supplies for 2006. Supplies of U.S.-grown tobacco in 2006 are expected to slip 7 percent from last season. With production expected at 743.1 million pounds and stocks of 1,214.6 million, supplies are set at 1,957.7 million pounds. Disappearance (use) of U.S.-grown leaf is expected to decline 6 percent by the end of the 2005/06 marketing year to about 892 million pounds. The 60-million-pound loss is primarily due to a 100-million-pound decline in domestic use due to lower cigarette production and competition from foreign leaf. Export disappearance in 2006 advanced 40 million pounds, largely due to higher flue-cured shipments. Cigarette output in calendar 2005 continued long-term trends, slipping by 12 billion pieces to end at 489 billion cigarettes. Taxable removals ended the year at 363 billion. Domestic consumption for 2005 slid 12 billion pieces to 376 billion. For 2006, production is estimated at 496 billion pieces, up 1.5 percent from 2005 and the first production increase in 10 years. Taxable removals are expected to be close to 370 billion cigarettes and consumption is projected at 372 billion cigarettes. Based on January-June trends, exports are set to increase (for the first time since 1996) by 10 percent, to end at 119 billion pieces. Imports are projected to slip for the third year in a row, ending at 17 billion pieces. During 2006, 12 States raised cigarette excise taxes an average increase of 58 cents per pack. Per capita consumption (18 years old and over) slid to 1,691 cigarettes in 2006 compared with 1,716 cigarettes the previous year. With no quotas in effect, most of this season's flue-cured production, 454.7 million pounds, is expected to be sold under contract to leaf dealers and manufacturers. In addition, Flue-cured Stabilization is operating nine marketing centers where producers can market their tobacco. Beginning flue-cured stocks on July 1, 2006, were 604.0 million pounds, compared with 796.0 million pounds on July 1, 2005. The total reported supply of U.S.-grown flue-cured in 2006 is about 1,060 million pounds, 10 percent below the supply available at the beginning of the 2005 marketing year. As of September 1, burley production in 2006 is estimated at 224.6 million pounds compared with 203.4 million pounds last season. Acreage is 103,700 acres, 3,550 acres greater than last season. The 10-percent increase in production is largely due to excellent yields in the burley belts. Smaller beginning stocks in October 2006 are expected to result in supplies of 626.7 million pounds, nine percent below the previous season's 688.0 million pounds. Expected disappearance during the 2005-06 crop year will be between 285 and 290 million pounds. Domestic use slipped nearly 14 million pounds and export disappearance lost 27 million pounds. According to the September 1 crop production forecast, smaller crops are forecast for Maryland, dark fire-cured, and cigar tobacco. Dark air-cured leaf production advanced 36 percent due to a larger Kentucky crop. Exports during the calendar year-to-date rebounded 16 percent to reach 212.0 million pounds (311.5 million pounds farm sales weight), the highest January-June level since 2001. Flue-cured shipments nearly doubled for the period, stems advanced, and burley shipments, already at high levels, declined. Flue-cured shipments were 81.9 million pounds and burley shipments were 94.0 million. Germany, Switzerland, the Netherlands, and China were the top destinations. Japan, normally a major buyer, took only 11 percent of last year's shipment. The Bureau of the Census reported 72 countries as destinations for U.S. tobacco leaf during January-June 2006. Imports for consumption advanced 47 percent during January-June 2006 compared with January- June 2005. The 92-million-pound-gain was slightly larger than the 83-million-pound decline the previous year. The period ended at 289.4 million pounds, compared with 196.5 million pounds last year. Value was $390.7 million, compared with $306.1 million the previous year.