Lexington, KY - Most tobacco farmers will agree that staying in the business isn't easy these days. In fact, the number of tobacco producers has fallen from more than 40,000 in the late '90s to around 8,000 today.
The 2004 quota buyout bill helped many with that decision to leave the business, but for those who stayed, they most likely expanded their production, and getting top dollar out of their crop became paramount.
With that in mind, a new company is giving farmers another avenue in which to sell their tobacco.
The Burley Tobacco Growers Cooperative (BTGC) has launched the U.S. Growers Tobacco Company (USGTC) to give farmers an option in selling their crop when more conventional means are not suitable.
Most producers sell to large tobacco companies through yearly contracts. Unfortunately, many have seen those contracts shrink due to poor crop quality or a saturated market. The growers are also at the mercy of what the tobacco companies are willing to pay, a fringe benefit of a free market system that took over in 2004 with the buyout. Price supports in place before the buyout went away with that federal legislation.
Brian Furnish, who serves as general manager of the USGTC as well as the Burley Co-op, said over the last couple of years he has seen a situation in which farmers had more tobacco to sell once contracts had been fulfilled and felt the new company could be a way for producers to sell that extra tobacco.
"We thought this might be a way to let farmers move their tobacco without giving it away," he said. "We saw some really good tobacco last year that brought 75 to 80 cents a pound in clean-up sales, and we felt like it was better than that and that farmers ought to have the opportunity to do something with it."
The new company will grade the tobacco, process it and store it while producers wait for prices to become more favorable. In return, tobacco owners will pay USGTC 10 cents per green pound for the services, plus the normal storage and processing fees. Owners will be paid once their tobacco has been sold and processing and storage fees are deducted.
"We can't buy all the tobacco that might be available; we just don't have the resources. But we thought this was a service we could offer and it could help some farmers," said Furnish. "This isn't perfect for everybody because some people have to have their money, but we thought we would create this and see what happens."
Furnish also said that while other commodities can be stored on the farm for later sell, tobacco was harder to store.
"If farmers get to the point where they have exhausted all their opportunities to sell their tobacco and have not been offered a fair price for it, they can deliver it to us at no cost. We'll pay for the processing, storage and will insure it, and when it is sold at hopefully a better price when there is not a flood of U.S. tobacco on the market, then we will take out the cost."
Furnish added that the company will be able to search markets all over the world in order to find the best price for the tobacco.
If the USGTC seems familiar in a way, it could be that it works somewhat like the Burley Co-op of old did, when tobacco was pooled and sold at a later date. The main difference now is that farmers have to wait for payment instead of being paid upfront, and any kind of tobacco, including air and flue cured, can be stored instead of just burly.
Roger Quarles, a tobacco producer and president of the BTGC, said the venture has produced some questions, but that is to be expected.
"The tobacco market has always been subjective. It's like selling cattle at the stockyards, but you can run into situations where there are local markets that are far under-valued for a short period of time," he said. "This gives the person trying to sell tobacco an opportunity to properly store it and avoid those localized markets with distressed prices. Typically, that will show up at the end of the marketing season when contract stations close."
Quarles also said he expects to see some lower-quality tobacco that has been rejected by the contract stations, a situation that USGTC can work with. He noted that the global price of tobacco doesn't change drastically in a given time of year, like some other commodities such as corn can do. But corn farmers can store their corn on the farm in bins or at the grain elevator until those prices are better. Typically buyers shy away from tobacco that has been stored on the farm for any length of time, said Quarles.
"As far as the disadvantages to the program, of course the farmer cannot have money that day, but at the same time, we're issuing a certificate that will have a grade or quality on it and it will have the pounds on it," he said.
Quarles added that with the certificate in hand, it is the company's hope that a farmer could present that to a lender and convince them to make an equity loan against the crop. That's something lenders haven't warmed up to because, as Quarles put it, they don't fully understand the system yet.
"Quite frankly, this equity-type loan is far more secure, in our opinion, than the production loans issued to farmers at the beginning of a year, which are based on luck and a prayer," he said.
In an era when tobacco farmers are under more pressure than ever to fulfill their contract pounds or face getting their poundage reduced, the only way to guarantee fulfillment is to buy tobacco on the open market, if a producer comes up short, or over-produces, said Quarles.
"Most people over-produce in order to have their contract pounds, and then, of course, they have as much tied up in those overage pounds as in what they sold. This is an effort to get them back as much money as possible," he said of the new company.
While the new company is in its infancy, Furnish and Quarles are hoping to help tobacco producers sooner rather than later.
To schedule delivery time or to receive more information on USGTC, contact USGTC at (859) 231-9856.