By David Dugan, Ohio State University Extension
Tobacco production has been in a steady decline since the late 1990s in the United States, and Ohio has seen the same reduction in producers and acres of tobacco. The big change happened in 2004 when the mandatory “buyout” happened. The buyout ended the quota system that had been in place since the 1930s. The quota system was based on acres until the early 1970s when the quota was transitioned over to pounds. Quotas were tied to farms and considered an asset. Land owners who did not produce tobacco often leased their pounds to a producer wanting to grow more tobacco. Crop share production was very common, too. The “buyout” eliminated all of this. No more leasing, crop share or quotas.
The post buyout production is mainly direct marketing with tobacco companies. However, there are still some auctions in operation, which prior to the buyout was the standard method of marketing the crop. The direct marketing required a contract. In the short time that this has been the method producing and selling the crop, producers have seen some difficult and dark times.
The price for tobacco was significantly lower after the buyout. The average just prior to the buyout was in the $1.90 to $2.05 per pound range. In the next few years the price dropped to the $1.50 range. Keep in mind there was no lease to pay for additional pounds or crop share. Producers could produce as much as they wanted as long as they could get a contract. The contract did not guarantee a sale if the tobacco produced was low quality.
In 2010, the definition of low quality could be found in much of the crop. Tobacco has two seasons, one where it grows in the fields, and the second season is when it cures in the barns or other curing structures. In 2010 the second season was less than ideal to say the least. Tobacco needs alternating periods of wet and dry conditions to cure properly. In 2010 we had a very dry fall for most of Southern Ohio. The very dry curing season produced a low quality crop.
Some producers had lost contracts for one reason or another prior to 2010, but the low quality crop that year made things even worse. Many producers took their crop to market only to be told that the crop was not marketable. In time most of the crop was bought, but at a greatly reduced price. Several producers sold their crop for less than half of the production costs. Several producers decided that they had produced tobacco for the last time as a result of this. Many of those who stayed in production saw a reduction in the number of pounds offered on their contract. Some were not offered contracts.
In 2011, we saw just the opposite. The crop had much better curing conditions and the crop was in high demand. A number of producers were offered additional pounds for the following year.
In 2012, we are seeing an even higher demand, due to lower burley production in some parts of the world. Many producers are reporting prices at or above prices prior to the buyout in 2004. Tobacco is somewhat of a dry weather crop. A few timely rains will make a successful crop, and for most of the Ohio crop, 2012 had enough rain to produce a high yielding crop. Reasonably good conditions during curing have resulted in one of the better quality crops in recent years. The demand for tobacco is projected to remain strong in the coming year. Several producers have reported being offered additional contract pounds for 2013, however world production is also expected to increase, so prices in 2013 may not be as strong. As we move forward, the future tobacco market and prices will most likely not be as stable as they have been in the past. Global production will be more of a factor, just as it is with many other parts of production agriculture.