TOBACCO OUTLOOK – SUMMARY September 16, 2005 September 2005, ERS-TBS-259s 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 Plummets With End of Program U.S. tobacco production for the 2005 season was forecast at 644.3 million pounds as of September 1. After the passage of buyout legislation which terminated the tobacco program beginning with the 2005 crop, many growers have ceased tobacco farming or reduced acreage, waiting to gauge the market in the coming years. The crop is expected to be 27 percent below last year’s 879.2 million pounds. Acreage in 2005 is projected at 307,010 acres, 25 percent less than the 2004 season. Cigarette leaf production is expected to account for 91 percent of U.S. output in 2005 or 584.4 million pounds, compared with 816.8 million pounds during the 2004 season. Cigar types accounted for 1 percent, while dark-fired and air-cured leaf accounted for 8 percent. The termination of the tobacco program also ended the collection and dissemination of marketing information. At this time no data are available on the progress of tobacco sales. Quality of both flue-cured and burley are expected to be good but with wide areas of lower quality leaf caused by dry weather. Supplies of U.S.-grown tobacco in 2005 are expected to slip 12 percent from last season. The 25 percent drop in production is the pre-eminent factor in the supply slide. Beginning stocks were 4 percent lower. At an estimated 1.5 billion pounds, beginning stocks are expected to be about 4 percent lower than last season, the same decline as last year. U.S. leaf supplies at the beginning of the 2005 crop year are estimated at 2.1 billion pounds. Disappearance (use) of U.S.-grown leaf is expected to advance about 10 percent by the end of the 2004/05 marketing year to reach about 944 million pounds. The 84-million-pound gain is mostly due to increased domestic use, and imported tobacco use declined slightly. During late 2004, manufacturers began using greater volumes of domestic leaf relative to imports. Domestic use is expected to end at 542 million pounds, and export use is expected to be about 400 million pounds. Cigarette output in calendar 2004 slipped 3 percent to 388 billion cigarettes. Taxable removals ended the year at 492.6 billion pieces. Domestic consumption for 2005 is not yet available but expected to continue declining at a similar rate as previous years. Cigarette exports during the first 6 months of 2005 reached 53.8 billion pieces, compared with 65.4 billion during the 6-month period in 2004. Imports for January- June 2005 totaled 8.7 billion cigarettes, 20 percent below the same 6- month period in 2004. During 2005, 11 States raised cigarette excise taxes. Per capita consumption (18 years old and over) slid to 1,770 cigarettes in 2004 compared with 1,837 cigarettes the previous year. At the beginning of the flue-cured season, growers carried over 23.9 million pounds available for marketing from previous crops. Last year carryover was only 4.4 million pounds. With no quotas in effect, most tobacco is expected to be sold. The majority of leaf is being sold under contract to leaf dealers and manufacturers. In addition, Flue-cured Stabilization is operating 11 marketing centers where producers can market tobacco. Beginning flue-cured stocks on July 1, 2005, were 796.0 million pounds, compared with 822.8 million pounds on July 1, 2004. The total reported supply of U.S.-grown flue-cured in 2005 is about 1.2 billion pounds, 9 percent below the supply available at the beginning of the 2004 marketing year. As of September 1, burley production in 2005 is estimated at 192.3 million pounds compared with 292.2 million pounds last season. Acreage is 105,300 acres, 47,850 acres fewer than last season. Lower production and lower expected beginning stocks in October 2005 are expected to result in supplies of 699.1 million pounds, 15 percent below the previous season’s 820.1 million pounds. Burley disappearance during the 2003/04 year (October 2004-September 2005) is expected to advance 6 percent based on October-June trade data and September 1 production estimates. According to the September 1 crop production forecast, smaller crops are forecast for Maryland, dark air-cured, and cigar tobacco. Dark fire-cured leaf production advanced 7 percent, driven by increased production of snuff. For January-June 2005, leaf exports totaled 180.5 million pounds (267.4 million pounds farm-sales weight) about 2 percent below the same period last year. Again, most categories slipped with the exception of burley, which gained 39 percent to top 100 million pounds. Flue-cured shipments slipped 31 percent to 43.4 million pounds during the 6-month period, a larger decline than last year’s. Germany eclipsed Japan as the largest leaf buyer, even though its purchases were slightly lower at 22.6 million pounds. The Bureau of the Census reported 78 countries as destinations for U.S. tobacco leaf during July-June 2004. Imports for consumption declined 45 percent during January-June 2005 compared with January-June 2004, following a small decline the previous year. The period ended at 154.2 million pounds, compared with 279.5 million pounds last year. Value was $253.6 million, compared with $380.8 million the previous year. The Fair and Equitable Tobacco Transition Act of 2004 eliminates price supports and marketing quotas for all tobacco beginning with the 2005 crop year (July 2005 for flue-cured and October 2005 for other types). Mandatory inspection and grading of domestic leaf is also eliminated, and USDA market news reporting is terminated. For this reason, data on the ongoing flue-cured market, mostly sold through contracts, are limited.