Burley, like most of our agricultural enterprises, is produced in a global marketplace. Higher global grain prices in recent years have not only encouraged Kentucky and U.S. farmers to raise more grain, but corn and soybean producers around the globe. As a result of increasing global supplies, grain prices have predictably declined from the record levels we experienced in 2012. The global burley market has a similar story.
World burley production fell to a very low level in 2012, generating higher burley prices around the globe in 2012 and 2013 and not surprisingly, increases in global burley supplies. According to the Universal Leaf Tobacco Company, world burley production has expanded by almost one-third since 2012. But most of this growth has occurred in Africa, where burley output has almost doubled since 2012. Given that Africa is primarily a filler (low quality) leaf market, a short 2013 U.S. burley crop, and fairly constant South American burley production, expectations were that U.S. burley growers might continue to observe expansion opportunities in 2014.
It appears that in the midst of overall growing world burley supplies, coupled with very sluggish domestic demand, some companies are reportedly contemplating reducing U.S. burley contract volume in 2014. This may not be the case for all companies or for all growers as there is room to eliminate some “fictitious” contract volume that was never going to materialize in recent years. Preliminary signals that 2014 burley production opportunities may be reduced for some growers is certainly disappointing and surprising given how aggressive the buying interest has been in recent years in attempting to find more U.S. burley production. Perhaps a signal that lower cost/lower quality burley is finding its way back into cigarette blends in increasing amounts in the midst of overall declining global burley consumption.
- Will Snell, UK Agricultural Economist