TOBACCO YEARBOOK (December 1996) May 6, 1997 Approved by the World Agricultural Outlook Board ============================================================================ TOBACCO is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. TBS-237. Lotus 123 (.WK1) files contain the report's supplemental tables. Subscriptions to the printed version of this report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #TBS, $18/year. ERS-NASS accepts MasterCard and Visa. ============================================================================ Summary The U.S. tobacco crop is larger this year than last, and total supplies also increased despite smaller beginning stocks. Flue-cured prices set record levels because of lower than expected supplies due to Hurricane Fran, tighter world supplies, and higher price supports. Burley prices are also averaging a record high. Demand for this year's larger and higher quality crop was strong following last year's disease-plagued harvest. Flue-cured auctions closed on November 14, and prices averaged $1.837 a pound, 4.3 cents above last year. As measured by official grades, overall quality was a little better than last year and more tobacco was graded good or better. After Hurricane Fran, most grades brought $1.92 a pound. With higher prices and larger marketings, cash receipts rose about 8 percent this season. Flue-cured support prices were $1.601, up 0.4 cent from the previous season. Burley auctions began on November 25, and during the first 3 weeks of sales, prices averaged about 7.7 cents a pound higher than a year earlier. Burley supports were increased by 1.2 cents a pound this season. Total U.S. tobacco production this year is forecast at 1.55 billion pounds, 22 percent above 1995. Acreage was up 11 percent and yields advanced 10 percent. With beginning stocks down 4 percent, and estimated marketings up 10 percent, 1996 supplies are expected to advance 1 percent. Higher cigarette manufacturers purchase intentions and low loan stocks will result in higher quotas and increased 1997/98 production. U.S. tobacco use during 1996/97 will not exceed marketings, and next summer's ending stocks should increase from the 2.22 billion pounds of U.S.-grown tobacco carried into this year. U.S. cigarette consumption in calendar year 1996 is unchanged from last year. Output will increase to a record high to meet surging export demand. Cigar consumption is expected to gain 16 percent and snuff consumption may rise also, but chewing and smoking tobacco use continues to fall. During January-September 1996, U.S. exports of unmanufactured tobacco rose slightly from a year earlier, and total 1996 exports will likely exceed 1995's 209,469 metric tons (462 million pounds, or 615 million pounds, farm sales weight). During January-September 1996, unmanufactured tobacco imports (duty paid) surged 52 percent from a year earlier. The gain reflects higher imports of cigarette leaf and stems. General imports (arrivals) were up 85 percent. U.S. stocks of imported cigarette leaf and smoking tobacco rose 9 percent. Imports for consumption based on 9 months of data are estimated at 512 million pounds. Lower than expected domestic flue-cured marketings and the availability of cheaper foreign tobacco are behind the continued high imports. Since September 13, 1995, an annual tariff rate quota (TRQ) applies for certain imported tobaccos, primarily flue-cured and burley. The TRQ of 150,825 metric tons, about 333 million pounds, is viewed as being less constraining than the domestic content provisions that had been in effect. Although imports have risen dramatically since the TRQ became effective, 1997 imports should level off as stocks of imported leaf stabilize. During the first year of the TRQ, only about 70 percent of the quantity allowed was imported. The supply of U.S.-grown flue-cured tobacco for 1996/97 (July-June), about 2.06 billion pounds, is up 1 percent because of larger marketings. Higher use offset increased supply, so ending stocks are expected to slip 2 percent from last year's 1.19 billion pounds. The national (basic) flue-cured quota for 1997 was set at 974.4 million pounds on December 16, 11 percent above 1996 and the largest since 1982. The effective quota (reflecting adjustments for net under-quota marketings) is estimated at 1,021.1 million pounds, 8 percent higher than in 1996. Price supports will average $1.621 per pound, 2 cents higher. Basic quotas are higher because cigarette manufacturers increased purchase intentions and Stabilization (loan) stocks are very small. In addition, a 47-million-pound shortfall in 1996 marketings boosted effective quota further. The supply of U.S.-grown burley tobacco for 1996/97 (October-September) is estimated at 1.47 billion pounds, 2 percent above a year earlier. As of December 1, the 1996 crop was estimated at 572 million pounds. With only 16 million pounds of carryover on farms, marketings in 1996/97 are expected to total 560 to 580 million pounds. Farm carryover was substantially below that of a year earlier. By law, the marketing quota for burley must be announced by February 1, and acreage allotments for several other kinds by March 1. Tobacco Products Cigarette Consumption Steady; Exports Up With U.S. cigarette consumption steady and exports surging, 1996 cigarette production will increase, setting a new record for the second consecutive year (table 1). Export gains of 10 to 15 percent will boost cigarette production to a record 760 billion pieces. State taxable removals during January-July (the latest data available) totaled 269.8 billion cigarettes, about 1 percent greater than last year. Despite a growing number of prohibitions and restrictions on where people can smoke, higher cigarette taxes, and increased awareness of links between smoking and various diseases, cigarette smoking was unchanged in 1996. Consumption has remained relatively stable the last 3 years in part because retail prices have averaged lower since 1993. However, in 1996, the consumer price index for tobacco products exceeded 1993's level for the first time. Sales of low-tar, low-nicotine cigarettes rose sharply from 1970 to 1981, then declined from 60 percent of the market in 1981 to 52 percent in 1985. However, in 1995, low-tar, low-nicotine sales rose to 60 percent and are expected to hold steady or increase slightly in 1996. Retail prices of tobacco products were about 3.2 percent higher in October than a year earlier. Retail prices for all of 1996 will average about 3.2 percent higher than in 1995 and 2 percent higher than in 1993, exceeding 1993's level for the first time (including State and Federal excise taxes). Manufacturers had lowered wholesale premium-brand cigarette prices more than 25 percent in August 1993 because of declining market share of premium brands relative to discount brands. Since then, wholesale prices for premium brands increased 3 percent in May 1995, and another 4 percent in May 1996. Massachusetts and Washington were the only States that increased cigarette excise taxes in 1996. As of October, Massachusetts boosted its tax 25 cents to 76 cents per pack. Washington increased its tax by 1 cent in conjunction with an earlier increase. The weighted average State tax on cigarettes was 32.4 cents per pack of 20 in July. Rates currently range from 2.5 cents in Virginia, to 82.5 cents in Washington. Many cities and local governments also tax cigarettes, and 43 States impose sales taxes. Oregon's cigarette excise tax will rise from 38 cents per pack to 68 cents on February 1, 1997. The Federal excise tax has been 24 cents per pack since January 1, 1993. Use of Other Products Mixed Production of chewing tobacco declined slightly during the first 3 quarters of 1996 from a year earlier, but output for the year may approximate last year's 62.5 million pounds. Also, during the first 3 quarters of 1996, snuff production was about 2 percent above the same period in 1995, and consumption is also up. Taxable removals of large cigars (including cigarillos) totaled 1.08 billion during January-May (the latest data available), 16 percent above a year earlier. Year-end consumption may reach 2.9 billion cigars (table 2). Sales of higher priced cigars have rebounded the last 2 years because of positive publicity and changing demographics. Domestic use of smoking tobacco through September--including imports--was down from a year earlier. For all of 1996, smoking tobacco consumption is expected to fall 4 percent, compared with a 3-percent drop last year. Three States Take Action To Block Proposed FDA Regulations for Tobacco Virginia will join North Carolina and Kentucky in a legal challenge to block proposed Federal Food and Drug Administration (FDA) regulations of cigarette and tobacco product sales. North Carolina, Kentucky, and Virginia, States for which tobacco is the largest cash crop, claim the proposed regulations would have an adverse impact on their States' economies. Ingredient Disclosure Regulations Massachusetts officials announced proposed regulations implementing the State's tobacco disclosure law. The regulations are scheduled to take effect July 1, 1997, and require tobacco companies to: o file an annual report with the Department of Public Health that lists all additives for each brand sold in the State; o list the tobacco ingredients in descending order according to weight and quantity; include a nicotine rating system on cigarette packages, reporting delivery to average and heavy smokers. Legislatures in Texas and Michigan are considering similar measures. Federal Trade Commission Releases Report on Cigarette Sales, Advertising, and Promotion The Federal Trade Commission released its annual report on cigarette labeling and advertising in October. Promotion and advertising expenses by cigarette manufacturers declined from $6.03 billion in 1993, to $4.8 billion in 1994, the first decline in 8 years. Promotional allowances, magazine advertising, and specialty item distribution expenses were up, but declines in coupons and retail value-added expenditures were larger. Money spent giving cigarette samples to the public declined significantly in 1994. In 1993, $40.2 million was spent on distribution of samples, compared with $7 million in 1994. The report summarized trends in cigarette consumption and advertising and promotional expenditures. U.S. Exports and Imports Exports May Advance Slightly This Year Exports of unmanufactured tobacco (by weight) for calendar 1996 were slightly above a year earlier through September, and July-September shipments were steady (table 6). Exports rose in calendar 1995, and should increase further in 1996 due to tight world supplies and increased global consumption. Total 1996 exports will probably be between 475 and 500 million pounds, compared with last year's 462 million pounds (209,469 metric tons, equivalent to 615 million pounds, farm sales weight). In reporting to the Census Bureau's Foreign Trade Division in recent years, exporters have shifted certain partially processed exports from "unmanufactured tobacco" to the manufactured categories "smoking tobacco in bulk" and "smoking tobacco, not elsewhere classified." The last two categories, when combined with unmanufactured tobacco, accounted for about 28 percent of the total (by weight) through September, about the same as last year. Shipments of "smoking tobacco in bulk" rose 9 percent during January-September, but exports of "smoking tobacco, not elsewhere classified" were down 5 percent, resulting in little change for the two categories combined. These exports include what is often referred to as "cut rag" tobacco. For January-September 1996, exports of flue-cured, the principal export class, were down 9 percent. Exports of burley--the second most important export class--were up 5 percent. Exports of Maryland, Kentucky-Tennessee fire-cured, cigar leaf, stems, and "other leaf" were up. Exports of Virginia fire-cured and blackfat declined. Among major markets, shipments to Asia fell, while those to Europe advanced. Shipments to Africa declined sharply, but shipments to South America rose. There were no tobacco exports under USDA-financed programs this past year. Estimated world supplies (excluding China) are down in 1996. Higher domestic production of flue-cured and burley should boost 1997 U.S. leaf exports, if normal shipping patterns are followed. However, lower leaf prices of competitors and declining cigarette consumption in some major importing countries will have a dampening effect on exports. Imports Surge Under TRQ Through September 1996, total U.S. imports for consumption (duty paid) were 52 percent higher compared with a year earlier. Beginning September 13, 1995, an annual tariff-rate quota (TRQ) replaced the more stringent domestic content provisions for U.S.-manufactured cigarettes. Under the quota, imports of cigarette leaf jumped. The TRQ does not apply to Oriental and cigar tobacco. During the first year, 70 percent of the 333 million pounds allowed under the quota were imported. Through September, imports for consumption of Oriental leaf, the major import class, declined 34 percent after rising sharply for the same period last year. Unstemmed burley leaf imports advanced 56 percent; other stemmed leaf (mainly burley) jumped five-fold. Stemmed flue-cured advanced 150 percent, and unstemmed flue-cured gained slightly. Cigarette scrap imports were negligible. Both cigar leaf and scrap imports declined. January-September general imports (arrivals) of tobacco were up 85 percent (by weight). The major categories of cigarette tobacco, except unstemmed flue-cured, advanced. Stems surged four-fold. Cigar wrapper gained but other cigar types, including scrap, declined. U.S. stocks of foreign-grown cigarette and smoking tobacco rose over the last 12 months. On October 1, 1996, foreign stocks in the United States totaled 1,032 million pounds (farm sales weight), 9 percent above a year earlier. The proportion of flue-cured and burley in imported cigarette leaf stocks was about the same as a year ago at 70 percent. Tariff-Rate Quota Update President Clinton proclaimed a TRQ effective September 13, 1995 for certain imported tobacco, primarily flue-cured and burley. The proclamation also eliminated duties on Oriental and cigar wrapper, binder, and filler tobacco. Volume of tobacco imports for consumption under nine harmonized tariff subheadings, primarily flue-cured and burley, during the period from September 13 in any year to September 12 of the following year, are restricted to the quantities listed below: -------------------------------------------------------------- Country 1996/97 Imports through TRQ used quota Dec. 8 -------------------------------------------------------------- -- Million pounds -- Percent (Declared weight) Argentina 26.5 8.2 31 Brazil 176.8 22.9 13 Chile 6.1 1.4 22 EU 22.0 0.2 1 Guatemala 18.7 2.5 13 Malawi 26.5 11.4 45 Phillipines 6.6 0 0 Thailand 15.4 0.7 5 Zimbabwe 26.5 2.4 9 Other 6.6 6.6 1 Total 331.7 56.3 17 -------------------------------------------------------------- Imports from Canada, Mexico, and Israel are not included under quantitative restrictions because of existing free trade agreements. Tobacco imports above the quota level are subject to a 350-percent duty. The duty can be refunded if the same tobacco imported is used to manufacture cigarettes that are exported. Tobacco imported within the quota is also eligible for duty drawback against exports. Within quota duties are at rates set in the GATT Uruguay Round Agreement. With the proclamation of a TRQ, adjustments in budget deficit assessments became effective. Tobacco imports with the same or similar characteristics as domestic price-supported types are subject to the same budget deficit assessments as the like kind domestic crop. For tobacco types that are not under price supports in the United States, comparable imports are excluded from budget deficit assessments. These include Oriental and cigar tobacco (all cigar tobacco is excluded even though some types are under price support). U.S. Tobacco Leaf 1/ Situation and Outlook ------------- 1/ All quantities in this section are stated in farm sales equivalent, unless otherwise noted. ------------- U.S. production for 1996 is likely up 22 percent from a year earlier. Effective quotas were up 2 percent for flue-cured and 25 percent for burley. Total tobacco acreage is up 11 percent from a year earlier. Better growing conditions and less disease resulted in a 10-percent increase in average yields for all tobacco. Flue-cured yields gained 10 percent, and burley yields gained 11 percent (table 9). As measured by official grades, the overall quality of the flue-cured crop was slightly better than the crop of a year ago. Tobacco grading good or better gained 2 percentage points. Burley quality is probably better due to less blue mold. Both flue-cured and burley supplies are higher because of increased yields and acreage. Supplies of Maryland and fire-cured are up, but supplies of dark air-cured and cigar leaf continue to slip. Prices for all tobacco will average higher than a year earlier. Although the 1996 flue-cured crop is not as large as expected, increased yields partially offset crop damage from the two hurricanes and low farm carryover. Prices leveled off at $1.92 per pound after Hurricane Fran for most grades and stayed at that level for the remainder of the season. The volume of flue-cured tobacco placed under loan fell again this season to a new record low. Because manufacturers have agreed to purchase all 1990-93 flue-cured and burley loan stocks, holdings for these kinds have declined sharply from a year earlier. Higher prices and larger marketings mean that 1996 cash receipts rose from a year earlier. Net returns per acre for 1996 production also probably increased due to substantially higher yields. Marketing Quota and Allotments in 1997 The 1997 national basic quota for flue-cured tobacco is 11 percent above a year earlier. When undermarketings from 1995 are added, the effective quota (sum of individual quotas) is up 8 percent. Marketing quotas for flue-cured and burley in 1997 are set by totaling (1) intended purchases by domestic cigarette manufacturers for the 1997 crop; (2) average exports for the 1994/95, 1995/96, and 1996/97 marketing years; and (3) an adjustment to maintain loan stocks at the specified reserve-stock level of 15 percent of basic quota, or a minimum of 100 million pounds of flue-cured or 50 million pounds of burley. The five domestic cigarette manufacturers (each with more than 1 percent of U.S. production and sales) are required to submit a statement of flue-cured and burley purchase intentions to the Secretary of Agriculture 15 days before the national quota announcement deadline. Intended purchases of flue-cured in 1997 total 535.5 million pounds, up 13 percent from last year. Burley purchase intentions are due by January 15, 1997. For the 1997 flue-cured marketing quota, the three-component formula total is 1,003.9 million pounds, 12 percent higher compared with a year earlier. The Department of Agriculture used its discretion to lower the quota formula total by 3 percent. The 1997 quota was set at 973.8 million pounds, compared with 873.6 million pounds in 1996. The national acreage allotment was set at 466,379 acres, 11 percent above 1996. By February 1, USDA will announce the 1997 burley poundage quota and by March 1, it will announce the 1997 acreage allotments for other kinds of tobacco under the production control program. Growers of flue-cured, burley, fire-cured, dark air-cured, and Virginia sun-cured approved marketing quotas applicable to the 1997 crop in previous referenda. In March 1996, growers of Ohio filler and Wisconsin binder voted for marketing quotas for their 1996-1998 crops. Puerto Rican (type 46) quotas were ended after no growers voted in a referendum held in Puerto Rico in March 1996. Growers of Maryland, Pennsylvania filler, and Connecticut and Massachusetts binder turned down marketing quotas in their last referenda (1995), so Government price support is not available for their 1997 crops. Pennsylvania filler has never had marketing quotas. For Maryland, quotas last applied to the 1965 crop, and for Connecticut and Massachusetts binder, quotas last applied in 1983. Price Supports in 1997 USDA has set the 1997 flue-cured support at $1.621 per pound, 2 cents above 1996. The 1997 price support for flue-cured and burley (to be announced later) is the preceding year's support adjusted by changes in the 5-year moving average of prices, excluding the highest and lowest (two-thirds weight) and changes in a cost-of-production index (one-third weight). Costs include variable expenditures, but exclude costs of land, quota, risk, overhead, management, marketing contributions, and other items not directly related to tobacco production. The Secretary of Agriculture has discretionary authority to adjust the price support between 65 and 100 percent of the calculated increase or decrease. The 5-year moving average of prices and changes in a cost-of-production index increased the price support for flue-cured. Price supports for other types of tobacco have not yet been set for 1997. For types other than flue-cured and burley, maximum increases in supports will continue to be based on changes in the average parity index during the 3 previous years compared with 1959. But loan associations can request reduced support if market conditions warrant. For the 1997 flue-cured price support calculation (omitting high and low years), the 1992-96 prices averaged 171.6 cents a pound, 2.2 cents higher than the 1991-95 average. Using 10-year average yields to minimize the effects of weather, the cost of production in 1997 is estimated to have risen 4.8 cents per pound. The weighted average of the price increase and cost increase was 3.1 cents. Data in table A-1, showing estimated burley production costs for 1996, are expected to be used by the Farm Service Agency in determining cost components for the 1997 burley support price. The combined effect of price and cost changes likely will result in a burley support price in 1997 above that of a year earlier. The marketing assessment under the Omnibus Budget Reconciliation Act of 1990 will total 1.621 cents per pound (divided equally between growers and buyers for the 1997 crop of flue-cured tobacco). Importers of flue-cured tobacco will be assessed the full 1.621 cents per pound for imported tobacco. The marketing assessments for other kinds and no-net-cost assessments for all kinds will be announced later. Global Leaf Production Up Global leaf production in 1996, based on information available in November, is forecast at about 14.0 billion pounds (6.33 million metric tons), up 10 percent from last year's 12.7 billion pounds (5.7 million metric tons). Output is up in China, the United States, and Malawi, and down in India, Turkey, and Zimbabwe. World production of both flue-cured and burley increased in 1996. Oriental, dark air- and sun-cured, dark air-cured, cigar, dark fire-cured, and light air- cured production were all up. Flue-Cured Auction Prices Up in 1996 Prices for the 1996 flue-cured crop gained 2 percent over 1995, compared with a 6-percent increase the previous year. With larger volume, the value of producer sales rose about 7 percent from a year earlier. Loan placements set a record low for the second consecutive year at .2 percent of net sales, compared with 1.4 percent of net sales last year. Virtually no tobacco was placed under loan after Hurricane Fran. Consequently, purchases from this year's crop and 1995- crop farm carryover were 4 percent above those of a year earlier. Much of old-crop tobacco held by the Flue-Cured Tobacco Stabilization Corporation has been sold. Compared with the 1995 season, changes in prices of tobacco by grade and production areas varied. The season-average price, $1.837 for gross sales (including resales), is 4.3 cents above last year. Average prices were up 5.5 cents in the Georgia-Florida belt; 6.2 cents in the old and middle belt of North Carolina and Virginia; 2.9 cents in the eastern North Carolina belt, and 5.5 cents in the North Carolina-South Carolina border belt. Among the 55 markets having sales, season averages ranged from $1.80 to $1.89 a pound. With a larger effective quota, producer's marketings were 4 percent above last season. Auction and nonauction sales totaled 897.2 million pounds, 43 million above 1995. Despite little carryin and hurricane loss between 50 and 100 million pounds, sales were only 47 million pounds short of the effective quota. The overall quality of marketings in 1996 were slightly below the previous year as more leaf was classified as fair rather than good. There was a larger proportion of fair but less good quality tobacco. The share of low quality was unchanged. The share of lugs, primings, and nondescript tobacco increased slightly. Growers sold a larger share of ripe and mature tobacco throughout the belt. Little carryover from the previous year meant less upper stalk tobacco was marketed. Auction Sales The Georgia-Florida markets opened on July 23, the South Carolina border and North Carolina markets opened July 30, and the Northern markets (North Carolina and Virginia) opened August 1. The markets were open for 64 days, 6 more than in 1995. The maximum producer sales opportunity averaged about 80 million pounds a week. Since 1974, growers have designated warehouses where their crop will be sold, and the USDA Flue-Cured Tobacco Advisory Committee has recommended opening and selling schedules. Selling times have been allocated according to growers' designations. Growers could change their designations at the start of each month. Resales averaged 7.8 percent of gross sales, a little lower than in 1995. Again this season, there were no provisions for the Flue-Cured Stabilization Cooperative or warehouses to handle carryover tobacco. Only a small amount of tobacco remains on farms for sale next year due to destruction from Hurricane Fran. Export Volume May Decline Despite strong domestic demand, 1996/97 flue-cured exports may fall due to higher world flue-cured production and higher U.S. cigarette output. In the long run, price competitiveness of foreign tobacco, declining demand in major importing countries, and more efficient manufacturing processes will cause a downward trend in U.S. exports. Production in Argentina and Brazil will probably increase. Supplies Rise in 1996/97 Production increases more than offset slightly smaller carryin stocks, and the domestic flue-cured supply increased by 19 million pounds to 2.06 billion pounds, 1 percent above 1995/96 (table 16). The flue-cured outturn was 3 percent above 1995 marketings. Marketings in 1996 were about 5 percent higher than in 1995 because of the higher effective quota. Harvested acreage was up 7 percent, and yields gained 10 percent. This season's total disappearance may increase as domestic disappearance advances because of increased cigarette production. Exports may decline slightly. Next year's carryover may decrease slightly. The Flue-Cured Stabilization Cooperative sold 53.8 million pounds during January-October 1996, and loan receipts totaled only 1.8 million pounds. Loan receipts were 16 percent of last year's record low, setting another record low. By January 1997, unsold loan stocks will be about 6 million pounds, compared with the 59.7 million pounds held a year earlier. Manufacturers' purchases of all pre-1994 loan stocks are nearly complete. On December 16, USDA announced a national flue-cured marketing quota of 973.8 million pounds for 1997, 11 percent below a year earlier. The quota was in accordance with the three-part formula, adjusted by a discretionary 3 percent downward adjustment. The national acreage allotment was set at 466,379 acres, 11 percent below 1996. Acreage allotments and poundage quotas reflect 1996 undermarketings and overmarketings. The basic quota, plus estimated net undermarketings, make the 1997 effective quota about 1,020 million pounds, 8 percent above 1996. A crop close to quota, when added to prospective carryover, would provide a higher 1997/98 supply than this year. Foreign Flue-Cured Production and Sales This year's flue-cured production in Canada is estimated at 171 million pounds, unchanged from last year. Auctions opened on October 21, and by December 1, sales averaged Can$1.67 per pound, about 2 percent higher than a year earlier. The U.S. equivalent price was about $1.24 per pound. Brazil's flue-cured production gained about 4 percent in 1996, reversing last year's decline. Output in China is about 18 percent higher, but output in India may be down slightly. The 1996 flue-cured crop in Zimbabwe was 18 percent larger than the year before (table 19). Markets closed after 37 days with season prices averaging US $1.34 a pound, 38 cents above a year earlier. The higher average price reflects a continued drawdown in world supplies. Burley Burley Auction Prices Up Burley auction sales through December 12 totaled 330 million pounds (gross) and averaged $1.92 a pound. Including nonauction sales, growers sold about 56 percent of the crop during the first 3 weeks, 9 percent more than last year due to excellent moisture to bring tobacco into case for stripping and marketing. Sales are scheduled to resume January 6. Burley auction prices opened at record levels, and prices during the first 4 weeks of sales averaged about 7.7 cents a pound above a year earlier. Quality is better this year. Sales consisted of more fair and low quality leaf than a year earlier. More of the leaf was classified as tannish red and red. Price supports average $1.737, up 1.2 cents from last year. Loan rates by grade range from $1.00 to $1.82 per pound. Through December 12, loan receipts were nil, compared with 54,000 pounds a year earlier. Disappearance Rises in 1995/96 During the year ending September 30, 1996, burley disappearance totaled 551 million pounds, 12 percent below the previous year. Domestic use fell 17 percent and exports rose 6 percent. Germany and the Netherlands were the leading export markets. Based on the first 9 months of calendar 1996, Japan will sharply reduce its purchases of U.S. burley this year. Total U.S. burley disappearance may decline in 1996/97 because of greater use of imported burley. The decline will be cushioned by increased cigarette production and continued shipments of semi-processed tobacco. Burley leaf exports are expected to increase slightly due to the improved U.S. burley crop. Supplies Advance This season's burley supply, 1.48 billion pounds (estimated marketings plus carryover), is 2 percent above a year earlier (table 17). The 1996 crop, estimated at 572.3 million pounds as of December 1, is 19 percent above last year's marketings. About 16 million pounds of 1995 crop tobacco are available for sale this season. With about 590 million pounds of burley available for marketing, the effective quota of 720 million pounds will not limit marketings. This season's effective farm poundage quota was 25 percent above last year due to the poor 1995/96 crop. Growers increased planted acreage 20 percent, and yields are about 12 percent higher than a year earlier. With 1995 marketings falling short of use, carryover on October 1 fell 7 percent from a year earlier due to reduced loan stocks, the same scenario as the previous year. Again, manufacturer and dealer holdings rose slightly. Carryover next October 1 may increase slightly. Because of manufacturer loan stock purchase agreements, loan holdings will likely fall below 125 million pounds. The 1996/97 supply is about 2.6 times the probable disappearance, approximately the traditional benchmark level. In addition, manufacturers and dealers held 311 million pounds of foreign-grown burley on October 1, about 2 percent more than a year earlier. Decision on 1997 Quota Due by February 1 The 1997/98 outlook for burley hinges partly on the quota decision USDA is required to announce by February 1. Legislation requires that the national marketing quota be set by totaling (1) intended purchases by domestic cigarette manufacturers (to be submitted by January 15, 1997), (2) the average exports for 1994/95, 1995/96, and 1996/97 marketing years, and (3) an adjustment to maintain loan stocks at the reserve stock level. At USDA's discretion, the three-component total can be adjusted up or down no more than 3 percent. With this year's marketings expected to fall short of the effective quota, next year's effective quota will likely be above the basic quota. Southern Maryland Southern Maryland Disappearance Down During the year ending September 30, 1996, disappearance of Maryland tobacco was 16.2 million pounds, 1.5 million below a year earlier. Domestic use declined and exports gained from a year earlier. Sales to Germany recovered from the previous year, and Indonesia made a substantial purchase. Supplies of Maryland tobacco are up for the third consecutive year, advancing 7 percent. Supply in 1996/97 is up from 1995/96 because of higher production and beginning stocks. Total carryover on January 1, 1997 is expected to increase for the third consecutive year. The 1996 crop is estimated at 18.5 million pounds, 600,000 pounds above the previous season. The 1981 farm act provided for penalties for growing and marketing Maryland tobacco in quota areas. However, quotas are not applicable to Pennsylvania seed-leaf tobacco, and--because seedleaf prices are lower--some seedleaf growers are changing to Maryland tobacco. In 1996, about 35 percent of total Maryland tobacco production was in Pennsylvania, a little less than a year earlier. The supply for 1996/97 is about 30.9 million pounds, 1.9 million more than a year earlier. Auctions for the 1996 Maryland crop will begin in March in Maryland. Auctions for Maryland tobacco in Pennsylvania started December 11, with price bids averaging $1.65 per pound. Initial sales were slow as growers held out for higher prices. Fire-Cured Fire-Cured Auction Price Up Auctions for Virginia fire-cured (type 21) opened December 5, with prices the first 2 weeks averaging 15 cents more than last season's average. Prices were up dramatically due to lower stocks. Quality improved from a year earlier. During the first 2 weeks of sales, prices were 15 cents per pound higher than the same period last year. This is the fifth year price support has been available for Virginia fire-cured tobacco sold in bales. The 1996 Virginia crop is about 0.4 million pounds larger than last year due to larger yields. Auctions for Kentucky-Tennessee fire-cured (types 22-23) are expected to open in mid-January. Direct purchases (country sales) for Kentucky-Tennessee this year, as well as last, may represent a large part of total sales. The 1996 fire-cured crop is estimated at 43.9 million pounds, 4.7 million pounds or 10 percent larger than a year ago. Kentucky-Tennessee production probably increased about 4.3 million pounds because of higher yields. With slightly larger carryin and higher production, supplies of Kentucky-Tennessee fire-cured rose 4 million pounds from a year earlier. Based on recent use, supplies represent about 3.4 years use. On October 1, the beginning of the marketing year, Kentucky-Tennessee loan stocks were about 893,000 pounds below a year earlier. Disappearance varies from year to year, but it will probably not exceed 1996 production, so carryover next October 1 will be larger (table 23). Disappearance Higher Disappearance of fire-cured types in 1995/96 was 37.2 million pounds--about 0.8 million pounds above the previous season. Both domestic disappearance and exports of types 22-23 increased during 1995/96. Output of moist snuff was up, but plug chewing tobacco continued to decrease. In Malawi, the largest exporter of fire-cured tobacco outside the United States, 1996 production is probably nearly doubled, after advancing 60 percent in 1995. U.S. exports in 1995/96 fell slightly. Dark Air-Cured Dark Air-Cured Prices Up Auctions for One Sucker and Virginia sun-cured (types 35 and 37) opened December 2, and auctions for Green River tobacco (type 36) opened December 5. Prices opened 27 cents higher per pound for type 37, 21 cents higher for type 35, and 19 cents higher for type 36. Growers have received more for all three types than they did last season. Higher dark air-cured prices reflect a smaller crop and lower carryin. Quality improved compared with a year earlier. This season, much of the One Sucker is expected to be sold at auction. Loan receipts of dark air-cured (types 35-37) totaled 7,000 pounds for sales through December 12, compared with 17,000 pounds for a similar period last season. Carryover May Decline At an estimated 9.6 million pounds, the 1996 dark air-cured and sun-cured crop are about .9 million pounds larger because of increased yields, despite reduced acreage. The 1996/97 supply of dark air-cured (35-36), at 35 million pounds, is about 1 million pounds below 1995/96. Total supplies of dark air-cured represent about 3.5 years use, based on recent disappearance. Carryover to 1997 may decrease slightly because disappearance should exceed this year's higher production. Slightly lower stocks improved the supply-demand balance this year. Disappearance of dark air-cured tobacco during 1995/96 was 10.4 million pounds, 1.2 million higher than the previous marketing year. Moist snuff output was up, but other traditional outlets declined from a year earlier. Production of dark air-cured tobacco is considerably below 1980-85 levels. Snuff consumption rose, but other products that use this type of leaf (such as plug chewing tobacco) are decreasing, so domestic use could decline this season. Cigar Tobacco Supplies Decline Both production and carryover stocks are down, and supplies of U.S. and Puerto Rican (negligible) cigar tobacco are down about 5 percent from a year earlier (table 27). Reflecting a smaller crop, the two Wisconsin binder cooperatives took no tobacco for the second consecutive year. Both acreage and yield declined. Filler and binder production fell, and wrapper production was unchanged. Most U.S. cigar output is sold directly on farms or through cooperatives. As of early December, no sales of 1996-crop cigar binder or filler had been reported. Season-average prices for binder and filler will be published in the May 1997 USDA Crop Production report. Cigar wrapper prices are no longer reported. Smaller production and carryover reduced supplies of U.S. and Puerto Rican filler about 3 million pounds. Carryin was about 13 percent lower; and production fell 4 percent to 8.8 million pounds. Production of Ohio (types 42-44) and Puerto Rican (type 46) filler has ceased. Recent production and disappearance trends indicate that stocks of filler types 41-46 may continue to decline by the end of the 1996 marketing year. Supplies of Connecticut Valley wrapper tobacco for 1996/97 are about 400,000 pounds below last season. The cigar wrapper carryover next July 1 is expected to be similar to this year. For 1996/97, binder supplies are steady because carryover increased, offsetting lower production. Cigar binder disappearance totaled 11.2 million pounds last season, down about 0.2 million from a year earlier. Cigar binder's principal outlet is loose-leaf chewing tobacco. Binder disappearance has followed a cyclical pattern, and it may increase modestly this year because of higher loose leaf chewing production. During October 1995-September 1996, manufacturers imported less cigar tobacco than a year earlier--59 million pounds of imports for consumption compared with 83 million pounds in 1994/95. Stocks of foreign-grown leaf in the United States on October 1 totaled 80.1 million pounds, about 3.6 million below a year earlier. List of Tables Table 1. Cigarettes: U.S. output, removals, and consumption, 1950-96 2. Cigars: U.S. output, removals, and consumption, 1950-96 3. Smoking tobacco: U.S. output, removals, and consumption, 1965-96 4. U.S. output of specified tobacco products, 1950-96 5. U.S. cigarette exports to leading destinations, 1992-96 6. U.S. exports of unmanufactured tobacco by types and to principal importing countries, 1992-96 7. U.S. smoking tobacco exports, 1992-96 8. U.S. imports of unmanufactured tobacco for consumption and general imports, principal categories, and countries of origin, 1994-96 9. U.S. tobacco: Acreage and yield, 1994-96 10. Lease and transfer of allotments and quotas, 1979-96 11. Flue-cured and burley tobacco: Marketing quota and marketings, 1969-97 12. Flue-cured tobacco: Gross sales (including resales), average prices, and loan receipts by belt, 1991-96 13. Flue-cured tobacco: Percentage distribution of marketings by group and quality, 1987-96 crops 14. Flue-cured tobacco: Farm marketings by belt and across belts, 1996 15. U.S. flue-cured exports to principal countries, 1992-96 16. Flue-cured tobacco: Acreage, yield, marketings, stocks, supply, disappearance, and price, United States, 1950-97 17. Burley tobacco: Acreage, yield, marketings, stocks, supply, disappearance, and price, United States, 1950-97 18. Flue-cured and burley tobacco: Stocks and stocks utilization ratios, manufacturers and dealers, 1986-96 19. Flue-cured tobacco: Production in specified countries, 1992-96 20. Tobacco loan stocks, 1993-96 21. Burley tobacco: Gross sales, average price, and percentage sold before and after the Christmas holidays, 1981-96 crops 22. Maryland tobacco: Acreage, yield, production, stocks, supply, disappearance, and price, United States, 1950-96 23. Fire-cured tobacco, Kentucky-Tennessee types 22-23: Acreage, yield, production, stocks, supply, disappearance, and price, United States, 1950-96 24. Virginia fire-cured tobacco, type 21: Acreage, yield, production, stocks, supply, disappearance, and price, United States, 1950-96 25. Dark air-cured tobacco, types 35-36: Acreage, yield, production, stocks, supply, disappearance, and price, United States, 1950-96 26. Virginia sun-cured tobacco, type 37: Acreage, yield, production, stocks, supply, disappearance, and price, United States, 1950-96 27. Cigar tobacco, types 41-61: Domestic supplies, disappearance, and season-average prices, 1986-96 28. Tobacco: Acreage, yield, production, stocks, supply, disappearance, price, and crop value, United States, 1955-96 29. U.S. exports of unmanufactured tobacco by types to principal importing countries, crop years 1993/94-1995/96 30. U.S. and world production and exports of flue-cured, burley, and all unmanufactured tobacco, 1955-96 31. Cash receipts from tobacco as a percentage of cash receipts from crops and from all commodities, by State, 1994-1996 32. U.S. stocks of foreign-grown flue-cured leaf, by quarter, 1971-1996 33. U.S. stocks of foreign-grown burley leaf, by quarter, 1971-1996 34. U.S. stocks of foreign-grown Oriental leaf, by quarter, 1971-1996 35. U.S. stocks of foreign-grown cigarette leaf, by quarter, 1971-1996 36. U.S. stocks of foreign-grown cigar leaf, by quarter, 1955-1996 37. Wholesale cigarette price revisions, 1980-96 Statistical Summary Article Table A-1. Costs of producing and selling burley tobacco, 1994, 1995, and preliminary 1996 END_OF_FILE