TOBACCO April 8, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- TOBACCO Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. TBS-234. Please note that this release contains only the text of TOBACCO--tables and graphics are not included. 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, $19/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Contents Tobacco Products U.S. Exports and Imports U.S. Tobacco Leaf Situation and Outlook Flue-Cured Burley Southern Maryland Fire-Cured Dark Air-Cured Cigar Tobacco Statistical Summary List of Tables Principal Contributor Tom Capehart Voice (202) 219-0890 FAX (202) 219-0042 Database Coordinator Graphics and Table Design Fannye Lockley-Jolly Design & Layout Wynnice P. Napper Approved by the World Agricultural Outlook Board. Summary released April 3, 1996. The summary of the next Tobacco Situation and Outlook is scheduled for release June 14, 1996. Summaries and text of Situation and Outlook reports may be accessed electronically. For details, call (202) 219-0515. The Tobacco Situation and Outlook is published in April, June, September, and December. See back cover for subscription information. Summary Tobacco Acreage Up 7 Percent In early March, U.S. tobacco growers indicated intentions to increase this year's plantings about 7 percent to 720,000 acres. With a 2-percent increase in the flue-cured effective quota, flue-cured growers expect to plant an additional 3 percent in 1996, or 398,000 acres. Burley tobacco acreage is expected to increase 14 percent to 280,000 acres, bolstered by a 25-percent increase in the effective quota and higher prices in 1995. A crop with average yields should produce 1.6 billion pounds, compared with 1.3 billion pounds in 1995. With lower beginning stocks, the overall 1996/97 supply of tobacco will change slightly from 1995/96. Price supports in 1995 will rise .4 cent per pound for flue-cured and 1.2 cents per pound for burley. Price supports for other types are up from 1.7 to 2.7 cents per pound. Before the marketing season begins, USDA sets grade loan rates for the various kinds of tobacco receiving support. The flue-cured no-net-cost assessment will again be relatively low in 1996 for producers and purchasers, and burley is likely to be low also. On January 1, 1996, off-farm stocks of U.S.-grown leaf were down 9 percent, but stocks of imported leaf were about the same as a year earlier. With an anticipated increase in domestic use and increased leaf exports, total use of U.S.-grown tobacco in 1995/96 should increase from a year earlier. Consequently, October 1, 1996 carryover stocks of all U.S.-grown tobacco will probably decline. Cigarette output rose 5 percent last year to 760 billion units, the highest ever. Domestic use increased slightly, and exports were up. U.S. smokers consumed an estimated 487 billion cigarettes in 1995, up slightly from a year earlier. However, annual consumption per adult declined by 7 cigarettes to 2,515 cigarettes. Both total and per capita consumption are expected to decline in 1996 because of higher taxes, health concerns, increased restrictions and prohibitions on smoking, and reduced social acceptance of smoking. The value of U.S. leaf and tobacco product exports in 1995 was $6.6 billion, down 1 percent from 1994 due to lower cigarette prices, in spite of an increase in volume of tobacco leaf and products. The value of exports exceeded imports (arrivals) by $5.9 billion. The record export surplus was up 1 percent from the year earlier, after rising 45 percent in 1994. Cigarette export volume rose 5 percent to 231 billion pieces with lower unit values. Exports of unmanufactured leaf were 462 million pounds (615 million pounds, farm sales weight). Leaf export volume should decline in 1996 because of lower U.S. supplies. The quality of the 1996 flue-cured crop will influence exports late in the calendar year. In 1995, unmanufactured tobacco imports (arrivals) fell 22 percent to 419 million pounds because of reduced cigarette leaf and stem imports. Imported leaf accounted for about 28 percent of total U.S. leaf stocks on January 1, 1996, slightly higher than a year earlier. Consumption of cigars, chewing tobacco, and snuff rose again in 1995, while consumption of smoking tobacco fell. Use of cigars and snuff may continue to increase, but use of other tobacco products besides cigarettes may decline. Disappearance of U.S.-grown flue-cured tobacco in the current marketing year is forecast slightly higher than last year's 915 million pounds. Domestic use and exports are expected to be higher. Disappearance in 1995/96 will likely exceed marketings, so the carryover of domestic flue-cured tobacco on July 1, 1996, may decline from the 1.2 billion pounds of a year earlier. Marketings in 1996 may increase from 1995's 854 million pounds. Disappearance of U.S.-grown burley tobacco in 1995/96 is expected to decline from 1994/95's 623 million pounds, with reduced domestic use and exports. Burley sales this season totaled 483 million pounds, 15 percent less than last season. USDA set this season's burley marketing quota at 634 million pounds, 15 percent above last year. The 1996 effective quota, which reflects last year's over- and under-marketings, totals about 724 million pounds, 148 million pounds more than last season. Individual farm acreage allotments were reduced 5 percent for dark air-cured, unchanged for Virginia fire-cured and Kentucky-Tennessee fire-cured tobacco, and increased 10 percent for Virginia sun-cured tobacco. The allotments were steady for Wisconsin binder and Ohio filler growers and zero for Puerto Rican cigar filler growers. Farm acreage allotments unused in recent years were adjusted downward. Prices for the 1995 crop were mostly higher. Maryland auction prices were up, cigar prices mostly steady, and fire-cured and dark air-cured auction prices advanced in 1995/96. Tobacco Products Domestic Cigarette Use and Exports Rise U.S. cigarette consumption increased slightly for the first time in over a decade. Consumption rose because, since 1993, lower retail prices more than offset the effects of prohibitions and restrictions on where people can smoke, publicity about relationships between smoking and health, and the declining social acceptance of cigarette smoking. Cigarette retail prices increased in 1995, but still remained lower than before the price adjustments of August 1993. Americans smoked an estimated 487 billion cigarettes in 1995, slightly more than in 1994 (table 1). Premium brand cigarettes gained market share as economy brands' market share fell from 33 percent to 30 percent in 1995. Exports rose 5 percent to 231 billion cigarettes. Shipments to the European Union (EU-15) increased. Shipments to Japan, the second largest destination, rose by 9 percent. Total cigarette export value declined 4 percent in 1995 due to lower unit values. With the higher export volume and the slight advance in domestic consumption, U.S. cigarette production rose an estimated 5 percent to 760 billion units, the highest ever. In 1996, domestic consumption may decline a li ttle as State taxes increase, and smoking restrictions and prohibitions become more widespread. Per capita consumption will likely continue to decline. Last year, per capita use by persons 18 and over averaged 2,515 cigarettes, down from 2,522 in 1994. Demand for U.S. cigarettes continues rising in the European Union and the Pacific Rim and will likely contribute to increased exports in 1996. The annual Economic Research Service (ERS) survey of manufacturers indicated that filter-tip cigarette production rose to 98 percent of total output in 1995 from 97.9 percent in 1994. The gain was concentrated in the 100 millimeter filter-tip size, which made up about 35 percent of 1995 output (table 3). Cigarette Prices and Some State Taxes Increase Last year, manufacturers increased wholesale cigarette prices in May for premium and deep discount brands by $1.50 per 1,000 cigarettes, a 3-percent gain. But wholesale prices are still well below pre-August 1993 levels and the price increase is not expected to affect consumption significantly. Wholesale premium cigarette prices are now $57.45 per 1,000, including Federal tax. Eight States raised taxes an average of 14 cents a pack of 20 in 1995. State cigarette tax rates weighted by packs taxed averaged 31.4 cents a pack in December 1995, 7 cents above a year earlier. Legislative proposals for tax increases in 1996 exist in several States, most notably Hawaii, New Hampshire, and Oregon. The governor of Utah recently vetoed a bill to raise that State s excise tax by 4.5 cents per pack. The Federal excise tax remains at 24 cents per pack. Litigation Activities Six States, Massachusetts, Florida, Louisiana, Mississippi, Minnesota, West Virginia, and most recently, Texas have filed suits to recover the Medicaid costs associated with treating patients with alleged smoking-related illnesses. For the first time, a major manufacturer agreed to settle two suits. One is a large class-action suit filed on behalf of every U.S. smoker and the other involves 5 States (those listed above except Minnesota and Texas) seeking reimbursement for costs of treating smoking-related illnesses. The manufacturer agreed to payments over a number of years. In addition, the company would phase in some of the measures proposed by the Food and Drug Administration (FDA) in an effort to curtail teenage smoking. FDA Reopens Docket for Comment The FDA recently reopened the public docket on the agency s proposed rule to restrict the advertising, promotion, marketing, and sale of tobacco products. A notice and proposed rules on the reopening appeared in the March 20 Federal Register. FDA says it reopened the docket receiving additional information about cigarette industry practices with respect to nicotine in cigarettes. Patent Issued for New Tobacco Use An extract made from the tobacco plant has been found to be an effective rust inhibitor. The powder resulting from the distillation of tobacco compounds can be mixed in paint or dispersed in solutions such as antifreeze. This plant-based product may have potential for reducing rust inhibitor costs compared with those currently in use. Cigar Smoking Increases; Smoking Tobacco Use Declines Use of large cigars (including cigarillos), rose again in 1995, advancing 10 percent, the highest level since 1987. Last year, U.S. smokers consumed about 2.6 billion large cigars. Production of small cigars, those using less than 3 pounds of tobacco per 1,000 cigars, is estimated at 1.4 billion pieces, 2 percent above 1994. Overall cigar use may continue to rise. Cigar smoking has been publicized as a popular activity and, in larger cities, some restaurants now feature cigar smoking sections. Smoking tobacco consumption last year totaled about 15 million pounds, 1 percent below 1994. Sales (including imports) of pipe tobacco (the major category) and smoking tobacco for roll-your-own cigarettes both declined in 1995 (table 8). Smokeless Use Increases In 1995, smokeless tobacco use advanced slightly (table 5). Moist snuff and loose leaf chewing consumption rose enough to offset declines in plug chewing and dry snuff use. Part of the rise in snuff consumption probably results from substitution of this product for cigarettes because of increased smoking restrictions. U.S. Exports and Imports U.S. Tobacco Trade Balance Reaches Record The United States is among the largest tobacco leaf exporters and is the leading importer. During 1960-64, the United States exported about 30 percent of its tobacco output, but by 1990-95, exports averaged only 13 percent of leaf production. The U.S. share of world leaf exports fell from 28 percent in 1970 to about 12 percent in 1995. U.S. exports of unmanufactured tobacco and tobacco products were valued at $6.6 billion in calendar 1995, slightly lower than 1994 s record. The figure includes unmanufactured tobacco worth $1.4 billion and products valued at $5.2 billion. Leaf export value rose slightly, but the value of products declined a little. The overall volume of both unmanufactured and manufactured exports increased. Tobacco export value was almost steady compared with the previous year. Cigarette export value declined due to lower unit value, despite higher volume. Combined with an 8-percent gain in leaf export value, the result was a $50-million decline in overall export value. The relative share of cigarettes going to Asian and European countries was unchanged at 51 and 42 percent, respectively. The Bureau of the Census recorded 111 countries as destinations for tobacco leaf and products in 1995. U.S. tobacco general imports (arrivals) fell 16 percent in value to $739 million, and with little change in export value, the trade surplus rose to $5.9 billion The trade surplus was slightly greater than 1994 and, the largest ever for the second consecutive year. Until the surplus of $5.8 billion in 1994, the previous record trade surplus was $5.7 billion in 1990 (table 10). Leaf Tobacco Export Volume Rises in 1995 U.S. exports of unmanufactured tobacco in 1995 advanced 6.4 percent over a year earlier to 462 million pounds (209,560 metric tons), the highest since 1992 (table 11). Lower shipments to Asia were offset by higher shipments to all other regions. On a farm-sales weight basis, leaf exports increased 44 million pounds to 615 million pounds. Exports of flue-cured, cigar types, and other unmanufactured leaf advanced. Shipments of burley, Maryland, Kentucky-Tennessee fire-cured, Virginia fire and sun-cured, and cigar leaf declined. European markets, which typically buy more than half of U.S. leaf, increased their purchases 16 percent. Leaf shipments to Asia (including Middle Eastern countries) declined 5 percent. Africa increased purchases by 69 percent or 4.6 million pounds. U.S. leaf exports will decline in calendar 1996, partly depending on the quality of the upcoming 1996 flue-cured crop. Ample world supplies, improved quality of foreign tobacco at competitive prices, and reduced or slower growth of cigarette sales in several countries, could limit U.S. export prospects. For the 14th time in 15 years, Japan was the leading buyer of U.S. tobacco in 1995 followed by Germany, the 1988 leader. However, Japan decreased purchases 15 percent while Germany boosted purchases 31 percent in 1995. The Netherlands and Turkey were the third and fourth largest markets. Turkey rose from 15th place 5 years ago due to the popularity of a locally produced blended cigarette using U.S. flue-cured and burley. Thailand was the fifth largest market, Italy the sixth, Denmark the seventh. Switzerland rose from 25th to ninth, more than doubling purchases, with stems and refuse accounting for most of the gain. Exports to Taiwan declined, falling from sixth place in 1994 to 12th in 1995. Other major markets in 1995 included the United Kingdom, Korea, Spain, and Malaysia. In 1995, export volume of flue-cured tobacco advanced 15 percent due to the good quality of the crop. Flue-cured export value gained 16 percent, contributing 62 percent of total U.S. unmanufactured export value. Europe increased its takings 37 percent by volume, but Asia took slightly less. Calendar 1995 burley exports fell 5 percent on smaller purchases by Europe and Asia. Maryland exports continued to decline, with volume falling 11 percent. Kentucky-Tennessee fire-cured exports fell by half, reversing a rising trend. Virginia fire- and sun-cured exports continued to decline, with volume about half of 1994. Imports Down Total duty-paid imports of tobacco for consumption fell 22 percent in calendar 1995 to 419 million pounds, half the decline of the previous year. Cigarette leaf imports fell due to the limit on foreign tobacco content in U.S. cigarettes. Imports for consumption represent withdrawals from bond and duty-paid releases for immediate manufacture upon arrival. The United States imported less cigarette leaf, cigar scrap, and stems, and more Oriental, cigarette scrap, and cigar leaf. Cigarette leaf import volume (consumption) fell 49 percent, with big declines for flue-cured and burley, as Oriental advanced. Stemmed flue-cured fell 57 percent, and stemmed cigarette leaf, not specially provided for (mostly burley), fell 61 percent. Oriental leaf rose 85 percent. The drop in cigarette leaf imports in 1994 and 1995 followed 4 years of increases. Imports declined beginning in 1994 through September 13, 1995 because manufacturers faced stiff penalties if they exceeded 25 percent foreign content of total leaf and stems in U.S.-manufactured cigarettes. Also, ample stocks of foreign-grown leaf were on hand. General import volume of unmanufactured tobacco (direct entry plus placements in bonded warehouses for later factory use) fell 24 percent in 1995. The decline occurred in all cigarette leaf categories, cigar scrap, and stems. Cigar leaf and cigarette scrap arrivals were up. U.S. stocks of imported cigarette tobacco were up 2 percent on January 1, 1996 from a year earlier (table 15). Imported flue-cured stocks rose 8 percent, and burley stocks fell 3 percent. Oriental stocks fell 10 percent. Higher imported leaf stocks reflect reduced use due to domestic content provisions. Imported cigar leaf stocks rose 14 percent. Tariff-Rate Quota Activity President Clinton proclaimed a tariff rate quota (TRQ) effective September 13, 1995, for certain types of imported tobacco, primarily flue-cured and burley. The proclamation also eliminated duties on Oriental and cigar wrapper, binder, and filler tobacco. The total quantity allowed under the TRQ is 331.7 million pounds, declared weight. Through March 24, 1996, 29 percent of the total quota had been imported. Tobacco imports above the TRQ are subject to a 350-percent duty. U.S. Tobacco Leaf Situation and Outlook 1/ Domestic Supplies Increase With production in 1995 down 16 percent from 1994, a smaller carryover lowered the supply of domestic leaf for the marketing year (July-June for flue-cured and October-September for burley and other kinds) to 3.7 billion pounds, 6 percent below a year earlier. On January 1, 1996, domestic leaf stocks were 10 percent above a year earlier. However, by the end of the current marketing year, stocks may be higher than the 2.3 billion pound carryover on July 1, 1995 (October 1 for burley and other kinds). 1/ All quantities in this section are in farm sales weight unless otherwise noted. Years refer to marketing years; July-June for flue-cured and cigar wrapper (type 61) and October-September for all other types, unless otherwise noted. With larger effective quotas in 1996, growers are expected to increase flue-cured acreage 3 percent and burley acreage 14 percent. With average yields, U.S. production could total 1.6 billion pounds, 23 percent higher than last year. Including on-farm holdings, marketings of flue-cured are expected to increase 5 percent (table 25). Burley marketings are expected to advance about 22 percent. Production of fire-cured and dark air-cured will likely decline some. Maryland and cigar tobacco are expected to gain. All tobacco types other than Maryland, Pennsylvania filler, Connecticut binder, shade-grown wrapper, and Perique are under quotas. Individual Kentucky-Tennessee fire-cured allotments and Virginia fire-cured allotments are unchanged in 1996. Individual Virginia sun-cured allotments are 10 percent higher, and individual dark air-cured allotments are reduced 5 percent. Individual cigar filler and binder allotments were unchanged. Also, Puerto Rican cigar filler allotments were unchanged at zero acres. Acreage allotments unused in recent years were adjusted downward. USDA's Prospective Plantings report indicated that growers plan to set 720,000 acres of tobacco in 1996, 7 percent more than a year ago. Last year, intentions were 1 percent more than the final harvested acreage. In 1994, intentions exceeded harvested acreage by 2 percent. During 1990-93, intentions were within 1 percent of the final harvested acreage, and should be close again this year. Costs Expected To Rise Production and marketing costs of flue-cured tobacco will probably increase in 1996 as costs of most inputs likely will rise. Total costs (excluding land, quota, and the no-net-cost and marketing assessments) are expected to rise 2 to 4 percent from a year ago. Variable costs are expected to rise a similar amount. With higher quota levels, quota rental rates may have stabilized. Burley costs are expected to increase by a similar amount. Since lease and transfer of flue-cured quotas were eliminated in 1988 (except when a farm experiences a natural disaster), growers have used other options to obtain quotas. These options include: (1) cash or share renting the quota and growing the tobacco on the farm to which the quota is established; (2) purchasing quota; and (3) combining more than one farm into a single farming unit. To combine farms, the operator must have complete control over the entire farm operation. Also, the same accounting system and management must be used on all tracts. Furthermore, the rental agreement must last more than 1 year and include a rotation of one or more program, allotment, or other crops among tracts. Since 1991, burley growers can both lease and transfer and purchase quota within counties throughout the belt. Furthermore, since 1991, Tennessee growers can lease and transfer burley quota across county lines within the State. Price Supports and Assessments in 1995 Price supports are available to eligible growers through government loans to producer associations. To be eligible, producers must pay assessments to the no-net-cost account established by the associations. For flue-cured and burley tobaccos, producers and buyers share these assessments. Growers of other kinds pay the full amount. In addition, since 1991, growers and purchasers of tobacco under the price support program are required to pay a marketing assessment. Grower and buyer contributions at 1 percent of the loan rate are divided equally. Growers must also certify that any pesticides applied to the tobacco crop were EPA-approved and used according to label directions. To obtain price support for flue-cured tobacco, USDA requires growers to designate a warehouse where they intend to sell the tobacco. Growers of flue-cured tobacco approved marketing quotas through the 1997 crop in a mail referendum in January 1995. Growers of burley approved marketing quotas on their next three crops during February and March 1995. However, growers of Maryland, Pennsylvania filler, and Connecticut binder (types 51-52) will have no supports because they turned down marketing quotas last year. Virginia sun-cured growers approved marketing quotas, so price supports will be available for their 1995, 1996, and 1997 crops. Growers of Virginia fire-cured, Kentucky-Tennessee fire-cured, and Kentucky-Tennessee dark air-cured, approved marketing quotas for the 1996 crop in previous referenda. Growers of Wisconsin and Ohio filler and binder voted in March 1996 to accept quotas for the next three crops (1996, 1997, and 1998). Growers of Puerto Rican filler voted in March 1996 to reject quotas for the same period. Under the Omnibus Budget Reconciliation Act of 1990, the marketing assessment has been set at 1.601 cents per pound for flue-cured and 1.737 cents for burley (divided equally for growers and purchasers). The marketing assessment ranges from 1.101 cents per pound for Wisconsin binder to 1.518 cents for Kentucky-Tennessee dark fire-cured tobacco (table 20). The no-net-cost assessment for 1996 has been set only for flue-cured tobacco. The 1996 flue-cured assessment totals 0.1995 cent per pound for producers and .9995 cent per pound for purchasers. The Agricultural Act of 1949, as amended in 1986, requires that producers and purchasers share equally in no-net-cost assessments, to the extent possible, in maintaining the no-net-cost account for 1985 and subsequent crops of flue-cured and burley tobacco. The flue-cured purchaser assessment is more than the producer assessment because purchasers did not pay assessments for the 1985 crop of flue-cured and burley tobacco, and additional purchaser assessments are needed to equalize contributions of the two groups for flue-cured. In addition to the no-net-cost assessment, producers and buyers are required to pay a marketing assessment which has been set at 1.601 cents per pound divided evenly between the producer and purchaser. The burley marketing assessment totals 0.8685 cent for both producers and purchasers. No-net-cost assessments for the other kinds of tobacco will be announced later. USDA has set the 1996 flue-cured support level at $1.601 per pound, .4 cent above 1995, and the burley support at 1.737, 1.2 cents above 1995. The price support for flue-cured and burley is calculated using the amount for the preceding year, adjusted by changes in the 5-year moving average of market prices, excluding the highest and lowest (two-thirds weight) and changes in a cost-of-production index (one-third weight). For other types, maximum support rates continue to be based on changes in the average of the parity index during the 3 previous years compared with 1959. But loan associations can request reduced support if warranted by market conditions. Supports for other kinds of tobacco are up 1.7 to 2.7 percent in 1996. Tobacco Tested for Pesticides Pesticide use has been restricted on U.S. tobacco for many years. The Food Security Act of 1985 extended the adherence standards. It requires USDA to inspect U.S.-produced flue-cured and burley tobacco for improper use of pesticides. The pesticide residue sampling program for 1995 emphasized testing for proper use of maleic hydrazide (MH) on flue-cured tobacco. The program revealed that MH residues have fallen to 100 parts per million (ppm) in 1995 from 103 ppm in 1994, and 117 in 1993. Residue levels of MH fell partially due to tank mixing of MH with other chemicals for more effective application. Burley test results are not available. Crop Insurance Required To Receive Price Support The Federal Crop Insurance Reform Act of 1994 requires all farmers to buy "catastrophic" crop insurance at a rate of $50 a crop in order to receive price supports, including tobacco, or sign a waiver declining disaster payments. Farmers with multiple crops pay a maximum of $200 if their farm is limited to one county. The new program replaces Federal disaster relief programs. Flue-Cured Disappearance Likely To Increase Total disappearance of U.S.-grown flue-cured tobacco (types 11-14) will likely increase in 1995 from last season's 915 million pounds (table 25). During the first half of the marketing year (July-December 1995), domestic disappearance was 16 percent above a year earlier. Export volume increased 21 percent during the same period. Domestic use may be lower during the second half of the marketing year (January-June 1996) than a year earlier because of increased imports of flue-cured under the tariff-rate quota. Domestic use for the marketing year may decline slightly from last season. Flue-cured exports during the first 6 months of this marketing season were higher than last season, with European countries taking more but Asian countries taking less. July-December exports were 185 million pounds (farm sales weight). Exports during the last 8 years have remained below the 1984-86 average because of reduced demand, ample supplies of foreign leaf, and a change in the classification that manufacturers declare for exports of processed or semi-processed blends. Manufacturers began declaring the blends as manufactured tobacco products in the mid-1980's, rather than as flue-cured leaf. January-June 1996 leaf exports will likely advance from a year earlier, and will be somewhat higher or stable for the entire 1996 marketing year. Carryover May Rise Disappearance in 1995 exceeded marketings. Consequently, the flue-cured carryover on July 1, 1996, is projected to increase slightly from the 1,187 million pounds of July 1, 1995. Manufacturers and dealers increased purchases from loan stocks from 17.9 million pounds to 253 million pounds in calendar 1995. But, sales have picked up because in early December 1994, manufacturers agreed to purchase about 300 million pounds of pre-1994 loan stocks by 2001. During July 1995-February 1996, 30.0 million pounds of tobacco were sold from loan (stabilization), compared with 181.2 million pounds a year earlier. By March 1, unsold loan stocks had fallen 30 percent from a year earlier. Crop Projected To Rise in 1996 Despite a 7-percent decline in the basic flue-cured quota, the effective quota is up about 2 percent due to undermarketings in 1995. The effective quota is 943.6 million pounds and was obtained by subtracting net overmarketings, adjusted by the Secretary s option to set the quota at the lower end of the allowable range. The change from last year's effective quota ranged from an .8-percent decrease in the old and middle belts of North Carolina and Virginia, to a 6.8-percent increase in the Georgia-Florida belt. Based on the effective quota, somewhat larger marketings are expected in 1996. According to the March planting intentions, 398,300 acres will be grown, 3 percent above last year. On this acreage, a normal yield would produce about 896 million pounds, about 95 percent of effective quota. Growers will probably market about 900 million pounds, 95 percent of the effective quota. In 1995 and 1994, growers marketed 101 percent of poundage quota compared with 100 percent in 1992 and 1993. The projected flue-cured marketings, plus anticipated carryover, indicates that the 1996/97 supply is expected to decline a little from the 2.0 billion pounds available in the current marketing year. This represents about 2.3 years' use, about the traditional benchmark level. Foreign Situation Canadian flue-cured auction markets exceeded the 90-day season of last year. As of March 22, the volume of flue-cured tobacco sold through the Ontario Flue-cured Growers Board during the 1995/96 season totaled 137.2 million pounds. The average price was Can$1.66 (US$1.22) per pound, compared with Can$1.63 (US$1.16) per pound for the season last year. Zimbabwe's flue-cured production in 1995 was about 440 million pounds, up 18 percent from 1994. Zimbabwe s flue-cured auction closed October 6, 1995. Prices averaged US$.96 per pound, 18 cents above a year earlier. The higher price may reflect some drawdown in world supplies. Indications are that 1996 production may increase to around 460 million pounds (farm sales weight). Brazil's output of flue-cured tobacco in 1996 will be about 700 million pounds (farm sales weight), up from last year's 637 million pounds, and only about three-quarters the 944 million pounds produced in 1993. Brazil's improved output stems from higher yields and increased plantings. Uncertainty about U.S. imports of Brazilian leaf still exists and may be tempering prospects for growth somewhat. Burley Basic Quota Up, and Production to Rise The 1996 basic quota for burley tobacco totals 633.8 million pounds, 15 percent above 1994. Marketings in 1995/96 from the 1995 crop and 1994 carryover tobacco totaled about 483 million pounds, 15 percent below 1994. Allowing for overquota and underquota marketings last season, the 1996 effective quota totals about 724 million pounds, 148 million more than a year earlier. This year's support has been set at $1.737 cents per pound, 11.8 cents below the 1995/96 average market price. Around March 1, farmers said they intended to set 280,000 acres, about 14 percent more acreage than last year. Preliminary data indicate that in 1995/96, growers marketed 83 percent of their effective quota. They marketed 84 percent in 1994/95, 87 percent in 1993/94, and 84 percent in 1992/93. Of the two major growing States, undermarketings were somewhat greater in Tennessee than in Kentucky. In 1995/96, Tennessee marketed about 65 percent of its quota, compared with 92 percent in Kentucky. With normal yields, 1996 production will reach 588 million pounds, up 22 percent from 1995 net marketings. Quota should be sufficient to market available tobacco produced in 1996. Supply Falls in 1995/96 The 1995/96 domestic supply was 1.44 billion pounds on October 1, 9 percent below a year earlier (table 25). The supply equals about 2.4 times the estimated disappearance, about the traditional bench-mark level and in line with recent years. By last October 1, the total carryover held by manufacturers and dealers had risen, but stocks held by cooperatives fell 16 percent. The two grower loan associations took none of the 1995 crop, the third time since 1945. About 54.7 million pounds of the 1994 crop, and 232 million pounds of the 1993 crop were placed under loan. Stronger demand because of stable U.S. cigarette consumption, rising cigarette exports, and some substitution of U.S.-grown for foreign-grown leaf, and a 15-percent decline in net marketings resulted in no loan takings. Manufacturers have agreed to purchase all pre-1994 loan stocks during the next 6 years. Lower supplies and increased imports under the TRQ will probably lower domestic burley use. U.S. burley exports in 1995/96 will probably be lower than the 166 million pounds of 1994/95. Japan and Germany are the leading importers. World burley production fell in 1995 because declines in Brazil, Argentina, Malawi, South Korea, the Philippines, Thailand, Mexico, and the United States more than offset increases in Italy and China. Despite smaller output, ample supplies, much at lower prices, hinders 1995/96 burley export prospects. Crop Volume and Value Down The value of 1995/96 marketings fell due to lower volume. Quality was lower this year due to drought and disease. The proportion designated as fair and low quality rose. Tan and reddish tan tobacco constituted 87 percent of sales. Mixed was 4 percent of sales, less than last year. Auction prices for the 1995 crop (including resales) averaged $1.855 per pound--about 1.4 cents higher than a year earlier. Fine quality flyings, lugs, and leaf averaged 6 to 7 cents above the support price. Prices of poorer quality mixed and nondescript tobacco were higher than a year earlier. Markets opened on November 20, 1995, and the season ended on February 29, 1996. Unlike most years, prices rose when markets reopened after the Christmas holidays. Southern Maryland Prices Higher Maryland auctions for the 1995 crop of Southern Maryland (type 32) opened March 5 and closed March 28, after being open for 15 days. Quantity marketed was 11.5 million pounds, 41 percent lower than 1994. Prices averaged $1.67 per pound, up 4 cents per pound compared with last year. The 1995 Maryland crop was of good quality, but dry weather during the curing season resulted in much of the leaf being lighter than desirable. For the 1994 crop (marketed mostly in 1995), growers received $1.63 cents a pound at the Maryland auction. Since quotas do not apply, Maryland tobacco does not receive price support. In a 1982 referendum, growers rejected USDA grading and its required fee. Supply Increases With poor growing conditions and a 200-acre decline in harvested acreage, growers produced a 1995 crop 1.9 million pounds smaller than the previous season. About 29 percent of total Maryland production was in Pennsylvania. Production was lower in both States. The Agriculture and Food Act of 1981 mandated penalties for growing and marketing Maryland tobacco in quota areas. However, quotas do not apply to Pennsylvania seedleaf tobacco and, since seedleaf prices are lower, seedleaf growers have switched to producing Maryland tobacco. The supply for marketing year 1995/96 is smaller than that of 1994/95. Last season's use of 11.7 million pounds was about 200,000 pounds above 1995 production (table 28). Farmers' March planting intentions indicate a 700-acre decline in 1996, but with normal yields, the crop will be about the same as last season, because of dry weather in 1995. Supplies may increase in 1996/97. Fire-Cured Prices Lower With a smaller and higher quality crop than the previous year, this year's auction prices for Virginia fire-cured (type 21) gained about 2.7 cents per pound from 1995. In spite of a lower quality crop, Kentucky-Tennessee auction prices advanced as well. Demand has remained relatively strong because of the growing demand for moist snuff. Farm purchases of types 22-23 rose, and prices paid at the farm were higher than a year earlier. Loan associations took less tobacco this year. Through March 20, auction prices for types 22-23 averaged $2.04 per pound,about 5 cents lower than the season average a year earlier. About 1 percent of the type 22-23 crop (217,000 pounds) was placed under loan in sales through March 20. Auctions for Kentucky-Tennessee (types 22-23) began January 17 and will probably end on April 4. Quality was about the same as last year s crop with slightly more fine and less good tobacco. This season's auction prices ranged from $2.29 per pound for the best wrapper and heavy leaf grades to $0.90 a pound for lugs. Both volume and value were down in 1995 for Virginia type 21 fire-cured leaf, but demand was good and loan receipts lower than last year. When sales ended on January 18, the volume had declined 36 percent from 1994 and value 35 percent. Prices advanced 2.7 cents per pound to $1.638. The crop consisted of more fair and low quality and less good or better quality tobacco. Less mixed and green color tobacco was sold, with more medium and dark brown offerings. Bad weather interrupted the Virginia fire-cured market for a week both before and after the Christmas recess. Output of snuff, which constitutes the principal domestic use of fire-cured tobacco, rose during the past year, and continue rising during 1996. Leaf export volume was 60 percent of the previous year, partially because world fire-cured production increased in 1995. For the 1995/96 season, total use should not change much. Farm Acreage Allotments Down Individual farm allotments were virtually unchanged for Kentucky-Tennessee fire-cured and Virginia fire-cured. This year's U.S. allotment totals 16,491 acres for Kentucky-Tennessee fire-cured and 1,317 acres for Virginia fire-cured. Acreage harvested as a share of allotments in 1995 totaled 95 percent in Kentucky and Tennessee, and 85 percent in Virginia, compared with 91, 93, and 87 percent respectively, in 1994. When compared with effective allotments (allows for productivity adjustments on leased-in acres) the percentages are somewhat higher. In 1996, acreage is projected to fall 400 acres in Kentucky and Tennessee and remain unchanged in Virginia, for a 2-percent decline for the three States. Dark Air-Cured Supplies Stable; Prices Higher Auction prices for the 1995 crop averaged 1 cent a pound higher for Green River (type 36) and 8 cents a pound higher for One Sucker (type 35). About 35 percent of the One Sucker crop was sold in the country (at the farm). Virginia sun-cured (type 37) advanced 8 cents for the season to a record $1.55 per pound. Total volume and value were lower than the 1994 crop and overall quality was down. None was placed under loan. This season's supply of dark air- and sun-cured tobacco totals 34 million pounds, about 1.7 million less than last season (table 30). Most dark air-cured tobacco goes into plug and twist chewing. Output of both plug and twist chewing fell in 1995. Disappearance of dark air-cured tobacco is likely to be closer to the size of the 1995 crop, and carryover should decrease from last year. National Acreage Allotments Down Acreage allotments for growers of dark air-cured will decline from a year earlier. Total allotments for 1996 of types 35-36 are 4,045 acres, 5 percent below last year. Growers of dark air-cured tobacco may set about the same acreage this year as last. Production should be stable if yields are normal. Despite higher carryin stocks, the 1995/96 supply may decline from the 35.7 million pounds of 1994/95. Virginia sun-cured, at 70 acres, is the same as last season. Cigar Tobacco Prices Stable to Higher Most cigar tobacco producers received about the same prices for their 1995 crop as a year earlier. Most cigar leaf had been sold by early March. Wisconsin binder tobacco loan takings were close to 1994. Production was up for types 54-55 by about 200,000 pounds. Prices averaged $1.45 per pound for Wisconsin binder. Connecticut binder prices have risen in recent years because loan stocks have been liquidated, production has been down, and crops have been of good quality. The Agricultural Statistics Board will release season-average prices and production data for the 1995 crop in May 1996. Overall, price support levels for this year's crop of cigar tobacco will rise 1.7 percent. Again this season, there are no price supports for Pennsylvania filler (type 41), Connecticut binder (types 51-52), or shade-grown tobacco (type 61). No-net-cost and tobacco marketing assessments total 1.1 cent per pound for cigar binder types in 1996. High no-net-cost assessments for cigar filler types 42-44 and reduced demand for type 46 have essentially eliminated production of these kinds. Growers of cigar filler and binder (types 42-44 and types 54-55) voted to accept quotas for the 1996-1998 crops at referenda held in March 1996. Growers of Puerto Rican filler tobacco (type 46) rejected quotas in a separate referendum at the same time. Supplies Decline Total supplies of U.S. and Puerto Rican cigar tobacco for this season are down 11 percent from the previous season. Both production and carryin were down. Cigar filler fell 16 percent, binder supplies increased 5 percent, and wrapper supplies rose 5 percent. Cigar tobacco imports gained 15 percent, reaching nearly 68 million pounds in calendar 1995. Cigar leaf arrivals were up, but cigar scrap arrivals were down. Stocks of foreign cigar tobacco rose. On January 1, 1996, foreign leaf stocks totaled 80.6 million pounds, up 14 percent from a year earlier, and about 14 million pounds above 1995's use. Domestic Use May Rise Until last year, demand for domestically produced cigar filler and binder had declined as demand for loose-leaf chewing and cigars fell. Use continued to rise in 1995 as production of cigars increased. However, cigar leaf users continue to obtain most of their requirements from imports. Last year, about 71 percent of tobacco used to make cigars and loose-leaf chewing tobacco was foreign-grown. With higher use of cigars and increased loose leaf chewing tobacco use in 1995, U.S. cigar leaf use may rise for the second consecutive season. Use will probably exceed 1995 production, so carryover may fall from the 58 million pounds available in 1995/96. Cigar Filler Acreage Lower; Binder About Unchanged For most farms growing cigar filler and binder tobacco (types 42-44 and 53-55), this year's acreage allotments declined slightly from a year earlier. The total acreage allotment was reduced 3 percent mostly because of adjustments for farms that have underplanted their acreage in recent years. For Puerto Rico's cigar filler (type 46), the national acreage allotment was set at zero because of a lack of demand for this type. Based on March planting intentions, cigar-type acreage is expected to rise about 2 percent from last year with stable quotas and relatively strong demand. No-net-cost assessments have not been set for the 1996 Wisconsin crop, but they will likely be suspended because all loan stocks have been sold. Pennsylvania filler acreage is expected remain unchanged but binder acreage is expected to increase slightly. Connecticut binder (types 51-52) is expected to increase by 60 acres, but Wisconsin binder (types 54-55) acreage probably will be unchanged because of stable allotments and prices. Shade-grown wrapper acreage will likely increase by 90 acres, and production may rise if yields are normal. Overall, cigar tobacco production in 1996/97 is expected to increase 2 percent from last year's crop. Combined with smaller carryover, supplies likely will be steady. List of Tables 1. Cigarettes: U.S. output, removals, and consumption, 1986-95 2. Per capita consumption of tobacco products in the United States, 1986-95 3. Cigarettes: Output of filter tip and nonfilter tip by length, 1983-95 4. Wholesale cigarette price revisions, 1980-95 5. Tobacco products: Output and domestic sales, 1993-95 6. Cigars and smoking tobacco: Output, removals, and consumption, 1993-95 7. Tobacco demand factors, 1986-95 8. Estimated number of roll-your own cigarettes smoked and smoking tobacco consumed, 1992-95 9. U.S. cigarette exports to leading destinations, 1993-95 10. U.S. tobacco exports and imports: Unmanufactured and manufactured, 1986-95 11. U.S. exports of unmanufactured tobacco by types and to principal importing countries, 1993-95 (declared weight) 12. U.S. smoking tobacco exports, 1993-95 13. Flue-cured, burley, and Oriental tobacco production in specified countries, 1993-95 14. U.S. imports of unmanufactured tobacco for consumption and general imports, principal categories, and countries of origin, 1993-95 (declared weight) 15. Imported foreign-grown cigarette leaf stocks, by quarters, 1985-96 16. Flue-cured and burley tobacco: Marketing quota and marketings, 1985-96 17. Flue-cured and burley marketing quotas: Formula compoments and manufacturer purchases, 1988-96 18. Flue-cured and burley tobacco price support formula components, 1988-96 19. Computation of price support level adjustment factor for tobacco, 1984-96 20. Tobacco: No-net-cost assessment, by kind, 1993-96 21. Flue-cured tobacco, Acreage alloted and under production, 1984-96. 22. Sales of flue-cured tobacco quotas, 1985/86-1994/95 23. Tobacco loan stocks: 1994-96 (farm-sales weight) 24. U.S. exports of unmanufactured tobacco by types, to principal importing countries, crop years 1994/95-1995/96 (declared weight) 25. Flue-cured and burley tobacco: Acreage, yield, marketings, carryover, supply, disappearance, season average price, and support operations, 1986-96 (farm- sales weight) 26. Burley tobacco: Price spreads among specified grades, 1986-95 27. Burley tobacco: Gross sales and average price, by States, 1994-95 28. Southern Maryland tobacco: Acreage, yield, marketings, carryover, supply, disappearance, season average price, and price support operations, 1987-96 (farm-sales weight) 29. Fire-cured tobacco: Acreage, yield, marketings, carryover, supply, dsappearance, season average price, and price support operations, 1987-96 (farm-sales weight) 30. Dark air-cured tobacco: Acreage, yield, marketings, carryover, supply, disappearance, season average price, and price support operations, 1987-96 (farm-sales weight) 31. Cigar tobacco: Domestic supplies, disappearance, and season average prices, 1987-96 (farm-sales weight) 32. Cash receipts from farm marketings and tobacco, 1986-95 33. U.S. cigarette advertising and promotional expenditures, 1986-95 34. Expenditures for tobacco products and disposable personal income, 1986-95 Statistical Summary END-END-END