TOBACCO--SUMMARY December 16, 1996 Approved by the World Agricultural Outlook Board ------------------------------------------------------------------------------ This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. The complete text of TOBACCO SITUATION AND OUTLOOK (TBS-237) will be available 2-3 working days following release of this summary. ------------------------------------------------------------------------------ U.S. Tobacco Crop Larger and Supply Up The 1996 U.S. tobacco crop is larger than a year ago, 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 .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 be lower than 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 will be set at between 973.8 and 1,034 million pounds, 11.5 to 18.4 percent above 1996 and the largest since 1982. The effective quota (reflecting adjustments for net under-quota marketings) is estimated at between 1.02 and 1.08 billion pounds, 8 to 14 percent higher than in 1996. Price supports will average $1.621 to $1.632, 2.0 to 3.1 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. This issue contains a special article "Costs of Producing and Selling Burley Tobacco: 1994, 1995, and Preliminary 1996." Printed copies of the Tobacco Situation and Outlook report will be available in about a week. For further information contact Tom Capehart (202) 219-0890 (thomasc@econ.ag.gov). Text of the full report also will be available electronically. For details call (202) 219-0515. To receive the report on the internet: http://www.mannlib.cornell.edu/reports/erssor/specialty/tbs-bb/. END_OF_FILE