Tobacco companies to buy less tobacco this year..

April 14, 2010 - Cigarette-makers are cutting back on the amount of leaf they'll buy this year, early reports from the latest annual round of grower contract negotiations show.

Though the companies, including Altria Group Inc., won't give details, they confirm that they will buy less because of a continuing slide in cigarette sales. "It's just what's happening with the market," said R. Hart Hudson, a grower and warehouseman in South Hill. Some growers and grower associations estimate the drop in sales of flue-cured leaf -- the main ingredient in cigarettes -- will be about 10 percent this year.

"It's really all over. Some growers are being dropped completely. Others aren't getting any cutbacks at all. There are numerous cases of growers being cut 20 percent," said D. Stanley Duffer, marketing specialist with the state agriculture department.

Last year, when the federal government boosted excise taxes by 62 cents a pack, cigarette sales tumbled by 8 percent, or twice as much as they had been through the decade, a review of federal tax data showed. That tax increase came faster and sooner than cigarette-makers expected, and left them with higher inventories of unused leaf than usual, Duffer said.

The U.S. Department of Agriculture estimates that growers cut back planting flue-cured tobacco this year by about 7 percent. In Southside Virginia, the cutback is more than 9 percent, to 16,000 acres, the USDA said. "I think contracted pounds are down more than 7 percent," said Blake Brown, a North Carolina State University agricultural economist specializing in tobacco.

"Farmers will plant some acreage above what they contracted to ensure they meet their contract obligations even if the weather is not favorable."

Duffer thinks more flue-cured growers than usual may be planting on speculation -- without a contract, on the hope they'll find some kind of buyer in the end.

Plantings of burley tobacco, the stronger-tasting, smaller-leaf variety that gives American-style cigarettes much of their sharper flavor, should drop by about 4 percent, the USDA data show. But Virginia, though one of the smallest producers of this variety, will see a 5 percent increase.

In some cases, cigarette-makers aren't renewing contracts, particularly in Georgia, hard hit by disease in recent years, said Kirk Wayne, president of Tobacco Associates, a growers' group. That state will see a 29 percent drop in flue-cured tobacco acreage this year, USDA reports.

He said the decline is linked to the drop in cigarette sales, adding that he's seen no sign U.S. manufacturers are shifting to buy more imported leaf.

"The weaker dollar has helped exports and held down imports, but declining demand in other developed country markets like the European Union (EU) has more than offset the positive effect of the dollar," said Brown, at N.C. State

"Contracted amounts in Brazil, the chief competitor of U.S. flue-cured, are also down."

Changing smoker habits helped some growers, however. Overall, planting of cigar tobacco will rise 33 percent, to 5,570 acres. None of this tobacco is grown in Virginia.

Planting of the main grade used in moist snuff, fire-cured tobacco, is down about 3 percent, to 15,650 acres, USDA reported.

Virginia's 650-acre total is unchanged from 2009.

Moist snuff is one of the fastest-growing kinds of tobacco products these days.

Reference: Tobacco firms to buy less leaf this year by David Ress, Richmond Times-Dispatch, 4/13/2010.