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U.S. leaf prices fall further than anticipated post-buyout

U.S. leaf prices are declining faster than expected as a result of the tobacco buyout that was passed last year. Blake Brown, an agricultural economist at North Carolina State University, said at a tobacco conference in December that leaf that sold for $1.85 a pound in 2004 will sell for average prices ranging from $1.35 to $1.50 a pound under the contracts that cigarette makers and leaf dealers are now offering growers.

Philip Morris USA offered the highest prices for 2005, with an average of $1.50 a pound.

Brown said he is surprised by the price adjustments. He had projected a decline in prices to between $1.42 and $1.49 a pound over the next three years. “I think prices have adjusted fairly quickly in this period of transition. Perhaps the reason for that is there’s just a lot of flue-cured tobacco in the world right now.”

Brazil’s crop was a record 1.6 billion pounds this selling season.

Brown said 2005 will be crucial for U.S. farmers who wish to continue growing tobacco. “I think this year will be a year of farmer selection by the companies. This will be a year in which relationships will be established or not established between farmers and companies. These will be long-term relationships.”