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New marketing option offered to tobacco farmers

LOUISVILLE, Ky. (AP) - The Kentucky-based Burley Tobacco Growers Cooperative Association has supplied seed money and expertise for a startup venture aimed at giving burley farmers another marketing option.
Coined as US Growers Tobacco Co., the new company will provide a place in Lexington where farmers can have their tobacco stored,
processed and marketed, burley co-op President Roger Quarles said
Thursday.
The venture seeks to help find a home for large volumes of
tobacco that could be on the market in the next couple of months
without an apparent buyer other than a handful of auction markets,
he said.
Last year, about 600,000 pounds of burley sold at "distressed
prices" at a wrap-up auction for the burley sales season, Quarles
said. This new venture will give farmers an alternative, he said.
It could appeal to farmers with leftover leaf after meeting
supply under their production contracts with tobacco companies,
Quarles said. It could also draw interest from growers who raised
tobacco without a production contract and are unhappy with prices
offered at auction, he said.
"After farmers exhaust their efforts to find what they would
consider an acceptable price, that's when they need to come see
us," Quarles said in a phone interview.
The new company is prepared to accept up to 2 million pounds of
leaf, he said. Whether that volume is reached could depend on
auction prices, which have escalated recently, he said.
Kentucky is the nation's top producer of burley tobacco, an
ingredient in cigarettes.
The state's burley production in 2009 was estimated at 161
million pounds, up 10 percent from 2008, according to the National
Agricultural Statistics Service's Kentucky field office. Production
in the burley-producing states was pegged at 215 million pounds in
2009, up 7 percent from a year ago.
The new company will also accept dark fired and flue cured
tobaccos.
The Lexington-based burley-op purchased $250,000 worth of
preferred stock to capitalize the new stockholder-owned company,
and it will supply about $80,000 in startup costs, Quarles said.
The co-op expects to recoup half those startup costs once the new
company completes transactions with farmers, he said.
The co-op will have majority control on the USGTC board of
directors, he said. Co-op staff will assist the new company,
handling such tasks as record keeping, tobacco grading and
overseeing processing.
Farmers doing business with USGTC will deliver their leaf to
G.F. Vaughan storage facilities in Lexington. Growers will receive
a certificate listing the number of pounds, type and grade of
tobacco delivered.
The company intends to sell leaf to international and domestic
buyers.
Farmers will be paid when their tobacco is sold and will pay
fees to the company.
The company will begin offering tobacco for sale in April, and
transactions could take from a few weeks to a year or more,
depending on demand, Quarles said.
Will Snell, a University of Kentucky agricultural economist
specializing in tobacco, said the new marketing option might not be
ideal for producers facing "immediate cash flow needs."
But it gives producers dissatisfied with current prices "an
opportunity to have the tobacco processed and ideally wait for
global demand conditions to improve."
Some farmers selling burley under contract this season have
reported prices plus incentives at near or above $1.80 per pound,
Snell said. Prices at tobacco auctions have "been all over the
board," he said. Concerns about the late tobacco being lower in
quality could cause prices to fall, he said.
More than 3 million pounds of leaf has sold so far at auctions
this season at Farmers Tobacco Warehouse in Danville, said Jerry
Rankin, the owner and operator. High-quality leaf sold in the
mid-$1.80s range at Thursday's sale, but the overall average price
was dragged down by some low-quality tobacco, he said.
Rankin said he was hearing skepticism about a program in which
farmers would have to wait for a paycheck.
"The feeling that I have from talking to farmers, it would have
to get dirt cheap before they'd be interested in that program,"
Rankin said. "They want their money now. They need their money
now."
But those feelings could change if the market climate worsens,
he said.
"If all of a sudden there's almost no demand for it, and we've
got 15 or 20 million pounds left out in the farmers' hands, the
opinion they have of that program may change quick," Rankin said.
Quarles, a Kentucky tobacco farmer, said the new company's
tobacco intake would likely include amounts of lower-quality leaf.
But Quarles said he expects all the tobacco stored with USGTC to
eventually find a buyer.

(Copyright 2010 by The Associated Press. All Rights Reserved.)


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