U.S. Flue-Cured Tobacco Situation & Outlook February 6, 2015

Transcription

1 U.S. Flue-Cured Tobacco Situation & Outlook February 6, 2015 Dr. Blake Brown Hugh C. Kiger Professor Agriculture & Resource Economics College of Agriculture & Life Sciences

2 How much are contracted pounds down for 2015?? 15% 20% 25%

3 % Cut in Pounds Acreage & Production for 15, 20, & 25% Reduction in 2015 Contracted Pounds Contracted Pounds Production at 10% Overage -15% -20% -25% 408 million 384 million 360 million 449 million 422 million 396 million Acreage 204 thousand 192 thousand 180 thousand Assumptions: 480 million pounds contracted in ,200 lb/acre average yield

4 So what s causing such a large reduction?... Global supplies? Imports? Anticipation of large reductions in cigarette consumption? Exports exchange rates, etc? Greater deterioration of EU Market? A slowing of exports to Asia?

5 E 2015P Global Supply: U.S., Brazil and Zimbabwe Flue-Cured Tobacco Production Zimbabwe US Brazil Source Brazil & U.S.: Universal Corporation. World Leaf Production as of Feb 3, Source Zimbabwe: Zimbabwe Tobacco Association Weekly FCV Report

6 Millions Imports: Domestic Use of U.S. Flue-Cured Tobacco & Imported Tobacco Imported Flue-Cured Domestic Use of U.S. Flue-Cured Imported Other Leaf 118

7 Declining Cigarette Consumption

8 Tobacco products will undergo a technological revolution over the next 5-10 years Non-combustibles could dominate traditional combustibles in the U.S. and EU Will e-cigs or heat-not-burn products dominate? E-cigs: very different tobacco required heat-not-burn: high quality tobacco needed & maybe substantial quantity needed US & EU combustible sales may be heavily impacted

9 U.S. Unmanufactured Exports of Flue-Cured Tobacco (lbs farm weight) World EU27 PRC Source: USDA-FAS

10 Exports to EU follow the same path as Domestic use in the US But China s cigarette demand remains strong As China s domestic economy continues to strengthen, more consumers will trade up to premium brands, IBISWorld Industry Report

11 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Real Commodity Exchange Rate for US Tobacco Source: USDA-ERS

12 2/1/2010 4/1/2010 6/1/2010 8/1/ /1/20 12/1/20 2/1/2011 4/1/2011 6/1/2011 8/1/ /1/20 12/1/20 2/1/2012 4/1/2012 6/1/2012 8/1/ /1/20 12/1/20 2/1/2013 4/1/2013 6/1/2013 8/1/ /1/20 12/1/20 2/1/2014 4/1/2014 6/1/2014 8/1/ /1/20 12/1/20 Brazilian Real/EURO & US$/EURO: Competitor s exchange rates matter BRL/EUR USD/EUR Source: ONADA

13 Millions Domestic Use and Exports of U.S. Flue-Cured Tobacco Domestic Exports

14 What can we conclude? Large 2014 crops in U.S. & Zimbabwe, but crops in Brazil, Zimbabwe & U.S. are smaller for 2015 should reduce inventories

15 What can we conclude? Large 2014 crops in U.S. & Zimbabwe, but crops are smaller for 2015 should reduce inventories Imports of flue-cured to U.S. have increased, but is this temporary?

16 What can we conclude? Large 2014 crops in U.S. & Zimbabwe, but crops are smaller for 2015 should reduce inventories Imports of flue-cured to U.S. have increased, but is this temporary? Combustible cigarettes could experience even greater declines in US and EU E-cigs or heat-not-burn.much uncertainty

17 What can we conclude? Large 2014 crops in U.S. & Zimbabwe, but crops are smaller for 2015 should reduce inventories Imports of flue-cured to U.S. have increased, but is this temporary? Combustible cigarettes could experience even greater declines in US and EU much uncertainty Exchange rates for US exports are not favorable

18 What can we conclude? Large 2014 crops in U.S. & Zimbabwe, but crops are smaller for 2015 should reduce inventories Imports of flue-cured to U.S. have increased, but is this temporary? Combustible cigarettes could experience even greater declines in US and EU much uncertainty Exchange rates for US exports are not favorable Will exports to China increase fast enough to offset declines in exports to EU?

19 What can we conclude? Large 2014 crops in U.S. & Zimbabwe, but crops are smaller for 2015 should reduce inventories Imports of flue-cured to U.S. have increased, but is this temporary? Combustible cigarettes could experience even greater declines in US and EU much uncertainty Exchange rates for US exports are not favorable Will exports to China increase fast enough to offset declines in exports to EU? Reduction in 2015 contracted pounds is probably due to some combination of all of the above

20 2014 World Flue-Cured Production 9.9 billion pounds Other 13% U.S. 6% Brazil 16% Zimbabwe 6% PRC 59% Quality is the strategic advantage of U.S. flue-cured producers