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Tobacco growers not shy about capital investments

The instability of the tobacco business has made many growers gun shy about capital investments. But if you are going to stay in tobacco farming, you need to be prepared to buy the implements needed to produce top yield and quality, says Bill Corbin of Springfield, Tenn.

“You have to spend the money if you want to have a future in tobacco,” says Corbin, who grows dark fire-cured, dark air-cured and burley in north central Tennessee near the Kentucky border.

Corbin was one of several tobacco growers who took part in the recent U.S. Tobacco Forum in Myrtle Beach, S.C. From the panelists' presentations and from subsequent interviews, Southeast Farm Press learned that successful tobacco growers are still prepared to commit the resources to buy the labor-saving and quality-increasing machinery that they need.

Larry Barbour of Clayton, N.C., grows flue-cured tobacco with his son and grandson in an area with a great deal of urban spillover. Still, some investments make good sense even in the current situation.

“We bought a leaf loader two years ago. Now, in its second year of use, we are very happy with it,” he said. “We are toying with the idea of buying some other new equipment that would give a good payback, but so far we are just maintaining what we have in the condition it should be.”

He was very pessimistic about tobacco after the buyout but is now glad he stayed in it

Another farmer-speaker at the Forum, flue-cured grower Jeremy Rhodes of Four Oaks, N.C., didn't even begin growing tobacco until after the buyout.

“Starting tobacco farming from scratch has been very hard,” he told Southeast Farm Press. “Since I was new to tobacco, everything has been a new investment.”

But there has been one advantage to the situation: So many tobacco growers have been either upgrading or getting out that there has been plenty of used equipment on the market. Rhodes bought eight rack barns the week after the Forum, and like all the other machinery he's purchased, the barns came from local farmers.

“My goal has been to keep capital investments as low as possible, so maybe the return on my investment will be shorter,” he said. “The prices I have heard newer barns selling for would be very hard for me to cash flow. I like to let someone else take the first depreciation.”

Roger Quarles of Georgetown, Ky., a burley grower, said no investments in infrastructure are planned on his farm right now. But that doesn't mean there won't be any later.

“We could use additional curing space,” he said. “So far we have been able to find existing barns to rent, but we sometimes have to go fairly far away to find it.” He may eventually invest in barns closer to home.

Faced with the same situation, burley and dark grower Corbin elected to put in a new burley-curing barn in 2008.

“When we have to go farther and farther away from our production sites and stripping area to find barns for rent, it means that larger facilities closer by will recoup their costs sooner,” he said. “We are getting more concentrated every year, because we would like to lessen our exposure.”

Corbin made another major expenditure earlier this year when he upgraded the building he uses as a stripping facility, putting in more space for workers and improving humidity control.

Still another investment is in the planning stage: Corbin wants to add another greenhouse to the five-million-plant commercial greenhouse operation he runs. He may do it before the end of this year.

More plant production space would bring a faster return on investment than some other purchases he could make, says Corbin. He thinks it is wise right now to put funding into those purchases that will pay back quickest and let others wait.

The farmers at the Forum agreed that the uncertainty about tobacco as a commodity has made it much more difficult to plan for the future.

Dark tobacco growers are still reeling from the cutback in contracts they experienced between 2008 and 2009, said Corbin, who grows two dark types along with some burley.

Thanks to the excise tax increase and the newly imposed FDA regulation, companies are at a huge disadvantage now in predicting their future needs, said Corbin. “The cuts we took in dark tobacco were because of that.”

Earlier in July, U.S. flue-cured production was estimated at 467 million pounds by the U.S. Department of Agriculture, down 32 million pounds from 2008. Area to be harvested was projected at 214,500 acres, 9,000 below last year. Yield per acre was forecast at 2,178 pounds, down 61 pounds from a year ago.

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