1. US Flue-Cured: Outlook and Situation June 11, 2010 Blake Brown Hugh C. Kiger Professor Agricultural & Resource Economics College of Agriculture & Life Sciences

2. Outline Tobacco Production and Use Tobacco Production and Use Prices and Demand Prices and Demand Farm Infrastructure Farm Infrastructure Summary Summary

3. Production and Use

4. US Flue-Cured Tobacco Acreage

5. Flue-Cured Production: (million pounds) 200520062007200820092010PROJECTED US 1 380447504499526475 NC 1 NC 1 272 272324377385418377 Brazil 2 1,5291,3931,3771,34013401223 1 USDA-NASS 2 Universal Corp. Crop Reports

6. Flue-Cured Domestic Use and Exports

7. Stemmed U.S. Flue-Cured Exports by Region (metric tons, non-farm weight)

8. Stemmed Exports of U.S. Flue-cured to East Asia (metric tons, non-farm weight)

9. Flue-Cured Contracts & Prices Lower Contracted Volume…of primary contracts: $1.75 - $1.80 per poundLower Contracted Volume…of primary contracts: $1.75 - $1.80 per pound A secondary contract market has emerged: $1.45-$1.50 per pound?A secondary contract market has emerged: $1.45-$1.50 per pound?

10. Demand and the Farm Declining demand for tobacco: Declining demand for tobacco: FDA regulationFDA regulation FCTC regulationsFCTC regulations Increased taxesIncreased taxes Smoking restrictionsSmoking restrictions Shifts to smokelessShifts to smokeless

11. U.S. Average Retail Cigarette Price (US$ per pack) Source: TMA Estimate +20.09%

12. Retail Price and Tax Incidence Figures f0r 2009 Retail PriceTax Incidence Norway$13.0771.20% UK$8.8376.57% Singapore$7.9270.54% Australia$7.8160.76% France$7.5480.39% Canada$7.1770.73% Germany$6.7075.82% Italy$5.7375.16% All Prices are in US Dollars per pack of 20. Retail PriceTax Incidence United States$5.5044.67% Portugal $4.8378.29% Spain$4.1777.59% Japan$3.3663.06% South Korea $2.1562.61% Poland$1.9680.22% China$1.2071.28% Indonesia$0.5249.09%

14. Infrastructure on the Farm

15. Flue-Cured Tobacco Growers: Curing Barn Age (CTGR 2009 Survey: 254 responses) 4% of bulk barns less than 4 years old 30% of bulk barns between 5 to 10 years old 44% of bulk barns between 11 to 20 years old 17% of bulk barns between 21 to 30 years old 5% of bulk barns more than 30 years old Source: Center for Tobacco Grower Research JHS

16. Investment in new barns? Do your profit levels justify the investment? Do your profit levels justify the investment? $35,000 barn (installed)$35,000 barn (installed) 10 year useful life, 8% interest rate10 year useful life, 8% interest rate $490/acre annual return to barn needed$490/acre annual return to barn needed How certain is your contract over the next 10 years? How certain is your contract over the next 10 years?

17. Summary Contracted volume down Contracted volume down Lower domestic use and purchases Lower domestic use and purchases FDA near term impact uncertainFDA near term impact uncertain Export demand? Export demand? Exchange rates?Exchange rates? Developed country demand downDeveloped country demand down Curing Barn Investment Decisions Curing Barn Investment Decisions

18. Issues for Growers Do I have a contract? Do I have a contract? How do I cash flow?How do I cash flow? How do I cope with volume reduction? How do I cope with volume reduction? How much over contract do I produce?How much over contract do I produce? How secure is my contract? How secure is my contract? Should I replace any barns?Should I replace any barns?