Company buying intentions will be submitted for the 1997 flue-cured tobacco marketing quota on December 1 to USDA. This has varied considerably across recent years (see table 1) from a low 288 million pounds in 1994 to a high of 569.9 million pounds in 1995. This figure will be a major item that determines the level of the 1997-98 crop level. For this reason it is important that all interested groups consider the best alternative for the industry and attempt to communicate this to decision makers.

There are still uncertainties in the quota formula but most variables, except buying intentions, are starting to become know at least within some reasonable range. For this reason, table 1 contains what we consider to be a "most likely" low and high estimate for 1997. This does not mean that the quota can not be higher or lower than these two figures. There are many different alternatives that could be presented but these two now seem to represent the low and high end of likely outcomes. It must be realized that these could also change considerable between now and the announcement of quota levels by December 16 (since the 15th is on a Sunday).

Some producers ask why we must go through these uncertainties/variations with production levels year in and year out? Simply, the tobacco program was designed to stabilize price at the expense of quota. In fact, there was a floor on basic quota reductions of not more that 10 percent below the previous level for 1990-96. Starting this year, there is no limit on the level of decrease and this will probably not be a factor this time but it could be a major impact in the future.

Other current unknowns in the formula include the quota carryover or over/under marketings from this current crop. With Hurricane Fran, a considerable amount of tobacco was lost in Eastern North Carolina. However, with emergency leasing some (possibly a large amount) could be fall leased to other areas of the state such as the old belt. This amount is not currently known. The low estimate was the same as last year, 70.0 million pounds, while the high estimate was 100.0 million pounds. This figure is still uncertain and could significantly impact the industry since companies should actually consider effective quota in regards to total supply.

Another estimated variable is the December 1 loan stocks. There are currently about 6.0 million pounds (used in the low alternative) but with Hurricane Fran, nearly all should be purchased by December 1 (used in the high alternative). This will not have a large impact on the formula.

The "Secretarial Discretion" portion of the quota formula is assumed at the most negative alternative. Secretarial Discretion means the Secretary of Agriculture has the discretion to raise or lower the base quota by the range of plus or minus three percent. This will not be known until the quota is announced but we have used the minus three percent alternative, or the same as last year.

A component that is known is the average exports. Unfortunately, this figure keeps declining rapidly. This is the three-year average of exports and is 333.3 million pounds, down from 344.8 last year. This is based on the individual years of: 1994, 345.5; 1995, 344.8; and, 1996, 310.0 mil. lbs.

The two different quotas included in formula calculations are the basic and effective quota. Basic quota is the actual quota (statutory) figure which is calculated in the formula; basic quota plus or minus the Secretary's discretionary adjustment is the national marketing quota. Effective quota is the basic quota plus or minus quota carryover from last year. The alternatives shown in the next table are for the total flue-cured belt. For individual farmers, the important figure is the basic quota and their individual farm carryover quota or quotas they rent.

Table 1.  1997 Flue-Cured Tobacco Formula Estimates With Two Alternatives; 
          Projections As of October.       
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                                                         Low     High
    Item                     1994     1995     1996     1997p    1997p
                                                                       
Buying Intentions            288.0    569.9    475.5    450.0    525.0
                                                                 
3 Year Avg. Exports          391.3    371.5    344.8    333.0    333.0
                                                                 
Total                        679.3    941.4    820.3    783.0    858.0
                                                                 
 Reserve Supply Level*       133.8    120.4    140.2    131.0    131.0
                                                                 
 Dec. Loan Stocks           -316.8    -98.3    -59.9     -6.0      0.0
                                                                 
 Mkt'g Adjustment           -183.0    +22.1    +80.3   +125.0   +131.0
                                                                 
3 Part Total                 496.3    963.5    900.6    908.0    989.0
                                                                 
Sec. Discretion                                           
  Percentage                   0.0%    -3.0%    -3.0%    -3.0%    -3.0%
  Quantity                     0.0    -28.9    -27.0    -27.2    -29.7
                                                                 
Basic Quota                  802.6    934.6    873.6    880.8    959.4
  Percentage Change          -10.0%   +16.4%    -6.5%    -5.8%    +2.7%
                                                                 
Quota Carryover               -4.1     -9.7     70.0     70.0    100.0
                                                                 
Effective Quota               798.5    924.9    943.6    950.8 1,059.4
  Percentage Change          -10.2%   +15.8%    +2.0%    +0.8%   +12.3%
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     *  Larger of 15 percent of previous Basic Quota or 100 mil. lbs.
Notes:  Some figures are preliminary and will change.
        1994 Basic Quota limited by law to 10 percent maximum decrease.
        Some data based on estimates by Dr. Vernor Grise; USDA/FSA/TPD. 

Based on the above table, it now appears that the effective quota for next year will be increased. The amount still depends primarily on: (1) buying intentions and, (2) amount of quota carryover. Buying intentions will impact the basic quota (and also effective) while carryover applies only to effective quota. The magnitude of change in the intentions variable is potentially large and one can roughly calculate this by changing the basic quota by one percent for every 10 million pounds change in the formula. In other words, if intentions are 50 million pounds higher (or lower) than the above projections, then the basic formula would be increased (decreased) by about an additional 5 percent.