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CURRE:T SERIAL RECORD x SFP14 1958 |

ufos. Maryland Job

— More Income for

Better Marketin

Resales of tobacco on Maryland auctions in 1955 brought warehousemen and speculators a half million dollars more than they paid farmers for the tobacco.

These buyers bought and resold nearly 6 million of the 37 million pounds sold by farmers on the auctions in 1955. In addition to taking advantage of price fluctua=- tions, these buyers put much of the tobacco into more / salable condition by repacking and sorting. y,

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This repacking and sorting accounted for a part of the 11 centg#/per pound difference between the buying price and selling price of resale tobacco, indicating that growers could have received more income from their tobacco through more careful preparation for market.

Resales have increased sharply since 1950. In 1955, they were 50 percent larger than in 1950, both in total volume and in proportion to net sales. Not only have resales increased rela- tive to earlier years on the Maryland markets, but they have increased relative to resales on the flue-cured and burley markets (table 1).

Table 1.-<-Tobacco resales at Maryland looseleaf auctions, 1950 to 1955 (crops of 19))9 to 195h), and comparison with percent resales for flue-cured and burley

Year A ‘land G Flue=-cured 3 Burl : 1,000 few: Percent Percent Percent NOS Osc eciessicrolete elevelets : 35 7 10.8 10.2 (SED OG aie iors velevevstuieele : 3923 9.6 9.2 ban OS ORE, Sialeiarsiele ce ° 4,28 ALLS) 10.9 he9 BIO 3 he arwativsiaiaitetsvelone ° 5,228 15.0 alas} 6.3 19 ©eeeseed00200008 H 5,112 1.2 aALAS) 52 MOS OMe Ncrevesleveieleieveie H 5,813 15.6 trot 3.6 p Source: Tobacco Division, AMS. p Preliminary

Resales brought warehousemen and specu= lators $509,000 above the cost of their total purchases, in addition to leaving them 200,000 pounds still to resell. Warehousemen resold the largest amount of tobacco, but speculators! margins were widest. Speculators sold for an average of $13.68 a hundredweight more than they had paid for the tobacco. Their total margin was $265,000. Warehousemen's resales averaged $7.90 a hundred above their purchase price. Their total margin was $2,000. These total margins are not net profit. Handling costs, including any losses of tobacco, must be paid for out of these totals (table 2),

United States Department of Agriculture, Washington, D. C. Agriculture-Washington July 1956 AMS-127 Figure 1.-=Good tobacco marketing starts with e good preparatione

Table 2,--Volume and value of purchases and sales at Maryland looseleaf tobacco auctions, 1955

season e of sale : Volume : Price : Value : 1,000 pounds Dollars per cwt. 1,000 dollars

Total Gallesencrcuteicseleletcieieie Hi 3,007 0,02 17,212 Net SaleSSeicre cisivinie clerciels clevcie : 37,19) 39.53 14,702 RESAUCS in clelcielsievelaveie.e(e\elelocveisie $ 5 813 3.19 2 510 Packers! purchaseSeesecsee ? 37,052 1.20 15,266 Packers! TESALES Ss. cee ssee : 139 39 .)16

Net packers! purchases.. : 36,913 y1.21 52a Warehouse purchases 1/...e : 3,188 35.59 1,135 Warehouse resales 1/seccce : silyl 13 9 1,379

Differenceeesecessecccee : 2 17 7290 2hh Speculators! purchases..e. : 2,767 29 31 811 Speculators! resaleSeecese : 25503 4.2.99 1,076

Differencescvcscescceece 2 264, 13.68 265

Source: The data on purchases and sales for the 195) crop were made available by the tobacco auction warehouses in the several markets through the cooperation of the Maryland Tobacco Author- ity e

l/ Includes pickups, lost tickets, and tobacco returned from packers. 2/ About 80,000 pounds lost in handling and 200,000 pounds sold direct to packers or held over until 1956,

PRICES LOWER IN 1955

Maryland tobacco has not shared in the increased demand for cigarette tobacco to the extent that flue-cured and burley have. au Production of Maryland tobacco since 19))9 has averaged 0 million pounds, but total disappearance has averaged only a little over 36 million pomds. Domes- tic use for the past 5 years has averaged under : 29 million pounds, and exports have averaged less than 8 million pounds. The difference between production and use has increased stocks from 60 million pounds on October 1, 1950, to 8) million pounds on October 1, 1955, the high= est on record=-11 million of this is in governe ment loan stocks.

The 1953 crop, which brought 5) cents a pound, was supported under the Federal loan pro= gram, as were the 199 and 1950 crops. Of the O million pounds produced in 1953, 33 millions went directly to users on the Maryland markets. About 7 millions were placed under Goverment loan. The 195) crop brought slightly less than

1/ Maryland Experiment Station Bul. 51, De 31. The Station also made available unpub- 5 RT lished studies of supply and demand as they af- Figure 2,<=<A uniform hand of good quality fected the price of Maryland tobacco. Maryland leaf.

S7ones

hO cents a pound, the lowest price since World War II.

Low quality was an important reason for lower prices for the cigarette portion of the 195) crope Manufacturers regarded it as one of the poorest crops on record for cigarette use. 2/

SEASONAL PRICE PATTERN NEAR NORMAL

Changes in daily average prices paid for Maryland tobacco are to a considerable extent the result of variations in quality of leaf offered for sale. However, prices of tobacco of the same quality, as measured by Federal grades, do fluc- tuate from day to day. There is little price variation in the very top grades and in the low= est grades, but the medium grades, which sold at 20 to 60 cents a pound in 1955, fluctuate consid= erably.

There is also a rather definite seasonal Figure 3,--Care in packing the basket can pay pattern in the average prices of Maryland to- off at the auction. bacco. 3/ This is in part the result of changes in quality as the season progresses, more high-quality tobacco coming to market in the first weeks. Grade prices decline to a lesser extent during the latter part of the season. Prices during the 1955 season were highest during the first couple of weeks, then weakened for the rest of the season. The decline during the last 2 weeks was rather sharp. Prices were higher on most Mondays than on other days during the week. These price movements did not differ greatly from the normal pattern. A clear difference from normal, however, appeared in the daily fluctuations in a number of the medium=-priced grades, which were much wider than in other recent seasons.

POOR SORTING MEANS LESS MONEY

One opportunity for making a profit on resales is offered by poorly prepared baskets of tobacco, which result from the failure of growers to sort and pack their crops properly. The manner in which the grower prepares his tobacco for sale influences the price he receives,

Poorly prepared baskets, if purchased by the packers, must be sorted into different packer grades before being placed in the hogsheads for storage. If they are purchased by a warehouseman or speculator, the buyers rework the baskets, making each one more wniform and more attractive in appearancee

Table 3.--Price and value of a lot of tobacco when originally offered and when re-sorted

Grade 8 Weight 9 Price 3 Value : Pounds Cents per pound Dollars BL Re estavareles eoieleieielereteie Hy 162 1 rejected bid) 29.12 3 Sale when re-sorted : Beyer ateyahs ancls evciorwlere 4 68 69 6.92 BR ateteersoisie nie ee cies 3 68 16 10.88 GVA ONES GEE SRA Ae $ 18 29 5.22 @@0@00020200000080880 $ 22 29 6.38 AVeTrTageecccccccccce 8 39.0443

Wen Go GGdG0000 $ 176 69.10 Gablinicie\eleveleloleleiens = 6 0.20

Sources Tobacco Division, AMS.

2/ The Enquirer=Gazette, Upper Marlboro, August 5, 1955, pe 1. 3/ Maryland Agricultural Experiment Station Bul. 51, p. 5h.

The reworking varies greatly. Only the off-color or poorer leaves may be removed; the basket may be repacked for better appearance, or the tobacco may be re-sorted into several grades.

The possibilities of reworking are shown by the record of a basket offered for sale in 1955 for which a bid of 16 cents a pound was rejected (table 3). The basket was re-sorted into four separate lots and sold for an aver= age of 39.3 cents. The reworked tobacco brought $0.28 more than the rejected bid would have totaled. Based on the original weight of the basket, the gain was equal to 22.13 cents a pound.

MARKET UPS AND DOWNS

Changes in the general market situation from time to time through fluctuations in supply, demand, and prices offer a second Figure h.--Buyers on a Maryland auction floor. opportunity for gain by buying and reselling.

The warehouse operator and the speculator are on the market continuously and can judge quite ac- curately whether the current situation is weak, offering an opportunity to buy and resell later at a profit. These market changes may be due at least partly to changes in requirements of the packer-buyers. If their needs increase, they will bid more aggressively and prices will tend to rise. If their needs decline, they will be less aggressive, and prices will soften. Tobacco packers have certain overhead costs to meet and want to operate at a sufficient volume to mini- mize their costs, If the volume coming to market is low relative to their plant capacity, the packers may pay higher prices to secure the necessary volume. On the other hand, with large volumes bidding may be less active.

SALES CONDITIONS AFFECT PRICES

A third situation for a profit on the auction market arises from errors in judgment of the value of a given basket of tobacco, These errors arise in part from the conditions under which auctions are held. There are few objective measures of quality for tobacco, Each basket is valued by the judgment of each buyer, with his own standard for comparison, The speed of the sale gives little time for examination by the buyer or for each to make many bids, The light in the warehouse affects the recognition of color, and light varies from day to day and during the day. Color is an important factor in judging the quality of tobacco, The warehouseman or spece= ulator, observing low bids on a basket, sometimes attributes them to the effect of the light on the color, and assumes the tobacco is priced under the market. He makes an offer, The other buyers, having moved on to the next basket, do not have time to reconsider their bids and the auctioneer sells the tobacco to the speculator, The buyer then seeks to offer the basket umder more favorable conditions, hoping for a better price.

FARMERS PAY FOR RE-SORTING AND PACKING

Warehousemen and speculators perform an economic service in a competitive market. For the baskets which are purchased and reworked, the margin is a payment for the service of better sort- ing and packing of the tobacco. Likewise, where the low bid is the result of errors in judgment or of changes in the market situation, the warehousemen and speculators stabilize the market, and the margins taken are payment for these servicese

The grower could secure a share of the margin by sorting and packing his tobacco better, By carefully judging the market situation and learning more about the qualities most desired, he would be better able to decide whether to reject low bids and when to reoffer the tobacco, per= haps in re-sorted form. Any time and effort growers spend in more carefully sorting and packing their tobacco will probably offer the best opportunity for increasing their incomes.

A detailed report of this study will be published after further analysis.