growing or curing season. Buyers are cigar or 

 chewing tobacco manufacturers or independent 

 packers. 



Although competitive bidding exists in the 

 sense that various buyers inspect the tobacco and 

 make offers, competition is not as apparent as in 

 the auction method of sales. 



The buyers travel through the producing 

 districts during the growing season, and note the 

 progress of individual crops, as well as the 

 changes in the acreages and crop prospects, as 

 compared with other years. In this way they keep 

 themselves informed on the location of desirable 

 crops. 



Sales may be at a flat price per pound for the 

 entire crop, or at separate rates per pound for dif- 

 ferent groups of grades. 



Cigar wrapper is grown under many kinds of 

 arrangements. Sometimes the buyer rents the 

 land, hires the owner as foreman, and has him 

 grow the tobacco for the buyer's account, or the 

 buyer and the farmer each contribute certain spe- 

 cified items of cost and share in the proceeds in 

 relation to this contribution. Some manufacturers 

 grow tobacco on their own land. Sometimes a 

 farmer who thinks he has an unusually fine crop 

 and believes the prevailing market will improve, 

 has his tobacco sorted, sweated, packed, an 

 stored for sale at a future time. 



The Hogshead Market 



Before the "loose-leaf" auction system of sales 

 was developed, growers packed their tobacco in 

 hogsheads for delivery to commission agents. 

 This was much the same procedure as was 

 followed in the very early days of the country. 

 Originally, the grower received a negotiable 

 receipt for each hogshead delivered, before 

 inspection and final sale. In the early 1800's the 

 practice of sampling the hogsheads and allowing 

 buyers to bid on these samples established the 

 first form of sale by the auction system. 



Today, the only such hogshead market in 

 operation is the "closed-bid" auction at Chelten- 

 ham, Md., which handles a very small quantity of 

 Maryland tobacco. The tobacco is delivered to 

 the marketing association which operates as the 

 commission agent. After the State inspector 

 samples the hogsheads and affixes the State seal, 

 the samples are made available for examination by 

 prospective buyers. Buyers submit sealed bids on 

 individual hogsheads; these bids are opened at a 

 specified time and the highest bid is accepted 

 subject to grower approval. 



Since the establishment of the auction markets 

 in Maryland in 1939, almost all of that State's 

 tobacco has been sold on the auction floors. 



Loan Programs 



Since 1933, USDA has administered programs 

 to stabilize U.S. tobacco production and assure 

 fair prices to growers. The current legislation 

 governing loan programs is the Agricultural Act 

 of 1949, as amended. The program isavailablefor 

 all types of tobacco and must first be approved by 

 eligible growers in a special referendum. There- 

 after, referendums are held every 3 years to con- 

 tinue the program. Basically, growers are 

 assigned production or marketing quotas in 

 return for price support. All but 4 of the 24 types of 

 tobacco produced in the United States and 

 Puerto Rico are currently under price support 

 programs. 



Price support for eligible producers is adminis- 

 tered by producer-owned cooperative associa- 

 tions acting under loan agreements with Com- 

 modity Credit Corporation (CCC). Under these 

 agreements, CCC provides loans to these associ- 

 ations in the amounts necessary to pay price 

 support to the producers, and process and store 

 the received tobacco until it can be sold. The 

 tobacco received by the association thus 

 becomes the collateral for, and the means of 

 repaying, the CCC loan. Loans are made on a 

 crop-year basis, and it may take a number of years 

 to dispose of the loan receipts from a particular 

 crop. If the sale proceeds from the collateral 

 securing the loan are insufficient to repay the 

 loan, the unpaid balance is written off as a 

 program cost. When proceeds from the sale 

 exceed the loan, the net proceeds are distributed 

 to the growers on a pro-rata basis. 



Under the current program, a price support is 

 established for each grade of tobacco. On an 

 auction market, the grower may accept the 

 buyer's bid or allow the tobacco to be received by 

 the association at the support price. Ineithercase 

 the grower is paid by the warehouse, which, in 

 turn, is reimbursed by the buyerorassociation. In 

 the cigar leaf areas, eligible growers deliver their 

 tobacco to the producer association where it is 

 graded and then offered for sale. 



From 1937 through fiscal year 1977, a total of 

 $4.6 billion has been loaned to producer 

 associations. Realized losses during this period 

 were $52.1 million. As of January 1978 there were 

 $652.4 million of loans outstanding. All this 

 money is expected to be repaid as the tobacco is 

 sold. 



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