- u - 



Figure li,— Buyers on a Maryland auction floor. 



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 l6 cents a pound was 

 rejected (table 3), The basket was re-sorted 

 into four separate lots and sold for an aver- 

 age of 39. U3 cents. The reworked tobacco 

 brought $UO,28 more than the rejected bid 

 would have totaled. Based on the origirul 

 weight of the basket, the gain was equal to 

 22,13 cents a pound, 



MARKET UPS AND DCTJNS 



Changes in the general market situation 

 from time to time through fluctuations in 

 supply, demand, and prices offer a second 

 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 volmtie to mini- 

 mize their costs. If the volvtme cOTiing 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 frcm 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 tirae for examination by the b-uyer 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 spec- 

 ulator, observing lovj- 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 under 

 more favorable conditions, hoping for a better price, 



FABI'IERS PAY FOR RE-SORTING AND PACKING 



Vferehousemen and speculators perform an economic service in a competitive market. For the 

 baskets which are purchased and rev;orked, 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 talcen are payment for these services. 



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 

 woiold be better able to decide whether to reject low bids and when to reoff er 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 wiH be published after further analysis. 



