Tobacco payoffs from Steve on the FOOL
This article doesn't mention that the buyout money is split. The larger share goes to the person who owns the license to grow tobacco and the smaller share to the person that actually operates the farm.
If a person owns the license *and* grows the crop, they get 100% of the buyout per acre. If the license is in different hands, iirc, the license holder gets 70% of the money and the farmer gets 30%.
Being a natural cynic, I suspect that over the years the licenses have been bought up by Philip Morris, Reynolds and other tobacco processors so that when the buyout program starts, the processors get most of the money, and are free to import cheaper tobacco from abroad. The people who grow the crop by renting a license only get 30% of the money, and then lose their price guarantee and have to compete with cheap imports.
If we see Philip Morris, Reynolds and others reporting large extrordianry profits over the next couple years, while the farmers go bankrupt, we'll know my hunch was right.
Steve
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This just came in:
I just caught the last bit of the Senate debate on C-SPAN. Interesting that most of the speakers against it were Repubs while the sponsors were DeWine (R-OH) and Ted Kennedy. While railing against the bill, Don Nickles (R-OK) noted that 80% of the payout will go to non-farmers. Kind of confirms the hunch that Philip Morris will have a large surge in profits over the next few years.
The buyout level is said to be in the neighborhood, for someone both owning the license and doing the farming, of $20,000/acre.
Steve |
