Openfield, Britain’s leading grain co-operative, is warning that the increased area of oats harvested this summer may result in a surplus for which there is no clear market – home or abroad.

Following the wet autumn and winter of 2012 in which many growers struggled to plant crops as normal and also resulted in large swathes of partially established crops failing. Many growers switched to oats for their fit within rotations and because there was seed available. Some growers will have secured buy-back contracts offering premiums or set prices, but many are likely to have planted the crop on a speculative basis with no guarantee that the market would meet their price expectations.

The latest figures from DEFRA suggest that farmers in England planted about 138,000 ha, an increase of 50% on the previous year. When extrapolated to include Scotland, Wales and Northern Ireland the total area is likely to be in the region of 164,000ha, an increase of 39% on 2012.

According to Openfield Market Analyst, Cecilia Pryce, this could result in a crop of about 1 million tonnes, assuming yield reports are accurate.

“While domestic demand for oats has been rising steadily over the past few years due to the increasing popularity of cereal bars and speciality biscuits it remains largely static at about 700,000 tonnes. Identifying a market for the surplus will be a challenge and may require considerable price corrections to ensure competiveness with other exporters,” she says.

“Demand for oats is largely inelastic as it is a poor substitute for wheat and barley, even in animal feed rations. Of course, if the price were to fall far enough this may change,” she adds.

The only credible option for disposing of this surplus she argues is to export it, but with the major oat producing nations of continental Europe and Scandinavia also enjoying sizeable crops this will require some clever marketing.

“Early indications are that Romania and Spain also enjoyed an oat harvest well above recent performance, while Poland, the EU’s largest oat producer, had a respectable crop too. Across the EU-28 the oat crop is expected to come in at about 8.5 million tonnes compared with 7.9 million tonnes in 2012.”

Historically, the UK would have looked to Spain to take some of the surplus, but with a sizeable surplus of its own to move that is unlikely to be an option.

“Worse still, our friends in Finland and Sweden will be keen to move their surpluses, and as if that wasn’t bad enough, if the reports about Romania are correct then it will is well placed to satisfy any Italian demand. This leaves the UK rather short of destinations,” says Cecilia Pryce.

Outside Europe demand is likely to be covered by near-by producers with Canada satisfying almost all of the demand from the United States and Australia meeting the needs of Asian consumers.

The challenge facing merchants across the UK she says, is to identify the smaller markets. “Our success in moving the domestic crop will be determined by how well we are able to market it. We will be reliant on smaller destinations and there lies the next problem: they are all likely to want prime milling oats,” she concludes.