Grainco-operative Openfield is warning that the increased area of oats harvestedthis summer may result in a surplus for which there is no clear market homeor abroad.
Followingthe wet autumn and winter of 2012 in which many growers struggled to plantcrops as normal and also resulted in large swathes of partially establishedcrops failing. Many growers switched to oats for their fit within rotations andbecause there was seed available. Somegrowers 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 noguarantee that the market would meet their price expectations.
Thelatest figures from Defra suggest that farmers in England planted about 138,000ha,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.
Accordingto Openfield Market Analyst, Cecilia Pryce, this could result in a crop ofabout 1 million tonnes, assuming yield reports are accurate.
Whiledomestic demand for oats has been rising steadily over the past few years dueto the increasing popularity of cereal bars and speciality biscuits it remainslargely static at about 700,000 tonnes. Identifying a market for the surplus will be a challenge and may requireconsiderable price corrections to ensure competiveness with other exporters,she says.
Demandfor 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 enoughthis may change, she adds.
Theonly credible option for disposing of this surplus she argues is to export it,but with the major oat producing nations of continental Europe and Scandinaviaalso enjoying sizeable crops this will require some clever marketing.
Earlyindications are that Romania and Spain also enjoyed an oat harvest well aboverecent performance, while Poland, the EUs largest oat producer, had arespectable crop too. Across the EU-28 the oat crop is expected to come in atabout 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 asizeable surplus of its own to move that is unlikely to be an option.
Worsestill, our friends in Finland and Sweden will be keen to move their surpluses,and as if that wasnt bad enough, if the reports about Romania are correct thenit will is well placed to satisfy any Italian demand. This leaves the UK rathershort of destinations, says Cecilia Pryce.
OutsideEurope demand is likely to be covered by near-by producers with Canadasatisfying almost all of the demand from the United States and Australiameeting the needs of Asian consumers.
Thechallenge facing merchants across the UK she says, is to identify the smallermarkets. Our success in moving thedomestic crop will be determined by how well we are able to market it. We willbe reliant on smaller destinations and there lies the next problem: they areall likely to want prime milling oats, she concludes.