Fonterra cuts dairy auction volume

The changes are a response to conditions on the demand and supply sides of the global dairy market. Photo / Christine Cornege

Fonterra says it is significantly reducing the amount of product it puts up for sale on the GlobalDairyTrade auction platform over the next 12 months.

The co-operative's forecast offer over the next 12 months for New Zealand products has been decreased by a further 56,045 tonnes.

A 62,930-tonne decrease would be made over the next three months and 6885 tonnes would be added later in the year in anticipation of changing market conditions, Fonterra said.

Its managing director of global ingredients, Kelvin Wickham, said the changes were a response to conditions on the demand and supply sides of the global dairy market.

"In response to conditions in the global dairy markets, we have further modified our product mix to shift volumes away from base whole milk powder and into our other products in our portfolio such as value-add ingredients, consumer and food service," Wickham said.

Fonterra was now selling about 70 per cent of its product through channels other than GlobalDairyTrade.

From a supply perspective, Fonterra's GlobalDairyTrade cut reflected the latest production forecast for the coming season, in which the co-operative expects its farmers to reduce milk supply by at least 2 per cent.

"This reflects the likely impact of farmers using more traditional practices to manage their farm businesses within the limits of a low payout forecast."

Wickham said the move to take product off GlobalDairyTrade was a reflection of better opportunities for Fonterra's differentiated products, and the prospect of lower supply.

"The demand outlook is still not rosy from a farmer perspective," he said. "Buyers are not rushing in to purchase at the moment because they have got reasonable inventory cover."

Fonterra this month cut its farmgate milk price forecast to $3.85 per kilo of milksolids, down from $5.25, and chief executive Theo Spierings said he did not expect to see a significant improvement in prices until 2016.