Fonterra to double up on internet auctions

Photo / Sarah Ivey

Dairy giant Fonterra will increase its online trading auction from once a month to twice from September in a bid to increase its customer base and be more transparent with its pricing, the company announced yesterday.

The globalDairyTrade platform was introduced in 2008 and has been successful with bidders. There are 280 registered and each event attracts between 100 and 140. A survey of the major clients showed there was a demand for more frequent trades.

Fonterra global trade managing director Kelvin Wickham said the extra auction would add more depth and credibility to pricing trends.

He said the additional auction would give the market greater confidence as up-to-date information would be available, as well as the current balance of supply and demand.

"The key driver is greater frequency of price [for our customers] and continued growth. To build extra liquidity and increase the number of buyers and sellers," Wickham said.

From the August 3 auction, Fonterra will be selling buttermilk powder and two new specifications of existing products - high heat/heat stable skim milk powder and anhydrous milk fat in 1000kg bulk packs.

Apart from the above products the platform also sells whole milk powder and skim milk powder.

To date about 500,000 metric tonnes, worth $2.3 billion, has been sold through the online platform to bidders in 56 countries.

The most popular product is the whole milk powder which accounts for about 60 per cent of online sales.

Wickham said the platform made the whole selling process more transparent as not all negotiations were done "behind closed doors".

He said once a customer had won a bid the price was immediately posted on the website.

Wickham added that although the online platform had been successful it was only one channel for Fonterra.

"The current forecast is to sell 530,000 metric tonnes of product [online] over the next 12 months or about 24 per cent of Fonterra's New Zealand production.

"With globalDairyTrade, Fonterra has taken a leading role in developing ways to manage the new price volatility in the markets for dairy products. We are very optimistic about the benefits the industry will get from a more open and transparent market," he said.

Fonterra globalDairyTrade manager Paul Grave said the latest online results showed the market was enjoying a period of relative stability compared to trading conditions over the past 12 months, which had shown rises as high as 25 per cent a month.

Fonterra sold US$138 million ($207 million) of product at this month's auction, with a trade weighted index covering a basket of products down 3.5 per cent and the average price for whole milk powder down 3.4 per cent to US$3790 a tonne.

"We've seen a slight downward price adjustment that may reflect the increasing availability out of Europe, a signal from Fonterra through [globalDairyTrade] that it's got more volume available through this channel, the euro's weakened against the US dollar quite considerably since the last event so that's making European supply much more competitive on the world stage," Grave said.

DAIRY AUCTION

* Fonterra's globalDairy Trade launched in July 2008.
* 500,000 tonnes of milk products worth $2.3 billion have been sold.
* 56 countries have taken part.
* Whole milk powder accounts for about 60 per cent of online sales.