Fonterra's decision last week to divert more whole milk powder away from the Global Dairy Trade (GDT) auction platform - its second such move in a month - is expected to be supportive for the price of New Zealand's single biggest export.
The co-op, in a communication to markets, said its total GDT offer for whole milk powder had been reduced by 19,500 tonnes between August and November this year.
In addition, the offer for this Wednesday's auction had been reduced by 1000 tonnes.
Together, those tonnages equate to an entire GDT auction's worth of whole milk powder.
"These changes are the result of extremely strong demand for whole milk powder over the next six months outside of the GDT events platform," Fonterra said in its statement.
Whole milk powder futures prices rallied by 1 to 2 per cent on the news.
"It will have a material impact, particularly going into November because that's heading into the peak of season," one derivatives specialist said.
"It set the market on fire a bit. We don't have much selling interest in the whole milk powder contract - everyone is a buyer."
He said it looked like the market was consolidating since hitting its peak in March.
"It's hard to be bearish after that sort of announcement," he said.
Early this month, Fonterra said it had reduced the total offer for whole milk powder on the GDT platform by 9240 tonnes between August and January 2022.
Whole milk powder prices have generally been in decline over the last few months.
At the last sale on July 7, it traded at US$3864 a tonne, down from its peak in March of US$4364.
Despite recent weakness, Fonterra has set out a robust farmgate milk price range for the 2021/22 season of $7.25-$8.75 per kg of milksolids, with a midpoint of $8 per kg.
An $8/kg milk price, if it came to pass, would be one of the strongest on record.
The price of paid for whole milk powder on the GDT platform feeds into or "informs" the eventual farmgate milk price.
Fonterra said its forecast offer for skim milk powder - another important product for the farmgate milk price - over the next 12 months would remain unchanged but 4400 tonnes had been moved from August/September to October through to February 2022.
In addition, the offer quantity of skim milk powder for Wednesday's event has been reduced by 250 metric tonnes.
Fonterra had a strong season, production-wise.
In its latest update, milk collection for the 2020/21 season to May 31 was 1,539.2 million kg of milksolids, 1.5 per cent ahead of last season's total.