Dairy product prices have rallied since Fonterra reduced the amount of product it puts up for sale on the GlobalDairyTrade auction platform, but the co-op is not claiming bragging rights for turning the market around just yet.
Wholemilk powder prices, which are key to determining Fonterra's farm gate milk price, rose by 12.1 per cent to an average US$2078 a tonne at the last auction on September 2.
Analysts have credited Fonterra's moves to reduce the amount of product on the platform as lending support to wholemilk powder prices, which have risen by 30 per cent in just a month.
But Kelvin Wickham, Fonterra's managing director, global ingredients, said the improvement was more likely to reflect the market coming to terms with the likelihood of its lower production.
"The outcome of that has been positive from a price perspective, but it's not just the [reduced] supply, it's the market digesting the fact that we have got less supply," Wickham said.
"We've got extra bidders coming on to GDT and we have seen extra sales outside of GDT, so effectively it's more about market timing as opposed to any single decision that we have made," Wickham said.
"I think there are much bigger supply dynamics out there," he said. "I have always maintained that GDT is just a flashpoint for these products on the day and at the time - willing buyer, willing seller," he said.
"Buyers have clearly been willing to pay more in the last couple of events than they have done previously because at the end of the day it does not matter what volume was on there - a customer was prepared to pay more," he said.
Wickham said global supply and demand was still "out of phase".
"The demand side remains very tough. There are some pockets of strength but it is patchy, and supply - in the US in particular but also in Europe - is coming on to the world market," he said.
The market, he said, would "take some time" to correct itself. "While it is a positive to see the improvements in GDT prices in recent days it does not make a consistent trend and the fundamentals are still pretty much the same," he said.
Wickham said Fonterra could not lay claim to having an influence on the market's improvement. "No, just like I don't claim that Fonterra was responsible for wholemilk powder reaching US$5000 a tonne," he said. "We don't claim any responsibility for it being at US$1500 either," he said.
This week, Fonterra said it had maintained its milk volume forecast for the 2015-16 season at 1589 million kg of milksolids, which is in the range of 2-3 per cent lower than the amount collected last season.
Fonterra said there was evidence that farmers were pulling back on production, which could lead to a further downward revision of forecast volumes.
It appears that farmers are responding to the low farmgate milk price by returning to more traditional farming practices - reducing the use of feed supplements and lowering per hectare stocking rates. Cows are being culled at higher rates than last season.
Some economists are looking at a far larger fall in production than Fonterra has communicated. ANZ's Con Williams expects a 5 per cent fall, while rural lending specialist Rabobank expects a 10 per cent reduction, as supply drops in response to very weak prices.
Beyond that, there is a real possibility that the El Nino weather effect may cause drought this year, which would also curtail production.
Fonterra has been on a concerted drive to increase sales outside of GDT - which belongs to Fonterra but which operates at arm's length.
Wickham said there had been arbitrage opportunities in markets such as the United States for products like cheese and milkfat.
While GDT came under fire from farmers - some of whom suggested trade on the platform should be suspended when the price hit US$1590 a tonne - Wickham said Fonterra was happy with the robustness of GDT as a price discovery mechanism.