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Fonterra announces changes to milk powder auctions aimed at adding depth and credibility around pricing

The world’s biggest exporter of dairy products, Fonterra Cooperative Group, has announced plans to add a second online milk powder auction every month and the addition of new items to the sale, like buttermilk powder. Kelvin Wickham, Fonterra’s managing director of Global trade, said the addition would add more depth, credibility and transparency around pricing trends.


With a more frequent pricing indicator, market participants will have more confidence as they armed with up to date information on the current balance of supply and demand. With these monthly plans, second monthly sale is expected to begin in September, according to a statement sent out by the Group. In June’s monthly sale on the global Dairy Trade platform, managed by CRA International, average prices for the whole milk powder fell to US $3,790 a tonne, representing a 3.4% decline.


Regardless, it still represented double the trough of July 2009, though the increase in prices is easing while production in Northern hemisphere is going up. In May, Fonterra increased its forecast pay out for the coming season to $6.60 per kilogram of milk solids, while at the same time warning that market volatility might erode the growth in dairy prices throughout last year.


Fonterra expects to add buttermilk beginning 3rd August, with additional two new specifications of existing products- high heat/heat stable skim milk powder and anhydrous milk fat in 1,000 kilogram bulk packs, the Fonterra MD said. The globalDairyTrade platform has sold 500,000 metric tones estimated at US$1.5 billion since it was formed.


From the initial 107 bidders when the auction began, the number has grown over the years to the current 280 bidders that come from 56 countries. Out of this, around 100 and 140 active bidders take part in each event, with around 65% of them eventually winning the product. According to Wickham, Fonterra is forecasting sells of about 530,000 metric tones of product over the next twelve months, about 24% of Fonterra’s New Zealand production.


With its participation in global Dairy Trade, the Fonterra group has been at the helm in the development of ways to manage the new price volatility in the markets for dairy products.  Fonterra chief said the company was very optimistic about the benefits the entire industry stands to gain from in the more open and transparent market. He further added that the company’s continued growth was evidence of an efficient and effective sales channel.


June 11, 2010.


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