Fonterra cuts back GDT whole milk powder by a third over the next year
By Fiona Rotherham
Aug. 13 (BusinessDesk) - Fonterra Cooperative Group, the world’s largest dairy exporter, is reducing by a third the amount of whole milk powder, the key commodity export ingredient, it sells on the GlobalDairyTrade platform over the next 12 months due to persistent low prices.
The Auckland-based cooperative’s forecast cut the offer volumes over the next 12 months for its total New Zealand products by a further 56,045 metric tonnes, following a 62,930 metric tonne decrease in the past three months, it said in a statement.
Fonterra managing director global ingredients Kelvin Wickham said the bulk of that is whole milk powder, and milk collected will be shifted from whole milk powder production into other value-add parts of the business that will achieve a higher margin.
He said in terms of its product mix, Fonterra is now selling around 70 percent of its total product through channels other than the GDT and therefore it won’t have a material impact on inventories.
The move to cut volumes being sold on the platform also reflects a forecast 2 percent drop in New Zealand milk volume for the 2015/16 season to 1.589 million kilogram milk solids, given farmers were likely to be reducing stocking rates and reducing supplementary feeding to lower on farm costs. That was in the wake of the slashed forecast milk payout of $3.85/kgMS for the current season.
Wickham said it remains to be seen whether Fonterra’s cut back in products supplied for sale will see a lift in GDT prices, which are the main but not the sole determinant of the farmgate milk payout.
“If demand goes up and there’s less available that should see some movement in the price. When that happens, we don’t have a crystal ball to tell us when, but with less supply the current prices are not sustainable,” he said.
Fonterra has traditionally been the biggest volume seller on the platform and Wickham said while it was not bound to sell any particular volume, it would continue to ensure there was sufficient traded to keep the GDT liquid.
“There is more than enough whole milk powder to determine a global price. But over the next three-year period we’re looking to have less volumes on there and more shifted to support the rest of our portfolio,” he said.
Wickham said despite recent low prices, GDT continues to be a credible and transparent mechanism for international price discovery.