For the August 18 GDT Fonterra will offer 18,000 tonnes of whole milk powder (WMP) instead of the originally planned 27,500 tonnes.
The volume of WMP to be offered on GDT from September to January has been reduced by 15%, followed by small increases between February and April.
It responded to critics who said 10 fortnightly losing GDT events in a row since last March were signalling to commodity markets that Fonterra was prepared to sell at any price and the selling method was driving the downward price spiral.
The combination of futures interest and GDT volume changes should be enough to lift commodity prices or at the least stabilise them, NZX dairy analyst Susan Kilsby predicted.
A flurry of activity on the futures market in the last week lifted prices for September whole milk powder contracts from US$1550/t to near $1700.
Prices for contracts deliverable in October, November and December also rose above $2000.
On Wednesday 5994 contracts were part of 26 trades, breaking the previous daily volume record of 4100 contracts set on May 21.
NZX derivatives head Kathryn Jaggard said some new participants in the dairy futures market were very well informed about the dairy commodities market.
“Over the past six months the futures market has proved to be an accurate predictor of the physical markets.”
Movements in futures prices since the last GDT auction equated to about 20c/kg MS increase in the milk price, Kilsby said.
However, the AgriHQ farmgate milk price was still about 30c below Fonterra's forecast milk price.
“The large gains in the milk powder futures were partially offset by weaker prices in the milk fat futures for butter and AMF,” she said.
“Commodity prices need to improve even further in order to achieve Fonterra's milk price.”
“In terms of our product mix, Fonterra is now selling approximately 70% of its total output through channels other than GDT and as a result we do not expect a material impact on inventories.”
Kelvin Wickham
Fonterra
Fonterra global ingredients managing director Kelvin Wickham said the GDT volume changes were a response to conditions on both the demand and supply sides of the global dairy market.
“We have further modified our product mix to shift volumes away from base WMP and into other products in our portfolio such as value-add ingredients, consumer and food service.
“In terms of our product mix, Fonterra is now selling approximately 70% of its total output through channels other than GDT and as a result we do not expect a material impact on inventories,” Wickham said.
The co-operative also expected its farmers to reduce milk supply by at least 2% though other estimates had been as high as 10% as NZ farmers culled dairy cows and reduced supplementary feeding.
While the reduction in GDT volumes would be welcomed, the market would also need to assess whether it believed Fonterra could successfully sell 70% of its output outside of GDT or would be left with large increases in unsold inventories.
