Tumbling dairy prices up in latest Fonterra Global Dairy Trade auction

By Ben Bouckley

- Last updated on GMT

Picture Copyright: Global Dairy Trade
Picture Copyright: Global Dairy Trade

Related tags: Milk

The majority of internationally traded commodity dairy products traded in the latest Fonterra Global Dairy Trade auction event sold for higher prices, arresting a series of price slides dating back to December 6.

Out of 161 participating bidders this Tuesday, 111 won auctions following 12 bidding rounds, with 31,026 metric tonnes of product (across seven different categories) sold at an average winning price of US $3,701 (€2,868).

After a 2.5% slump on sales for the last event, anhydrous milk fat (AMF) was up 2.8% (the average winning price was $4,084 per metric ton) Cheddar was up 2.1% ($3,776/t) rennet casein (RenCase) was up 3.7% ($8,069) and skim milk powder or SMP 2.7% ($3,351).

But the most marked change was for butter milk powder (BMP), prices of which fell 4.3% ($3,430) milk protein concentrate (MPC70) was also down 1.9% ($5,880)

Expanding platform

Rapidly expanding in importance, Global Dairy Trade is independently run, but was established in 2008 as a single-seller, single-product auction by Fonterra to deal in whole milk powder.

Last October, Dairy America (representing four major US co-operatives) joined Global Dairy Trade, which became a leading price reference indicator as a multi-seller, multi-product trading platform, with 2-hour auctions held twice monthly.

Aside from Fonterra and Dairy America other sellers on the platform include large Australian concern Murray Goulburn Co-Operative (selling lactose) and most recently Scandinavian co-operative Arla Foods, which will begin offering products for sale from April 3 2012.

Arla said recently that joining an online dairy commodity trading platform would allow it to tap an as yet unused source of potential export growth, as it seeks to sell medium and low-heat SMP products in the first instance.

Peter Tuborgh, Arla Foods CEO, said: “We believe that the growth potential on European markets will continue to be under pressure in the years to come, and we are therefore increasing our focus on the growing markets in the Middle East, Africa and Asia.

How does the platform work?

When Fonterra launched GlobalDairyTrade back in April 2008, then CEO Andrew Ferrier said the platform was intended to counter dairy product price volatility, and would allow both the company and its customers to be more responsive in this respect.

"GlobalDairyTrade has been designed as a step along the way to help Fonterra and its customers manage price exposure in this sort of market, but will be equally as effective in any market conditions,"​ he said.

  • Each auction involves several bidding rounds, where a specified maximum quantity of each product is offered for sale at a pre-announced starting price.
  • Bidders bid on a desired quantity of product at the announced price; if product prices increase between rounds, bidders must then bid at a higher price.
  • As product prices rise, the quantity of bids generally decreases, meaning that at the end of number of bids received matches the quantity of product available (see diagram).

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