Fonterra to offer milk powder at GDT auction with guaranteed age limit at premium price

Fonterra Cooperative Group [NZX: FCG] will begin selling whole and skim milk powder with a guaranteed age limit on the GlobalDairyTrade platform from Dec. 1, saying some customers are willing to pay a premium for anything that extends the shelf life of their own products.

The two new specifications are medium heat skim milk powder of less than 120 days age at time of departure and regular whole milk powder with an age profile of less than 90 days ATOD. Milk powder is a long-life product with a shelf life up to two years and apart from the age limit the new "enhanced age" products are identical to regular skim and whole milk powder. But they do ensure maximum utilisation life, better shelf life claims and more flexibility in purchasing and inventory management, Fonterra says.

"Some customers have been asking for a tighter age range at time of shipment and we are proposing to offer that new specification from December," said Josh Sigmund, Fonterra's director of ingredients, sales & operations planning. "This will be positioned at a premium given tighter supply chain requirements. The auction will help us determine this premium over time."

Market analysts have been trying to assess what impact the new product lines could have on overall trade through GDT, especially if it means a lift in overall volumes.

ANZ Bank New Zealand economists Con Williams and Dylan Eades said in a note this week that the uncertainty may have contributed to weakness in this week's auction, where the GDT index fell 7.4 percent.

"There has been little information provided for the reasoning and other aspects like the expected volumes to be offered," they wrote. "Therefore, it appears the market has taken somewhat of a wait-and-see approach, which affected this auction result."

Fonterra said volumes would vary throughout the season and it would make no guarantees the "enhanced age offerings" would be available year round. Volumes would be determined closer to the Dec. 1 auction but the maximum was likely to be up to 10,000 metric tonnes a month for whole milk powder between October and February and a minimum offering of up to 3,000 tonnes from March to September. For medium heat skim milk powder, peak season volume could be up to 7,500 tonnes and minimum offering for the remainder of the year of up to 1,500 tonnes.

Across all products, some 33,997 tonnes was sold at this week's auction, down from 34,519 tonnes of product two weeks ago.

(BusinessDesk)