Skim milk set for net auction

Fonterra will introduce skim milk powder to its monthly internet auction globalDairyTrade next month, taking 20 per cent of New Zealand's total milk production online and aiming to give the world a regular benchmark price for this commodity.

Wholemilk powder has till now been the 18-month-old internet sales platform's stock in trade, with the average price at this week's monthly event falling 1.6 per cent or US$53 (NZ$75) per tonne from the January sale, the second month to show a drop.

Paul Grave, gDT's manager, said the result was within an expected range of price movement in current market conditions, and at the high end of historic prices.

There had been substantial price rises in wholemilk powder at the start of this season. Supply and demand forces were now "balancing themselves", Mr Grave said.

The addition of skim milk powder to the auction would mean 400,000 tonnes, or 20 per cent of New Zealand's milk, would be sold online.

Prices for skim milk powder had weakened in the US and Europe in the past month, as Europe milk production headed towards its peak for the year, and supply exceeded demand.

Asked about the level of skim milk prices Fonterra might achieve next month, Mr Grave said: "That's why we have gDT, to establish a benchmark."

Fonterra started selling by auction in July 2008 to try to provide global markets with guidance in an increasingly volatile price environment.

The platform was launched just as international commodity prices plunged in the economic crisis and Fonterra was for some time blamed by its competitors for helping to depress market prices.

It sells about 10 per cent of its annual wholemilk powder production on the site.

The average price at this week's event was US$3256 a tonne.

Mr Grave expected wholemilk powder prices to "bounce around" for a while as market volatility continued.

This week's result could have been worse given demand was easing, an independent trader said.

Market concern about the security of supply due to less Australian milk production and drought in parts of New Zealand had eased, but buyers were still trying to anticipate the effects of supply and demand on future prices, which was causing volatility.

Fonterra is keen to attract other sellers to gDT to give the sales platform more credibility. Mr Grave said there had been some interest and there could be developments this year.