Fonterra moves product away from GDT

In a company announcement on Thursday, Fonterra said it would reduce the volume it offers for GDT auctions by 56,045t over the coming year. This adds to recent cuts and will bring the total reduction to 33% this season compared with last season.

Fonterra’s cut represents 6.6% of the total commodities traded through the platform in the past 12 months.

Fonterra said it would first cut offered volumes by 62,930t in the next three months. The world’s largest exporter of dairy products then plans to add back 6,885t later in the year in anticipation of changing market conditions.

Shift away from WMP

Fonterra’s managing director for global ingredients Kelvin Wickham said the changes come in response to current conditions on both the demand and supply sides of the global dairy market. The GDT’s last 10 auctions have resulted in price drops and its index of dairy commodities is at its lowest ever point.

“In response to current conditions in the global dairy markets, we have further modified our product mix to shift volumes away from base whole milk powder and into our other products in our portfolio such as value-add ingredients, consumer and food service,” Wickham said.

According to Fonterra, about 30% of its milk is now sold through the GDT, a platform the co-op founded in 2008.

Fonterra members are forecast to cut milk output by at least 2% in the coming season in response to falling prices.

S&P lowers Fonterra on credit watch negative

Meanwhile, the Standard and Poors rating agency placed Fonterra rating on “credit watch negative” on Thursday, citing weakening dairy markets.

The assessment reflects high debt levels and growing concerns about potential weakness in Fonterra financial metrics.

Being placed on credit watch means Fonterra will be closely watched, but does not necessarily mean its credit rating would be cut. A lower credit rating typically means a greater risk and so higher interest rates.

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