Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, will slash the amount of whole milk powder it sells at global auctions by 10 percent over the next 12 months as prices slump.
The change, part of cuts across its offering of dairy products including powder, butter and cheese, is the second time in two weeks the Auckland-based company has said it will reduce auction sales volumes because of lower prices.
“The changes come in response to current conditions on both the demand and supply sides of the global dairy market,” Kelvin Wickham, managing director, global ingredients, said in a statement, “We have further modified our product mix to shift volumes away from base whole milk powder.”
Fonterra last week reduced the amount it will pay New Zealand farmers to the lowest in at least 10 years after prices at the Aug. 4 auction tumbled to a 12-year low amid a global glut and weak demand from China. New Zealand central bank Governor Graeme Wheeler has cut interest rates and signaled further declines as weaker farm incomes threaten to curb economic growth in the country that relies on dairy for a quarter of its exports.
Fonterra now aims to sell 404,380 metric tons of whole milk powder over the next 12 months down from 449,580 tons predicted July 30, according to forecasts on NZX Dairy Futures Market website. The offer at the next auction on Aug. 18 will drop to 18,000 tons from the July 30 estimate of 23,050 tons.
The total volume of all dairy products that Fonterra offers at the auctions will drop by 56,045 tons over the next 12 months, the company said Thursday in the statement that didn’t specify a percentage reduction. On July 30, it lowered its planned offer by 47,800 tons.
Standard & Poor’s today said Thursday it has Fonterra’s A credit rating on Creditwatch Negative, citing high debt.
“This ongoing weakness in the global dairy market has occurred when Fonterra’s debt is at very high levels due to a large acquisition and peak capital expenditure, placing downward pressure on Fonterra’s key financial metrics,” S&P analyst Brenda Wardlaw said in a statement.