"We're having some active discussions and have selected a shortlist of who we want to approach," Fonterra  global trade managing director Kelvin Wickham said. But he did not expect the rival companies to start selling at the auctions until 2011 or later, because there would need to be a lot of work done on the rules and processes involved.

 

In the meantime, Fonterra was pressing ahead with adding a wider range of its own products. "It was always our intent to put more products on there, increasing the range of products and the volume so that its got a critical mass and credibility, and then to extend it to other suppliers," he said.

 

"The more liquidity we can build - the more sellers and buyers - the more credibility it has as a reference price," he said.

 

The volume of whole milk powder was already sufficient to provide a global reference price, and in the next 12 months would be equivalent to 20% of world trade in that commodity.

 

Fonterra said that from September its trading manager, CRA International would increase the frequency of internet auctions to twice a month, and Wickham said this was a significant milestone.

 

"This will add more depth and credibility and even more transparency around pricing trends," Wickham said. "With a more frequent pricing signal, market participants will be able to have even more confidence they have up-to-date information on the current balance of supply and demand."

 

The auction operation, known as Fonterra's "global dairy trade" arm, has grown to 280 qualified bidders from 56 countries, an increase from 107 bidders when sales started, and there were now between 100 and 140 active bidders at each auction with about 65% of bidders successful in acquiring product.

 

From August 3, Fonterra will start auctioning a new product, buttermilk powder, and two new specifications of existing products -- high heat/heat stable skim milk powder and anhydrous milk fat in 1000kg bulk packs.

 

So far, the auctions have sold 500,000 tonnes worth US$1.5 billion in whole milk powder, skim milk powder and anhydrous milk fat, and are forecast to sell 530,000 tonnes over the next 12 months, or about 24% of Fonterra's New Zealand production.