World's biggest dairy exporter, Fonterra Cooperative Group has said that it has decided to scale back applications from its farmers for selling milk at a guaranteed price in the 2013/2014 season because it is being overwhelmed by demand.

The cooperative had announced a pilot scheme in the previous month in which it offered to pay $7 per kilogram of milk solids to the farmers agreeing to lock in payment for 2014 season. The cooperative had expected response from about 200 farmers in the country but the demand was much larger than expected.

The cooperative said that a total of 328 farmers expressed interest in supplying 37 million kgMS worth $259 million at the price that was guaranteed under the scheme. The level is more than double the 15 million kgMS offered worth $105 million. Due to the increased demand, the applications were scaled back by about 40 per cent by the cooperative.

"While most farmers can live with the market volatility, there are times when some farmers would prefer more certainty as it would help them manage their own farming businesses and that's why we've developed this pilot," said Bruce Turner, Fonterra's director of commodity risk and trading.

The scheme allows farmers to lock in between 10 and 75 per cent of their supply.