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WELLINGTON, Feb 3 (Reuters) - A sharp fall in prices at the GlobalDairyTrade auction on Tuesday will add to pressure on New Zealand farmers, the majority of whom are already operating below break even.
Fonterra's GDT Price Index dipped 7.4 percent, with an average selling price of $2,276 per tonne, in the platform established by New Zealand's Fonterra Co-operative Group, the world's biggest dairy exporter.
Whole milk powder prices fell 10.4 percent to $1,952. “Dairy commodity markets remain very bearish as the global milk supply exceeds demand for dairy products," said AgriHQ Analyst Susan Kilsby.
European milk production continues to expand, particularly in Ireland, the Netherlands and Germany, Kilsby said, adding: "It is unlikely we will see a recovery in the markets until late 2016."
The auctions are held twice a month, with the next one scheduled for Feb. 16.
After rising steadily from 2008 to record highs in 2013, global dairy prices have dropped sharply because of slowing economic growth in China and global oversupply of milk products.
China is one of New Zealand's top export markets and the world's largest importer of whole milk powder.
Weak dairy prices have put significant pressure on New Zealand farmers. The central bank now estimates around 80 percent of dairy farmers will have negative cash flow in the current season, posing a risk to the economy.
Last week Fonterra lowered its forecast dairy payout to its farmer shareholders, citing sluggish global demand.
Fonterra now expects to pay its shareholders NZ$4.15 per kilo of milk solids in the current season versus a prior forecast of NZ$4.60. This strips around NZ$800 million out of farmers' income.
The New Zealand milk co-operative, owned by about 10,500 farmers, controls nearly a third of the world dairy trade.
