(Updates to add more detail, comment from economists)
WELLINGTON, Jan 20 (Reuters) - International dairy prices continued to fall in this month’s second auction held by New Zealand's Fonterra Co-operative Group, the world's largest dairy exporter.
The GDT Price Index, which covers a variety of products and contract periods, dropped 1.4 percent, with an average selling price of $2,405 per tonne, in the auction held on Tuesday. Whole milk powder, which makes up the bulk of the auction, fell 0.5 percent to $2,188.
“Global demand for dairy commodities continues to be weak relative to global milk supply,” said New Zealand's AgriHQ dairy analyst Susan Kilsby.
Analysts say ongoing weakness in dairy prices may lead Fonterra to lower its forecast payout for its 10,500 farmer shareholders. Fonterra currently expects to pay its farmers NZ$4.60 ($2.98) per kilo of milk solids, a level that is already below break-even for most.
"We expect Fonterra to reduce its milk price for 2015/16 toward the bottom end of our forecast range of NZ$4.25-NZ$4.50/kg MS," said ANZ Bank's Con Williams.
Any further decline in the payout will be of concern for the Reserve Bank of New Zealand and could add to the view that it may cut interest rates further. The central bank last cut interest rates, by a quarter percentage point to 2.5 percent, in December. It already estimates around 80 percent of dairy farmers will have negative cashflow in the current season, posing a risk to the economy.
The GlobalDairyTrade auctions are held twice a month, with the next one scheduled for Feb. 2.
The auction platform was set up by Fonterra and is operated by trading manager CRA International
. Participants include Fonterra, Amul, Arla Foods, Arla Foods Ingredients, DairyAmerica, Euroserum and Murray Goulburn. Products traded on the twice-monthly auction include whole milk powder, skim milk powder, butter, cheese, anhydrous milk fat, among others.
(1 New Zealand dollar = $0.6482)
