Dairy prices fall 3.5 pct at fortnightly auction Prices drop for...

• Dairy prices fall 3.5 pct at fortnightly auction
• Prices drop for third time in a row
• Weaker prices could start to impact farmers' incomes - analyst

(Adds market reaction, analyst's comment)

Global dairy prices dropped for the third time in a row at an auction held early on Wednesday, raising concern that an earlier recovery was running out of steam.

The GDT Price Index dipped 3.5 percent, with an average selling price of $3,105 per tonne obtaining in the auction held in the early hours of Wednesday morning.

The index fell 1 pct at the previous sale, according to GDT Events, which runs the auctions.

Prices had risen in the second quarter on strong global demand and as production eased, but have since had a bumpy ride and could see farmers pocketing less income for their milk.

"The soft result adds to the likelihood of Fonterra downgrading its milk price forecast for the current season," BNZ markets strategist Jason Wong said in a research note.

Dairy giant Fonterra (FCG) currently pays out NZ$6.75 per kilogram of milk to its New Zealand farmers.

The auction results can affect the New Zealand dollar as the dairy sector generates more than 7 percent of the nation's gross domestic product.

The currency fell around 0.5 percent to $0.6907 in the wake of the auction.

Whole milk powder was hit particularly hard, falling 5.5 percent on low demand from North Asian buyers.

Skim milk powder fared better, bouncing off a surprise fall in the previous auction for price gain of 1.2 percent.

A total of 35,072 tonnes was sold at the latest auction, falling 1.7 percent from the previous one, the auction platform said

GDT Events is owned by New Zealand’s Fonterra Co-operative Group Ltd, but operates independently of the dairy giant.

U.S.-listed CRA International Inc is the trading manager for the twice-monthly Global Dairy Trade auction.

A number of companies, including Dairy America and Murray Goulburn (MGC), use the platform to sell milk powder and other dairy products.

The auctions are held twice a month, with the next one scheduled for November 21.