WELLINGTON, Oct 5 (Reuters) - Global dairy milk prices fell in this month's first auction after a two-month rally, raising questions over the sustainability of the recent recovery, according to analysts.
The Global Dairy Trade Price Index dipped 3 percent from the last auction two weeks ago, with an average selling price of $2,880 per tonne, in the auction held on Tuesday.
The index rose 1.7 percent at the previous sale, and had risen for four consecutive auctions, held twice a month. That had encouraged hopes of a recovery in dairy prices, which have tumbled more than 50 percent over the past two years due to oversupply and waning demand from China.
The likelihood of a recovery appeared greater in September when dairy giant Fonterra lifted its farmgate milk payout forecast to NZ$5.25 ($3.79), citing reduced global supply and steady demand.
In the most current auction, skim milk powder fell 3.9 percent, while whole milk powder prices lost 3.8 percent.
A total of 33,937 tonnes was sold at the latest auction, falling 3.3 percent from the previous one.
Analysts cautioned it was too early to tell whether the fall was temporary or indicated the dairy price recovery could not be sustained.
"Despite this (auction) we continue to believe the recent rally in prices has more durability than recent years," said Con Williams, agri-economist at ANZ.
The fact that recent price increases were driven by demand in many countries, rather than just China, and that milk supply was contracting in all major markets except the United States would point to a continued recovery, according to ANZ.
The New Zealand currency fell to $0.7212 from $0.7286 in the wake of the auction.
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 auctions are held twice a month, with the next one scheduled for Oct. 18. ($1 = 1.3870 New Zealand dollars) (Reporting by Charlotte Greenfield; Editing by Bill Rigby)