European cows have pumped out more than an extra two billion litres of milk since quotas were lifted seven months ago, putting pressure on global prices.

Rabobank analyst Emma Higgins said one of the flow-on impacts of the 2.8 per cent production hike would be to the Fonterra forecast farmgate milk payout, which stands at $4.60 per kilogram of milk solids.

"We're now looking at next Christmas (2016) for the whole milk powder price to reach the US$3200 ($4782) figure".

"It's unlikely there will be much upside to pricing this season. The challenge is that the longer these low global prices continue, the more risk there is around the farmgate milk price. While a favourable exchange rate helps, it's dependent on other factors," Higgins said.

The European farmgate milk price had not been "fantastic" but had held up much better than expected. A recent depreciation of the euro had helped export markets and incentivised processors to flick on additional products to those markets. European export prices remained above operational costs, while co-operatives have also assisted European farmers by topping up milk payments by 1-2 cents a litre.

NZFarmer