The annual New York May art sales, the biggest event in the art world calendar, start today in a drastically shrunken form, with Sotheby's expecting its contemporary art auction to generate less than a quarter of the sales it did a year ago.

The two weeks of sales - Impressionist and Modern auctions are this week and postwar and contemporary auctions take place next week - come after a 35 per cent fall in the price of art in the first quarter of 2009, according to the Mei Moses art index. That index excludes works that failed to sell. Some insiders put the price drop closer to 50 per cent, sharper than stock markets.

Ian Peck, principal of Art Capital Group, which lends money against artworks, said: "We have cut our valuations 40-50 per cent since the start of the year. We have seen some absolute forced borrowing but everyone, rich and poor, is facing liquidity problems."

He said his business had doubled in the past year as wealthy collectors raised money against artefacts rather than selling them in a falling market.

"The art market is a trailing indicator and much less liquid. I think there is a further way to go down and the May sales will be very difficult," he said.

Kristine Koerber, an analyst at JMP Securities, said of the Sotheby's evening contemporary sale: "The hammer range [of $52m (£35m) to $73m] represents about 16-23 per cent of last year's hammer results, which is very disappointing."

The contemporary sector, which saw the biggest price rises in recent years, has been hardest hit in the downturn.

Robert Read, an art expert at Hiscox, the insurance company, said Chagall's "Le Jongleur de Paris", offered at Sotheby's tomorrow, would be a barometer. Its value is estimated at $2m-$3m. It was sold in 2005 for $1.1m.

Sotheby's last week said it would cut staff a further 5 per cent - on top of last year's 15 per cent. Its shares have fallen almost 90 per cent in 18 months.

Christie's, owned by billionaire François Pinault, cut about 300 jobs last year.