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USDA review of dairy market conditions in Western and Eastern Europe

OVERVIEW: WESTERN EUROPE: Milk production patterns throughout Europe are seasonally strong. In most countries, milk output is at or continues to increase toward the seasonal peak, although in some areas, milk handlers are reporting lighter receipts which may indicate that the seasonal peak has been attained. Some milk handlers state that looking at a calendar, milk production usually is at peak levels at this time of the year and very possibly past that point in some regions. The major topic of discussion in the European dairy market is the firm Euro in relationship to the U.S. dollar. Early in the week, the exchange rate for the Euro was very near the level it was when introduced in January 1999. This firmness is causing already slow sales out of Europe to become even slower.

Last week, the EU Management Committee increased the export subsidy for skim milk powder from 510 Euros to 600 Euros (+18%). Many traders and handlers were lobbying the Committee for export subsidy increases to hopefully help stimulate international buyer interest for European sourced dairy products. They were initially pleased with the skim powder adjustment, but the continued firmness of the Euro has basically absorbed that adjustment already. Most feel that additional adjustments may and hopefully will be forthcoming for skim and full cream milk powders. At this point, international sales remain light and unaggressive. Traders feel as long as the Euro remains strong, buyers may continue to hold off placing orders until at least this factor stabilizes. Many traders and handlers feel that the firm Euro will remain so for the near term, thus they will need to adjust pricing structures and to reflect this factor. Seasonally strong milk production is generating increasing volumes of unsold dairy products. Since March 1 and through May 15, intervention offerings of skim milk powder were at 28,210 mt. This 2 1/2 month figure compares to 54,270 mt during the same period last year. Also through mid May, PSA butter offerings total 50,000 mt compared to 66,000 mt for the comparable 3 month (February 15 - May 15) period last year.

EASTERN EUROPE: Milk production patterns in Eastern Europe are reported to be seasonally increasing. Weather conditions are favorable for steady production growth. Some recent rainfall in many areas of the region is contributing to good pasture growth. Traders and handlers of Eastern European dairy products indicate that sales remain slow, although a firm Euro in Western Europe might allow some buyer interest to be filled from this region. Stocks are available.

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