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USDA Dairy Market Overview Jul 3/03 - WESTERN EUROPE

OVERVIEW: WESTERN EUROPE: Milk production patterns across Europe are declining quite rapidly. During most of June, temperatures were hot and moisture was limited, thus negatively impacting the milk herd. In recent days though, some widespread rainfall and moderating temperatures have occurred which will hopefully slow the decline. Some producers and handlers are hopeful that a possible recovery of some of the loss during the month might occur.

Last week, the European Agriculture Ministers Council agreed on nearly a 20% reduction of dairy price supports over the next 3 - 4 years as part of their Common Agricultural Policy (CAP) reform package. Under the reform package which begins July 1, 2004, skim milk powder would be reduced 15% over three years with the butter support price cut by 25% over four years. These intervention program adjustments were not a surprise, although opinions on the final percentages were mixed. Some farmers and unions are fearful that they will be forced out of the dairy business without the subsidies that they have been accustomed to.

International sales activity out of Europe remains light in comparison to previous years. Handlers and traders report that there is buyer interest, although limited in scope and volume. Butter sales, destined for Russia, are being reported with suppliers feeling that this demand will continue into the fall and winter. Although milk production is on the down side of the seasonal cycle, offerings of surplus skim milk powder continue to clear to intervention. As of June 25, nearly 80,000 mt of powder has cleared to intervention. This volume compares to 129,000 mt last year at this time. Although there is only 29,000 mt left to go before reaching the 109,000 mt intervention maximum level, many producers and handlers still feel that the this level will not be breached this year. The Euro remains strong against the U.S. dollar, but has weakened in recent days to within a range of 1.15.

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