European Dairy Market Summary

MADISON - Sep 28/06 - SNS -- Dairy market conditions in western and eastern Europe were reviewed in the latest report on the sector released by the USDA today.

Delayed release due to EU Dairy Management meeting results

WESTERN AND EASTERN EUROPE

WESTERN OVERVIEW:  Milk output in Europe continues to edge lower
seasonally.  As a whole, milk production in the EU 25 countries has
lagged last season by about 1%, but milk handlers indicate that the
gap appears to be narrowing.  Most feel that in those countries that
are trailing in production, it will be hard to increase output at this
time to make up the difference.  Some are hopeful that the new 2007 -
2008 production season will get a good/early start before the quota
year end arrives in March.  Weather conditions throughout Europe vary,
but for the most part, moisture conditions are favorable for late
season pasture growth and temperatures are seasonal.  Milk volumes are
often short of full needs and competition for milk for fluid and
manufacturing needs is aggressive.  Drinking milk demand is strong and
garnering the most volume, with the balance being divided up among
manufactured dairy products.  Cheese demand and production are strong,
thus a large portion of available milk is entering the cheese vat.
Butter/powder production continues, but is well off the pace of
previous years for this time of the season.  Some butter producers and
handlers indicate that they may have mismanaged their butter
production during the season by clearing maximum amounts of butter to
intervention versus entering this production into other inventory
programs.  At this point, available butter stocks are limited and
prices are increasing.  The EU Dairy Management Committee met this
morning and reduced the subsidy aid to zero for skim milk for the
production of casein.  Although this subsidy was reduced to this
level, it does not mean that the subsidy program has been abolished,
but the option to re-instate this aid still prevails.  Most within the
industry are not optimistic about a subsidy reinstatement.  A specific
timeline for the reduction is not clear, but most feel that it will
occur soon.


EASTERN OVERVIEW:  Milk production in Eastern Europe continues to also decline
seasonally.  Milk handlers state that it appears that milk production in
Eastern EU countries is on a better track with quota trends than their Western
counterparts.  Although milk volumes are on track, surplus volumes are not
excessive, thus production of manufactured dairy products is often not
attaining levels of previous years.  Much of current production is being
absorbed within the producing country or is clearing to other EU countries.
International buyer interest is reported to be limited and slow.  Most of this
lack of buyer interest is being attributed to the lack of available supply.

1010c  steve Schneeberger  (608)250-3204

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STAT News Service