November 24, 2004

Prices of European Dairy Products Higher Due to Strong Currency

Milk production is at or very near the annual low point in Europe. Current milk production is centered on internal consumer holiday item production rather than on products for export.

Many EU-15 countries continue to trail year-ago levels in milk receipts. The strong Euro against the US dollar and many other currencies keeps European prices higher than from other sources, including the US on some items. More deals that are occurring are based on deals in local currencies compared to the Euro. In fact, some countries are trying to avoid dealing in US dollars.

For exports, most traders feel that because of the strong Euro, the EU commission needs to increase export subsidies to make up some of the currency difference. However, after a generally strong year for exports and subsidized volumes near the WTO limits, little incentive is there to increase subsidies at this time. 

The concern for the European export industry is what happens after the holiday orders are filled and what to do with the extra milk available over the yearend holiday period and in early 2005. The EU commission continues to sell some skim powder from stocks for annual feed use. Russian seasonal demand for butter, at least from the EU, is light due to the strong Euro.  As other surplus sources of butterfat get tapped out, some light Russian interest is again returning to the EU.

Eastern European production is trending lower toward annual low levels. For countries affected, overall milk production in the region has been higher since the merger into the EU with prices generally higher. Some Eastern European bulk dairy products are selling in Western European countries for further processing and better prices, such as cream shipped into Germany. Reported spot product inventory for exports are fairly light.