PARIS (Reuters) - Euronext (>> Euronext) launches its revamped dairy derivatives on Monday, betting that the end of the European Union's milk quota system will stir price hedging interest in a sector that has so far shunned futures markets.

The exchange is replacing a failed skimmed milk powder contract with a wider offering of butter <0#ULB:>, skimmed milk powder <0#SKMP:> and whey powder <0#WFP:> futures. It is focusing on a northern European production zone expected to drive higher EU dairy exports in the post-quota era.

"The crux of the interest (is from the) Dutch, German, Danish and Irish. In other words, the core of the EU dairy export machine," Olivier Raevel, head of commodities at Euronext, told the Thomson Reuters online Global Ags Forum.

Euronext is hoping to emulate the expansion of its wheat and rapeseed futures that have grown in recent years into recognised price benchmarks for the European market.

The abolition of the EU's 30-year-old milk production quotas on April 1 has whetted the appetite of producers in countries such as Germany and Ireland keen to tap into rising world demand.

"We welcome the start (of Euronext's futures). For dairies and dairy farmers, it is one of the possibilities to secure their prices somewhat in the new market environment," Michael Lohse, spokesman for German farmers' association DBV, said.

Euronext still faces the considerable task of developing liquidity in an EU market known for local pricing. A downturn last year fuelled by a Russian embargo has also heightened some farmers' misgivings about liberalisation.

"Currently, there is no pan-European dairy price benchmark," said Pierre Begoc, international director at consultancy Agritel, one of Euronext's partners in the developing the new derivatives.

"The test in the next few months will be whether a European benchmark starts to emerge."

Traders cautioned that Euronext has struggled to stimulate liquidity both in a new premium version of its flagship wheat market, and in additional oilseed futures launched last year.

The global dairy market takes its lead from prices set at twice-monthly auctions held by New Zealand's Fonterra (>> Fonterra Co-operative Group Limited), the world's biggest dairy exporter.

CME Group (>> CME Group Inc) runs a U.S.-based milk futures contract but it is small compared to its crop markets. In Europe, Eurex's (>> Deutsche Boerse AG) German-based dairy derivatives have very low volumes.

Euronext first launched an EU skimmed milk powder contract in 2010 but suspended it last year due to a lack of liquidity.

(Reporting by Gus Trompiz in Paris, additional reporting by Michael Hogan in Hamburg, editing by David Evans)

By Gus Trompiz