Milk price will continue to strengthen

We can expect higher milk prices in the months ahead. The recent USDA Economic Research Service publication, Livestock, Dairy, and Poultry Outlook, explains the fundamentals at work.

Simply put, milk supply will be coming back into closer balance with demand. A continued drop in cow numbers will be a big driver. There has been a 226,000-cow drop in the U.S. dairy herd size during the past year. USDA expects the U.S. dairy herd to average 2 percent fewer cows during 2010 than in 2009. The estimated national herd in October was 9.1 million cows.

Declining feed prices should help push up milk per cow to trend levels during 2010. The 2009 average is expected to end up around 20,570 pounds per cow and rise to 20,950 next year, a gain of 1.85 percent.

The average price of corn next year is estimated to be around $3.55 per bushel compared to just over $4 this year. Soybean meal price for 2010 is projected to be around $280 per ton compared to $331 this past year.

USDA now is forecasting 2010 milk production to be 187.7 billion pounds, which would be a 0.8 percent drop from where milk production is expected to end up for 2009.

World demand, especially for butter and powder products, is improving the export outlook. The improved outlook for economic recovery in the rest of the world, especially in Asia, combined with lower-than-forecast milk production from Oceania, form the basis for robust export demand, says the report.

Cheese and butter prices next year are forecast to be approximately 35 cents and 27 cents a pound higher next year, respectively. This would translate into an average Class III price next year of around $15.40 next year compared to about $11.25 this year. The All-Milk Price could average in the range of $16.50 per hundredweight next year compared to $12.65 this year.