The gift of higher milk prices ahead

Feed costs have fallen substantially in 2009 but are unlikely to fall as much next year, according to the latest USDA Economic Research Service outlook report. The benchmark 16 percent protein ration value is projected to average in the mid-$7 per hundredweight range this year compared with over $9 in 2008.

The U.S. dairy herd is forecast to continue to contract in 2010, with most of the herd reduction coming in early 2010. The U.S. dairy herd is expected to average 8.97 million next year and is expected to average below 9 million cows in each of the four quarters of 2010. The forecast decline in herd size will represent a 2.5 percent decline year-over-year. This decline follows a 1.3 percent decline in 2009. In contrast, milk production per cow is forecast to rise to 20,950 pounds, a 1.84 percent year-over-year increase and slightly ahead of the five-year-trend increase.

Commercial disappearance is forecast to rise by less than half-a-percent next year on a fat basis and to be virtually unchanged from 2009 on a skims-solids basis. World markets and export forecasts remain firm.

Cheese prices will likely average $1.290 to $1.300 per pound in 2009 and rise to average $1.615 to $1.695 in 2010. After averaging $11.30 to $11.40 in 2009, Class III prices are forecast to rise to average $15.15 to $15.95 next year. The all milk price is expected to average $12.70 to $12.80 this year and rise to average $16.35 to $17.15 in 2010.