The most current USDA forecast continues the trend of lower cow numbers that has been more than offset by higher output per cow in 2010. Output per cow is expected to rise by 2.5 percent compared with 2009, pushing current-year production to 192 billion pounds. This trend is expected to continue in 2011 as cow numbers decline fractionally, and production per cow is forecast to rise by 1.5 percent. On balance, milk production in 2011 is projected to reach 194.6 billion pounds. Milk-equivalent imports on both a fats and skims-solids basis are projected to decline this year. For next year, imports are expected to remain very near 2010 levels.

Higher domestic production and a slow domestic economic recovery will limit imports. Milk-equivalent exports have staged a strong recovery in 2010 from last year on both a fats and skims-solids basis. In 2010, exports are expected to reach 6.3 billion pounds on a fats basis and 28.8 billion pounds on a skims-solids basis. Next year, exports are expected to be lower as production in competing countries, notably Australia and New Zealand, is expected to rise.

Also for next year, exports on a fats basis are forecast at 5.6 billion pounds and 28.0 billion pounds on a skims-solids basis. In 2011, domestic commercial use on both a fats and skims-solids basis is expected to show above-trend growth. Domestic commercial use is forecast to reach 192.9 billion pounds, a 1.8 percent year-over-year increase on a fats basis, and reach 170.6 billion pounds, a 2.1 percent year-over-year increase on a skims-solids basis.

Cheese prices are expected to average $1.50 to $1.52 per pound this year and climb slightly to $1.50-1/2 to 1.60-1/2 per pound in 2011. A stronger export forecast, as well as domestic commercial use, could offset expected greater milk production. The tightness in the butter market has precipitated the unusual situation of the Class IV price climbing above the Class III price. The Class IV price is expected to be $14.50 to $14.80 per hundredweight this year, moderating slightly to $14.00 to $15.10 per hundredweight in 2011. The Class III price is expected to average $14.15 to $14.35 this year and rise to $14.15 to $15.15 in 2011. The Class III price is expected to rise above the Class IV price next year, restoring the more typical price relationship. The All-Milk Price is expected to be $15.90 to $16.10 this year and to change very little next year, averaging $15.55 to $16.55 in 2011.

The most recent USDA forecasts indicate that feed prices will likely be higher next year than in the current year. The corn price forecast is $3.50 to $4.10 per bushel for the 2010/11 crop year, a rise from current year projected prices. However, soybean meal prices are forecast slightly lower, at $250 to $290 per ton, for the 2010/11 crop year. The feed price outlook will keep the milk-feed price ratio for both the balance of this year and into next year below a level that usually signals expansion.