Margins are going to be squeezed for those of us in the dairy business. The cheese and butter prices that drive our milk prices are on the way down, and corn prices are on the way up. Butter prices dropped from nearly $2.20 per pound in early October to just $2 on Monday. Also, earlier this week, the Cheddar block price was down to $1.40 a pound after being as high as $1.77 in mid-October.

Here's a summary of what USDA said in Tuesday's World Ag Supply and Demand Estimate report.

Forecast milk production for 2010 is unchanged from last month. However, for 2011 production is lowered from last month as forecast cow numbers are reduced from last month. Milk per cow is adjusted slightly higher in early 2011, but higher feed prices and lower forecast milk prices will limit the rate of growth in 2011.

Exports in 2010 are forecast higher due to strong growth in butter, cheese, and fluid milk/cream. For 2011, continued global economic recovery and a favorable exchange rate should support exports.

Cheese and butter prices for both 2010 and 2011 are forecast lower. The Class III price forecast is lowered for 2011 but the Class IV price forecast is raised as the higher nonfat price more than offsets the lower butter price forecast. The all milk price is forecast to average $16.30 to $16.40 per hundredweight for 2010 and around $16.40 for 2011. The Class III price for 2010 is expected to end up averaging $14.40 and about $14.85 in 2011. However, the Class III futures prices for early 2011 are at life-of-contract lows . . . below $14.

According to Tuesday's Crop Production report, corn production is forecast at 12.5 billion bushels, down 1 percent from the October forecast and down 4 percent from last year's record production of 13.1 billion bushels. As of November 1, yields are expected to average 154.3 bushels per acre, down 10.4 from last year's record of 164.7. Soybean production is forecast at a record high 3.38 billion bushels.

As of yesterday, corn futures for spring delivery were approaching $6 per bushel. Soybeans were over $13 per bushel, and soybean meal was in the $360-a-ton range.