Expect gradual improvement in milk prices and margins, according to USDA's recent Livestock, Dairy, & Poultry Outlook. Corn prices are forecast to average $3.50 to $3.70 a bushel through this crop year, moderating to $3.20 to $3.80 longer term. Soybean meal price is expected to average $295 a ton this crop year and $230 to $270 longer term. Modest improvement in both feed and milk prices is not likely to ignite an expansion in U.S. dairy herd size.

The number of cows is projected to average 9.07 million this year and to continue a gradual decline in 2011, to average 9.04 million. On balance, the higher milk per cow during the year is expected to offset the decline in herd size, leading to higher milk production. Prospects are for improved demand, both foreign and domestic, for dairy products in 2011. Higher domestic use is expected to support slightly higher imports next year.

Meanwhile, global economic recovery is continuing apace, boosting international trade in dairy products. Domestic commercial use is expected to increase this year. A robust 1.2 percent rise is expected in commercial use on a fats basis while growth in use on a skims-solids basis is projected at a slight 0.4 percent rise. Stocks should tighten as use strengthens. Despite the improved demand outlook, prospects are for only modest price increases in 2011.

Cheese prices are forecast to trend higher both this year and next, averaging $1.480 to $1.530 per pound this year and $1.505 to 1.605 per pound in 2011. Higher prices are also expected for NDM and whey for the balance of 2010 and into 2011. The prospect is for only moderate price increases in milk prices in 2011 as milk production continues to rise.

The Class IV price is expected to average $14.15 to $14.75 per cwt. this year and only slightly higher next year at $14.15 to $15.25 per cwt. Class III prices are projected to average $13.95 to $14.95 per cwt. in 2010 and to climb to $14.25 to $15.25 per cwt. next year. The all milk price will average $15.65 to $16.15 per cwt. this year and rise to average $15.70 to $16.70 per cwt. next year.