For the remainder of this year and into next year, high feed costs and the availability of quality forages will continue to reduce cow numbers and either decrease or slow any increase in milk per cow, says Bob Cropp, professor emeritus at the University of Wisconsin Cooperative Extension, in his latest Dairy Situation and Outlook Report. The greatest impact will be felt in the West, he adds.

“We can expect cow numbers to continue to decline well into next year as some dairy producers exit dairying completely and others reduce the size of their dairy herd in response to high feed prices and availability of quality forages,” Cropp notes. “Dairy cow slaughter thus far this year is about 7 percent higher than a year ago with slaughter in recent weeks being as much as 10 percent higher. High prices for corn and protein sources will dampen increases in milk per cow.

“Lower milk production, favorable domestic sales and exports, tighter stocks and an anticipated fairly tight supply‐demand situation going into 2013 are all factors that have strengthen dairy product prices and milk prices,” he adds.

Cropp says that CME butter averaged $1.88 per pound in September and will average about $1.90 per pound for October. Butter prices are likely to decline a bit once holiday orders are filled; he believes they could fall to around $1.80 by year’s end but should stay in the $1.75 to $1.80 range most of next year. West nonfat dry milk price averaged $1.5339 per pound in September and will average close to the same for October, Cropp says. And nonfat dry milk prices could stay above $1.50 through April of next year before gradually softening to around $1.35 by the end of 2013. West dry whey averaged $0.5755 per pound in September and will average about $0.60 for October, he continues, with dry whey prices potentially staying in the high $0.50s for the first half of next year then soften to the low $0.50s by year’s end. On the CME cheddar barrel cheese averaged $1.878 in September and will average about $2 for October. And 40‐pound cheddar blocks averaged $1.9245 per pound in September and will average about $2.05 for October.

“Cheese prices above $2.00 per pound could well experience some sales resistance,” Cropp notes in his report. “After the holidays, cheese prices will likely soften but could stay in the $1.80 to $1.70 per pound range for the first half of next year.”

Cropp is forecasting that the Class III price, which was $19 in September, will reach $21 for October and perhaps November before declining slightly in December.

“But a Class III price at $19 or higher for the first quarter of next year and staying above $18 for the remainder of the year now appears quite possible,” he adds.

The Class IV price, at $17.41 in September, will be near $18.75 for October and may even go above $19 by November, Cropp says. A Class IV price of near $18 for the first half of next year appears quite possible before declining towards year’s end, he notes.

“Some are forecasting even higher prices,” he says. “Higher prices are possible but all of these price forecasts will no doubt be revised depending upon any changes in expected levels of milk production, domestic sales and exports for the months ahead. The level of exports will not only depend upon U.S. dairy product prices in comparison to world prices, but the also the extent to which U.S. dairy companies with tighter supplies will attempt to maintain international customer commitments. U.S. exports could also be impacted by how the run up in food prices, particularly in developing countries, affects their purchasing of dairy products. There also exists the possibility of deepening of the European debt crisis which would have worldwide implications. And we know that milk prices could be impacted by weather conditions and how it affects crop production next year, not only in the U.S., but in other major exporting and importing countries. Thus, several factors could dramatically change final milk prices for next year.”