According to the USDA's Livestock, Dairy and Poultry report, U.S. corn prices for 2012/13 were reduced slightly in October to $7.10-$8.50 per bushel, while production was lowered only slightly from September estimates. Soybean meal prices for 2012/13 were also forecast lower this month at $470-$500 per ton.

Lower forecast grain and soymeal prices in 2013, along with anticipated lower alfalfa prices, will lower the feed ration price, supporting a higher milk-feed price ratio in 2013 than in 2012. The September Milk Production report indicated that producers were culling at a slower pace than earlier projected. An improving feed outlook along with higher milk prices may have reduced the urgency to reduce herd size.

The October forecast places the dairy cow herd at 9,225 thousand head in the current year and 9,125 thousand head in 2013. The residual effects of last summer’s heat and pressure from high feed prices suggest a small reduction from September’s forecast of annual output per cow to 21,635 pounds this year, with a slight increase expected next year to 21,880 pounds.

An improved feed price outlook and an uptick in milk prices are the basis for the forecast. Milk production in 2012 is forecast at 199.6 billion pounds, a reduction from September’s forecast. Forecast production in 2013 was raised in October to 199.7 billion pounds based on the higher forecast yield per cow and a slower decline in cow numbers compared with earlier 2013 forecasts.

Milk equivalent imports on both a fats and skims-solids basis were increased in this month’s forecast for both 2012 and 2013. On a fats basis, imports in 2012 were raised to 3.8 billion pounds due to increased imports of butterfat. Imports in 2013 were raised to 3.8 billion pounds based on improved demand and higher prices.

On a skims-solids basis, imports were raised to 5.9 billion pounds in 2012 and to 5.4 billion pounds in 2013. Milk protein concentrate imports rose sharply from June to July, and imports are expected to remain relatively strong into 2013.

Milk equivalent exports for 2012 on a fats basis were lowered in October from last month to 9.6 billion pounds, while 2013 fats basis exports are unchanged at 8.9 billion pounds. Butter exports remain lackluster and higher forecast prices may limit any upturn. Current year exports on a skims-solids basis were increased from September to 33.5 billion pounds.

Nonfat dry milk (NDM) exports declined monthover- month in both June and July, but were countered by strong export performances in whey protein concentrates and lactose. Milk equivalent exports on a skims-solids basis for 2013 were unchanged from last month at 32.5 billion pounds.

Ending stocks on a fats basis were unchanged for 2012 and lowered slightly for next year. On a skims-solids basis, ending stocks were tightened slightly for both 2012 and 2013. NDM stocks at the end of August were at their lowest level for the month since 2006 and the forecast 2012 skims-solids basis ending stocks were reduced. With tighter carryin stocks and stronger demand expected in 2013, the ending stock forecast for 2013 was also lowered.

Dairy product prices for both 2012 and 2013 were raised this month as milk supplies are tightening this year and demand is expected to remain firm into next year. Cheese prices were increased to $1.725-$1.735 per pound for 2012 and to $1.735-$1.825 per pound for 2013. Butter price forecasts were raised to $1.615- $1.645 per pound and to $1.625-$1.745 per pound for 2012 and 2013, respectively.

NDM prices are forecast at $1.310-$1.330 per pound in 2012 and $1.390-$1.460 per pound in 2013, both increases from September. Whey prices are projected at 58.5- 59.5 cents per pound this year and 58.5-61.5 cents per pound next year.

The higher product prices result in higher expected milk prices. The Class III price was boosted to $17.55-$17.65 per cwt for this year and to $17.75-$18.65 per cwt next year. The Class IV price is forecast at $16.00-$16.20 per cwt for 2012 and to $16.75-$17.75 per cwt for 2013. The all milk price is projected at $18.50-$18.60 per cwt in 2012 and $19.00-$19.90 per cwt in 2013.