Milk production dropped for the third straight month in October — this time by a whopping 1.1 percent in the top 23 dairy states compared to the same time a year ago.

Milk per cow was up slightly — 21 pounds per cow — but the number of dairy cows in the top 23 states was down 196,000 compared to October 2008.

Arizona showed the biggest decline, down 10.6 percent. California was down 5.3 percent, according to USDA's "Milk Production" report released Wednesday afternoon.

Meanwhile, some of states in the Upper Midwest continued to show increases, including Wisconsin at 3.5 percent and Minnesota at 2.5 percent.

The drop in milk production does bode well for the dairy industry, as the market is headed in the right direction, but it shouldn’t impact milk futures. “I don’t expect to see any change in milk future trading,” says Greg Scheer, dairy analyst with Doane Advisory Services in St. Louis, Mo. “The drop of 1.1 percent was along the lines of what the market was expecting.”

Source: USDA "Milk Production" report