Many analysts expected today’s “Milk Production” report from USDA to show a decline in milk production in July. But they got an unpleasant surprise.

July milk production in the top 23 dairy states rose 0.1 percent compared to the same month a year earlier.

Although production was down in many states, it rose 5.9 percent in Minnesota, 5.8 percent in Wisconsin, 4.8 percent in Iowa, and 4.6 percent in Michigan compared to July 2008.

Perfect weather in the Upper Midwest during the month of July helps to explain this.

Prior to today’s USDA announcement, Doane Advisory Services dairy analyst Greg Scheer sounded bearish about the prospects for improved prices over the next three to four months.

“Despite milk production rolling back (from larger increases seen earlier this year), prices will have a hard time moving up very much from current levels,” Scheer said. He attributed this to large cheese inventories, weak demand relative to supply, and a struggling export market.

“Producer profitability remains very poor,” he said.