“USDA's release of December milk production shows production still running at a high level. Milk production was 2.5 percent higher than a year ago from 0.6 percent more cows and 1.8 percent more milk per cow. Cow numbers increased 16,000 head from November putting them above year ago levels. The increase in milk per cow was down from earlier months due to some adverse weather in some key states like California. For example, heavy rain and mud stressed cows in California and as a result the increase in milk per cow was 3.5 percent for December compared to 5.4 percent for November. California's milk production for December was 2.7 percent higher than a year ago compared to an increase of 4.5 percent for November. Other Western states continue with rather strong increases in milk production with increased of 8.1 percent for Arizona, 4.9 percent for Idaho, 3.4 percent for New Mexico, 5.0 percent for Texas and 4.0 percent for Washington. In the Northeast, New York's production was up 4.6 percent and Pennsylvania up 1.8 percent. In the Midwest Wisconsin's production was up 0.7 percent, Minnesota had no change and Iowa's production was down 2.4 percent from 3.7 percent fewer cows. Of the 23 reporting states just two others had less milk, Illinois with a decrease of 0.6 percent and Missouri a decrease of 7.9 percent.
“A key for the level of milk production in 2011 will be feed prices. Much higher grain and hay prices will lower returns over feed costs. This is likely to increase cow slaughter and dampen the increase in milk per cow. The growth in milk production ought to slow as we move through the year. But, with the good supply of dairy replacements the average size of the nation's dairy herd may not fall below that of 2010. But with a smaller increase in milk per cow milk production for the year might be up less than 1.5 percent. Some improvement in domestic sales is anticipated and while exports may be lower relatively tight world supplies due to anticipated strong world demand and reduced level of increased milk production in Oceania will keep exports at a historically high level.
“Under this situation we could see the Class III price averaging in the low $14's for the first half of the year and then showing good improvement for the second half with a peak in the low $16's for October or November. With the recent run up in cheese prices Class III dairy futures showed strong increases for all month in 2010. But, with start of lower cheese prices on Nov. 19 and a rather strong December milk production all 2010 months for Class III futures showed weakness at the end of trading on Jan. 19.”