From the USDA’s October 2009 “Livestock, Dairy & Poultry Outlook,” a report from the Economic Research Service (ERS).

Dairy cow numbers are expected to continue to decline throughout 2010. The U.S. dairy cow herd is expected to average about 2 percent smaller in 2010 than 2009; this contraction comes on the heels of an expected 3-percent herd reduction in 2009 compared with 2008. Year-over-year milk per cow is expected to move toward trend level increases as a result of a gradually improving milk-feed price ratio. Corn prices fell in 2008/09 to average $4.06 a bushel and are expected to moderate further to average $3.25-$3.85 a bushel in 2009/10. Soybean meal prices averaged $331 a ton in 2008/09, but are forecast to decline this year to average $250-$310 a ton. Alfalfa prices are expected to decline in 2009 from 2008 and will likely remain moderate next year. The decline in feed prices combined with higher milk prices will improve the milk-feed profitability ratio, but not to a level that signals expansion. The improving returns outlook show support for rising yields per cow over the course of 2010, raising production per cow to 20,950 next year after increasing to a projected 20,570 in 2009. On balance, however, there will be less milk next year as production is forecast at 187.7 billion pounds, an 0.8-percent slide from the expected 189.1 billion pound production in 2009. Production in 2009 is forecast to decline from 2008 and will be the first decline since 2001.

Rebounding global demand is contributing to the improved price outlook. World demand, especially for butter and powder products, is improving the export outlook
on both a fats and skims-solids basis. (…more)