U.S. dairy operators are expanding herds again and that will mean more production next year.

The latest USDA milk report shows July output 3% ahead of July a year ago, at 15.3 billion pounds. Production per cow in the 23 major states averaged 1,830 pounds for July, 59 pounds above July 2009.

The total herd size is still smaller than last year, but probably not for much longer. “The fact of the matter is that for about the past six months or so we’ve been seeing cow numbers actually increase in the U.S.,” said USDA Outlook Board chairman Gerry Bange. The number of milk cows on farms in the 23 major States was 8.37 million head, 26,000 head less than July 2009, but 19,000 head more than June 2010.

Prices are also up, coming back faster and farther than expected. But, Bange thinks the all milk price next year will probably be held in check by production that could increase by one and half percent from this year. So, the forecast average price is now 16.05 per hundredweight, down 35 cents from the previous forecast, which Bange says “reflects the fact that we’re seeing substantially more milk production and anticipating more than we did a month ago.” The forecast for next year is about five cents/cwt higher than this year’s average.