In the latest World Agricultural Supply and Demand Estimates (WASDE) report out last week, USDA increased the 2012 U.S. milk production estimate based on increased milk cow numbers and gains in milk per cow.

USDA now projects U.S. milk output at 201.1 billion pounds this year, up from 199.7 billion pounds in last month’s forecast. “That reflects more cows and higher output per cow,” said World Agricultural Outlook Board Chair Gerry Bange. “Some of that higher output per cow might be due to the mild weather we’ve seen of late.”

Bange says they do think that cow numbers may have peaked in the first quarter because producer returns have weakened. “In that respect, we have seen prices come off considerably,” he said. USDA lowered its price forecasts for cheese, butter, NDM and whey and both Class III and Class IV price forecasts are reduced from last month. “We’re now looking at a Class III price of $16.35, down 30 cents, a Class IV price of $15.65, down 55 cents and the All-Milk price for 2012 at $17.50, down about 13% from the 2011 level.” Increased production and weaker than expected demand also contributed to the lower price forecast according to Bange.

In the same report, USDA also raised its skim solids import forecast and reduced the fat-basis export forecast on lower butter exports, but skim solids exports are projected higher on stronger nonfat dry milk sales. Ending stock forecasts are raised on both a fat and skim-solids basis.