Milk prices started off the year right with January all-milk prices rising 50 cents a hundred to $18.30 for Pennsylvania. But Penn State Dairy Economist Jim Dunn notes that the 2010 outlook average has dropped by $1 for Class III and Class IV.

But futures market prices for the next 12 months for both classes are still $3 above the 2009 average. This suggests a Pennsylvania all-milk price of $17.37 for all of 2010.

Reason: Heifers numbers were up 2.4% in the January cattle report – not down, as expected. This is probably due to the increased use of sexed semen. “In any case, the prospect of more cows is definitely bad for milk prices,” warns Dunn.

Herd shrinking from January 2009 to January 2010 is the major cause of the recovery of the milk price. Since milk per cow rises faster than the population, fewer cows are needed each year, not more, he explains.

Penn State’s measure of income over feed costs rose from $7.65 in December to $8.01 in January – 4.7%. This value reflects gross income less feed costs for an average cow producing 65 pounds of milk.

What’s ahead? Income over feed costs and the milk margin will be lower in February, and if the expectations are accurate, for spring.