California's 2010 milk production growth has been showing signs of recovering. Compared to the devastating effects of 2009, this is promising.

While prices have rebounded from the lows of $9.60/cwt in July 2009 to an October 2010 price of $16.06, they are still not as high as 2008 levels. With an average cost of production of $14.43/cwt the higher price this will allow many producers to experience positive margins again.

However, with the significant losses of the past year, it will take a prolonged period to fully recover. Prices for 2011 are expected to fall slightly with mid-year projections of around the low-to-mid $14/cwt range.

2010 production costs have improved as feed prices declined in the early part of the year. They have recently started to increase again, though. Demand is up in part due to exports which saw major increases in shipments of butter and milk fat, cheese, and nonfat dry milk. In July 2010, exports accounted for 12.3 percent of U.S. milk fat solids produced. Government policy will continue to play a major role in the dairy industry as it looks to its future in California.

Labor, renewable energy and environmental issues are the main policy concerns.

(This outlook report was presented at the recent 29^th annual Agribusiness Management Conference in Fresno, Calif. sponsored by the Center for Agricultural Business, California Agricultural Technology Institute and the Jordan College of Agricultural Sciences and Technology at California State University Fresno.)