From Science, Plenty of Cows but Little Profit:
Three years ago, a technological breakthrough gave dairy farmers the chance to bend a basic rule of nature: no longer would their cows have to give birth to equal numbers of female and male offspring. Instead, using a high-technology method to sort the sperm of dairy bulls, they could produce mostly female calves to be raised into profitable milk producers.
Now the first cows bred with that technology, tens of thousands of them, are entering milking herds across the country -- and the timing could hardly be worse.
The dairy industry is in crisis, with prices so low that farmers are selling their milk below production cost. The industry is struggling to cut output. And yet the wave of excess cows is about to start dumping milk into a market that does not need it.
"It's real simple," said Tony De Groot, an early adopter of the new breeding technology, who milks 4,200 cows on a farm here in the heart of this state's struggling dairy region. "We've just got too many cattle on hand and too many heifers on hand, and the supply just keeps on coming and coming."
The average price farmers received for their milk in July was $11.30 for 100 pounds, down from $19.30 in July 2008. The retail price of milk has not dropped as much, but it is down 24 percent in a year, to an average of $2.91 a gallon for milk with 2 percent fat.
Desperate to drive up prices by stemming the gusher of unwanted milk, a dairy industry group, the National Milk Producers Federation, has been paying farmers to send herds to slaughter. Since January the program has culled about 230,000 cows nationwide.
From what I know the market for these sorts of products has framed by a lot of subsidies and incentives. Increased productivity through better science should be good for any industry, but here you go slaughtering cattle to reduce production and keep the prices up. OPEC is simple compared to this. These sorts of policies are only practical because we live in a world of surplus food production.
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This really doesn't sound like a serious problem, its just one that requires rethinking the old dairy farming model. The old model was that dairy bulls (or steers) were sold for meat, while heifers were kept for milk production. There was really no alternative to using bulls for meat, and heifers were too valuable to use for meat.
Now though, dairy farmers have a choice. When milk prices are high, they can use heifers for milk. When dairy prices are low, they can use heifers for meat. They are no longer stuck with low value steers. The dairy industry just needs to get over the feeling that heifers are too valuable to use for meat.
Aren't there ways of converting the milk to a form that can be shipped overseas?
Wikipedia: Their [Dairy Cows] meat is of relatively low value and is generally used for processed meat.