The floor fell out from underneath the dairy industry during the new year as dairy prices continued to plummet.

Dairy prices are about $7 below the break-even point needed for dairymen to pay operating costs - that means that the industry, in large part, is looking to bank loans to stay in operation.

"This is as bad as we have ever seen it," said Rick Naerebout, an industry representative with Independent Milk Producers. "But what makes it worse is the uncertainty that's ahead."

Dairymen across the United States are feeling the pinch as demand for milk and other dairy products decline in both foreign and domestic markets.

A slowing economy has forced some consumers to scale back on value-added dairy products such as cheese and supplements.

The dairy industry is struggling to find ways to scale back production by removing cows from herds, but the rapid decline in milk prices has outpaced steps to reduce supply.

Fluid milk prices are at their lowest level since 2006, according to the U.S. Department of Agriculture.

Naerebout said the average dairymen in south-central Idaho is paying about $100,000 for every 1,000 cows to continue operating per month.

"They are going to banks for that money,"he said. "The more conservative (dairymen) used profits when prices were strong to pay down debt."

Local banks confirmed Monday that there is "increased activity" among agricultural loans provided to the dairy sector.

However, what concerns the industry more than the current price decline, is the uncertainty that lay ahead.

Milk prices peaked at $20.25 in June 2008, before dropping to $11.12 - not including protein and other solids.

Dairymen need about $13.00 per hundredweight to break even with current feed prices and other operating costs.

Dairy industry experts say price fluctuations are becoming more frequent and more volatile as the effects of a national economic crisis trickle down to the dairymen.

Dave Kurzawski, senior broker with Chicago, Ill.-based Downes O'neill LLC., said the nation's dairy heard is about 250,000 head "over the trendline." He said dairy herds and milk production will need to be reduced to create more price stability.

Joshua Palmer may be reached at 208-735-3231 or at jpalmer@magicvalley.com.