Foster Farms Dairy, one of the largest processors in the northern San Joaquin Valley, is ending contracts with some of the 30-plus farmers who supply it with milk.
The Modesto-based company cited an oversupply resulting from reduced demand in the sluggish economy. It declined to say how many farmers are affected, or what proportion of its milk supply they produce.
Because of a lack of capacity at other processors in the region, these farmers face the prospect of going out of business.
"We're going to try to find someone else, but right now there's no one to pick up our milk," said Tom Marchy, a Waterford-area dairyman who will stop selling to Foster Farms on Nov. 1.
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The farms losing contracts, from Modesto to Chowchilla, are a tiny fraction of the roughly 1,900 that supply dairy plants in California. But for the farming families losing their contracts, the outlook is bleak.
Although processing plants dot the Valley, few have been built or expanded in the past few years.
Industry experts said the barriers to expansion include tough environmental rules and the unpredictability of the state's complex milk-pricing system. Hilmar Cheese Co. did expand its operation, but in Dalhart, Texas, rather than its Merced County hometown.
Foster Farms firm expanded last year with the purchase of Crystal Cream and Butter Co., a Sacramento producer. Crystal, founded in 1901, boosted Foster Farms' milk production from about 2.5 million gallons a week to 3 million. It also added hundreds of retail outlets.
The dairy products company, which is separate from the poultry operation also owned by the Foster family, began marketing under the Crystal brand this month.
In its statement, Foster Farms expressed hope that its soon-to-be-former suppliers can hook up with farmer-owned cooperatives that process milk.
"We have enjoyed positive relationships with every producer with which we work and want to assure that producers representing excess production to our business have other options available to them," the company said.