This morning, the U.S. Department of Agriculture issued another downward revision of its estimated average milk prices for 2012. 

The agency now predicts that the all-milk price will average $16.90 to $17.40 per hundredweight this year, compared to last month’s forecast of $17.25 to $17.75. The predictions came in this morning’s “World Agricultural Supply and Demand Estimates” report.

As recently as the January report, USDA was predicting the all-milk price would average between $18.30 and $19.10 for the year.

USDA has been citing higher milk production for the reduced forecasts.

It creates a vicious cycle: Producers make more milk in an effort to keep up with the declining prices.

The situation is already getting dire in California.

The Visalia (Calif.) Times-Delta reported on Wednesday that the Land O’Lakes cooperative shuttered 17 dairies in a buyout program to reduce its milk supply by at least 6 percent.  Read more.

The article quotes a March 16 letter from Pete Garbani, Land O’Lakes director of milk supply western region, to suppliers:

“We have received or sold over 17 million pounds per day in early March and volumes are still growing,” Garbani said. “As such, we continue to seek alternative markets for your milk. Our efforts thus far have resulted in deep discounts to clear the market and as production continues to grow, these alternatives will become increasingly less attractive.”