Setting aside the specifics of milk, there are situations where it is more economical to run a business at a loss than not at all.
Let's say producing a product costs $5 in fixed costs (interest, depreciation, etc) and $1 in variable costs (labor, raw material, etc), for total of $6 per unit. If you can sell the product for more than $6, you make a profit. If you sell the product for $1-$6, you lose less money than you would if you didn't sell it, because you have to pay those fixed costs even if you don't produce any units. You should only stop production if the price falls below $1.
Let's say producing a product costs $5 in fixed costs (interest, depreciation, etc) and $1 in variable costs (labor, raw material, etc), for total of $6 per unit. If you can sell the product for more than $6, you make a profit. If you sell the product for $1-$6, you lose less money than you would if you didn't sell it, because you have to pay those fixed costs even if you don't produce any units. You should only stop production if the price falls below $1.