Actually, without subsidies and price supports, it won’t be the smaller farms that collapse.
It will be the largest ones that are operating with significant leverage and debt load.
If you look at who actually receives subsidies from the US government, over two-thirds of the subsidies are taken in by the largest farmers in the country. They have a staff, just as a corporation does, to navigate the paperwork.
Small farms and farmers don’t have the time required to capitalize on all these various programs.
Now, specifically to the dairy and milk questions here, since I know a little bit about his industry because I used to sell alfalfa hay to California/Nevada/Idaho dairies:
The largest dairies in the country are typically highly leveraged. They exist purely on a principle of huge cash flows and flipping over their inventory, reducing in-house capabilities to nearly nothing so that they can expense everything that has been out-sourced (like their hay production, their replacement heifers, their vet services, their nutrition consultants, etc) immediately and not have to depreciate anything.
If you removed the various milk marketing orders and milk marketing areas, co-mingled all the milk markets into one large market and then reduced the various price supports for fluid milk and cheese... my bet would be that the big guys go under first and fastest.
And having seen a couple of large dairies go under, lemme tell you how this happens: Fast. So fast that the companies that have outstanding product yet to be paid for don’t get paid. I never had a load (or load*S*) of hay out at dairies that went belly-up, by I had neighbors who did and they never got paid on nearly $30K of hay. The dairy just took delivery, fed the hay all in one week and the next week, they shipped their cows to the slaughterhouse, closed down the dairy and stopped answering their phones. Because these huge “Dutch model” dairies operate with so little in the way of capital assets, there’s not much to grab in BK court.
As a result of a couple of large “Dutch model” dairies going under in a region (say, CA, ID or SD), you’d suddenly see the banks that extend operating loans or equipment loans/leases to these outfits getting very nervous, and denying renewal of operating lines or revolvers... and then a bunch more of these large dairies go down in flames.
Which might not be a bad thing, in the long run...
It will be the largest ones that are operating with significant leverage and debt load.
Nothing in your post justifies agriculture subsidies. They are no different from subsidies to wind power or electric-car-makers. The fact that you approve of food production and, thus, approve of subsidies to it makes no difference.
The government must not use dollars confiscated from its citizens to provide favored treatment to a particular business or industry.