Milk is classified as a dairy commodity, together with butter, cheese, and whey. Furthermore, dairy commodities are part of the group referred to as agricultural commodities.
Quick Overview of Milk
✔️An overview of milk
✔️The production of milk
✔️Trading milk as an agricultural commodity
What are the price drivers of milk as a commodity?
The uses of milk
Twelve interesting facts about milk
An overview of milk
As a commodity
Milk comprises the following five types of agricultural commodities:
- Grains such as corn, wheat, oat, and rough rice.
- Meat comprises lean hogs and cattle.
- Oilseeds like soybeans, canola, and palm oil.
- Soft commodities include sugar, cocoa, frozen concentrated orange juice (FCOJ), coffee, and tea.
- Miscellaneous agricultural commodities, including rubber (natural and synthetic), wool, and lumber.
Simply put, agricultural commodities refer to commodities deriving from the growing and harvesting of crops and trees, and the raising of animals. Some commodities are direct products from the earth, such as cattle and corn. Others derive from the direct products, for instance:
- Wool from sheep.
- Milk from cows.
- Cheese from milk extracted from cows.
- Lumber from soft and hardwoods.
As an agricultural commodity, the following products of milk are relevant:
- Class III Milk, is referred to as ‘cheese milk’ in the dairy industry.
- Class IV Milk.
- Dry whey, also known as dried whey.
- Nonfat Dry Milk also spelled Non-fat Dry Milk.
Some properties of milk
Milk consists of seven main components: water (85% to 95%), fat, sugar (lactose), protein, minerals, vitamins, and enzymes.
Milk contains nine essential nutrients that benefit a person’s health, such as:
- Calcium, builds healthy teeth and bones.
- Niacin, a metaboliser of fatty acids and sugars.
- Protein, is a source of energy and building and repairing muscle tissue.
- Potassium, helps to maintain acceptable blood pressure.
- Phosphorus, generates energy and helps to strengthen bones.
- Vitamin A, maintains the immune system and helps to maintain normal vision.
- Vitamin B12, maintains healthy red blood cells and nerve tissue.
- Vitamin D helps to sustain bones.
- Riboflavin (B2), converts food into energy.
The boiling point of milk is 100.17 degrees Celsius.
The reason why milk appears white is explained as follows by the New Zealand Fonterra Co-operative Group: ‘One of the main proteins in milk are caseins, which join in small clusters with calcium and phosphate to form tiny particles called micelles.
When light hits the tiny micelle particles it causes the light to refract and scatter. This causes milk to reflect all light wavelengths and absorb none, making it appear white.’
Put differently, the fat and protein molecules in milk reflect all wavelengths, causing it to appear white.
A few notes about the history of milk
- The exact date when humans started to consume milk is uncertain. Some historians estimate that it was about 9 000 years ago.
- The research of Louis Pasteur (1822 – 1985), a French chemist, demonstrated that harmful germs in milk and wine, amongst other liquids, caused infectious diseases. In 1864, Pasteur developed a process – now called pasteurisation – in which the liquids were rapidly heated and subsequently cooled to kill most of the germs.
- In 1884, Dr. Henry Thatcher patented one of the first glass milk bottles.
- In 1895, the commercial pasteurisation of milk started in the USA.
- The first milk tanker trucks were introduced in 1914.
- During the 1950s – 1960s, numerous dairies started to use square paper cartons, replacing milk bottles.
The production of milk
Largest producers of cow milk in the world
Statista listed the following countries as the ten major global producers of cow milk in 2025:
- The twenty-seven countries of the European Union (EU): 145.7 million metric tonnes (MT)
The major milk producers in the EU are Germany, France, Poland, the Netherlands, Italy, and Ireland. These six countries account for almost 70 percent of the EU milk production.
- USA: 102.6 MT
- India: 96 MT
- China: 34.6 MT
- Russia: 32.02 MT
- Brazil: 24.85 MT
- New Zealand: 22.24 MT
- United Kingdom (UK): 15.5 MT
- Mexico: 12.85 MT
- Argentina: 11.9 MT
How milk is produced
Milk comes from seven main breeds of dairy cows: Ayrshire, Brown Swiss, Guernsey, Holstein, Jersey, Milking Shorthorn, and Red and White, which is a variation of the Holstein breed.
How milk is produced depends on a number of different technologies, as well as the class (type) of milk, for example, Class III or Class IV.
Milk production includes the following steps:
- Milking
Milking is the act to extract milk from a cow’s udder.
A cow is ready for milking when her udder is full. Typically, cows are milked twice a day, in the early morning and again in the late afternoon. Dairy farms use mechanical vacuum milking machines where vacuum cups are attached to the teats of a cow.
Milking machines have replaced milking by hand almost completely because it is much faster and more economical. About six cows per hour can be milked by hand while a hundred cows per hour can be milked with the use of milking machines.
The milk is sent through stainless steel pipes to large, refrigerated vats or silos where it is stored.
- Storage
The milk is stored in the refrigerated vats or silos at 5 degrees Celsius or colder, for no more than 48 hours, after which the milk is collected by milk tankers/milk trucks.
- Transportation
The milk tankers collecting the milk at the dairy farms have special stainless-steel bodies which are insulated and refrigerated to keep the milk cool.
Drivers of milk tankers are qualified milk graders who are required to evaluate the temperature, colour, and smell of the milk prior to collection.
The milk tankers then take the milk to a milk factory, also known as a milk processing plant.
- Milk testing
At the milk factory, the milk in the milk tanker is weighed and samples from the milk are tested for, inter alia, temperature, antibiotics, milkfat, protein, and bacteria. If the milk does not meet the required quality standards it is rejected.
Subsequently, the approved milk is pumped into refrigerated tanks (storage silos) in the milk factory through plastic or flexible stainless-steel hoses.
- Milk processing
Once pumped into refrigerated tanks in the milk factory, the milk undergoes various processes, namely:
Pasteurisation
In this process, the milk is heated to 72 degrees Celsius for at least 15 seconds, then cooled immediately, destroying any harmful organisms and bacteria.
Homogenisation
The milk is put under pressure through fine nozzles to form tiny particles so that the fat is evenly dispersed throughout the milk, preventing the fat from floating to the top of the tank.
Centrifugal separation
The milk is spun through a centrifuge to remove some or all of the cream from the milk, producing reduced-fat, low-fat, or skim milk. The cream and remaining milk are remixed after separation, providing the appropriate fat content for the different types of milk being produced.
Further processing
Further processing steps may involve ultra-filtration, culturing milk for flavoured and yoghurt products, and spray drying in which water is removed from milk in order to produce powdered milk products. The nutritional value of the milk stays the same.
Trading milk as an agricultural commodity
A person interested in trading with dairy commodities like milk will need a trusted, regulated, and registered commodity broker, who will offer specific services, guidance, and a trading platform to trade commodities. Such a broker will also help to determine the risk appetite of a person and provide information about trading instruments.
The Chicago Mercantile Exchange (CME) offers futures contracts and options on:
- Class III Milk futures contracts, containing 200 000 pounds of Class III Milk.
- Class IV Milk futures, each contract comprising 200 000 pounds of Class IV Milk.
- Whey and Nonfat Dry Milk futures are based on 44 000 pounds of the particular product.
Milk futures contracts are traded electronically via CME Globex and are cash-settled at expiry, rather than physically delivered.
Milk options are still traded both open outcry on the floor of the CME, as well as electronically on CME Globex.
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What are the price drivers of milk as a commodity?
Similar to other agricultural commodities, the price of milk is subjected to fluctuations in the supply and demand of the product.
The prices of perishable commodities, such as milk, are in general more volatile than other commodities. The uninterrupted chain of production, processing, and consumption requires balance across the supply chain. Any disruption in any stage of the production and consumption cycle can cause problems because milk cannot be stored in the long-term in its fresh state.
Furthermore, the prices of dairy commodities – including milk – vary slightly from other agricultural commodities. For instance, weather conditions have a lesser impact on the supply of milk because cows will produce milk in any type of weather. According to Agiboo, ‘the price of dairy commodities is the result of an equilibrium of supply and demand and the impact of the numerous speculators on the exchange.’ (Accentuations are by the article writer.)
Regulations by governments also influence dairy prices significantly. Typically, there are two types of government regulations in the diary markets, namely:
- Limits on imports/exports control the supply of a commodity in a country and can impact the price of a particular commodity.
- Supported prices where the government of a country offers a minimum price for the producers to provide some security against extreme price drops.
The feeding cost of animals is a key component of the total production costs of diary products, such as milk. Therefore, increases in production costs will have a significant impact on the final price of milk.
The uses of milk
As an agricultural commodity, milk is used in the following ways:
- Class III Milk, referred to as ‘cheese milk,’ is primarily used to produce cheddar cheese and its by-product, whey.
- Class IV Milk is used to make butter and in the production of nonfat dry milk.
- Nonfat Dry Milk is Class IV Milk that has been dehydrated and all the moisture removed. The product, commonly called powdered milk, can be stored, and used in food and animal feed.
- Whey is the liquid remaining when it is separated from the milk solids (curd) in the cheese-making process. Hence, like cheese, whey is a by-product of Class III Milk. Dry whey, also known as dried whey, is the product resulting from drying fresh whey. Dried whey is low in fat and high in protein.
Twelve interesting facts about milk
- Twenty-two states of the USA have milk as their official drink, including the states of New York, Tennessee, Arkansas, Mississippi, and Minnesota.
- The ancient Romans, Greeks, and Egyptians regarded milk as ‘food from the gods.’
- In 2001, the Food and Agricultural Organisation (FAO) of the United Nations (UN) established World Milk Day, which has been observed on 1 June each year since 2001. The goals of World Milk Day are to recognise the importance of milk as global food and to celebrate the dairy sector.
- Ten litres of milk are required to make half a kilogram of cheese.
- It takes a cow between fifty and seventy hours to change grass to milk.
- Cows eat up to 50kg of food and drink 60 litres of water daily.
- Milk is the only food a person can survive totally on. It contains all the nutrients humans need.
- On average, a cow produces 90 glasses of milk each day, or approximately 200 000 glasses of milk in a lifetime.
- A pinch of salt added to a litre of milk keeps it fresh longer.
- One cup of milk contains the same amount of calcium as ten cups of raw spinach or three cups of cooked broccoli.
- Milk helps the human body to rehydrate.
- ‘Whole milk’ refers to milk from which no component, such as fat, has been removed. Whole milk contains 3.5 percent fat.
Note: This article does not constitute investment, financial, or trading advice. Please obtain the advice of a professional and regulated commodity broker before making trading and investment decisions.
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