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- CRB Fundamentals - 2008 Commodity Articles


Evidence of man's use of animal milk as food was discovered in a temple in the Euphrates Valley near Babylon, dating back to 3,000 BC. Humans drink the milk produced from a variety of domesticated mammals, including cows, goats, sheep, camels, reindeer, buffaloes, and llama. In India, half of all milk consumed is from water buffalo. Camels' milk spoils slower than other types of milk in the hot desert, but the vast majority of milk used for commercial production and consumption comes from cows.

Milk directly from a cow in its natural form is called raw milk. Raw milk is processed by spinning it in a centrifuge, homogenizing it to create a consistent texture (i.e., by forcing hot milk under high pressure through small nozzles), and then sterilizing it through pasteurization (i.e., heating to a high temperature for a specified length of time to destroy pathogenic bacteria). Condensed, powdered, and evaporated milk are produced by evaporating some or all of the water content. Whole milk contains 3.5% milk fat. Lower-fat milks include 2% low-fat milk, 1% low- fat milk, and skim milk which has only 1/2 gram of milk fat per serving.

The Chicago Mercantile Exchange has three different milk futures contracts: Milk Class III which is milk used in the manufacturing of cheese, Milk Class IV which is milk used in the production of butter and all dried milk products, and Nonfat Dry Milk which is used in commercial or consumer cooking or to reconstitute nonfat milk by the consumer. The Milk Class III contract has the largest volume and open interest.

Prices - The average monthly price received by farmers for all milk sold to plants in 2007 rose by +48.4% yr/yr to $19.15 per hundred pounds, which was a record high. The average monthly price received by farmers for fluid grade milk in 2007 rose by +48.3% yr/yr to $19.15. The average monthly price received by farmers for manufacturing grade milk in 2007 rose by +48.3% to $18.22.

Supply - World milk production was up +2.10% to 434.017 million metric tons in 2007. The biggest producers were the European Union with 30% of world production, the U.S. with 19% and India with 9%. U.S. 2007 milk production in pounds rose +2.1% yr/yr to 185.599 billion pounds, which was a new record high. The number of dairy cows on U.S. farms has fallen sharply in the past 3 decades from the 12 million seen in 1970. In 2007, there were 9.152 million dairy cows on U.S. farms. Dairy farmers have been able to increase milk production even with fewer cows because of a dramatic increase in milk yield per cow. In 2007, the average cow produced a record 20,279 pounds of milk per year, more than double the 9,751 pounds seen in 1970.

Demand - Per capita consumption of milk in the U.S. fell to a new record low of 206 pounds per year in 2002 (the latest data available), down sharply by 26% from 277 pounds in 1977. The utilization breakdown for 2002 shows the largest manufacturing usage categories are cheese (64.504 billion pounds of milk) and creamery butter (30.250 billion pounds).

Trade - U.S. imports of milk in 2006 rose +2.2% yr/yr to 4.700 billion pounds, but still far below the record high of 5.716 billion pounds posted in 2001.

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