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 price received by farmers of all milk sold to plants was .51 per hundred pounds in 2003, up from .10 in 2002 but well below the record .43 in 1998. The average price received by farmers for fluid grade milk averaged .53 per hundred pounds in 2003, up from .10 in 2002 but much lower than the record high of .47 posted in 1998. The average price received by farmers for manufacturing grade milk was .73 per hundred pounds in 2003, up from .92 in 2002 but below the record of .36 in 1998.

Supply – India is the world’s largest producer of milk with 85.000 million metric tons of production in 2003. The second and third largest producers are the US with 77.970 million metric tons of production and Russia with 33.200 million metric tons. US milk production in 2003 was forecast at 169.684 billion pounds, slightly below the 2002 level of 169.8 billion pounds.

The number of dairy cows on US farms has fallen in the past 3 decades from the 12 million level seen in 1970, but has stabilized in the past 6 years in the range of 9.1-9.2 million. Dairy farmers have been able to increase milk production even with fewer cows because of a dramatic increase in milk yield per cow. In 2002, the average cow produced 18,573 pounds of milk per year, up sharply by 26% from 14,782 pounds in 1990, by 56% from 11,891 pounds in 1980, and by 90% from 9,751 pounds in 1970.

Demand – Per capita consumption of milk has fallen in the past several decades and hit 208 pounds per year in 2001, down fairly sharply from 233 pounds in 1990 and 277 pounds in 1970.

Trade – US imports of milk totaled 4.888 billion pounds in 2003, down from 5.104 billion in 2002.