What are milk futures?

Milk futures have been trading at the Chicago Mercantile Exchange (CME) since 1996 in various forms. CME has refined its milk futures contracts over time to keep up with the ever-changing government price support program for milk. Cash settlement was originally based on the Minnesota-Wisconsin (MW) price, then the Basic Formula Price (BFP), and currently the Class III milk price. Class III milk is also known by the industry as "cheese milk," the milk used to produce American cheese. 

Class III milk futures (DA) are cash-settled to the National Agricultural Statistics Service (NASS) monthly price, and prices are based on formulas calculated by United States Department of Agriculture (USDA). Milk futures can be traded 6 days per week.

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How to trade milk futures

Class III milk futures contracts are offered through CME on the Globex® trading platform and are available to trade electronically through Schwab.

Monthly government numbers used to settle the Class III milk futures are released on the Friday before the fifth of the following month. If the fifth falls on Friday, data is then published on that Friday. Monthly data can be found on the USDA website. An account approved to trade futures is required in order to trade milk futures.
 

Milk futures contract specifications

Considering trading milk futures? Here are the milk futures contract specifications.

Exchange, Product Name, Product Code Chicago Mercantile Exchange (CME), Class III Milk Futures, DA
Contract Size 200,000 pounds
Minimum Tick Size and Value 0.01/cwt, worth $20.00 per contract.
Trading Times Milk futures trade Sunday through Thursday, 6:00 p.m. U.S. ET until 5:00 p.m. U.S. ET the following day, closing on Friday at 2:55 p.m. U.S. ET.
Principal Trading Months There are milk futures contracts with expirations in all 12 calendar months, January through December.

At Schwab, you also get access to advanced trading platforms and education, where you can take advantage of market research, real-time milk futures quotes, and other specialized tools. 

Milk FAQ

A staple of many diets and with growing consumption in Asia influencing the demand for milk by-products like cheese, Class III milk futures contracts (DA) have seen a rise in demand in recent years. 

Manufacturers of dairy by-products trade milk futures contracts to hedge or manage the risk of price fluctuations. Traders can use Class III milk futures contracts to speculate on the price of milk by-products, which can change based on a number of different factors like greater demand for protein in consumer diets, fluctuations in livestock feed production due to weather events, changes in government subsidy policy, and more.

It is important to understand the benefits and risks involved with milk futures before trading futures contracts. Compared to traditional investments, with milk futures, you can trade 6 days per week and take advantage of trading opportunities regardless of market direction. Milk futures also provide the ability to trade with greater leverage and allow a more efficient use of trading capital. However, trading leveraged products like milk futures also involves the risk that losses can exceed the amount originally invested and may not be suitable for all investors.

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