Class III Milk

The cheese milk contract of the CME, a future built for a perishable.

Overview

Class III milk, used for cheese, trades in 200,000 pound contracts cash settled against USDA component prices. Federal milk marketing orders pool proceeds and set minimum class prices from surveyed cheese, butter, powder, and whey values, making milk price a formula output rather than a negotiated one, and California joined the federal orders in 2018. Feed cost is the volatility driver, and margin contracts and insurance let dairies lock the milk minus feed margin. Perishability kills storage arbitrage, so cow numbers and culling decisions pace supply, and demand splits cheese, butter, and fluid, which declines, plus powder exports, often to Mexico.