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When the rally in corn prices started to look overcooked, Shawn Hackett went looking for something more appetizing. He developed a taste for milk.

Why? Because, he contends, investing in milk is a cheap way to buy into the corn frenzy - just further down the digestive tract.

"I have absolutely no interest in the grain markets. Corn is overpriced now. You can't make any money," said the Florida-based investor and financial adviser. "So why not buy a secondary market that benefits from these high [corn]prices?"

Mr. Hackett's argument is that the price for U.S. milk futures - one of the more obscure and thinly traded agricultural commodities on the Chicago Mercantile Exchange - should rise along with corn prices, because the all-important feed for dairy cattle is chock-full of corn. Yet CME milk futures have been languishing over the fall, even as corn prices have spiked to their highest prices since their record peaks of 2008.

That disconnect, he says, presents a huge buying opportunity in milk - and a way for investors to play the grain rally even if they missed the bulk of this year's upturn, which has added about 65 per cent to the price of corn. That's why Mr. Hackett has been loading up on milk lately, and advising his clients to pour themselves a few glasses, too.

"I know everyone wants to buy the grains and I can certainly understand all the bullish reasons for doing so, but for me, the milk market is the sleeper bull market where the real profit opportunity resides and where the risk versus reward is much more palatable," he wrote in a report to clients last week.

"It's got phenomenal potential for upside," he said in an interview.

The benchmark CME milk contract is trading at $14 (U.S.) per 100 pounds - down from more than $16.50 at the end of October, and a far cry from the $20-plus prices seen in 2007 and 2008. The ratio of milk prices to corn prices is at a 14-year low - which, given the long-standing historical relationship between the two commodities, suggests their prices are likely to revert to more normal relative levels at some point.

'Liquid Corn'

"It was always said that milk is 'liquid corn.' But that couldn't have been further from the truth the last couple of years and certainly the last couple of months - at least in terms of prices," said dairy broker and analyst Dave Kurzawski of U.S. futures brokerage firm FCStone LLC in Chicago.

He theorized that the split between milk and corn prices may have to do with the fact that grains, which trade globally, have been responding increasingly to international factors over the past couple of years - while U.S. dairy products remain largely a domestic market.

But milk may be about to play some catch-up. Corn's rally this year has pushed dairy farmers' production costs north of $20 a hundredweight, leaving them in a highly unprofitable position - and under pressure to take actions that will curtail supplies in the coming months.

The most drastic measure - which Mr. Hackett believes is coming - would be a significant culling of the U.S. dairy herd, as farmers send animals to slaughter rather than continue to absorb the high cost of feeding them. He noted that there's a strong incentive to do that in the current markets, not only due to the unprofitable milk prices but also because beef prices are at two-year highs.

But even if the dairy herd isn't drastically reduced, high corn costs can reduce milk supplies in other ways. Mr. Kurzawski said that when farmers are forced to switch to lower-cost, lower-grade feeds, the output from each dairy cow typically shrinks because of it. This supply drop may already be in the cards, as cattle approaching their next lactation cycle have increasingly been receiving lower-quality feeds.

"I think the damage has already been done," he said. "We'll have to pay for it in the months ahead."

In Canada, milk is for drinking, not trading

Milk may present a tasty investing opportunity, but for Canadian investors, milk futures are foreign in more ways than one.

Not only are all the commodity futures markets for dairy outside of this country (the Chicago Mercantile Exchange has traded milk contracts since the mid-1990s, and milk futures have recently been launched by the New Zealand Exchange and by NYSE Liffe in Europe), but the entire structure of Canada's domestic dairy industry precludes an investment market.

The industry here operates under a "supply management system" - government marketing boards set both prices and production quotas.

"Given the marketing structure for milk and dairy products in Canada, there is no or very limited global trade of Canadian milk and dairy products," said Pierre Doyle, assistant director of the dairy section at Agriculture and Agri-Food Canada.

"So attracting potential investors for trading dairy products would be rather difficult."

The U.S. milk futures market also largely flies under the radar for Canadian professional and retail investors.

For one thing, the supply management system means Canadian milk prices bear little relationship to the market forces driving the U.S. milk futures market (though they are, typically, higher than U.S. prices) - so Canadian producers have little use for U.S. milk futures as a risk-management tool.

And it would hardly be cheap for a retail investor to dabble in U.S. milk futures. A single contract on the CME - representing 200,000 pounds of milk - sells for more than $28,000.

Aaron Fennell, portfolio manager and senior market strategist with Lind-Waldock, the retail commodities brokerage arm of MF Global Canada Co., said the company's Canadian trading desk does provide trading of CME milk futures to clients, but he's seen very little interest.

"I think we did one milk trade in the past year, but we aren't trading it right now," he said. "The clients who do occasionally trade milk futures are typically small speculators."

For Canadians eager to lap up a domestic milk investment, one possibility is Toronto Stock Exchange-traded Saputo Inc. - the biggest dairy processor in Canada and the 12th-biggest in the world.

The stock of the Montreal-based company is up nearly 40 per cent in the past six months, and the company's better-than-expected earnings results last week prompted analysts to raise their price targets on the stock.

"Given the company's industry-leading profitability, its solid track record of value creation and the potential for further operating efficiencies, we believe Saputo deserves a premium valuation versus its peers," wrote Desjardins Securities analyst Martin Landry in a recent report.