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Milk is an item obtained in a bucket by right-clicking a cow. Unlike other items contained in a bucket, instead of placing it when right clicking, it can be drunk, and it is considered a food item. Milk is the only food item that will not replenish any hunger by itself, but it will remove all status effects, both negative and positive, so it should be consumed only when the player is in danger due to harmful status effects.
As of the Adventure Update, milk became an edible food item and a cure for status effects.