[Federal Register Volume 65, Number 236 (Thursday, December 7, 2000)]
[Proposed Rules]
[Pages 76832-76861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30816]
[[Page 76831]]
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Part V
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 1000, et al.
Milk in the Northeast and Other Marketing Areas; Tentative Decision on
Proposed Amendments and Opportunity to File Written Exceptions to
Tentative Marketing Agreements and to Orders; Proposed Rule
Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 /
Proposed Rules
[[Page 76832]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1124,
1126, 1131, and 1135
[Docket No. AO-14-A69, et al.: DA-00-03]
Milk in the Northeast and Other Marketing Areas; Tentative
Decision on Proposed Amendments and Opportunity To File Written
Exceptions to Tentative Marketing Agreements and to Orders
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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7 CFR part Marketing area AO Nos.
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1001.............................. Northeast........... AO-14-A69
1005.............................. Appalachian......... AO-388-A11
1006.............................. Florida............. AO-356-A34
1007.............................. Southeast........... AO-366-A40
1030.............................. Upper Midwest....... AO-361-A34
1032.............................. Central............. AO-313-A43
1033.............................. Mideast............. AO-166-A67
1124.............................. Pacific Northwest... AO-368-A27
1126.............................. Southwest........... AO-231-A65
1131.............................. Arizona-Las Vegas... AO-271-A35
1135.............................. Western............. AO-380-A17
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SUMMARY: This tentative decision responds to a Congressional mandate to
reconsider the Class III and Class IV pricing formulas included in the
final rule for the consolidation and reform of Federal milk orders. The
mandate was included in the Consolidated Appropriations Act, 2000. A
hearing was held May 8-12, 2000, in Alexandria, Virginia, to consider
proposals submitted by the industry to change the formulas. The
material issues on the record of the hearing relate to the elements of
the Class III and Class IV pricing formulas, including: commodity
prices, manufacturing (make) allowances, factors related to product
yield, role of producer costs of production, and the issue of whether
to omit a recommended decision.
The major changes in the decision would reduce the cheese make
allowance used in the Class III component price calculations, increase
the make allowances used in the Class IV component price calculations,
provide for separate Class III and Class IV butterfat prices, and
remove the butterfat adjustment factor from the protein price formula.
In addition, the decision requires that processes be undertaken to
determine if producers approve issuance of the amended orders on an
interim basis.
DATE: Comments are due on or before February 5, 2001.
ADDRESSES: Comments (six copies) should be filed with the Hearing
clerk, Room 1081, South Building, U.S. Department of Agriculture,
Washington, DC 20250.
FOR FURTHER INFORMATION CONTACT: Constance M. Brenner, Marketing
Specialist, USDA/AMS/Dairy Programs, Order Formulation Branch, Room
2968, South Building, P.O. Box 96456, Washington, DC 20090-6456, (202)
720-2357, e-mail address [email protected].
SUPPLEMENTARY INFORMATION: This administrative action is governed by
the provisions of sections 556 and 557 of Title 5 of the United States
Code and, therefore, is excluded from the requirements of Executive
Order 12866.
These proposed amendments have been reviewed under Executive Order
12988, Civil Justice Reform. This action is not intended to have a
retroactive effect. If adopted, this proposed action will not preempt
any state or local laws, regulations, or policies, unless they present
an irreconcilable conflict with this rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under section
608c(15)(A) of the Act, any handler subject to an order may request
modification or exemption from such order by filing with the Secretary
a petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with the law. A handler is afforded the opportunity for a hearing on
the petition. After a hearing, the Secretary would rule on the
petition. The Act provides that the district court of the United States
in any district in which the handler is an inhabitant, or has its
principal place of business, has jurisdiction in equity to review the
Secretary's ruling on the petition, provided a bill in equity is filed
not later than 20 days after the date of the entry of the ruling.
Regulatory Flexibility Analysis
This decision responds to a Congressional mandate to reconsider the
Class III and Class IV pricing formulas included in the final rule for
the consolidation and reform of Federal milk orders. The mandate was
included in the Consolidated Appropriations Act, 2000 (Pub. L. 106-113,
115 Stat. 1501).
In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C.
601 et seq.), the Agricultural Marketing Service (AMS) has considered
the economic impact of this action on small entities and has prepared
this regulatory flexibility analysis. When preparing such analysis an
agency shall address: the reasons, objectives, and legal basis for the
anticipated proposed rule; the kind and number of small entities which
would be affected; the projected recordkeeping, reporting, and other
requirements; and federal rules which may duplicate, overlap, or
conflict with the proposed rule. Finally, any significant alternatives
to the proposal should be addressed. This final regulatory flexibility
analysis considers these points and the impact of this final regulation
on small entities. The legal basis for this action is discussed in the
preceding section.
The RFA seeks to ensure that, within the statutory authority of a
program, the regulatory and informational requirements are tailored to
the size and nature of small businesses. For the purpose of the RFA, a
dairy farm is considered a ``small business'' if it has an annual gross
revenue of less than $500,000, and a dairy products manufacturer is a
``small business'' if it has fewer than 500 employees. For the purposes
of determining which dairy farms are ``small businesses,'' the $500,000
per year criterion was used to establish a production guideline of
326,000 pounds per month. Although this guideline does not factor in
additional monies that may be received by dairy producers, it should be
an inclusive standard for most ``small'' dairy farmers. For purposes of
determining a handler's size, if the plant is part of a larger company
operating multiple plants that collectively exceed the 500-employee
limit, the plant will be considered a large business even if the local
plant has fewer than 500 employees.
USDA has identified as small businesses approximately 66,327 of the
71,716 dairy producers (farmers) that have their milk pooled under a
Federal order. Thus, small businesses constitute approximately 92.5
percent of the dairy farmers in the United States. On the processing
side, there are approximately 1,200 plants associated with Federal
orders, and of these plants, approximately 720 qualify as ``small
businesses,'' constituting about 60 percent of the total.
During January 2000, there were approximately 240 fully regulated
handlers (of which 186 were small businesses), 43 partially regulated
handlers (of which 28 were small businesses), and 71 producer-handlers
of which all were considered small businesses for the purpose of this
initial
[[Page 76833]]
regulatory flexibility analysis, submitting reports under the Federal
milk marketing order program. This volume of milk pooled under Federal
orders represents 72 percent of all milk marketed in the U.S. and 74
percent of the milk of bottling quality (Grade A) sold in the country.
Forty-four distributing plants were exempt from Federal order
regulation on the basis of their small volume of distribution.
Producer deliveries of milk used in Class I products (mainly fluid
milk products) totaled 3.965 billion pounds in January 2000--38.8
percent of total Federal order producer deliveries. More than 200
million Americans reside in Federal order marketing areas--
approximately 77 percent of the total U.S. population.
In order to accomplish the goal of imposing no additional
regulatory burdens on the industry, a review of the current reporting
requirements was completed pursuant to the Paperwork Reduction Act of
1995 (44 U.S.C. Chapter 35). In light of this review, it was determined
that these proposed amendments would have little or no impact on
reporting, recordkeeping, or other compliance requirements because
these would remain identical to the current Federal order program. No
new forms have been proposed, and no additional reporting would be
necessary.
This notice does not require additional information collection that
requires clearance by the OMB beyond the currently approved information
collection. The primary sources of data used to complete the forms are
routinely used in most business transactions. Forms require only a
minimal amount of information which can be supplied without data
processing equipment or a trained statistical staff. Thus, the
information collection and reporting burden is relatively small.
Requiring the same reports for all handlers does not significantly
disadvantage any handler that is smaller than industry average.
No other burdens are expected to fall upon the dairy industry as a
result of overlapping Federal rules. This proposed rulemaking does not
duplicate, overlap or conflict with any existing Federal rules.
To ensure that small businesses are not unduly or
disproportionately burdened based on these proposed amendments,
consideration was given to mitigating negative impacts.
One of the principal issues considered at the hearing was the
source of price data that should be used to generate prices for milk
components and, thereby, prices to be paid to producers. The options
considered were the National Agricultural Statistics Service (NASS)
surveys of selling prices of manufactured dairy products, Chicago
Mercantile Exchange (CME) prices, and producer costs of production. The
decision selects the NASS-reported prices as the most appropriate for
use in determining product prices because of the considerably larger
volume of product represented in those prices series than in the CME
price data. Producer cost of production was not included in the
calculation of prices because assuring dairy farmers that their costs
of production will be covered addresses only the milk supply side of
the market and ignores factors underlying demand or changes in demand
for milk and milk products.
Various proposals to reduce or increase the levels of the
manufacturing (make) allowances of butter, nonfat dry milk, cheddar
cheese and dry whey were considered. This decision adjusts these make
allowances from their current levels on the basis of data and testimony
contained in the hearing record. Most of the adjustments are minimal.
Primarily, manufacturing cost surveys done by USDA's Rural Cooperative
Business Service and the California Department of Food and Agriculture
were used to determine the most appropriate levels of make allowance
for the products used in calculating Federal order class prices.
The only other actual collection of manufacturing cost data for
cheddar cheese and dry whey that was cited in the hearing record was a
survey of cheddar cheese and dry whey manufacturing costs arranged for
by the National Cheese Institute. This survey was conducted by persons
unfamiliar with the dairy industry among cheese processors who would
benefit from having overstated costs included in the results, and as a
result has less reliability than the two studies used to determine the
cheddar cheese make allowance. In addition, one nonfat dry milk
manufacturer testified to costs of manufacture that exceeded those of
the two studies by a significant amount, mostly in the areas of return
on investment and marketing costs. The data did not include any
information about the pounds of product manufactured, and could not
have been weighted with the data from the two other studies.
Several proposals to change the factor reflecting the yield of
nonfat dry milk from nonfat solids in milk would have increased the
nonfat solids price, and the Class IV skim price, but ignored the need
to reflect the generally lower price and higher manufacturing cost of
buttermilk powder that also must be considered in calculating the Class
IV nonfat solids price. Testimony and data in the record was used to
determine a factor more representative of nonfat dry milk yield and the
effect of buttermilk powder price and cost. The alternatives to the
formula adopted did not include consideration of the price, cost, and
volume of buttermilk powder relative to those of nonfat dry milk.
Proposals were made to reduce the butter and cheese product prices
used in calculating the Class IV butterfat price and the Class III
prices. The record of this proceeding continues to support the use of
the product prices adopted in the final rule in the Federal milk order
reform process as representing accurately the values of these products.
In the case of adjusting the Grade AA butter price to reflect the value
of Grade A butter, the record fails to reveal any source of information
for obtaining current prices for Grade A butter. In the case of
proposals to remove the 3-cent adjustment between the barrel and 40-
pound block cheese prices, there was no testimony about the actual
difference in cost between the two types of packaging that overcame
testimony that 3 cents is the actual cost difference, or data that
indicates that the customary price difference is at least 3 cents.
Proposals to reconsider the class price relationships in the orders
were considered, although a proposal to use a weighted average of the
Class III and Class IV prices as a Class I price mover was not noticed
for hearing in this proceeding. The hearing record supports the
continued relationships between the Class IV and Class II prices, and
between the higher of the manufacturing class prices and the Class I
price.
A proposal that the Class II differential be changed to negate any
changes in the Class IV price formula that would affect the current
price relationship between nonfat dry milk and Class II failed to
consider that the Class II-Class IV price difference adopted in Federal
order reform is based on the difference in the value of milk used to
make dry milk and the value of milk used to make Class II products.
Proposals that any increases resulting from changes to the Class
III and Class IV price formulas not be allowed to result in increases
in Class I prices did not address the rationale for the current Class I
price differentials above the manufacturing price levels for the
purpose of obtaining an adequate supply of milk for fluid (drinking)
use.
The changes to the Class III and Class IV price formulas included
in this decision should have no special impact on small handler
entities. All handlers manufacturing dairy products from milk
[[Page 76834]]
classified as Class III or Class IV would remain subject to the same
minimum prices regardless of the size of their operations. Such
handlers would also be subject to the same minimum prices to be paid to
producers. These features of minimum pricing are required by the
Agricultural Marketing Agreement Act and should not raise barriers to
the ability of small handlers to compete in the marketplace. It is
similarly expected that small producers would not experience any
particular disadvantage to larger producers as a result of any of the
proposed amendments.
Interested parties are invited to comment on the probable
regulatory and informational impact of the amended provisions of this
decision on small businesses. Also, parties may suggest modifications
of this decision for the purpose of tailoring the applicability of the
provisions to small businesses.
An analysis was done on the effects of the alternatives selected,
and is summarized below.
Analysis
In order to assess the impact of changes in Federal order milk
pricing formulas, the Department conducted an economic analysis. While
the primary purpose of this decision is to amend the product pricing
formulas used to price milk regulated under Federal milk marketing
orders and classified as either Class III or Class IV milk, these
product price formulas also affect the prices of regulated milk
classified as Class I and Class II.
The modifications in this decision are analyzed simultaneously as a
change from the current set of formulas. This analysis focuses on
impacts on milk marketed under all Federal milk marketing orders, and
treats the Federal order system as a single entity. Milk marketed in
California, milk marketed under other state regulations and unregulated
milk are treated separately. The hard manufactured dairy product
markets are national.
Scope of Analysis
Impacts were measured as changes from the model baseline as adapted
from the USDA dairy baseline published in February 2000. The USDA
baseline is a national, annual projection of the supply-demand-price
situation for milk and dairy products. Baseline assumptions are: (1)
The price support program would end on December 31, 2000; (2) the Dairy
Export Incentive Program would continue to be utilized; and (3) the
Federal Milk Marketing Order Program would continue as reformed on
January 1, 2000.
It was necessary to make the following simplifying assumptions in
order to conduct the analysis. The Federal order share of U.S. milk
marketings is about 67 percent. About 60 percent of all milk
manufactured (Classes II, III, and IV) is marketed under Federal order
regulation. Given the prominence of Federal order marketings in the
U.S. milk manufacturing industry, prices paid for manufactured milk
under Federal orders cannot get too far out of alignment with the value
of milk for manufacturing in the rest of the United States. Similarly,
the fluid prices in non-Federal order markets are largely reflective of
Federal order minimum Class I prices.
California stands out as the state with the highest production and
has its own market regulations. California milk marketings are
estimated as a function of the California pool price. Non-California
milk marketings are estimated as a function of an all-milk price that
incorporates the Federal order pool price and over-order payment
estimates. The Federal order share of those non-California marketings
is estimated as a function of the Federal order all-milk price relative
to the estimated value of manufactured milk.
Cooperatives manufacture about 40 percent of the cheese and about
70 percent of the butter and nonfat dry milk manufactured nationally,
and sell such dairy products in wholesale and retail markets in
competition with other manufacturers. A baseline assumption is that a
cooperative passes through to its members the best price and best
return on investment that it can. A higher minimum Federal order price
could result in cooperatives paying higher monthly prices for milk, but
would result in lower returns on investments paid at the end of the
year. Total cash receipts for member milk marketings processed by
cooperatives would be changed only by changes in wholesale product
prices.
Specifically, it is assumed that changes in pay prices and cash
receipts to cooperative members for raw milk marketed by cooperatives,
or to non-members for milk marketed to proprietary handlers would be
fully reflected by lower or higher Federal minimum class prices.
Changes in pay prices and cash receipts to cooperative members for milk
manufactured by cooperatives would be fully reflected by the
manufacturing milk price that moves with changes in manufactured
product prices only. This applies to 40 percent of the Class III milk
and 70 percent of the Class IV milk. In the case of cooperatives, it is
assumed that differences between the model generated average value for
manufactured milk and the average of the Class II, Class III, and Class
IV prices would be passed on to producer-members in the form of higher
or lower pay prices. In the case of proprietary plants, it is assumed
that the plants would retain the differences. However, in the case of a
loss, proprietary manufacturing plants could de-pool milk to equalize
their margins with cooperative plant margins. In the model, this is
accounted for by an equation that estimates the Federal order share of
non-California marketings as a function of the ratio of the Federal
order all-milk price relative to the estimated value of manufactured
milk. The Federal order share increases as the price ratio increases.
In addition to altering the sharing of manufacturing proceeds
between manufacturing plants and producers the decision's formula
changes have an impact on Class I and Class II prices. Class II prices
move in concert with changes in Class IV. The effects on Class I prices
depend upon the effect on the Class III price relative to the Class IV
price. Class I prices are based on the higher of the Class III or Class
IV prices.
Retail prices of fluid milk and Class II soft manufactured products
are assumed to respond penny for penny to changes in the milk cost of
these products. Wholesale and retail margins are assumed unchanged from
baseline. Demands for Class I and Class II products are functions of
price, per capita consumption and population. Wholesale prices for
cheese, butter and nonfat dry milk reflect supply and demand for these
products. The milk supply for manufacturing these hard products is the
result of milk marketings minus the volumes demanded for Class I and
Class II products. The remaining volume is allocated to Class III and
Class IV according to returns to manufacturing in each class. Demands
for products in these classes are functions of per capita consumption
and population. Per capita consumption for the major milk and dairy
products are estimated as functions of price, income, and the
proportion of food expenditures spent away from home.
Summary of Results
The results of the amendments to the Class III and Class IV
formulas are summarized using five-year, 2001-2005, average changes
from the model baseline. The results presented for the Federal order
system are in the context of the larger U.S. market. In particular, the
Federal order price formulas use national manufactured dairy product
prices.
[[Page 76835]]
In addition, the advanced Class I base price is driven by the
higher of the Class III or Class IV prices. With the amended formulas,
the Class I base price is the Class IV price in all years of the
analytical period. In each year, the Class I price, at the class
average test of 2 percent butterfat, is slightly above the baseline.
This results in a small reduction in the demand for skim milk, and to a
lesser extent butterfat, for Class I use. Milk generally shifts from
Class I use to the production of butter, nonfat dry milk, and cheese in
generally the same proportions as in the baseline. As a result, the
wholesale prices of butter, nonfat dry milk and cheese each decrease
slightly.
Producers. Over the five-year period, the changes taken as a whole
result in a small increase of about $0.007 per hundredweight in the
Federal order minimum blend price for milk at test. Including the
effect of premiums, the average milk price received by Federal order
producers is expected to average up $0.009 per hundredweight. Federal
order marketings increase by an average 139 million pounds and cash
receipts increase by $30 million (0.18 percent) from baseline receipts
of $16,414 million. U.S. milk marketings increase by an average 24
million pounds annually, and cash receipts increase by $15.5 million
(0.07 percent) from baseline receipts of $23,841 million.
There is an increase of $0.007 per hundredweight in the five-year
annual average U.S. all-milk price.
Milk Manufacturers and Processors. For 2001, the Class III price at
test (3.61 percent butterfat) is increased by $0.02 per hundredweight
under the amended marketing orders. For the second year, Class III is
unchanged from baseline and then decreases slightly in 2003-2005. For
the five-year period, Class III at test averages down about $0.015 per
hundredweight.
The major change is the five-year annual average increase in the
minimum Class III butterfat price of about $0.73 per pound, and a
decline in the average minimum Class III skim milk price of about $2.72
per hundredweight. The estimated NASS cheese price, at 38 percent
moisture, decreases an average $0.003 per pound (0.2 percent).
Butterfat prices for Class II and Class IV average down slightly
($0.008 per pound) for the five-year period, while skim milk prices
increase about $0.11 per hundredweight. This results in an increased
Class II milk cost, at test, to processors of about 0.12 percent. The
butter price decreases an average 0.5 percent while the average nonfat
dry milk price decreases by about 0.3 percent for the period.
The average U.S. value of milk in manufactured products decreases
by about $0.03 per hundredweight for the period.
Class I costs to fluid processors (at the class average butterfat
of 2 percent) average about $0.03 per hundredweight (0.23 percent)
higher, as a result of higher skim milk prices each year.
Consumers. The expected $0.03 per hundredweight increase in the
Class I price for 2001-2005 results in about a $0.0025 increase in the
price per gallon of fluid milk for consumers. Consumer costs for fluid
milk are estimated to increase on average by about $10.4 million
annually over the five-year period.
The price of butter is estimated to decrease on average $0.006 per
pound for the period. Cheese is estimated to decrease $0.003 per pound.
Consumer expenditures on butter are estimated to decrease by about $5.6
million, and on American cheese, decrease by about $10.6 million
annually over the five-year period.
A complete economic analysis is available upon request from Howard
McDowell, Senior Economist, USDA/AMS/Dairy Programs, Office of the
Chief Economist, Room 2753, South Building, U.S. Department of
Agriculture, Washington, DC 20250, (202) 720-7091, e-mail address
[email protected]
Civil Rights Impact Statement
This decision is based on the record of a public hearing held May
8-12, 2000, in Alexandria, Virginia, in response to a mandate from
Congress via the Consolidated Appropriations Act, 2000, that required
the Secretary of Agriculture to conduct a formal rulemaking proceeding
to reconsider the Class III and Class IV milk pricing formulas included
in the final rule for the consolidation and reform of Federal milk
orders. The consolidated orders were implemented on January 1, 2000.
Pursuant to Departmental Regulation (DR) 4300-4, a comprehensive
Civil Rights Impact Analysis (CRIA) was conducted and published with
the final decision on Federal milk order consolidation and reform. That
CRIA included descriptions of (1) the purpose of performing a CRIA; (2)
the civil rights policy of the U.S. Department of Agriculture; and (3)
basics of the Federal milk marketing order program to provide
background information. Also included in that CRIA was a detailed
presentation of the characteristics of the dairy producer and general
populations located within the former and current marketing areas.
The conclusion of that analysis disclosed no potential for
affecting dairy farmers in protected groups differently than the
general population of dairy farmers. All producers, regardless of race,
national origin, or disability, who choose to deliver milk to handlers
regulated under a Federal order will receive the minimum blend price.
It also was concluded that ``one of the reasons for success of the
Federal milk order program is that all producers benefit through
assistance in developing steady, dependable markets, reducing price
instability and unnecessary price fluctuations, and assurances of a
minimum price for their milk. With this assurance, producers are more
willing to make the significant cost investments in milk cows and
equipment needed to produce high-quality milk. Federal orders provide
the same assurance for all producers, without regard to sex, race,
origin, or disability. The value of all milk delivered to handlers
competing for sales within a defined marketing area is divided equally
among all producers delivering milk to those handlers.''
The issues addressed at the May 2000 hearing are issues that were
addressed as part of Federal milk order consolidation and reform.
Establishing representative make allowances in the formulas that price
milk used in Class III and Class IV dairy products is an issue that
affects the obligations of handlers of those products to the Federal
milk order pool, and similarly the pool obligations of Class I and
Class II handlers. The decision should result in no differential
benefits in dividing the pool among all producers delivering milk to
those regulated handlers. Therefore, USDA sees no potential for
affecting dairy farmers in protected groups differently that the
general population of dairy farmers.
Decisions on proposals to amend Federal milk marketing orders must
be based on testimony and evidence presented on the record of the
proceeding. The hearing notice in this proceeding invited interested
persons to address any possible civil rights impact of the proposals
being considered in testimony at the hearing. No such testimony was
received.
Copies of the Civil Rights Impact Analysis done for the final
decision on Federal milk order consolidation and reform can be obtained
from AMS Dairy Programs at (202) 720-4392; any Milk Market
Administrator office; or via the Internet at: www.ams.usda.gov/dairy/.
[[Page 76836]]
Prior documents in this proceeding: Notice of Hearing: Issued April
6, 2000; published April 14, 2000 (65 FR 20094).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
tentative decision with respect to proposed amendments to the tentative
marketing agreements and orders regulating the handling of milk in the
Northeast and other marketing areas. This notice is issued pursuant to
the provisions of the Agricultural Marketing Agreement Act of 1937, as
amended (7 U.S.C. 601 et seq.), and the applicable rules of practice
and procedure governing the formulation of marketing agreements and
marketing orders (7 CFR Part 900).
Interested parties may file written exceptions to this tentative
decision with the Hearing Clerk, United States Department of
Agriculture, Washington, DC 20250, by the 60th day after publication of
this decision in the Federal Register. Six copies of the exceptions
should be filed. All written submissions made pursuant to this notice
will be made available for public inspection at the office of the
Hearing Clerk during regular business hours (7 CFR 1.27(b)).
The Hearing notice specifically invited interested persons to
present evidence concerning the probably regulatory and informational
impact of the proposals on small businesses. To the extent that this
issue was raised, it is considered in the following findings and
conclusions.
This decision responds to a Congressional mandate to reconsider the
Class III and Class IV pricing formulas included in the final rule for
the consolidation and reform of Federal milk orders. The mandate was
included in the Consolidated Appropriations Act, 2000 (Pub. L. 106-113,
115 Stat. 1501). The findings and conclusions set forth below are based
on the record of a public hearing to consider proposals submitted by
the industry to change the pricing formulas in the marketing agreements
and the orders regulating the handling of milk in the Northeast and ten
other marketing areas held in Alexandria, Virginia, on May 8-12, 2000.
Notice of such hearing was issued on April 6, 2000 and published on
April 14, 2000 (65 FR 20094).
Brief Summary of Changes to Class III and IV Formulas
As instructed by the legislation requiring this proceeding, the
Class III and IV pricing formulas, and all of the elements of the
formulas, were re-considered in developing this decision. The changes
made in the Class IV component formulas are minimal. The product prices
used in the Class IV formulas (butterfat and nonfat solids) are
unchanged. The make allowances for butter and nonfat dry milk are
increased slightly, by .1 cents for butter and .3 cents for nonfat dry
milk. The divisor used in the Class IV butterfat component formula is
unchanged, while the 1.02 divisor used in the nonfat solids price
formula to reflect the relative values and yields of buttermilk powder
and nonfat dry milk is eliminated.
The Class III component price formulas are changed to a greater
degree. The most substantive change is to calculate a Class III
butterfat price on the basis of the value of butterfat in cheese, not
on its value in butter. At the same time, the protein price formula
would reflect the value of protein in cheese, without including a
butterfat factor in the formula to adjust for the differential value of
butterfat used in butter and cheese. The product price for cheese is
changed to reflect a 38-percent moisture adjustment in the barrel
cheese price to place that price on the same moisture basis as the
block cheese price. The dry whey price, for computing the other solids
price, is unchanged. The change in the make allowance for cheese is
minimal, and the whey powder make allowance is increased only enough to
remain the same as that for nonfat dry milk. As with the current
component prices, the Van Slyke formula is used to determine the yield
effects of both the Class III protein and butterfat prices.
The material issues on the record of the hearing relate to:
1. Role of producer costs of production.
2. Commodity prices (CME vs. NASS).
3. Commodity and component price issues.
a. General approaches on make allowances.
b. Class IV butterfat and nonfat solids prices.
c. Class III butterfat, protein and other nonfat solids prices.
d. Effects of changes to Class III and Class IV price formulas.
4. Class price relationships.
5. Class I price mover.
6. Miscellaneous and conforming changes.
a. Advance Class I butterfat price.
b. Classification.
c. Distribution of butterfat value to producers.
d. Inclusion of Class I other source butterfat in producer
butterfat price computation.
7. Issue of whether to omit a recommended decision.
Findings and Conclusions
The following findings and conclusions on the material issues are
based on evidence presented at the hearing and the record thereof:
1. Role of Producer Costs of Production
Proposal 29 in the hearing notice proposed that producers' costs of
production be incorporated into the Class III and Class IV pricing
formulas. A number of dairy farmer witnesses testified that, just as
manufacturing processors are assured that their costs of processing
milk products will be covered, dairy farmers should also have some
assurance that they will be able to continue to operate their dairy
farms without losing money. Under the current system, according to the
National Farmers Union (NFU) witness, incorporating a make allowance
for processors but not for producers leaves dairy farmers to bear the
entire burden of changes in supply and demand.
Unfortunately, as explained in both the proposed and final rules
under Federal order reform, assuring producers that their costs of
production will be covered addresses only the milk supply side of the
market and ignores factors underlying demand or changes in demand for
milk and milk products. As noted by the DFA witness, although pricing
proposals incorporating cost of production have been noticed and
reviewed several times in the last decade without success, if a sound
mechanical concept could be advanced that overcomes the objections
relative to supply and demand, it should be considered.
The witnesses testifying on behalf of NFU and National Farmers
Organization (NFO) both supported the concept of variable make
allowances, in which the allowances would be adjusted for changes in
supply and demand as a means of addressing the problem of manufacturers
being insulated from changes in supply and demand by their fixed make
allowances. In other words, increases in dairy farmers' costs of
production would be reflected in reductions in manufacturers' margins.
Both proposals would divide Class III and Class IV values by dairy
farmers' costs of production. The NFU proposal would use an average
national cost of production, presumably as published by USDA's Economic
Research Service, and the NFO proposal would use the CDFA milk
production cost index.
Although the concept of assuring that as costs of production
increase, manufacturing allowances would decline to the extent product
prices do not also increase has appeal, it is difficult to believe that
such a proposal would be in the best long-term interests of dairy
farmers, processors, or consumers. It certainly could easily fail to
cover processors' costs to the extent that would keep them operating.
It is
[[Page 76837]]
easy to construct a situation in which milk production costs increase
because of feed shortages, resulting in reduced make allowances to
processors. When the manufacturers' make allowances decline to the
point the variable costs of processing are not covered, they would have
little choice but to cease processing. At that point, dairy farmers who
are facing high costs of production would have to find alternative
outlets for their milk. If many processors reach the point at which
they must make the decision to cease operating near the same time,
there likely would be very disorderly conditions among dairy farmers
looking for outlets for their milk. In addition, consumers would be
likely to find shortages in the availability of dairy products.
This proceeding must join the list of those in which cost of
production proposals have been considered and found wanting in terms of
being able to reflect both the supply and demand sides of the market
for dairy products. There is no evidence in the record that either the
ERS or the CDFA index has been used to price milk. As noted by the NFO
witness, the current pricing system uses the interaction of supply and
demand for milk products as an indirect method of meeting the pricing
requirements of the Agricultural Marketing Agreement Act of 1937 for
milk. According to the witness, producer milk has a value before it is
processed. In today's market, it is hard to agree that milk has a
market value to consumers without being pasteurized, at least.
2. Commodity Prices (CME vs. NASS)
As recommended in the proposed rule and adopted in the final rule
on Federal order reform (published on September 1, 1999 (64 FR 47898)),
commodity prices determined by surveys conducted by USDA's National
Agricultural Statistics Service (NASS) are currently being used in the
component price formulas that replaced the BFP. This decision makes no
changes in the source of product price data.
Several proposals (1, 5, 10 and 19) were considered during the
current proceeding that recommended using prices reported by the
Chicago Mercantile Exchange (CME) instead of the NASS surveys to
determine commodity prices. Both the CME and the NASS surveys were
supported by testimony at the hearing and in briefs. The CME is a cash
market where speculators, producers, and processors can buy and sell
products. It is a mechanism for establishing prices on which the dairy
industry relies. Thus, a lot of contracts to buy and sell dairy
products are based on CME prices. A USDA witness testified that he is
unaware of any other indices used to price cheese in the U.S. According
to several witnesses, cheese and butter processors generally base their
contract sales on CME prices.
The NASS price survey gathers selling prices of cheddar cheese,
Grade AA butter, nonfat dry milk and dry whey from a number of
manufacturers of these products nationwide. At the time the proposed
rule on Federal order reform was published (January 30, 1998), the NASS
survey included prices for cheddar cheese only. This survey had begun
in March 1997. In September 1998, before the final decision was
published in April 1999, NASS began surveys of Grade AA butter prices,
dry whey prices, and nonfat dry milk prices. In developing these
commodity surveys, input was obtained from the dairy industry on
appropriate types of products, packaging, and package sizes to be
included for the purpose of obtaining unbiased representative prices. A
sale is considered to occur when a transaction is completed, the
product is shipped out, or title transfer occurs. In addition, all
prices are f.o.b. the processing plant/storage center, with the
processor reporting total volume sold and total dollars received or
price per pound. NASS Dairy Products Prices reports wholesale cheddar
cheese prices for both 500-pound barrels and 40-pound blocks, USDA
Grade AA butter, USDA Extra Grade or USPH Grade A non-fortified dry
milk and USDA Extra Grade edible non-hygroscopic dry whey. A more-
detailed description of the surveys can be found in the final decision
of April 2, 1999 (64 FR 16093).
The proponents of proposal 1, Western States Dairy Producers Trade
Association, et al. (WSDPTA), a group of several trade associations and
cooperatives, proposed that the NASS commodity prices for butter,
cheese, and nonfat dry milk that currently are used for computing the
Federal order component prices be replaced with prices determined by
trading on the CME. Dry whey was not included in the proposal because
there is no dry whey cash contract traded on the CME. A witness from
WSDPTA did not oppose the collection and reporting of NASS data, but
expressed the opinion that while it serves an important function as
information, it should not be used to establish prices. The proponents
presented several benefits of using the CME over the NASS survey for
commodity prices.
Proponents explained that by using CME prices in the formulas,
prices would be known immediately rather than a week later when the
NASS prices are published, reflecting more quickly the supply-demand
conditions for dairy products. The one-week delay is caused by the time
necessary to collect data. A witness for National Farmers Organization
noted that interested persons are able to check the CME value of
products on a daily basis and use the reported prices as a factor to
establish what they're going to be paying or paid for cheese.
A witness from WSDPTA went on to explain that buyers, sellers, and
speculators trade the CME, trying to obtain a price in their favor,
while the price actually is determined by supply and demand forces. He
described the rules as fair and the results as transparent, with
participants having a number of interests. The witness continued by
noting that the CME price result is instant and results cannot be
altered. In contrast, he stated, NASS prices are reported by sellers
only, who are not disinterested parties. He argued that NASS
respondents can modify their numbers or file an initial report after
calculating the price impact of the latest reports.
The proponents also concluded that the urging by many hearing
participants that the NASS price series include mandatory participation
and be audited proves that the NASS series is not reliable enough to be
used as a price-discovery method.
Finally, the witness from WSDPTA expressed the view that the NASS
price series would feed on itself and result in price setting, not
price discovery. He continued by noting that plants and their buyers
will obtain prices one week and sell the commodity in the following
week at a price derived in large part from the price obtained in the
prior week. The witness compared the NASS survey to the California
State survey of powder prices which, he claimed, results in a circular
pricing system that is mathematically incapable of fully reflecting the
top of the market price for powder because so little of the survey
volume is priced off of the spot market. Proponents expressed the
belief that this circularity causes prices to remain lower than they
would without it, and that prices would increase more slowly and
decrease more rapidly than would prices on the CME, causing overall
lower prices for dairy farmers.
Opponents of changing from NASS to CME prices to compute component
prices included International Dairy Foods Association (IDFA), Dairy
Farmers of America (DFA), and National Milk Producers Federation
(NMPF). Witnesses for these parties argued that the NASS survey
includes pricing based
[[Page 76838]]
on a significantly larger volume of product than does the CME. In the
case of the nonfat dry milk market, the table of 1999 monthly Chicago
Mercantile Exchange Cash Markets data from the 1999 Annual Dairy Market
Statistics showed that there were no sales reported for either extra
grade or Grade A in the year 1999.
According to a witness from IDFA, the volume of cheddar cheese in
the NASS survey is equal to 26.4 percent of all cheddar cheese
production in the U.S. for the period September 1998 through February
2000. During the same period, the CME volume of cheddar cheese traded
represented only 1.7 percent of U.S. cheddar cheese production. The
witness stated that for the same 18-month period, the NASS survey
volumes represented 14.4 percent of all U.S. butter production while
CME trading consisted of only 2.6 percent. He also noted that switching
from the NASS survey data to the CME data would result in a change from
a very broad to an extremely thin representation of actual product
transactions.
Opponents to the proposal to use CME prices also pointed out that
prices at the CME are Chicago or Midwest prices based on the delivery
location specification of the contract. Therefore, they argued, the
scope of the reported prices for cheese, butter, and nonfat dry milk
are not national. A witness for Kraft noted that reliance on the CME
alone would exclude the substantial and growing volume of cheese
produced in the western United States (U.S.), particularly California.
A witness for Northwest Dairy Association suggested that a
transportation credit would need to be used with CME prices, at least
in the West, to reduce the value of the CME to a more representative
level. Opponents went on to explain that since the NASS survey contains
data from plants located all over the United States, NASS prices
represent a national scope of the prices of each of the particular
commodities.
According to the testimony in the record and a number of the
briefs, the cheese and butter sellers and buyers look to the CME to
identify the most current price levels. As a result, prices move in
response to supply and demand conditions in the marketplace as
reflected at the CME. Since the transaction prices of commodities are
based off of the CME, it is difficult to see how the NASS survey can
cause, or result in, circularity. The NASS prices reflect the CME
prices with a short lag, but are based on a much greater volume,
enhancing the stability of the price series. Continued use of the NASS
price survey appears to be the best method of obtaining reliable data
about commodity prices.
As stated in the final decision on Federal order reform, NASS data
traditionally have been collected via a survey with voluntary
participation. The price information, like most NASS data, is not
audited. NASS, however, applies various statistical techniques and
cross-checking with other sources to provide the most reliable
information available. The issue of mandatory and audited NASS data,
however, will not be discussed further as NASS is not authorized to
conduct such activities, and these issues are not within the scope of
this rulemaking.
3. Commodity and Component Price Issues
a. General Approaches on Make Allowances
Changes to the make allowances for each of the product formulas
used in calculating component prices were proposed and discussed at
length during this proceeding. Except in the case of dry whey, make
allowances adopted in the component price formulas in this decision are
calculated using a weighted average of the most recent California cost
of production study and the Rural Business Cooperative Services (RBCS)
study. A marketing cost of $.0015 per pound is added to both the
California costs and the RBCS costs, as in the Final Rule, and the
California value for return on investment is used to adjust the RBCS
cost. This is generally the same approach used to determine the
appropriate make allowances in the current orders, and results in
values that differ little from the formulas in the current orders.
For the calculation of the Class III ``other nonfat solids'' price,
neither the California nor RBCS studies included information on the
cost of making dry whey, and a survey done for this proceeding under
the auspices of IDFA was not considered sufficiently reliable for use
in establishing a make allowance. Consequently, the ``other solids''
make allowance should continue to be the same as that used for nonfat
dry milk.
A number of the proposals considered in this proceeding would
change the manufacturing, or make, allowances adopted for the pricing
formulas under Federal order reform. There was considerable testimony
on the appropriate factors to be considered in establishing make
allowances, and several sources of data were cited as the most accurate
to use for such a purpose. In addition, a number of witnesses testified
about the philosophical basis for determining appropriate manufacturing
allowances for milk pricing formulas.
Two surveys of product manufacturing costs that were averaged for
use in calculating make allowances under Federal order reform were the
California Department of Food and Agriculture (CDFA) study, which is
done annually and includes nearly 100 percent of dairy products
manufactured in California, and the Rural Business Cooperative Service
(RBCS) study, which is conducted annually by USDA as an in-plant
benchmark study for participating cooperative associations. These two
surveys had both been updated since earlier versions had been used in
determining the manufacturing allowances used in the current component
pricing formulas. In addition, the National Cheese Institute (NCI), an
affiliate of the International Dairy Foods Association (IDFA),
contracted with a third party to conduct a survey of the costs of
manufacturing cheese and whey powder for use in this proceeding.
A witness for National Milk Producers Federation (NMPF) stated that
make allowances should reflect the costs incurred by average plants
manufacturing the particular dairy product used in the component/Class
price formulas: butter, nonfat dry milk, cheese, and dry whey. The
witness went on to explain that the procedure used by the Secretary for
determining the make allowances for the Final Rule, using an average of
the California cost of production studies and the Rural Business
Cooperative Services (RBCS) study, was sound and that the same
procedure should be used as a result of this hearing, using the updated
data from both surveys. In calculating an appropriate make allowance,
the witness supported addition of a marketing cost of $.0015 per pound
to both the California costs and the RBCS costs, as in the Final Rule,
and the California value for return on investment used to adjust the
RBCS costs in the Final Rule. The witness explained that both of these
factors should be included as they are legitimate and necessary costs
incurred in operating manufacturing plants.
The witness for IDFA supported inclusion of the California cost
studies in the computation of the make allowance; however, the witness
stated that the appropriate procedure for computing the make allowance
for cheese was to compute a weighted average of the California cost
studies and the NCI survey. The witness explained that the RBCS study
does not
[[Page 76839]]
include all the necessary costs that must be recovered in the make
allowance, and that the NCI survey is needed to determine what the
additional cost values should be. The costs that the IDFA witness
pointed out that are not included in the RBCS survey, but are included
in the NCI survey, are general plant administrative costs, such as the
plant manager's salary and corporate overhead; return on investment or
capital costs; and marketing costs.
The IDFA representative testified that the danger inherent in
regulated prices is setting the manufacturing allowance at a level too
low to assure that manufacturers will be able to recover their costs of
manufacturing finished products and have the money needed to invest in
new plants. The witness pointed out that an inadequate make allowance
would force manufacturers either to move to areas that do not have
regulated pricing or go out of business. At the very least, the witness
explained, the manufacturers would not invest in new plants and
equipment, which in the long run would cause a decline in the
productivity of the dairy industry. A number of briefs filed on the
basis of the hearing transcript emphasized the importance of covering
all of handlers' costs of manufacturing, and not just average costs.
The IDFA witness explained that if make allowances are established
at too low a level, proprietary plants are placed at a competitive
disadvantage relative to cooperative-owned plants. The witness
explained that since cooperatives do not have to pay their producers
the minimum order price, as proprietary plants are required to do,
cooperative plants can reduce the prices paid to member producers to
make up the difference in cost.
The IDFA witness explained further that the problem with a make
allowance established below the amount needed to cover plant costs
occurs because the plant sells the finished product at the same price
that is used in the formula for establishing the minimum price the
plant must pay for the raw material, milk. The manufacturing allowances
are the only place the plant has the opportunity to cover its costs,
and those allowances are fixed in the formula that determines the raw
material price.
The witness for IDFA asserted that there was very little risk in
setting a make allowance too high. He explained that if the make
allowance is established at a level above plant costs, the additional
revenue stream will be corrected through market forces by requiring the
plant operators to pay competitive over-order premiums to milk
suppliers to obtain an adequate supply of milk.
A witness for Western States Dairy Producers Trade Association, et
al. (WSDPTA), explained that the most important part of determining a
manufacturing allowance is to pick a method and stick with that method.
The witness testified that the appropriate method is to use the results
of the RBCS study with adjustments to include factors for marketing
costs and for capital costs. The witness pointed out that use of the
RBCS study is appropriate because the study is voluntary, represents
the costs of making the particular commodities, and the plants are
geographically widely dispersed. The WSDPTA witness stated that
including the results of the California study in the computation of the
make allowance for pricing Federal order milk is inappropriate since
there is no logical reason for considering the manufacturing costs of
plants that do not procure any of the milk that would be priced using
those costs.
A witness for the National Farmers Organization (NFO) proposed a
variable make allowance using the RBCS make allowances as a base
adjusted by the relationship between the particular commodity prices
for butter, nonfat dry milk, dry whey, and cheese, and the California
Department of Food and Agriculture (CDFA) milk production cost index.
The witness explained that a fixed make allowance, as contained in the
current pricing system, does not vary with market conditions and
creates a situation in which manufacturers will not respond to market
signals since the manufacturers will receive a profit no matter what
the supply and demand is for the finished products. The witness
explained that as long as the make allowance allows manufacturers a
sufficient return the manufacturers will continue to produce the
finished product even if there is limited demand for the product, thus
resulting in a continued low price paid to producers for their milk.
The witness characterized a variable make allowance tied to the cost of
producing milk as a market-oriented system.
A witness for National Farmers Union (NFU) also proposed a variable
make allowance composed of the weighted average RBCS and California
manufacturing cost surveys, without a marketing allowance, adjusted by
the national average cost of production. The witness explained that the
current system does not have market accountability, since there is no
incentive for a manufacturer to restrict production when declining
prices indicate reduced demand for the product. As a result, according
to the witness, the pricing system effectively isolates the
manufacturing side of the industry from supply and demand forces,
leaving the producers left to bear the burden of changes in supply and
demand. The witness explained that the California system, in which
manufacturers' production costs are covered by producers through the
make allowance, continues to produce a large quantity of lower-valued
products because the pricing system makes the manufacturer immune to
the supply of and demand for the products. The witness blamed the
California make allowance system for the traditionally low milk prices
in California, that, he claimed, result in expansion of dairy herds to
make up for reduced cash flow. The witness predicted that if the
Federal order system follows the same pricing path, the same production
patterns as witnessed in California would follow in the rest of the
United States.
Most hearing participants agreed that the make allowance should
cover the cost of converting milk to a finished manufactured dairy
product. However, several participants disagreed with the IDFA
contention that there is very little risk in setting the make allowance
too high. They argued that if the make allowance is set in excess of
the cost to manufacture finished products, the additional revenue would
be kept by the manufacturing plants as higher profits and not
distributed to the producers supplying milk to the plant. They
explained that in many parts of the country there is little if any
competition for the dairy farmers' milk and therefore no incentive for
a plant to pay above the minimum Federal order price. These plants,
according to the witnesses, could be expected to keep the extra make
allowance for themselves.
Several witnesses opposed the idea of setting make allowances at
levels that guarantee plants a profit, or at least a return on
investment, when the dairy farmers supplying milk to the manufacturing
plants have no similar assurances for covering the costs of producing
milk. These witnesses pointed to the Agricultural Marketing Agreement
Act of 1937, Sec. 608c(18), as justification for setting a lower make
allowance for plants, resulting in higher milk prices that would come
closer to covering dairy farmers' costs of producing milk.
As supported by most of the hearing participants, the make
allowances incorporated in the component price formulas under the
Federal milk orders should cover the costs of most of the processing
plants that receive milk pooled under the orders. In part, this
[[Page 76840]]
approach is necessary because pooled handlers must be able to compete
with processors whose milk receipts are not priced in regulated
markets. The principal reason for this approach, however, is to assure
that the market is cleared of reserve milk supplies.
Although the RBCS survey does not include such costs as general
plant administrative costs, return on investment or capital costs, and
marketing costs, it is a survey that has been done for sixteen years
with the same fundamental methodology, and with some continuity of
participants. Because the survey is done for the benefit of the
participating organizations (cooperatives) to help them identify their
costs and compare them with those of their peer group, there is every
reason to believe that the costs provided are as accurate as possible.
In addition, the years of experience with the survey have enabled USDA
to shape the questions to obtain more accurate results.
When the RBCS survey results are adjusted to include the factors
that were mentioned above as not included by using the values for those
factors from the CDFA survey, the two surveys' costs are comparable,
especially considering that the RBCS survey represents manufacturing
plants with a wide distribution around the U.S., while the CDFA survey
includes only California plants. The CDFA survey is also done every
year, and is done according to a published procedure manual, with the
costs being audited by personnel employed by the State for that
purpose. Although no CDFA employee was available to respond to
questions about the conduct of the survey, official notice was taken of
the procedure manual and of California publications associated with
manufacturing cost data. In addition, several witnesses who are deeply
involved with the California dairy industry testified regarding the
perceived reliability of the survey results.
In contrast to the RBCS and CDFA surveys, the survey of cheese and
whey powder manufacturing costs arranged for by NCI was developed
solely for the purpose of establishing costs to be used in determining
make allowances for this proceeding. The survey was conducted by
persons unfamiliar with the dairy industry among cheese processors who
would benefit from having overstated costs included in the results. No
one who actually conducted the survey was made available to testify,
and although the IDFA witness stated that survey participants would
testify regarding their responses to the survey later in the hearing,
none of the participating firms' witnesses would respond to questions
about their firms' results. Although less weight must be given the NCI
survey than either the RBCS or the CDFA surveys for the reasons stated
above, the NCI survey's resulting manufacturing costs for cheese are
not considerably different from a weighted average of the RBCS and the
CDFA surveys. In fact, although the IDFA hearing participants went to
great lengths to discredit the RBCS study for use in identifying an
appropriate level of manufacturing costs, the hearing record reflects
that the NCI survey of cheese and dry whey manufacturing costs used the
RBCS 1996 survey results to identify outliers (plus or minus 10
percent) in the study commissioned by NCI.
As a result of the differences in conduct of the three surveys,
manufacturing costs used to determine appropriate make allowances for
cheddar cheese, butter and nonfat dry milk in this proceeding are
calculated primarily from a weighted average of the RBCS and CDFA
surveys, with a check against the NCI survey cost of manufacturing
cheddar cheese. The cost of manufacturing nonfat dry milk continues to
be used as the cost of making whey powder due to the nature of the
information in the hearing record about the actual costs of drying
whey.
One proposal included in the hearing notice would have eliminated
any marketing allowance from the make allowances, and a number of
witnesses' testimony objected to the inclusion of return on investment.
The American Farm Bureau witness questioned the need for a marketing
allowance since producers already pay a 15-cent assessment for
promotion and research. A brief filed by the proponent of eliminating
the marketing allowance stated that the allowance appears to be an
``adjustment'' or a ``hedge,'' since it is not defined in the final
rule.
There was general agreement among those testifying that a marketing
allowance should be included in manufacturing costs, but no consensus
about the appropriate number. Some of the costs covered by the
marketing allowance include maintaining and staffing warehouses,
supporting a marketing and sales staff, transporting product to market,
and accounting costs associated with the sale of products. The NCI
survey identified a marketing cost of $.0011 per pound of product,
while the Dairy Farmers of America (DFA) witness stated that DFA's
costs were approximately $.0018. The DFA witness testified that because
the costs included in the activities designated as marketing generally
fall within a common department under common management, it is
appropriate to apply the same allowance to each product.
A witness for Northwest Dairy Association, a cooperative
association in the Pacific Northwest, stated that their marketing costs
are $.0026, but identified costs associated with the aging of cheese as
included in that number. Since the NASS survey price does not include
cheese intended for aging, the marketing allowance certainly should not
include costs of aging cheese. The Associated Milk Producers, Inc.,
(AMPI) witness used a $.0024 marketing allowance in the calculation of
AMPI's proposed make allowance for nonfat dry milk. The witness for
Agri-Mark, Inc., a large Northeast cooperative association with several
processing plants, stated that Agri-Mark's estimates of marketing costs
ranged from $.0025 to $.005.
The costs identified as those included in a marketing allowance are
necessarily incurred in getting a product to market, and are not
related to the consumer education and advertising activities covered by
the National Dairy Board assessment. Since the marketing cost
determined by NCI is the only one of the estimates included in the
hearing record that is supported by a survey, and it varies from the
$.0015 rate included in the Final Rule by only 4 one-hundredths of a
cent and applies only to cheese and dry whey, there seems to be no
solid basis for making any change to the current marketing allowance.
Some producer witnesses objected to the inclusion of any allowance
for return on investment in manufacturing allowances on the basis that
dairy farmers are assured of no such return. The CDFA manufacturing
cost surveys include allowances for depreciation, included in the non-
labor processing costs; and for return on investment, which represents
the opportunity cost of the processors' resources invested in the
business. These costs are supported by audited data.
Both the marketing allowance and return on investment factors
should be included in the manufacturing allowances provided in the
component price formulas at the rates supported by the California data.
If processors are not provided enough of a manufacturing allowance to
market the product they process, or to earn any return on investment,
they will not continue to provide processing capacity for producers'
milk. At the same time, the manufacturing allowances incorporated in
the formulas will not provide enough of an allowance to assure that
every processor, no matter how inefficient or high-cost, will earn a
profit. Allowances set at such a level certainly could result
[[Page 76841]]
in the situation warned of by producer groups in which processors
manufacture greater volumes of product than the market demands because
they are guaranteed a profit on all their production. As a result, the
only way to market all of the product would be to reduce prices, with a
profit still locked in through the make allowance, which would result
in decreasing prices paid to producers. In addition, manufacturers who
are assured a profit on all of their output would have no incentive to
make a sufficient quantity of milk available for fluid use--a basic
goal of the Federal milk order program.
One area addressed by several hearing participants in testimony and
in briefs as appropriate to consider in establishing make allowances or
yields was the loss of milk components during manufacturing processes.
The orders have always provided an allowance for shrinkage, and
continue to do so, but inflating costs of production or reducing yield
factors to reflect shrinkage would not properly reflect the value of
producers' milk used in manufactured products. Processing costs
determined by the surveys described above, which underlie the
manufacturing costs incorporated in the pricing formulas, are expressed
in cents per pound of end product manufactured, not in the cost per
hundredweight of milk of converting milk to manufactured products. The
component pricing formulas are based on the content of those components
in the finished products for which a manufacturing cost per pound has
been established. Both the CDFA and RBCS cost surveys allocate all
plant costs to actual end product, a process which should take
shrinkage into account. Similarly, the yield factors in the formulas
refer to the amount of finished product resulting from the processing
of a given volume of input. Both of these factors in the pricing
formulas include consideration of shrinkage.
The detailed explanation of each product's manufacturing allowance
is included with the description of its primary component's pricing
formula later in this decision.
b. Class IV Butterfat and Nonfat Solids Prices.
Class IV Butterfat Price. This decision continues to use the NASS
price for Grade AA butter for calculating the Class IV butterfat price,
and changes the manufacturing allowance in the butterfat price formula
by \1/10\ of a cent per pound of butter. The .82 divisor in the price
formula is unchanged.
Several proposals were heard that would reduce butterfat prices,
either by reducing the butter price used in the computation of the
butterfat prices for all classes, or subtracting a fixed amount from
the butterfat price computed for Class IV. Proposals also were made
that would change the make allowance used in calculation of the
butterfat prices. There were no proposals to change the butterfat
divisor of .82, although one witness representing a western cooperative
association suggested that it be reconsidered as he felt it didn't
include a shrinkage factor.
Product Price (Butter). Several witnesses for proprietary processor
proponents of the proposal to deduct six cents from the butter price
before computing the butterfat price stated that historically the value
of butterfat in the Federal milk orders has been based on the price of
Grade A butter. The witnesses explained that an equivalent price
determination had been issued in 1998 when the CME discontinued trading
Grade A butter that nine cents would be subtracted from the Grade AA
butter price for use in calculating Federal order butterfat prices.
This equivalent price, according to the witnesses, was found to be
``essential'' to the continued operation of the Federal milk order
program and continued the policy of basing butterfat pricing under the
Federal milk orders on a value below that of Grade AA butter.
The witnesses complained that under Federal order reform the
butterfat value is determined by using the NASS Grade AA price of
butter, which effectively increases the butterfat value under Federal
milk orders. According to proponents' calculations, the increase does
not amount to a full nine cents, but is tempered by the use of the NASS
Grade AA price, which has averaged approximately three cents below the
CME Grade AA price, in the butterfat pricing formula. Therefore, they
stated, the actual increase in the butter price used to calculate
butterfat prices is approximately six cents. According to the
witnesses, subtraction of six cents from the NASS butter price would
return the relationship between the butterfat value under the orders
and the selling price of butter to the relationship that existed prior
to Federal order reform.
Several witnesses explained that when handlers must pay for
butterfat on the basis of the Grade AA butter market they cannot then
sell cream or finished products at a price that would allow them to
recover their costs. They testified that cream is sold at a price that
is termed a ``multiple'' of the butter price, and that the multiples
used when the butterfat price was calculated from the Grade A butter
price have not adjusted to the new pricing formula using Grade AA
butter.
The IDFA witness pointed out that the IDFA proposal to subtract six
cents from the NASS Grade AA butter price would apply not only to the
butterfat formula for Class II, Class III, and Class IV but would apply
to the advance butterfat formula used for computing the Class I
butterfat price. The witness testified that by applying the same
formula to all classes of butterfat the current relationship between
the class prices would be maintained. The witness contended that there
is no justification for changing the relationships between the class
prices, particularly if the adjustment would widen the class price
spreads or, in effect, increase the Class I and Class II differentials.
Witnesses for National Milk Producers Federation (NMPF) and several
large cooperative associations testified in support of NMPF's proposal
to reduce the calculated butterfat price by six cents, with the
reduction applied to Class IV butterfat only. Under this proposal, the
computation of the butterfat prices for other classes would not contain
the six-cent adjustment. Several witnesses representing cooperative
associations that process butter explained that butter manufacturers
incur additional costs when procuring cream used for manufacturing
butter as opposed to the cost of converting producer milk to butter.
The witnesses explained that these additional costs include
transportation, additional handling, and additional pasteurization. The
witness for Land O'Lakes (LOL) testified that the additional costs
amounted to 4.57 cents per pound of butterfat for transportation and .4
cents per pound for receiving, storing, and repasteurization. A witness
for Agri-Mark stated that Agri-Mark's transportation costs are slightly
less than LOL's, probably due to the proximity of the Agri-Mark plant
to the sources of cream, but that the other additional costs are
slightly higher than the LOL costs, at .5 cents per pound of butterfat.
The proponents of reducing the Class IV butterfat value also
referred to the computation of the California Class 4a butterfat price,
which involves a subtraction of 4.5 cents per pound from the CME Grade
AA butter price to adjust for the costs of moving butter from the west
coast to the Midwest.
Those parties who favored reducing the butter price before using
the butterfat price formula to calculate any of the butterfat prices
disagreed vehemently with the proposal to reduce only the Class IV
butterfat price. They
[[Page 76842]]
argued that such a reduction would distort the relationship between the
Class II and Class IV prices, resulting in a greatly-increased price
for Class II butterfat in relation to Class IV butterfat.
Specifically, the projected increase in the Class II-Class IV
butterfat price difference was cited as 6.7 cents per pound (from the
current difference of .7 cents). These parties argued that butterfat
values would most appropriately be reduced to the same degree in all
classes.
The Class IV butterfat price should be computed by subtracting a
make allowance of .115 dollars per pound from the monthly average NASS
Grade AA butter price and dividing the result by .82. The Class II
butterfat price should continue to be the Class IV butterfat price plus
.007 cents, while the Class I butterfat price will be the higher of the
advance Class III and advance Class IV butterfat prices plus the
applicable Class I differential.
Contrary to the belief stated by some witnesses, whether qualified
experts or not, the use of the Grade AA butter price for computing the
butterfat price under Federal order reform was not an ``oversight.''
Trading of Grade A butter on the CME was ended (not by USDA, as implied
in one brief, but by the CME) because the volume of Grade A butter
traded was not great enough to warrant maintaining a trading venue.
Although one brief argued that the Grade A butter price represents a
minimum price, and that there is no need for concern that there will
not be an available market for Grade A and Grade B butter, with the end
of trading in Grade A butter on the CME there is no published (or any
other known) source for obtaining a price for Grade A butter.
The use of the Grade AA butter price for establishing butterfat
prices is appropriate since that is the only grade of butter that has
significant enough trading volume to warrant a publicly-reported price.
Grade AA butter prices are the only butter prices regularly available,
and represent the vast majority (about 95 percent) of the butter sold.
Although the ``multiples'' of the butter price apparently had not
adjusted to the use of the Grade AA price during the first 4 months of
experience under the revised orders, and probably should not be
expected to adjust during the period in which this proceeding is under
consideration, the marketplace should, in time, make the needed
adjustments.
Various witnesses estimated that Grade A and Grade B butter
combined make up 3-7 percent of the butter in the U.S. Although a
witness noted that the Minnesota-Wisconsin (M-W) price for non-Grade A
milk continued to be surveyed even after the percentage of milk
eligible for the survey had fallen below a 5-percent level, it was
widely recognized for some time that a pricing alternative to the M-W
must be found because the M-W eventually would no longer provide a
representative price for a large volume of unregulated milk. Similarly,
with the decline of Grade A butter (and the unavailability of prices
for that product), the only alternative available for determining price
is Grade AA butter. A finding in the equivalent price determination
that a Grade A butter price was ``essential'' to continued operation of
the orders referred solely to the fact that the Grade A price was
specified in all of the orders at that time, not that the butterfat
value under Federal milk orders could never be based on any other
price.
Making an adjustment to a clearly valid price series to approximate
a price series that has been discontinued for several years due to
insufficient volume for trading is inappropriate. In any case, it is
impossible to determine what the current difference between these
prices would be because there are no reports of the Grade A price
available. The vast majority of butter made and sold in the U.S. is
Grade AA, and that is the appropriate product to which to look for a
value of butterfat used in butter. The 3-cent average difference
between the CME and NASS butter prices makes up \2/3\ of the 4.5-cent
adjustment made by California in calculating the value of butterfat
used in butter. An additional 6 cents deducted from the Class IV
butterfat price calculated from the NASS price would much more than
make up the remaining 1.5-cent difference. Also, the 4.5-cent
California adjustment is made for the purpose of reflecting the cost of
moving butter from California to Chicago. The butterfat price
calculated under the Federal order program is not intended to apply to
only one state. The NASS price is a nationwide survey, and likely
includes a significant representation of California butter prices. If
there are additional costs involved in making butter, they would more
appropriately be included in the make allowance for butter.
Make Allowance (Butter). The make allowance factor in the Class IV
butterfat formula should be derived from a combination of the
manufacturing costs determined by the California Department of Food and
Agriculture (CDFA) and by USDA's Rural Business Cooperative Service
(RBCS), as they were in the final decision. The CDFA cost data is
divided into two groups representing high cost and low cost butter
plants, with the 4 plants in the high cost group manufacturing, on
average, about the same average number of pounds of butter as the 7
plants in the RBCS study. Use of the data for the California high-cost
group of butter plants is more appropriate than use of the weighted
average cost for all of the CDFA plants because it is more likely that
the high-cost plants, like the plants in the RBCS survey, serve a
predominately balancing function.
When the RBCS data is adjusted to reflect the same packaging cost,
general and administrative costs, and return on investment as the CDFA
data for the high cost group, and a marketing allowance of $0.0015 is
added to both sets of data, the weighted average of the two data sets
is $0.115. This butter manufacturing allowance is very close to the
current allowance of $0.114, and should continue to provide a
representative level of the costs of making butter in plants that serve
a balancing function.
The increased costs of making butter, not including transportation,
cited by the proponents of reducing the Class IV butterfat price are
expected to be included in this manufacturing allowance, which exceeds
the low cost group in the CDFA survey by 3 cents per pound. The only
class of use for which adjustments for transportation have regularly
been included under Federal order regulation is Class I. Assuring that
the order provides an allowance for moving milk for use in manufactured
products would interfere with provisions designed to assure an adequate
supply of milk for fluid use.
Yield (Butter). Although one witness suggested that the divisor in
the butter price formula that reflects the butterfat content of butter
be reconsidered, he did not indicate any number more appropriate than
the .82 divisor used in the current formula. There was no other
testimony in the record questioning the butter content factor. In fact,
the only data in the record applicable to the issue was a CDFA report
on butter and powder yields at California plants in 1996 that was
included in an exhibit. This report shows a 1.2213 weighted average
butter yield (1 pound of butterfat results in 1.2213 pounds of butter),
which corresponds to the use of the .82 divisor.
The record does not support adoption of a Class IV butterfat price
that is not reflected directly in the Class II butterfat price. There
was testimony from several witnesses that the current Class IV-Class II
price relationship is rational and appropriate, and an adjustment to
the Class IV butterfat price that is not reflected in the Class II
butterfat price would disrupt the current relationship.
[[Page 76843]]
In addition, it would seem reasonable that some of the extra costs
claimed by butter manufacturers, such as transportation costs for
supplemental cream supplies, butterfat standardization of outside cream
sources, and additional pasteurization would be as applicable for Class
II manufacturers of high-fat products using surplus cream as for butter
makers. Accordingly, reduction of the Class IV butterfat price only is
not considered appropriate.
Class IV Nonfat Solids Price. This decision maintains the use of
the NASS survey price reported for nonfat dry milk and increases the
make allowance for nonfat dry milk from 13.7 cents to 14 cents per
pound of nonfat dry milk. In addition, the 1.02 divisor used in the
current nonfat solids price formula to reflect the incorporation of dry
buttermilk (with a lower product price and higher make allowance) in
the nonfat solids price formula is changed to 1; or, in other words,
eliminated.
Six proposals to change some part of the nonfat solids price
formula were considered at the hearing. Three of the proposals dealt
with the manufacturing allowance for nonfat dry milk (NFDM), with two
of the proposals advocating use of the RBCS survey results and one
proposal supporting an increase in the make allowance. The other three
proposals supported changes in the yield factor of the nonfat solids
price formula that would reflect greater powder yield from a pound of
nonfat solids. Two of the proposals to change yield factors included
using CME NFDM prices instead of the NASS survey. As discussed earlier
in this decision, the product prices used in the component pricing
formulas should continue to be obtained from the NASS survey.
Product Price (Nonfat dry milk). No proposals were considered that
would have changed the product price used in the nonfat solids price
formula, and the record contains no basis for making any change in this
formula factor.
Make Allowance (Nonfat dry milk). At the time the hearing notice
was issued, the most recent RBCS data were not available, and those
costs were not specified in the proposals. By the time the hearing was
held, however, the RBCS data had been released and were included in the
information introduced at the hearing. National Milk Producers
Federation (NMPF) supported continued use of a weighted average of the
California and the RBCS manufacturing cost surveys, with inclusion of a
marketing allowance and the California factor for return on investment.
NMPF proposed that the NFDM make allowance be $0.140.
South East Dairy Farmers Association also proposed that the RBCS
survey be used to determine a make allowance for NFDM, but did not
propose that a marketing allowance be included. The necessity of
including a marketing allowance is discussed earlier in this decision.
Associated Milk Producers, Inc. (AMPI), proposed that the NFDM
manufacturing allowance be increased from $0.137 to $0.1563, a rate
based on AMPI's cost of making NFDM at its own three plants in the
upper Midwest over a 5-year period. The AMPI witness stated that in
addition to a processing and packaging cost of $0.1254, the make
allowance should include a marketing allowance of $0.0024 and return on
investment of $0.026, for a total allowance of $0.1538, modified from
the level proposed in the hearing notice. The witness testified that
the three AMPI plants operate at approximately 80 percent of capacity.
On the basis of the data and testimony included in the hearing
record, the manufacturing cost level that appears to be most
appropriate for use in the pricing formula for nonfat solids is $0.14.
This value is calculated by using a weighted average of the RBCS survey
and the two less-cost California groups of plants, adding the
California General and Administrative costs and Return on Investment
expenses for those two groups to the RBCS numbers, and a $0.0015
marketing allowance to both sets of data. The basis for using the two
lower-cost groups of California plants are that the mid-cost group is
of a similar average size as the group included in the RBCS survey, and
that the lowest-cost California group has a very similar total cost to
the mid-cost group. These three groups of plants (the RBCS plants and
the two California groups) are similar enough in size and cost to
consider as fairly representative, and should encompass those plants
that perform a market balancing function. The highest-cost California
group should not be included, as its average cost is more than ten
cents per pound of NFDM above the RBCS group or either of the other two
California groups.
The AMPI cost numbers cannot be included in the weighted average
since the number of pounds of NFDM associated with those costs is not
available. When the AMPI marketing allowance and return on investment
estimates are replaced with the more moderate numbers used in the make
allowance calculation, the AMPI manufacturing costs do not differ much
from the other two sources. This is true even of a comparison between
the RBCS data and the AMPI data despite the wide discrepancy in the
capacity utilization percentage estimates for the two data sets (80
percent for the AMPI plants versus less than 50 percent for the plants
in the RBCS survey). Inclusion of the AMPI costs in the RBCS survey
would have included a larger representation of NFDM manufactured
outside California. However, the record indicates that a high
percentage of the NFDM manufactured in the U.S. comes from California,
and the proportion of cost data representing California in the
manufacturing allowance is reasonable.
Yield (Nonfat solids). A considerable portion of the testimony
dealing with the nonfat solids pricing formula pertained to the divisor
of 1.02, which is intended to reflect the amount of nonfat solids in
NFDM, with an adjustment for the small amount of buttermilk powder that
is made in conjunction with the manufacture of butter and NFDM.
Testimony by a number of witnesses asserted that the product price
minus the make allowance should be either multiplied by a number
greater than 1 (such as 1.02) or divided by a number smaller than 1
(such as .99 or .975) to reflect the fact that more than 1 pound of
NFDM can be expected to be manufactured from 1 pound of nonfat solids
due to the moisture content of NFDM.
Many of the hearing participants supported the current 1.02
divisor, and expressed understanding of the approach of adjusting the
``yield'' of NFDM to compensate for the fact that some of the powdered
product made from Class IV milk is buttermilk powder (BMP). Although
1.03 to 1.05 pounds of NFDM generally can be obtained per pound of
nonfat solids, the formula also recognizes a lower value and higher
manufacturing cost for BMP.
Several witnesses correctly assessed an alternate solution to the
dilemma of calculating a component price from two commodities with
different prices and different make allowances as one requiring
addition of dry buttermilk as another component price in the Federal
milk order pricing system. As described by at least one witness, such
an undertaking would require adding dry buttermilk to the NASS price
survey, determining a separate make allowance, and calculating a yield
factor. This procedure would be a burdensome undertaking for very
little benefit, since dry buttermilk represents only about 5 percent of
the dry products resulting from the manufacture of butter and nonfat
dry milk. The issue that remains is how best to reflect the value of
nonfat solids used in both NFDM and BMP in the same component pricing
formula.
[[Page 76844]]
The IDFA witness testified that for the 19-month period beginning
with September 1998, the central states' dry buttermilk average price
had averaged $0.798 per pound, while the central states' ``mostly''
price for NFDM averaged $1.043. The Land O'Lakes witness similarly
testified that the 1999 Northeast ``mostly'' price for NFDM averaged
$1.0389, while the BMP price was $0.7686 per pound. On the basis of
these numbers, it would appear that the price of BMP is roughly 75%
that of NFDM. However, comparison of BMP and NFDM prices for the years
of 1996 through 1999 and into 2000 reflects a more complex relationship
between these prices than the hearing testimony would indicate. The BMP
price as a percentage of the nonfat dry milk price (using Western
prices) was 100.9% in 1996, 94.5% in 1997, 88 percent in 1998, and 71%
in 1999. During the first third of 2000, BMP prices generally averaged
less than 70% of NFDM prices. As the year 2000 has progressed, however,
the percentage has increased, being at levels up to 100% in late July.
The witness representing Agri-Mark stated that Agri-Mark employees
engaged in manufacturing operations had estimated that the costs of
producing BMP range from 1 to 3 cents more per pound than those of
producing NFDM. Given that the manufacturing costs estimated by the
Agri-Mark witness for other products were somewhat higher than those
supported by the bulk of the hearing record, it is reasonable to
consider the extra cost of manufacturing BMP to be generally not more
than 2 cents in excess of the cost of manufacturing NFDM. In addition,
it is difficult to justify increasing the powder make allowance for all
of the powdered product represented in the make allowance since the
RBCS witness testified that manufacturing costs of BMP manufactured at
the plants included in the RBCS survey are included in the powder costs
reported by RBCS.
Testimony regarding actual yields of NFDM and BMP were provided by
only one witness representing a manufacturing plant operator. The
numbers provided, while not complete enough for an exact accounting of
the ultimate disposition of the plant's receipts of producer milk,
indicate strongly that the approximate loss of nonfat solids used in
the manufacture of NFDM at the specific plant was 3 percent, with 16
percent lost in the manufacture of BMP; a weighted average loss of more
than 3.5 percent. In comparison, data published by the State of
California showed a weighted average loss of solids not fat of 2.13
percent in the manufacture of butter and powdered products.
The California data indicate a weighted average powder yield of
1.0252 pounds of NFDM and BMP from 1 pound of nonfat solids. One
witness discounted this data by observing that the ``high'' California
yield was reported as 1.0406, which would represent a higher-than-
allowable moisture content. This number is undoubtedly influenced by
the ``high'' reported BMP yield of .0749.
As noted above, the general impression conveyed by testimony in the
hearing record, that BMP is worth considerably less than NFDM and that
the cost of processing it is significantly greater than that of
processing NFDM, is misleading. The average BMP price over the period
1996-July 2000 is approximately 87 percent of the NFDM price, and the
cost of manufacturing BMP is, on the basis of the information
available, no more than 2 cents in excess of the $0.14 recommended as
the NFDM make allowance. These small adjustments to the product price
and the make allowance used in the nonfat solids formula apply to
little more than 5 percent of powder manufactured. It is apparent from
the information contained in the record of this proceeding that the
1.02 factor, as a divisor, is excessive.
The following information from the hearing record was used to
determine a multiplier or divisor for the total nonfat solids pricing
formula that would result in a minimum price for nonfat solids while
incorporating the data and testimony in the record about the
manufacture of NFDM and BMP. To assure that the result represents a
minimum price, the low or high areas of ranges of numbers related to
the manufacture of these two products were used. The CDFA report on
butter and powder yield in California plants in 1996 was used in making
some of the calculations regarding this factor.
a. The price of BMP represents roughly 80 percent of the price of
NFDM (80 percent is less than the average historical relationship of
these prices over the past 5 years).
b. The cost of manufacturing BMP is not more than 2 cents greater
than the make allowance for manufacturing NFDM.
c. Using a theoretical yield of 1.03 pounds of powder containing 3
percent moisture made from milk containing 8.62 percent nonfat solids
would result in .054 pounds of BMP and .976 pounds of NFDM.
d. Adjusting the theoretical yield of 1.03 pounds to minimal yield
of 1.01 pounds (the ``low'' yield in the CDFA report) and prorating the
BMP and NFDM to 1.01 pounds instead of to 1.03 pounds, the amount of
BMP manufactured from a pound of nonfat solids used in butter/powder is
approximately .053 pounds. When the NFDM yield is prorated, the
resulting minimum yield is .957 pounds.
Using a NFDM price of $1.03 per pound, a make allowance of $0.14
cents per pound of NFDM, and a divisor (or multiplier) of 1, the
resulting calculation is: $1.03-$0.14 = $0.89 per pound of nonfat
solids. The same result is achieved through a more complicated
calculation using both product prices and make allowances, as follows:
Buttermilk powder:
($1.03 x .80)-$0.16 = $0.664; $0.664 x .053 = $0.03519 + Nonfat dry
milk:
[GRAPHIC] [TIFF OMITTED] TP07DE00.000
Therefore, no multiplier or divisor is necessary in this formula.
c. Class III Butterfat, Protein and Other Nonfat Solids Prices
In a change from the current orders, a Class III butterfat price is
calculated from the value of butterfat in cheese rather than using the
same butterfat price as is used in Class IV that is calculated from the
value of butter. The Class III butterfat price, like the protein price,
is calculated to represent the value of the component in the NASS
cheddar cheese price. The only modification made to the specifications
of the cheese price, currently a weighted average of the prices of
cheese sold in 40-pound blocks and 500-pound barrels (with a 3-cent
addition to the barrel price) is to adjust the price of 500-
[[Page 76845]]
pound barrels to 38 percent moisture instead of the 39 percent moisture
price currently reported by NASS.
This decision would reduce the make allowance for cheese from 17.02
to 16.5 cents per pound. Using the Van Slyke cheese yield formula to
represent the effects of butterfat and protein on cheese yield, the
cheese price minus the make allowance is multiplied by 1.582 to
calculate the Class III butterfat price, while the cheese price minus
the make allowance is multiplied by 1.405 to calculate the protein
price. The portion of the current protein price formula that adjusts
the protein price to accommodate the differential value of butterfat in
cheese, as opposed to butter, is eliminated. Both the protein and
butterfat components of milk used to make cheese should track the
cheese price much more closely than has been the case using the current
Class III component pricing formulas.
The other nonfat solids price would continue to be calculated by
subtracting the make allowance from the NASS-reported price for dry
whey and dividing by .968. However, the make allowance is increased
from 13.7 cents to 14 cents per pound of dry whey.
Class III Product Price (Cheese). Several proposals included in the
hearing notice would, if adopted, change the NASS cheese price used in
the Class III pricing formulas. One proposal would limit the cheese
prices included to 40-pound blocks reported by the Chicago Mercantile
Exchange (CME), while another would add 640-pound blocks to the prices
surveyed by NASS for inclusion in the cheddar cheese price. A third
proposal would replace the current 3-cent price adjustment between 500-
pound barrel prices and 40-pound block prices to a value that reflects
the actual differential industry cost of making 40-pound blocks over
500-pound barrels. Still another proposal would adjust 40-pound block
cheese prices for moisture, as 500-pound barrel prices are adjusted.
As discussed above, CME commodity prices should not be used as the
basis for calculating component prices. Eliminating 500-pound barrels,
which represent approximately two-thirds of the cheese represented in
the NASS survey, from calculation of the market value of cheddar cheese
would reduce greatly the degree to which the current product prices
represent U.S. cheddar cheese prices. The record of this hearing
provides no support for relying solely on prices for 40-pound blocks to
identify a market price of cheddar cheese.
The NASS weighted average cheese price should not include the value
of 640-pound block cheese. Several parties testified that including
640's in the cheese price computation would improve the reliability of
the average cheese price by adding a substantial quantity of cheese to
the price survey. Witnesses' estimates of the percentage of U.S.
cheddar cheese production represented by 640-pound blocks ranged from
20 to 27 percent. Witnesses testified that the increased volume would
better reflect the true value of cheese and additionally would reduce
the potential for price distorting manipulation by individual handlers.
Opponents to inclusion of the 640's in the cheese price computation
explained that the vast majority of 640's are made on a custom basis to
customers' specifications, and therefore are not sufficiently uniform
to have a standard identity.
Without a standard identity for the product, standardized pricing
cannot be developed. At the beginning of the NASS survey, price data
for 640-pound blocks initially was collected, but was discontinued due
to lack of volume and too few participants to allow disclosure of data.
Even earlier (1995-96), the former National Cheese Exchange attempted
to include trading in 640-pound blocks, but discontinued doing so
because of lack of interest. Several of the witnesses who testified in
favor of including 640-pound blocks in the NASS survey also indicated
that the 640-pound blocks manufactured by their organizations are used
internally. Thus, the prices represented by these products would not be
eligible for inclusion in the NASS survey.
Several witnesses at the hearing and comments contained in post-
hearing briefs advocated reducing the three-cent adjustment that is
added to the barrel price for computing the weighted average cheese
price to one cent or eliminating it altogether. The witnesses argued
that since the barrel cheese price is adjusted to 39 percent moisture
and block cheese is approximately 38 percent moisture, at least 2 cents
of the observed difference in price between 40-pound blocks and 500-
pound barrels is due to moisture and has nothing to do with actual
differences in costs. In fact, they argued that there is no difference
in packaging costs between block and barrel cheese.
The witness for DFA, a cooperative that manufactures cheese
packaged in both 40-pound blocks and 500-pound barrels, testified that
three cents is an acceptable and reasonable spread between blocks and
barrels and that there is no compelling reason to change the three-cent
addition to the barrel price. The witness for LOL testified that the
three cents is an appropriate difference between blocks and barrels and
that adding three cents to the barrel price when computing the weighted
cheese price is an appropriate adjustment. A brief filed on behalf of
DFA and the Association of Dairy Cooperative in the Northeast argued
that the record supports a conclusion that the 3-cent adjustment of the
barrel price is attributable to volume utility and cost differences in
packaging and handling.
The National Cheese Institute, which proposed reducing or
eliminating the 3-cent adjustment, argued that the adjustment should
include only the actual cost differences involved in manufacturing and
packaging the two sizes of cheese. Although a number of witnesses
representing cheese manufacturers testified in favor of reducing or
eliminating the adjustment, including one whose employer makes both
sizes of cheddar, none of them addressed the actual cost differences of
packaging and manufacturing 40-pound blocks and 500-pound barrels.
Instead, the only testimony that was offered involved attributing a 2-
cent difference to the moisture-adjusted value of the two sizes of
cheese packages.
If the difference between the block and barrel prices were due to
the difference in moisture, the difference between the prices should
widen as the cheese price increases since the moisture adjustment is
based on the price and moisture of the cheese. An analysis of
historical cheese prices indicates that the difference between the
block cheese and barrel cheese prices does not change with changes in
price level. In fact, three of the largest differences between the
block and barrel prices occurred at approximately the 40-month NASS
weighted average monthly prices.
The record contains no basis for concluding that the actual cost of
manufacturing and packaging the two sizes of cheese is not the
historical 3-cent price spread. In fact, during the period September
1998 through June 2000 the difference between the block and barrel
prices has been 4.4 cents per pound. The record of this proceeding does
not support reducing or eliminating the 3-cent addition to the barrel
cheese price.
An expert witness, and several other witnesses, testified that the
moisture content of the cheese used for determining the NASS cheese
prices and the moisture content used in the Van Slyke cheese yield
formula used for computing the ``yield'' coefficients in the protein
formula should be the same. The witnesses explained that failure to
align the formula and the moisture
[[Page 76846]]
content represented by the cheese price survey would result in over or
understating the formula coefficients.
The expert witness explained that the barrel cheese price is
reported at 39 percent moisture after being adjusted from the actual
moisture, while the block cheese price is reported at an unknown
moisture level. The only testimony dealing with the actual moisture
level of block cheese indicates that it averages about 38 percent.
The coefficients originally used for determining the Class III
protein price and the Class III butterfat price, and used in the
formulas in this decision, were derived from using the Van Slyke cheese
yield formula at 38 percent moisture. Therefore, it is appropriate to
use cheese prices that reflect cheese containing 38 percent moisture.
The current practice of using the 40-pound block cheese price
unadjusted for moisture and the 500-lb barrel price adjusted for
moisture should be continued, but with the barrel price adjusted to 38
percent moisture instead of 39.
The hearing record provides no basis for altering the composition
of cheese prices surveyed for use in the Class III pricing formulas, or
for changing the calculation of the NASS weighted average cheese price,
other than the moisture adjustment to 38 percent for 500-pound barrels.
Several witnesses testified that types of cheeses other than
cheddar should be included in the NASS price survey as a more
comprehensive basis for identifying a cheese price, although such a
proposal was not included in the hearing notice. The cheddar cheese
included in the NASS survey meets certain standard criteria that makes
prices for the reported cheese sales comparable. If the survey included
other descriptions of cheddar and other types of cheese, such as
mozzarella, it would not be possible to consider the reported price as
representative of the value of any particular product. Further, the
manufacturing costs surveyed are, to a great extent, limited to the
costs of processing cheddar cheese.
Class III Make Allowance (Cheese). Several proposals to adjust the
manufacturing allowance for cheese were included in the hearing notice
and considered at the hearing. The NMPF witness testified that the
organization had determined that the most appropriate cheese make
allowance would be a weighted average of the updated RBCS and CDFA
surveys, with addition of a marketing allowance, and modified the
Federation's proposal accordingly, supporting adoption of a cheese make
allowance of $0.1536. Several witnesses representing cooperative
associations supported the NMPF $0.1536 proposal and the inclusion of
cost factors for a marketing allowance and return on investment. One
witness testified that the make allowance should be based on data from
actual plant operations through the surveys conducted by RBCS and CDFA
and testimony from individual plant operators; that it should include
California data, as California plants represent a large proportion of
cheese manufacture; and that it should be generous enough to assure
adequate plant capacity for continued manufacture of cheese.
The witness representing NCI testified that the cheese make
allowance should be no less that $0.1687, the weighted average of the
NCI-sponsored and CDFA surveys with the addition of a marketing cost of
$0.0011. He stated that such an allowance would represent the
production of 24 cheese plants and 53% of U.S. cheese. Several cheese
manufacturer representatives supported use of the NCI-supported make
allowance, stressing the importance of adoption of an allowance that
covers all of the costs of manufacturing cheese.
A witness representing Farmers Union and the American Farm Bureau
witness both supported adoption of a make allowance of $0.1521, as a
weighted average of RBCS and CDFA data, and a witness for National
Farmers Organization supported a make allowance of $0.141 composed of
the RBCS cost with the addition of a marketing allowance and return on
investment.
The make allowance used for computing the Class III protein and
butterfat prices, $.165, was determined by combining the CDFA plant
survey with the RBCS survey. As was pointed out by several witnesses at
the hearing, several cost factors that are necessary to maintain the
viability of processing plants are not represented in one or both of
the RBCS and the CDFA studies. These cost factors include marketing
costs, return on investment, and general and administrative expenses. A
discussion of these expenses is included earlier in this decision.
Neither the CDFA nor the RBCS survey included a marketing cost, so the
$0.0015 marketing allowance was added to both studies. In addition, the
CDFA return on investment cost of $0.0103 and general and
administrative expense of $0.0190 was added to the RBCS study, which
included neither factor. The resulting adjusted costs for each survey
are $0.1708 for RBCS and $0.15996 for CDFA. A weighted average of the
two studies was computed using the respective adjusted make allowances
and the pounds of cheese reported in each study; 466,396,548 for the
CDFA study and 633,142,812 for the RBCS study, to arrive at the Class
III price make allowance of $0.165.
Class III Butterfat Price (and effect of butterfat on cheese
yield). Testimony at the hearing and analysis of the relationship
between the current cheese, butterfat and protein prices revealed that
the current Class III pricing formulas cause inequities in producer
payments based on the relationship between producers' butterfat and
protein tests. The inequities were attributed to the use of the 1.28
factor used in the portion of the protein price formula that is
designed to incorporate the butterfat value of milk used in cheese that
is not already accounted for by the Class III and IV butterfat price.
Further analysis also revealed that there is very little relationship
between the current butterfat price and the cheese price or between the
current protein price and the cheese price.
Under the current system, market distortions occur due to using the
Class IV butterfat price, calculated from the value of butterfat in
butter, to also represent the value of butterfat in cheese, (Class
III), and trying to incorporate the difference in value in the protein
price. As a result, instances have occurred when the protein price
declines while, at the same time, the cheese price is increasing. This
outcome is completely contrary to the concept of pricing components on
the basis of the value of the products in which they are used. The same
inverse price scenario has affected the butterfat price, with
occurrences in which the Class III butterfat price increases because
the butter price has increased while the cheese market has been
declining. For example, in April of 2000 the protein price was $1.7399,
based on a cheese price of $1.1011, while in May the cheese price
increased slightly to $1.1022 but the protein price declined
approximately $0.18 to $1.5514. The decline in the protein price was
directly attributable to the increase in the butter price and the
resulting increase in the butterfat price.
The reasons for using the same butterfat price in Class III and
Class IV under Federal order reform have been outweighed by the outcome
of that decision. The pricing concept of reflecting the value of a
manufactured product in the prices for the milk components that are
instrumental in the yield of that product require that the Class III
protein and butterfat prices be tied more directly to their value in
the cheese that is produced using those
[[Page 76847]]
components. Therefore, it is necessary to separate the value of
butterfat used in the manufacture of cheese from the value of that
component in butter. The pricing system contained in this decision will
eliminate the distorted relationships between the Class III butterfat
and protein prices and the cheese price.
Calculating the Class III butterfat price on the basis of the
effect of butterfat on cheese yield, as described in the Van Slyke
cheese yield formula, rather than from the butter price makes
alternative uses based on price differences clearly visible. The Class
III butterfat price formula should be:
(NASS weighted average cheese price-.165) x 1.582. Adoption of
more logical relationships between the value of butterfat and its
various uses will allow butterfat to move to the use with best return.
Protein price (and effect of protein on cheese yield). The method
of computing the protein price described in this decision results in a
protein price that, like the recommended Class III butterfat price, has
a 100 percent correlation with the cheese market. In addition, the
recommended formula eliminates many of the problems discussed at the
hearing concerning the current formula. The protein price formula will
be modified by removing the butterfat portion of the formula. Removal
of the butterfat pricing factor from the protein price formula
eliminates the contentious issue of the 1.28 butterfat-to-protein
ratio.
As contained in this decision, the protein price will be: (NASS
weighted average cheese price-.165) x 1.405.
Class III--Other Nonfat Solids Price (Dry Whey)
This decision continues to calculate the price of the nonfat solids
other than protein in milk used to make cheese by subtracting a
manufacturing allowance from the NASS dry whey price and dividing the
result by the content of these ``other nonfat solids'' in dry whey. No
change is made, or was proposed, in the dry whey product price or
divisor in the formula. The manufacturing allowance for dry whey is
increased from 13.7 cents to 14 cents per pound of dry whey to reflect
the increase in the NFDM make allowance. The decision would snub the
other nonfat solids price at zero rather than allowing it to become a
negative factor in determining payments to producers.
The hearing included several proposals that would change the dry
whey or other solids price formula by changing the make allowance.
Although the hearing notice included a proposal to use the CME average
dry whey price, the proponent withdrew support for the proposal when it
became apparent that the CME has no cash exchange market for dry whey.
The NASS survey that currently is being used to identify commodity
prices has included price data on dry whey since September 1998. There
were no proposals to change the 0.968 yield factor in the other solids
price formula. The 0.968 factor reflects the solids content of dry
whey, given a 3.2 percent moisture content.
Make Allowance (Dry Whey). Since the most recent CDFA and RBCS cost
surveys did not include costs for drying whey, there is no information
from those two studies to use for computing the dry whey make
allowance. A witness from the National Milk Producers' Federation
suggested using the nonfat dry milk manufacturing cost allowance for
dry whey since both products involve similar processing equipment, and
then adding $0.01 per pound to reflect the additional energy and higher
equipment costs incurred in drying whey. Since the proposed make
allowance for nonfat dry milk is $0.140, this procedure would result in
a dry whey make allowance of $0.150.
Dairy Farmers of America (DFA) proposed a dry whey make allowance
of $0.1478 per pound based on costs at its plant at Smithfield, Utah.
The plant is a cheddar block plant running throughout the year that
condenses and dries whey from the cheese manufactured in this
Smithfield plant only. The DFA costs include both direct and indirect
costs, and return on investment and marketing cost data.
A witness from WSDPTA testified that there is no reason to change
the other solids price computation from the current formula, and that
it is a necessary component of the cheese pricing formula. He noted
that the use of dry whey as a commodity is correct and that the 0.968
factor in the pricing formula reflects 96.8 pounds of solids in 100
pounds of dry whey.
Most witnesses who testified about the cost of drying whey
expressed the belief that drying whey costs more than drying nonfat dry
milk. Two cooperative association witnesses testified that their
organizations have determined that the returns from whey powder with
the current make allowance would not cover the costs associated with
building and operating whey powder plants.
IDFA presented the results of the survey, discussed earlier in this
decision, contracted for by NCI. The IDFA witness testified that the
survey showed a dry whey make allowance of at least $0.1592. The IDFA
witness testified that using the nonfat dry milk make allowance
significantly understates the manufacturing cost of dry whey due to the
relatively higher percentage of water in liquid whey compared to skim
milk, and the additional crystallization process required.
A witness representing Leprino Foods testified on the differences
in the manufacturing processes for dry whey and nonfat dry milk that
result in higher costs to produce whey powder. The witness concluded
that the cost of making dry whey is $0.02559 above the cost of drying
nonfat dry milk.
The brief submitted by Leprino argued that the additional costs of
processing whey powder over those of processing nonfat dry milk should
include additional staffing, cleaning, and maintenance associated with
the additional equipment for whey product.
A witness from Kraft agreed that the dry whey manufacturing costs
are about 2.6 cents per pound greater than the nonfat dry milk
manufacturing costs. Although Kraft described its Tulare plant as large
and efficient, it also represents a recent capital investment, meaning
that depreciation costs are likely higher than average.
Although a number of witnesses testified that the cost of drying
whey is greater than that of drying nonfat milk, the record does not
provide clear support for any particular differential over the NFDM
make allowance. The differential costs of manufacturing whey powder
over those of nonfat dry milk do not provide close enough agreement
with the NCI-sponsored survey to use either means of determining a make
allowance with any confidence. Neither of the witnesses who testified
that the extra costs of drying whey are 2.6 cents greater than the
costs of drying nonfat dry milk testified about the total costs of the
operations they were describing. Therefore, the make allowance used to
calculate the other solids price should continue to be the same as that
used in the total nonfat solids component price formula. The other
solids price will be computed by subtracting the make allowance of
$0.14 from the NASS dry whey survey price and dividing the result by
.968.
The other solids price should be snubbed at zero. This means that
if the NASS dry whey price minus the make allowance results in a
negative number, the other solids price would become zero. A brief
filed by Michigan Milk Producers Association (MMPA) supported the
inclusion of such a ``snubber'' concept for the whey price. The brief
cited testimony in which the DFA witness referred to the difficulty of
explaining to producers a negative component price.
[[Page 76848]]
The value of other solids used in the Class III milk price should
add to the value of milk and not be allowed to subtract from the milk
value. Snubbing the other solids price to zero will prevent it from
negatively affecting the value of other Class III components or having
a negative impact on the producer price differential.
d. Effects of Changes to Class III and Class IV Price Formulas
The changes to the Class III and Class IV component price formulas
discussed above would result not only in changes to the respective
component prices, but to the resulting Class III and Class IV skim milk
and hundredweight milk prices at 3.5 percent butterfat. With the
exception of the 38-percent moisture adjustment to barrel cheese
prices, all of the differences calculated between the current prices
and the proposed prices are due to changes in the formulas' make
allowances and/or the ``yield'' coefficients.
It is important to note that these calculated class price
differences are based on historical product price data, and not on
product prices that will occur in the future. The price differences
calculated in this portion of the decision cannot be used to calculate
or estimate changes in revenue that would have occurred or may occur in
the future, as changing intersections of supply and demand for each
product result in different prices.
All of the comparisons that follow are calculated based on the NASS
weighted average commodity prices from September 1998 through June
2000. NASS weighted average commodity prices for this time period were
available, and no estimates of the relevant commodity prices need to be
made. Although this time period is relatively short, a number of
interesting price relationships occurred in the data series. For
instance during this period the cheese market went from a record high
of $1.8643 per pound to $1.1011 per pound, which is just over the $1.10
per pound support price for 40-pound blocks of cheddar. During this
same 22-month period the NASS weighted average nonfat dry milk price
showed almost no movement, ranging from $1.0864 per pound to $1.0071
per pound, approximately two cents below the support price. In fact,
the nonfat dry milk price has stayed below the support price since
March 1999. Unlike the cheese and nonfat dry milk market, the butter
price has not traded anywhere near the butter support price of $0.65,
trading in a range from $2.6726 per pound to a low of $0.8820 per
pound. It is important to keep in mind that since all milk is priced on
the basis of butterfat and skim or nonfat components under Federal
orders, focusing on the calculated hundredweight prices at 3.5 percent
butterfat that are announced for comparison purposes can result in
misleading conclusions.
Changing the Class IV butterfat price make allowance from $0.114 to
$0.115 results in a calculated average decline in the Class IV
butterfat price of $0.0012 over the 22-month period studied. The two
changes to the Class IV nonfat solids formula, increasing the make
allowance from $0.137 to $0.140 and eliminating the 1.02 divisor, would
result in a net increase of $0.0144 per pound in the Class IV nonfat
solids price in the absence of any other changes. Since the Class II
prices are to continue to be computed on the basis of the Class IV
formulas plus the Class II differential of $0.70, changes to the Class
II prices will be the same as the changes to the Class IV prices. The
calculated Class IV skim milk price would increase by an average of
$0.13 per hundredweight. The calculated 3.5 percent Class IV milk price
would increase by an average of $0.12 per hundredweight, reflecting the
net difference between the $0.13 increase in the skim milk price and
the very small decline in the Class IV butterfat price.
As a result of the 38-percent moisture adjustment to barrel cheese
prices, the NASS weighted average cheese price used for computing the
Class III protein and Class III butterfat price would be calculated to
have increased by $0.014 per pound over the 22-month period September
1998 thru June 2000.
The changes to the formulas used to compute the Class III component
prices would result in fairly significant changes to the component
prices, as might be expected. For instance, since the current Class III
butterfat price is based on the butter market and the proposed
butterfat price is based on the cheese market, the proposed Class III
butterfat price would average $0.4651 per pound above the current Class
III butterfat price over the 22-month period if cheese and butter
prices had been the same. However, the component prices are expected to
track the underlying commodity prices to a much greater extent than
they did previously.
The change in the protein formula over the past 22 months would
result in a calculated protein price averaging approximately 53 cents
below the current protein price. At the same time, the increase from
$0.137 to $0.14 in the dry whey make allowance for calculating the
other solids price results in a calculated decline in the other solids
price of $0.003 over the 22-month period. The combination of the
reductions in both the protein price and the other solids price would
have resulted in an average $1.65 decrease in the Class III skim milk
price over the 22-month period if cheese and dry whey prices were
unchanged.
The calculation of the Class III price at 3.5 percent butterfat,
based on the formulas contained in this decision, would have averaged
$0.02 per hundredweight above the 3.5 percent Class III price based on
the current Class III formulas.
4. Class Price Relationships
The price relationships between classes established in the Final
rule under the Federal order reform process should be maintained. One
proposal heard in this proceeding would have reduced the Class IV
butterfat price without affecting the computation of other butterfat or
product prices. That proposal is addressed specifically in the section
of this decision dealing with Class IV Butterfat price.
Several witnesses testified as to what the class price
relationships should be if changes were made to any of the Class III or
Class IV component price formulas. The current pricing system uses the
same formulas for computing the advance component prices used to
compute the Class I skim milk and butterfat prices and Class II skim
milk price as are used to calculate the Class III and Class IV
component prices. The witness for IDFA and several other parties stated
that any changes to the Class III and Class IV formulas should also
apply to the advance price formulas used for computing the Class I and
Class II prices. The witness explained that failure to use the same
formulas between the related classes of use would result in a direct
impact on the Class I and Class II differentials which was clearly not
the intent of Congress when Congress instructed the Secretary to
conduct a rulemaking proceeding concerning the Class III and Class IV
price formulas.
A witness for Hershey Foods pointed out that the Secretary went to
great lengths to justify the seventy-cent Class II differential above
the Class IV price. The witness said that there is no justification or
new evidence for changing the current price relationship that exists
between the manufactured products (butter and nonfat dry milk) and the
Class II price if the Class IV formulas were revised as suggested in
several proposals. The witness stated that such changes in price
relationships clearly were not the intent of Congress. A brief filed on
behalf of IDFA stated
[[Page 76849]]
that the correct price relationship between NFDM and Class II is 70
cents, and that the record provides no basis for changing that
relationship. Actually, as explained in the final decision on Federal
order reform, 70 cents represents the correct price relationship
between milk used to make dry milk powder and milk used in Class II, as
nearly as can be determined from the information available.
A proposal by two parties that any increases resulting from changes
to the Class III and Class IV price formulas not be allowed to result
in increases in Class I prices was supported in testimony by one of the
parties, who argued that any increases in the Class I price mover
should be balanced with reductions in Class I differentials. The
witness stated that the proponents want to be sure that Class I prices
are not further decoupled from Class III and Class IV pricing formulas,
or that Class I prices are not artificially inflated.
Neither the price relationships established in the final decision
between milk used in Class III or Class IV and milk used in Classes I
and II should be changed. To the extent that there may be differences
in the Class III or Class IV prices between the current prices and
those adopted in this decision as a result of adjustments to the
component pricing formulas, those changes should be reflected in the
Class I and Class II prices. Any reevaluation of the formulas used to
price the components used in manufactured products should be carried
through to the class prices that are based on those component prices. A
change in the computation of the nonfat solids price, for instance, is
intended to better reflect the value of those solids in dry milk
products. If the new nonfat solids price formula results in an increase
in the Class IV price, the record provides no basis for changing the
difference in the value of the milk used in those solids between Class
IV and Class II use. Similarly, the availability of milk for use in
Class I is related to the higher of the alternative manufacturing
values for that milk. The current relationships should be maintained.
5. Class I Price Mover
Although not included in the hearing notice, a proposal was made by
Family Dairies, USA, to change the Class I price mover from the higher
of the Class III and Class IV prices to a weighted average of the two.
The witness for Family Dairies testified that the results of the
current regulation are disturbing and unanticipated with the unexpected
strength of the Class IV price relative to Class III. He complained
that 10 percent of production under Federal orders (milk used to make
nonfat dry milk) has been driving the (Class I) price of 40% of the
milk. As a result, he testified, milk production for fluid purposes is
encouraged in markets with high Class I differentials and relatively
high Class I use at a time when marketing conditions (an oversupply of
milk) should have the opposite effect. As fluid-oriented markets are
receiving increased prices relative to markets in which cheese is the
dominant use, he complained, inequities in blend prices between markets
are increasing.
A group representing upper Midwest producer interests filed a brief
that described the recent movement of milk from the Upper Midwest pool
onto the Central and Mideast marketwide pools as disorderly marketing
caused by increases of Class I prices in these higher-Class I use
markets. This shift in the pooling of milk from the upper Midwest to
higher-valued markets has been a long-sought outcome on the part of
upper Midwest producer groups. It is difficult to understand why it is
now seen as a manifestation of disorderly marketing.
A brief filed by another group representing fluid milk handlers
suggested that USDA should give careful consideration to the proposal
to use a weighted average of the Class III and Class IV prices to move
Class I prices. Any means of reducing Class I prices to handlers should
meet with the approval of these processors, regardless of the economic
merits of the proposal.
In several briefs it was argued that the Regulatory Impact Analysis
(RIA) published with the final decision on Federal order reform stated
that the price formulas adopted therein were expected to generate a
sufficient quantity of milk, and that both the adoption of Class I
pricing option IA and use of the higher of the Class III and IV prices
as the price mover have worked to enhance Class I price levels. It
should be noted that use of the higher of the Class III and IV prices
was included in that decision and considered in the RIA, not added
later by Congress, as was the change in the Class I pricing surface.
Another brief argued that since the 1960's the dairy industry has
used a Class I mover tied to a market-clearing price represented by a
weighted average of milk used in butter, cheese and powder. The price
referred to, first the Minnesota-Wisconsin price series, and later that
price adjusted by a weighted average of current product prices for the
products mentioned, was specific to the upper Midwest area and included
very little powder, as that area manufactures a higher percentage of
cheese, relative to NFDM, than the rest of the U.S. The current pricing
system is much more representative of national supply and demand for
manufactured dairy products than either of the versions of the former
Class I mover.
As explained in the final decision on Federal order reform, the
higher of the Class III or Class IV prices are used to move the Class I
price to assure that fluid plants will be better able to attract milk
away from manufacturing uses. Use of the weighted average of the two
prices when there is a significant difference between them would
provide no assurance that milk would be available as needed for fluid
uses, and would be more likely to result in Class price inversions
(where the Class I price falls below one or more of the manufacturing
class prices). In addition, use of a weighted average Class I price
mover would increase the occurrence of the blend price falling below
the Class III or IV price in markets with low Class I utilization.
Aside from the fact that the proposal to use a weighted average of
the Class III and Class IV prices as the Class I mover was not noticed
for consideration in this proceeding, it should be rejected on the
basis of its lack of merit.
6. Miscellaneous and Conforming Changes
a. Advanced Class I Butterfat Price
Because of changes in the Class III and Class IV pricing formulas
made in this decision, especially the adoption of different butterfat
prices for the two classes, a conforming change should be made to the
procedure for calculating the Class I butterfat and hundredweight
prices. The advanced butterfat price used for pricing Class I butterfat
would be the butterfat price used in calculating the higher of the
advanced Class III or Class IV prices on a 3.5 percent butterfat basis.
b. Classification
As a conforming change to the development of different prices for
butterfat used in Class III and Class IV products, the classification
of anhydrous milkfat, butteroil, and plastic cream should be changed
from Class III to Class IV. The record contains a plethora of testimony
about the use of these products as substitutes for butterfat, and
therefore for butter, in manufactured products. In a pricing plan where
butterfat used in Class III products has the same value as butterfat
used in Class IV products, a difference between the classification of
these products, which have a very high
[[Page 76850]]
butterfat content, and butter should not cause any market dislocation.
However, as extensively pointed out in testimony, continuing to
classify these products as Class III when the Class III butterfat price
is changed to reflect the value of butterfat in cheese, rather than its
value in butter, would place the manufacturers of these products at a
significant competitive disadvantage to manufacturers of butter.
c. Distribution of Butterfat Value to Producers
There were several responses to the issue of whether the butterfat
price paid to producers should be the result of pooling butterfat
prices from the different classes or continue to reflect the value of
butterfat in Class III. A witness from Northwest Dairy Association
testified that being able to line up the Class III price to plants with
the component value calculation for producers is helpful, especially
with regard to forward pricing. A brief filed on behalf of DFA and
ADCNE supported continued use of the Class III butterfat price as the
producer butterfat price. According to the brief, changes in direct
pricing to the producer are not prudent at this time, and any change
between the Class III and Class IV butterfat price should be settled
through the producer price differential mechanism in the market order
pools. The brief continued that the producer price differential is a
blending of various debits and credits in the pooling process and the
additional equalizing of any butterfat pricing adjustments through this
procedure currently makes the most sense.
The post-hearing brief filed by National All-Jersey urged that USDA
retain the current practice of using Class III milk component values to
price producer component values. The brief noted that this scenario
makes it easier to use accepted hedging tools, such as Class III
futures contracts, and helps simplify pricing for producers. The brief
further stated that the current procedure maintains the same producer
butterfat price in all Federal orders with multiple component pricing.
Although hearing participants supported continuing to use the same
butterfat price for Class III milk and producer payments, the butterfat
values of the 4 classes should be pooled in calculating the value of
butterfat received from producers. Producers should see the classified
use value of the butterfat portion of their milk reflected in the value
they receive for that component of their milk. Pooling the butterfat
values would accomplish this principle. In addition, potential large
differences between the Class III and Class IV/II butterfat prices as a
result of the Class III component prices calculated from the formulas
in this decision would be likely to result in significant distortions
in the effect of those differences on the producer price differential.
It is possible that pool calculations in some markets would result in a
negative producer price differential if the producer butterfat price is
not changed to represent a blend of the values of butterfat in the four
classes of use.
Pooling butterfat values will also have the effect of providing
more consistency among the orders. Currently, the four orders that do
not have component pricing pool the class use butterfat values and
return a weighted average butterfat price to producers. In the
component pricing orders, butterfat values are not pooled and producers
receive the Class III butterfat value. Pooling butterfat values to
producers will result in producers sharing in the class use value of
butterfat.
d. Inclusion of Class I Other Source Butterfat in Producer Butterfat
Price Computation
In pooling the class butterfat values to determine butterfat prices
to producers, the value associated with the occasional classification
of other source milk as Class I should be included. This change should
be made so that the value of all of the butterfat in the pool will be
reflected in the producer butterfat price.
In addition, a change in the component pricing orders should be
made in the paragraph in which the ``Handler's value of milk'' is
calculated by replacing the differential value of other source milk
allocated to Class I with the Class I value of that milk. These orders
currently subtract the Class III value of such milk from its Class I
value in the ``Handler's value of milk computation,'' include that
differential value in the ``Computation of producer price
differential,'' and credit the handler for the other source milk that
was classified in Class I at the producer price differential in
``Payments to the producer-settlement fund.''
With the adoption of a producer butterfat price that can be
expected to differ from the Class III butterfat price, however, it is
more appropriate to include in the ``Handler's value of milk'' the
entire Class I value of other source milk classified as Class I, deduct
the portion of its producer value that does not include the producer
price differential during the computation of the producer price
differential, and credit the handler for the milk's value at producer
prices in the calculation of ``Payments to the producer-settlement
fund.''
7. Issue of Whether To Omit a Recommended Decision
The statute requiring that this proceeding be held to reconsider
the Class III and Class IV pricing formulas also requires that a final
decision be published by December 1, 2000, with any amendments to the
orders to be effective January 1, 2001.
A number of hearing participants indicated understanding of the
difficulty in issuing a recommended decision, allowing for comments and
exceptions on the decision, and then issuing a final decision by the
deadline of December 1, 2000. However, the hearing record reflects
unanimity among those addressing the issue that the industry should be
afforded the opportunity to comment on a decision before its content
results in a final rule.
Therefore, USDA is issuing this Tentative Final Decision, which
will require producer approval before the included proposed amendments
become effective in an Interim Final Rule, with a subsequent Final
Decision and Final Rule to follow. This procedure will allow industry
comment on the content of this decision, while allowing USDA to comply
with the statutorily-imposed timetable.
Rulings on Proposed Findings and Conclusions
Briefs and proposed findings and conclusions were filed on behalf
of certain interested parties. These briefs, proposed findings and
conclusions and the evidence in the record were considered in making
the findings and conclusions set forth above. To the extent that the
suggested findings and conclusions filed by interested parties are
inconsistent with the findings and conclusions set forth herein, the
requests to make such findings or reach such conclusions are denied for
the reasons previously stated in this decision.
General Findings
The findings and determinations hereinafter set forth supplement
those that were made when each of the aforesaid orders were first
issued and when they were amended. The previous findings and
determinations are hereby ratified and confirmed, except where they may
conflict with those set forth herein.
The following findings are hereby made with respect to each of the
aforesaid interim marketing agreements and orders;
[[Page 76851]]
(a) The interim marketing agreements and the orders, as hereby
proposed to be amended, and all of the terms and conditions thereof,
will tend to effectuate the declared policy of the Act;
(b) The parity prices of milk as determined pursuant to section 2
of the Act are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the aforesaid marketing areas, and the
minimum prices specified in the interim marketing agreements and the
orders, as hereby proposed to be amended, are such prices as will
reflect the aforesaid factors, insure a sufficient quantity of pure and
wholesome milk, and be in the public interest; and
(c) The interim marketing agreements and the orders, as hereby
proposed to be amended, will regulate the handling of milk in the same
manner as, and will be applicable only to persons in the respective
classes of industrial and commercial activity specified in, marketing
agreements upon which a hearing has been held.
Interim Marketing Agreement and Interim Order Amending the Orders
Annexed hereto and made a part hereof are two documents, an Interim
Marketing Agreement regulating the handling of milk, and an Interim
Order amending the orders regulating the handling of milk in the
aforesaid marketing areas, which have been decided upon as the detailed
and appropriate means of effectuating the foregoing conclusions.
It is hereby ordered, That this entire tentative decision and the
interim order and the interim marketing agreement annexed hereto be
published in the Federal Register.
Referendum Order To Determine Producer Approval; Determination of
Representative Periods; and Designation of Referendum Agents
It is hereby directed that referenda be conducted and completed on
or before the 30th day from the date this decision is issued, in
accordance with the procedure for the conduct of referenda (7 CFR
900.300-311), to determine whether the issuance of the orders as
amended and as hereby proposed to be amended, regulating the handling
of milk in the Northeast and Mideast marketing areas is approved or
favored by producers, as defined under each of those orders, as amended
and as hereby proposed to be amended, who during such representative
period were engaged in the production of milk for sale within the
aforesaid marketing areas.
The representative period for the conduct of such referenda is
hereby determined to be May 2000 for the Northeast order and September
2000 for the Mideast order.
The agents of the Secretary to conduct such referenda are hereby
designated to be the respective market administrators of the aforesaid
orders.
Determination of Producer Approval and Representative Periods for
All Other Orders
May 2000 is hereby determined to be the representative period for
the purpose of ascertaining whether the issuance of the orders, as
amended and as hereby proposed to be amended, regulating the handling
of milk in the Appalachian, Southeast and Florida marketing areas are
approved or favored by producers, as defined under the terms of each of
those orders as amended and as hereby proposed to be amended, who
during such representative period were engaged in the production of
milk for sale within the aforesaid marketing areas.
September 2000 is hereby determined to be the representative period
for the purpose of ascertaining whether the issuance of the orders, as
amended and as hereby proposed to be amended, regulating the handling
of milk in the Upper Midwest, Central, Pacific Northwest, Southwest,
Arizona-Las Vegas and Western marketing areas are approved or favored
by producers, as defined under the terms of each of those orders as
amended and as hereby proposed to be amended, who during such
representative period were engaged in the production of milk for sale
within the aforesaid marketing areas.
List of Subjects in 7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030,
1032, 1033, 1124, 1126, 1131, and 1135
Milk marketing orders.
Dated: November 29, 2000.
Enrique E. Figueroa,
Deputy Under Secretary, Marketing and Regulatory Programs.
Interim Order Amending the Orders Regulating the Handling of Milk
in the Northeast and Other Marketing Areas
This interim order shall not become effective unless and until the
requirements of Sec. 900.14 of the rules of practice and procedure
governing proceedings to formulate marketing agreements and marketing
orders have been met.
Findings and Determinations
The findings and determinations hereinafter set forth supplement
those that were made when the orders were first issued and when they
were amended. The previous findings and determinations are hereby
ratified and confirmed, except where they may conflict with those set
forth herein.
(a) Findings. A public hearing was held upon certain proposed
amendments to the tentative marketing agreements and to the orders
regulating the handling of milk in the aforesaid marketing areas. The
hearing was held pursuant to the provisions of the Agricultural
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the
applicable rules of practice and procedure (7 CFR part 900).
Upon the basis of the evidence introduced at such hearing and the
record thereof, it is found that:
(1) The said orders as hereby amended, and all of the terms and
conditions thereof, will tend to effectuate the declared policy of the
Act;
(2) The parity prices of milk, as determined pursuant to section 2
of the Act, are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the aforesaid marketing areas; and the
minimum prices specified in the orders as hereby amended are such
prices as will reflect the aforesaid factors, insure a sufficient
quantity of pure and wholesome milk, and be in the public interest; and
(3) The said orders as hereby amended regulate the handling of milk
in the same manner as, and are applicable only to persons in the
respective classes of industrial or commercial activity specified in,
marketing agreements upon which a hearing has been held.
Order Relative to Handling
It is therefore ordered, that on and after the effective date
hereof, the handling of milk in the Northeast and other marketing areas
shall be in conformity to and in compliance with the terms and
conditions of the orders, as amended, and as hereby amended, as
follows:
The authority citation for 7 CFR parts 1000, 1001, 1005, 1006,
1007, 1030, 1032, 1033, 1124, 1126, 1131, and 1135 continues to read as
follows:
Authority: 7 U.S.C. 601-674, 7253, P.L. 106-113, 115 Stat. 1501.
PART 1000-GENERAL PROVISIONS OF FEDERAL MILK MARKETING ORDERS
1. Section 1000.40 is amended by removing and reserving paragraph
[[Page 76852]]
(c)(1)(ii) and revising paragraph (d)(1)(i) to read as follows:
Sec. 1000.40 Classes of Utilization.
* * * * *
(c) * * *
(1) * * *
(ii) [Reserved]
* * * * *
(d) Class IV milk shall be all skim milk and butterfat:
(1) Used to produce:
(i) Butter, plastic cream, anhydrous milkfat, and butteroil; and
* * * * *
2. Section 1000.50 is amended by revising the last sentence of the
introductory text and paragraphs (a), (b), (c), (g), (h), (j), (l),
(m), (n), (o), (p)(1), and (q)(3) and adding paragraph (q)(4) to read
as follows:
Sec. 1000.50 Class prices, component prices, and advanced pricing
factors.
* * * The price described in paragraph (d) of this section shall
be derived from the Class II skim milk price announced on or before the
23rd day of the month preceding the month to which it applies and the
Class IV butterfat price announced on or before the 5th day of the
month following the month to which it applies.
(a) Class I price. The Class I price per hundredweight shall be the
adjusted Class I differential specified in Sec. 1000.52 plus the higher
of the advanced Class III or advanced Class IV prices calculated in
paragraph (q)(4) of this section.
(b) Class I skim milk price. The Class I skim milk price per
hundredweight shall be the adjusted Class I differential specified in
Sec. 1000.52 plus the advanced Class III or advanced Class IV skim milk
price used in the calculation of the higher of the advanced Class III
or advanced Class IV prices calculated in paragraph (q)(4) of this
section.
(c) Class I butterfat price. The Class I butterfat price per pound
shall be the adjusted Class I differential specified in Sec. 1000.52
divided by 100, plus the advanced Class III or advanced Class IV
butterfat price used in the calculation of the higher of the advanced
Class III or advanced Class IV prices calculated in paragraph (q)(4) of
this section.
* * * * *
(g) Class II butterfat price. The Class II butterfat price per
pound shall be the Class IV butterfat price plus $.007.
(h) Class III price. The Class III price per hundredweight, rounded
to the nearest cent, shall be .965 times the Class III skim milk price
plus 3.5 times the Class III butterfat price.
* * * * *
(j) Class IV price. The Class IV price per hundredweight, rounded
to the nearest cent, shall be .965 times the Class IV skim milk price
plus 3.5 times the Class IV butterfat price.
* * * * *
(l) Class III and Class IV butterfat prices.
(1) The Class III butterfat price per pound, rounded to the nearest
one-hundredth cent, shall be computed as follows:
(i) Compute a weighted average of the following prices:
(A) The U.S. average NASS survey price for 40-lb. block cheese
reported by the Department for the month; and
(B) The U.S. average NASS survey price for 500-pound barrel cheddar
cheese (38 percent moisture) reported by the Department for the month
plus 3 cents;
(ii) Subtract 16.5 cents from the price computed pursuant to
paragraph (l)(1)(i) of this section and multiply the result by 1.582;
(2) The Class IV butterfat price per pound, rounded to the nearest
one-hundredth cent, shall be the U.S. average NASS AA butter survey
price reported by the Department for the month less 11.5 cents, with
the result divided by 0.82.
(m) Nonfat solids price. The nonfat solids price per pound, rounded
to the nearest one-hundredth cent, shall be the U.S. average NASS
nonfat dry milk survey price reported by the Department for the month
less 14 cents.
(n) Protein price. The protein price per pound, rounded to the
nearest one-hundredth cent, shall be computed by subtracting 16.5 cents
from the price computed pursuant to paragraph (l)(1)(i) of this section
and multiplying the result by 1.405;
(o) Other solids price. The other solids price per pound, rounded
to the nearest one-hundredth cent, shall be the U.S. average NASS dry
whey survey price reported by the Department for the month minus 14
cents, with the result divided by 0.968. The other solids price shall
not be less than zero.
(p) * * *
(1) Multiply .0005 by the weighted average price computed pursuant
to paragraph (l)(1)(i) of this section and round to the 5th decimal
place;
* * * * *
(q) * * *
(3) Calculate the advanced Class III and advanced Class IV
butterfat prices as follows:
(i) The advanced Class III butterfat price shall be calculated by
subtracting 16.5 cents per pound from a weighted average of the 2 most
recent U.S. average NASS survey prices for 40-lb.block cheese and for
500-pound barrel cheddar cheese (at 38 percent moisture) plus 3 cents
announced before the 24th day of the month, with the result multiplied
by 1.582;
(ii) The advanced Class IV butterfat price shall be calculated by
subtracting 11.5 cents from a weighted average of the 2 most recent
U.S. average NASS AA butter survey prices announced before the 24th day
of the month, with the result divided by 0.82.
(4) Calculate the advanced Class III and advanced Class IV prices
as follows:
(i) The advanced Class III price shall be the sum of the value
calculated pursuant to paragraph (q)(1) of this section multiplied by
.965 plus the value calculated pursuant to paragraph (q)(3)(i) of this
section multiplied by 3.5, rounded to the nearest cent.
(ii) The advanced Class IV price shall be the sum of the value
calculated pursuant to paragraph (q)(2) of this section multiplied by
.965 plus the value calculated pursuant to paragraph (q)(3)(ii) of this
section multiplied by 3.5, rounded to the nearest cent.
PART 1001--MILK IN THE NORTHEAST MARKETING AREA
1. Section 1001.60 is amended by revising paragraphs (c)(3),
(d)(2), and (h) to read as follows:
Sec. 1001.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(h) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and
[[Page 76853]]
is not used as an offset for any other payment obligation under any
order.
* * * * *
2. Section 1001.61, is revised to read as follows:
Sec. 1001.61 Computation of producer butterfat price and producer
price differential.
For each month, the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight for producer milk receipts. The report
of any handler who has not made payments required pursuant to
Sec. 1001.71 for the preceding month shall not be included in the
computation of these prices, and such handler's report shall not be
included in the computation for succeeding months until the handler has
made full payment of outstanding monthly obligations. Subject to the
aforementioned conditions, the market administrator shall compute the
producer butterfat price and the producer price differential in the
following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1001.60(h) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential.
(1) Combine into one total the values computed pursuant to
Sec. 1001.60 for all handlers required to file reports prescribed in
Sec. 1001.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1001.60(a) through (g) and
Sec. 1001.60(i) by the protein price, other solids price, and producer
butterfat price, respectively;
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1001.60(h) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1001.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1001.60(h); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1001.62 is amended by revising paragraphs (e) and (g) to
read as follows:
Sec. 1001.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(g) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1001.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1001.61(b).
4. Section 1001.71 is amended by revising paragraphs (b)(2) and (3)
to read as follows:
Sec. 1001.71 Payments to the producer-settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively; and
(3) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1001.60(h) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1001.75 applicable at
the location of the plant from which received.
5. Section 1001.73 is amended by revising paragraphs (a)(2)(ii) and
(b)(3)(vi) to read as follows:
Sec. 1001.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
(ii) Multiply the pounds of butterfat received by the producer
butterfat price for the month;
* * * * *
(b) * * *
(3) * * *
(vi) Multiply the pounds of butterfat in Class III and Class IV
milk by the respective butterfat prices for the month;
* * * * *
PART 1005--MILK IN THE APPALACHIAN MARKETING AREA
1. Section 1005.60 is amended by revising paragraph (e) to read as
follows:
Sec. 1005.60 Handler's value of milk.
* * * * *
(e) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
2. Section 1005.61 is amended by revising paragraphs (a) and (b)(4)
to read as follows:
Sec. 1005.61 Computation of uniform prices.
* * * * *
(a) Uniform butterfat price. The uniform butterfat price per pound,
rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1005.60(e) for
other
[[Page 76854]]
source milk allocated to Class I pursuant to Sec. 1000.43(d) and the
steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i) and
Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) * * *
(4) Subtract the value of the total pounds of butterfat for all
handlers. The butterfat value shall be computed by multiplying the sum
of the pounds of butterfat in producer milk and other source milk used
to calculate the values in paragraghs (a)(1) and (a)(2) of this section
by the butterfat price computed in paragraph (a) of this section;
* * * * *
PART 1006--MILK IN THE FLORIDA MARKETING AREA
1. Section 1006.60 is amended by revising paragraph (e) to read as
follows:
Sec. 1006.60 Handler's value of milk.
* * * * *
(e) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
2. Section 1006.61 is amended by revising paragraphs (a) and (b)(4)
to read as follows:
Sec. 1006.61 Computation of uniform prices.
* * * * *
(a) Uniform butterfat price. The uniform butterfat price per pound,
rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1006.60(e) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) * * *
(4) Subtract the value of the total pounds of butterfat for all
handlers. The butterfat value shall be computed by multiplying the sum
of the pounds of butterfat in producer milk and other source milk used
to calculate the values in paragraphs (a)(1) and (a)(2) of this section
by the butterfat price computed in paragraph (a) of this section;
* * * * *
PART 1007--MILK IN THE SOUTHEAST MARKETING AREA
1. Section 1007.60 is amended by revising paragraph (e) to read as
follows:
Sec. 1007.60 Handler's value of milk.
* * * * *
(e) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
2. Section 1007.61 is amended by revising paragraphs (a) and (b)(4)
to read as follows:
Sec. 1007.61 Computation of uniform prices.
* * * * *
(a) Uniform butterfat price. The uniform butterfat price per pound,
rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1007.60(e) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) * * *
(4) Subtract the value of the total pounds of butterfat for all
handlers. The butterfat value shall be computed by multiplying the sum
of the pounds of butterfat in producer milk and other source milk used
to calculate the values in paragraphs (a)(1) and (a)(2) of this section
by the butterfat price computed in paragraph (a) of this section;
* * * * *
PART 1030--MILK IN THE UPPER MIDWEST MARKETING AREA
1. Section 1030.60 is amended by revising paragraphs (c)(3),
(d)(2), and (i) to read as follows:
Sec. 1030.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(i) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to
[[Page 76855]]
such plant by handlers fully regulated under any Federal milk order is
classified and priced as Class I milk and is not used as an offset for
any other payment obligation under any order.
* * * * *
2. Section 1030.61 is revised to read as follows:
Sec. 1030.61 Computation of producer butterfat price and producer
price differential.
For each month the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight for producer milk receipts. The report
of any handler who has not made payments required pursuant to
Sec. 1030.71 for the preceding month shall not be included in the
computation of these prices, and such handler's report shall not be
included in the computation for succeeding months until the handler has
made full payment of outstanding monthly obligations. Subject to the
conditions of this paragraph, the market administrator shall compute
the producer butterfat price and the producer price differential in the
following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1030.60(i) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential. (1) Combine into one total the
values computed pursuant to Sec. 1030.60 for all handlers required to
file reports prescribed in Sec. 1030.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1030.60(a) through (h) and
Sec. 1030.60(j) by the protein price, other solids price, and producer
butterfat price, respectively, and the total value of the somatic cell
adjustment pursuant to Sec. 1030.30(a)(1) and (c)(1);
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1030.60(i) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1030.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1030.60(i); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1030.62 is amended by revising paragraphs (e) and (h) to
read as follows:
Sec. 1030.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(h) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1030.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1030.61(b).
4. Section 1030.71 is amended by revising paragraphs (b)(2) and
(b)(4) to read as follows:
Sec. 1030.71 Payments to the producer-settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively;
* * * * *
(4) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1030.60(i) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1030.75 applicable at
the location of the plant from which received.
5. Section 1030.73 is amended by revising paragraphs (a)(2)(ii),
(c)(2)(v), and (c)(3)(ii) to read as follows:
Sec. 1030.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
(c) * * *
(2) * * *
(v) The pounds of butterfat in Class III and Class IV milk by the
respective butterfat prices for the month;
* * * * *
(3) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
PART 1032--MILK IN THE CENTRAL MARKETING AREA
1. Section 1032.60 is amended by revising paragraphs (c)(3),
(d)(2), and (i) to read as follows:
Sec. 1032.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(i) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated
[[Page 76856]]
under any Federal milk order is classified and priced as Class I milk
and is not used as an offset for any other payment obligation under any
order.
* * * * *
2. Section 1032.61 is revised to read as follows:
Sec. 1032.61 Computation of producer butterfat price and producer
price differential.
For each month the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight for producer milk receipts. The report
of any handler who has not made payments required pursuant to
Sec. 1032.71 for the preceding month shall not be included in the
computation of these prices, and such handler's report shall not be
included in the computation for succeeding months until the handler has
made full payment of outstanding monthly obligations. Subject to the
conditions of this paragraph, the market administrator shall compute
the producer butterfat price and the producer price differential in the
following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1032.60(i) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential. (1) Combine into one total the
values computed pursuant to Sec. 1032.60 for all handlers required to
file reports prescribed in Sec. 1032.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1032.60(a) through (h) and
Sec. 1032.60(j) by the protein price, other solids price, and producer
butterfat price, respectively, and the total value of the somatic cell
adjustment pursuant to Sec. 1032.30(a)(1) and (c)(1);
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1032.60(i) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1032.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1032.60(i); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1032.62 is amended by revising paragraphs (e) and (h) to
read as follows:
Sec. 1032.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(h) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1032.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1032.61(b).
4. Section 1032.71 is amended by revising paragraphs (b)(2) and (3)
to read as follows:
Sec. 1032.71 Payments to the producer-settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively;
* * * * *
(4) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1032.60(i) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1032.75 applicable at
the location of the plant from which received.
5. Section 1032.73 is amended by revising paragraphs (a)(2)(ii),
(c)(2)(v), and (c)(3)(ii) to read as follows:
Sec. 1032.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
(c) * * *
(2) * * *
(v) The pounds of butterfat in Class III and Class IV milk by the
respective butterfat prices for the month;
* * * * *
(3) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
PART 1033--MILK IN THE MIDEAST MARKETING AREA
1. Section 1033.60 is amended by revising paragraphs (c)(3),
(d)(2), and (i) to read as follows:
Sec. 1033.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(i) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated
[[Page 76857]]
under any Federal milk order is classified and priced as Class I milk
and is not used as an offset for any other payment obligation under any
order.
* * * * *
2. Section 1033.61 is revised to read as follows:
Sec. 1033.61 Computation of producer butterfat price and producer
price differential.
For each month the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight for producer milk receipts. The report
of any handler who has not made payments required pursuant to
Sec. 1033.71 for the preceding month shall not be included in the
computation of these prices, and such handler's report shall not be
included in the computation for succeeding months until the handler has
made full payment of outstanding monthly obligations. Subject to the
conditions of this paragraph, the market administrator shall compute
the producer butterfat price and the producer price differential in the
following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1033.60(i) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential. (1) Combine into one total the
values computed pursuant to Sec. 1033.60 for all handlers required to
file reports prescribed in Sec. 1033.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1033.60(a) through (h) and
Sec. 1033.60(j) by the protein price, other solids price, and producer
butterfat price, respectively, and the total value of the somatic cell
adjustment pursuant to Sec. 1033.30(a)(1) and (c)(1);
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1033.60(i) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1033.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1033.60(i); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1033.62 is amended by revising paragraphs (e) and (h) to
read as follows:
Sec. 1033.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(h) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1033.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1033.61(b).
4. Section 1033.71 is amended by revising paragraphs (b)(2) and (4)
to read as follows:
Sec. 1033.71 Payments to the producer--settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively;
* * * * *
(4) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1033.60(i) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1033.75 applicable at
the location of the plant from which received.
5. Section 1033.73 is amended by revising paragraphs (a)(2)(ii) and
(b)(3)(v) to read as follows:
Sec. 1033.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
(b) * * *
(3) * * *
(v) The pounds of butterfat in Class III and Class IV milk by the
respective butterfat prices for the month;
* * * * *
PART 1124--MILK IN THE PACIFIC NORTHWEST MARKETING AREA
1. Section 1124.60 is amended by revising paragraphs (c)(3),
(d)(2), and (h) to read as follows:
Sec. 1124.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(h) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
[[Page 76858]]
2. Section 1124.61, including the section heading, is revised to
read as follows:
Sec. 1124.61 Computation of producer butterfat price and producer
price differential.
For each month, the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight. The report of any handler who has not
made payments required pursuant to Sec. 1124.71 for the preceding month
shall not be included in these computations, and such handler's report
shall not be included in the computation for succeeding months until
the handler has made full payment of outstanding monthly obligations.
Subject to the aforementioned conditions, the market administrator
shall compute the producer butterfat price and the producer price
differential in the following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1124.60(h) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential. (1) Combine into one total the
values computed pursuant to Sec. 1124.60 for all handlers required to
file reports prescribed in Sec. 1124.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1124.60(a) through (g) and
Sec. 1124.60(i) by the protein price, other solids price, and producer
butterfat price, respectively;
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1124.60(h) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1124.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1124.60(h); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1124.62 is amended by revising paragraphs (e) and (g) to
read as follows:
Sec. 1124.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(g) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1124.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1124.61(b).
4. Section 1124.71 is amended by revising paragraphs (b)(2) and (3)
to read as follows:
Sec. 1124.71 Payments to the producer-settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively; and
(3) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1124.60(h) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1124.75 applicable at
the location of the plant from which received.
5. Section 1124.73 is amended by revising paragraphs (a)(2)(ii),
(c)(2)(v), and (c)(3)(ii) to read as follows:
Sec. 1124.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
(c) * * *
(2) * * *
(v) The pounds of butterfat in Class III and Class IV milk by the
respective butterfat prices for the month;
* * * * *
(3) * * *
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
PART 1126--MILK IN THE SOUTHWEST MARKETING AREA
1. Section 1126.60 is amended by revising paragraphs (c)(3),
(d)(2), and (i) to read as follows:
Sec. 1126.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(i) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
2. Section 1126.61, is revised to read as follows:
[[Page 76859]]
Sec. 1126.61 Computation of producer butterfat price and producer
price differential.
For each month, the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight. The report of any handler who has not
made payments required pursuant to Sec. 1126.71 for the preceding month
shall not be included in these computations, and such handler's report
shall not be included in the computation for succeeding months until
the handler has made full payment of outstanding monthly obligations.
Subject to the aforementioned conditions, the market administrator
shall compute the producer butterfat price and the producer price
differential in the following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1126.60(i) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential. (1) Combine into one total the
values computed pursuant to Sec. 1126.60 for all handlers required to
file reports prescribed in Sec. 1126.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1126.60(a) through (h) and
Sec. 1126.60(j) by the protein price, other solids price, and producer
butterfat price, respectively, and the total value of the somatic cell
adjustment pursuant to Sec. 1126.30(a)(1) and (c)(1);
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1126.60(i) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1126.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1126.60(i); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1126.62 is amended by revising paragraphs (e) and (h) to
read as follows:
Sec. 1126.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(h) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1126.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1126.61(b).
4. Section 1126.71 is amended by revising paragraphs (b)(2) and (4)
to read as follows:
Sec. 1126.71 Payments to the producer-settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively;
* * * * *
(4) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1126.60(i) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1126.75 applicable at
the location of the plant from which received.
5. Section 1126.73 is amended by revising paragraphs (a)(2)(ii) and
(b)(3)(v) to read as follows:
Sec. 1126.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
(ii) Multiply the pounds of butterfat received times the producer
butterfat price for the month;
* * * * *
(b) * * *
(3) * * *
(v) The pounds of butterfat in Class III and Class IV milk by the
respective butterfat prices for the month;
* * * * *
PART 1131--MILK IN THE ARIZONA-LAS VEGAS MARKETING AREA
1. Section 1131.60 is amended by revising paragraph (e) to read as
follows:
Sec. 1131.60 Handler's value of milk.
* * * * *
(e) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
2. Section 1131.61 is amended by revising paragraphs (a) and (b)(4)
to read as follows:
Sec. 1131.61 Computation of uniform prices.
* * * * *
(a) Uniform butterfat price. The uniform butterfat price per pound,
rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1131.60(e) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
[[Page 76860]]
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) * * *
(4) Subtract the value of the total pounds of butterfat for all
handlers. The butterfat value shall be computed by multiplying the sum
of the pounds of butterfat in producer milk and other source milk used
to calculate the values in (a)(1) and (a)(2) of this section by the
butterfat price computed in paragraph (a) of this section;
* * * * *
PART 1135--MILK IN THE WESTERN MARKETING AREA
1. Section 1135.60 is amended by revising paragraphs (c)(3), (d)(2)
and (h) to read as follows:
Sec. 1135.60 Handler's value of milk.
* * * * *
(c) * * *
(3) Add an amount obtained by multiplying the pounds of butterfat
in Class III by the Class III butterfat price.
(d) * * *
(2) Add an amount obtained by multiplying the pounds of butterfat
in Class IV by the Class IV butterfat price.
* * * * *
(h) Multiply the Class I skim milk and Class I butterfat prices
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1000.43(d) and Sec. 1000.44(a)(3)(i) and
the corresponding step of Sec. 1000.44(b) and the pounds of skim milk
and butterfat subtracted from Class I pursuant to Sec. 1000.44(a)(8)
and the corresponding step of Sec. 1000.44(b), excluding such skim milk
and butterfat in receipts of fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk or
butterfat disposed of to such plant by handlers fully regulated under
any Federal milk order is classified and priced as Class I milk and is
not used as an offset for any other payment obligation under any order.
* * * * *
2. Section 1135.61 is revised to read as follows:
Sec. 1135.61 Computation of producer butterfat price and producer
price differential.
For each month, the market administrator shall compute a producer
butterfat price per pound of butterfat and a producer price
differential per hundredweight. The report of any handler who has not
made payments required pursuant to Sec. 1135.71 for the preceding month
shall not be included in these computations, and such handler's report
shall not be included in the computation for succeeding months until
the handler has made full payment of outstanding monthly obligations.
Subject to the conditions of this paragraph, the market administrator
shall compute the producer butterfat price and the producer price
differential in the following manner:
(a) Producer butterfat price. The producer butterfat price per
pound, rounded to the nearest one-hundredth cent, shall be computed by:
(1) Multiplying the pounds of butterfat in producer milk allocated
to each class pursuant to Sec. 1000.44(b) by the respective class
butterfat prices;
(2) Adding the butterfat value calculated in Sec. 1135.60(h) for
other source milk allocated to Class I pursuant to Sec. 1000.43(d) and
the steps of Sec. 1000.44(b) that correspond to Sec. 1000.44(a)(3)(i)
and Sec. 1000.44(a)(8) by the Class I price; and
(3) Dividing the sum of paragraphs (a)(1) and (a)(2) of this
section by the sum of the pounds of butterfat in producer milk and
other source milk used to calculate the values in paragraphs (a)(1) and
(a)(2) of this section.
(b) Producer price differential. (1) Combine into one total the
values computed pursuant to Sec. 1135.60 for all handlers required to
file reports prescribed in Sec. 1135.30;
(2) Subtract the total of the values obtained:
(i) By multiplying the total pounds of protein, other solids, and
butterfat contained in each handler's producer milk for which an
obligation was computed pursuant to Sec. 1135.60(a) through (g) and
Sec. 1135.60(i) by the protein price, other solids price, and producer
butterfat price, respectively;
(ii) By multiplying each handler's pounds of skim milk and
butterfat for which a value is computed pursuant to Sec. 1135.60(h) by
the Class III skim milk price and the producer butterfat price,
respectively;
(3) Add an amount equal to the minus location adjustments and
subtract an amount equal to the plus location adjustments computed
pursuant to Sec. 1135.75;
(4) Add an amount equal to not less than one-half of the
unobligated balance in the producer-settlement fund;
(5) Divide the resulting amount by the sum of the following for all
handlers included in these computations:
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1135.60(h); and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The result
shall be known as the producer price differential for the month.
3. Section 1135.62 is amended by revising paragraphs (e) and (g) to
read as follows:
Sec. 1135.62 Announcement of producer prices.
* * * * *
(e) The producer butterfat price;
* * * * *
(g) The statistical uniform price computed by adding the following
values:
(1) The Class III skim milk price computed in Sec. 1000.50(i)
multiplied by .965;
(2) The producer butterfat price computed in Sec. 1135.61(a)
multiplied by 3.5; and
(3) The producer price differential computed in Sec. 1135.61(b).
* * * * *
4. Section 1135.71 is amended by revising paragraph (b)(2) and
adding paragraph (b)(3) to read as follows:
Sec. 1135.71 Payments to the producer--settlement fund.
* * * * *
(b) * * *
(2) An amount obtained by multiplying the total pounds of protein,
other solids, and butterfat contained in producer milk by the protein,
other solids, and producer butterfat prices respectively; and
(3) An amount obtained by multiplying the hundredweight, the pounds
of skim milk, and the pounds of butterfat for which a value was
computed pursuant to Sec. 1135.60(h) by the producer price
differential, the Class III skim milk price, and the producer butterfat
price, respectively, as adjusted pursuant to Sec. 1135.75 applicable at
the location of the plant from which received.
* * * * *
5. Section 1135.73 is amended by revising paragraphs (a)(2)(ii) and
(b)(3)(v) to read as follows:
Sec. 1135.73 Payments to producers and to cooperative associations.
(a) * * *
(2) * * *
[[Page 76861]]
(ii) The pounds of butterfat received times the producer butterfat
price for the month;
* * * * *
(b) * * *
(3) * * *
(v) The pounds of butterfat in Class III and Class IV milk times
the respective butterfat prices for the month;
* * * * *
Marketing Agreement Regulating the Handling of Milk in Certain
Marketing Areas
The parties hereto, in order to effectuate the declared policy
of the Act, and in accordance with the rules of practice and
procedure effective thereunder (7 CFR Part 900), desire to enter
into this marketing agreement and do hereby agree that the
provisions referred to in paragraph I hereof as augmented by the
provisions specified in paragraph II hereof, shall be and are the
provisions of this marketing agreement as if set out in full herein.
I. The findings and determinations, order relative to handling,
and the provisions of Secs. ______ \1\ to ______, all inclusive, of
the order regulating the handling of milk in the (______ Name of
order ______) marketing area (7 CFR PART ______ \2\) which is
annexed hereto; and
---------------------------------------------------------------------------
\1\ First and last sections of order.
\2\ Appropriate Part number.
---------------------------------------------------------------------------
II. The following provisions: Sec. ______ \3\ Record of milk
handled and authorization to correct typographical errors.
---------------------------------------------------------------------------
\3\ Next consecutive section number.
---------------------------------------------------------------------------
(a) Record of milk handled. The undersigned certifies that he/
she handled during the month of ______ \4\, ______ hundredweight of
milk covered by this marketing agreement.
---------------------------------------------------------------------------
\4\ Appropriate representative period for the order.
---------------------------------------------------------------------------
(b) Authorization to correct typographical errors. The
undersigned hereby authorizes the Deputy Administrator, or Acting
Deputy Administrator, Dairy Programs, Agricultural Marketing
Service, to correct any typographical errors which may have been
made in this marketing agreement.
Sec. ______\3\ Effective date. This marketing agreement shall
become effective upon the execution of a counterpart hereof by the
Secretary in accordance with Section 900.14(a) of the aforesaid
rules of practice and procedure.
In Witness Whereof, The contracting handlers, acting under the
provisions of the Act, for the purposes and subject to the
limitations herein contained and not otherwise, have hereunto set
their respective hands and seals.
Signature
By (Name)-------------------------------------------------------------
(Title)---------------------------------------------------------------
(Address)-------------------------------------------------------------
(Seal)
Attest
[FR Doc. 00-30816 Filed 12-1-00; 9:19 am]
BILLING CODE 3410-02-P