54136 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Part 1030 

[Docket No. AO–361–A39; DA–04–03–B] 

Milk in the Upper Midwest Marketing 

Area; Decision on Proposed 

Amendments to Marketing Agreement 

and to Order 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Proposed rule; final decision. 

SUMMARY: This document is the final 

decision proposing to adopt 

amendments to the Upper Midwest 

order intended to deter the de-pooling 

of milk and increase the order’s 

maximum administrative assessment 

rate. This final decision is subject to 

producer approval by referendum. 

FOR FURTHER INFORMATION CONTACT: 

Gino Tosi, Associate Deputy 

Administrator, Order Formulation and 

Enforcement Branch, USDA/AMS/Dairy 

Programs, STOP 0231—Room 2968, 

1400 Independence Avenue, SW., 

Washington, DC 20250–0231, (202) 690– 

1366, e-mail gino.tosi@usda.gov. 

SUPPLEMENTARY INFORMATION: This final 

decision adopts amendments that: (1) 

Establish a limit on the volume of milk 

a handler may pool during the months 

of April through February to 125 

percent of the volume of milk pooled in 

the prior month; (2) Establish a limit on 

the volume of milk a handler may pool 

during the month of March to 135 

percent of the volume of milk pooled in 

the prior month; and (3) Allow the 

Market Administrator to increase the 

maximum administrative assessment 

rate up to 8 cents per hundredweight on 

all pooled milk if necessary to maintain 

the required fund reserves. The 

proposed amended order is subject to 

producer approval by referendum. 

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. 

The amendments to the rules 

proposed herein have been reviewed 

under Executive Order 12988, Civil 

Justice Reform. They are not intended to 

have a retroactive effect. The 

amendments would 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 

Department 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 Department 

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 

Department 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 Act and 

Paperwork Reduction Act 

In accordance with the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.), the 

Agricultural Marketing Service has 

considered the economic impact of this 

action on small entities and has certified 

that this proposed rule will not have a 

significant economic impact on a 

substantial number of small entities. 

For the purpose of the Regulatory 

Flexibility Act, a dairy farm is 

considered a ‘‘small business’’ if it has 

an annual gross revenue of less than 

$750,000, 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 

$750,000 per year criterion was used to 

establish a production guideline of 

500,000 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. 

During August 2004, the month 

during which the hearing occurred, 

there were 15,802 dairy producers 

pooled on and 60 handlers regulated by 

the Upper Midwest (UMW) order. 

Approximately 15,608 producers, or 97 

percent, were considered small 

businesses based on the above criteria. 

Of the 60 handlers regulated by the 

UMW during August 2004, 49 handlers, 

or 82 percent, were considered small 

businesses. 

The adopted amendments regarding 

the pooling standards serve to revise 

established criteria that determine those 

producers, producer milk, and plants 

that have a reasonable association with 

and consistently serve the fluid needs of 

the UMW marketing area. Criteria for 

pooling milk are established on the 

basis of performance standards that are 

considered adequate to meet the Class I 

fluid needs of the market and, by doing 

so, determine those producers who are 

eligible to share in the revenue that 

arises from the classified pricing of 

milk. 

Criteria for pooling are established 

without regard to the size of any dairy 

industry organization or entity. 

Administrative assessments are 

similarly charged without regard to the 

size of any dairy industry organization 

or entity. Therefore, the proposed 

amendments will not have a significant 

economic impact on a substantial 

number of small entities. 

The Agricultural Marketing Service is 

committed to complying with the EGovernment Act, to promote the use of 

the Internet and other information 

technologies to provide increased 

opportunities for citizen access to 

Government information and services, 

and for other purposes. 

This action does not require 

additional information collection that 

needs clearance by the Office of 

Management and Budget (OMB) beyond 

currently approved information 

collection. The primary sources of data 

used to complete the approved forms 

are routinely used in most business 

transactions. The 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 the industry average. 

No other burdens are expected to fall 

on the dairy industry as a result of 

overlapping Federal rules. This 

rulemaking proceeding does not 

duplicate, overlap, or conflict with any 

existing Federal rules. 

Prior documents in this proceeding: 

Notice of Hearing: Issued June 16, 

2004; published June 23, 2004 (69 FR 

34963). 

Notice of Hearing Delay: Issued July 

14, 2004; published July 21, 2004 (69 FR 

43538). 

Tentative Partial Decision: Issued 

April 8, 2005; published April 14, 2005 

(70 FR 19709). 


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Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54137 

Interim Final Rule: Issued May 26, 

2005; published June 1, 2005 (70 FR 

31321). 

Final Partial Decision: Issued 

September 29, 2005; published October 

5, 2005 (70 FR 58086). 

Final Partial Rule: Issued December 5, 

2005; published December 9, 2005 (70 

FR 73126). 

Recommended Decision: Issued 

February 15, 2006; published February 

22, 2006 (71 FR 9004). 

Preliminary Statement 

A public hearing was held upon 

proposed amendments to the marketing 

agreement and the order regulating the 

handling of milk in the UMW marketing 

area. The hearing was held pursuant to 

the provisions of the Agricultural 

Marketing Agreement Act of 1937 

(AMAA), as amended (7 U.S.C. 601–

674), and the applicable rules of 

practice and procedure governing the 

formulation of marketing agreements 

and marketing orders (7 CFR part 900). 

The amendments set forth below are 

based on the record of a public hearing 

held at Bloomington, Minnesota, on 

August 16–19, 2004, pursuant to a 

notice of hearing issued June 16, 2004, 

published June 23, 2004 (69 FR 34963), 

and a notice of hearing delay issued July 

14, 2004, and published July 21, 

2004(69 FR 43538). 

Upon the basis of the evidence 

introduced at the hearing and the record 

thereof, the Administrator, on February 

15, 2006, issued a Recommended 

Decision containing notice of the 

opportunity to file written exceptions 

thereto. 

The material issues, findings, 

conclusions and rulings of the 

Recommended Decision, with one 

modification, are hereby approved, 

adopted and are set forth herein. The 

material issues on the record of hearing 

relate to: 

1. Pooling Standards 

A. Establishing Pooling Limits 

B. Producer Definition 

2. Administrative Assessment Rate 

Findings and Conclusions 

This final decision specifically 

addresses proposals published in the 

hearing notice as Proposals 3, 4, and 5 

and features of Proposal 2 that seek to 

establish a limit on the volume of milk 

that can be pooled on the order, features 

of Proposal 6 intending to clarify the 

Producer definition by providing a 

definition of ‘‘temporary loss of Grade A 

approval,’’ and Proposal 7 which seeks 

to increase the order’s maximum 

administrative assessment rate. As 

published in the hearing notice, 

Proposals 1, 6, and a portion of Proposal 

2 concerning diversion limit standards 

and transportation credits were 

addressed in a tentative partial decision 

published on April 14, 2005 (70 FR 

19709). For the purpose of this decision, 

references to Proposal 2 will only 

pertain to the first portion regarding depooling and references to Proposal 6 

will only pertain to establishing a 

definition of ‘‘temporary loss of Grade A 

approval.’’

The following findings and 

conclusions on the material issues are 

based on evidence presented at the 

hearing and the record thereof: 

1. Pooling Standards 

A. Establishing Pooling Limits 

Preliminary Statement. Federal milk 

marketing orders rely on the tools of 

classified pricing and marketwide 

pooling to assure an adequate supply of 

milk for fluid (Class I) use and to 

provide for the equitable sharing of the 

revenues arising from the classified 

pricing of milk. Classified pricing 

assigns a value to milk according to how 

the milk is used. Regulated handlers 

who buy milk from dairy farmers are 

charged class prices according to how 

they use the farmer’s milk. Dairy 

farmers are then paid a weighted 

average or ‘‘blend’’ price. The blend 

price that dairy farmers are paid for 

their milk is derived through the 

marketwide pooling of all class uses of 

milk in a marketing area. Thus each 

producer receives an equal share of each 

use class of milk and is indifferent as to 

the actual class for which the milk was 

used. The Class I price is usually the 

highest class price for milk. Historically, 

the Class I use of milk provides the 

additional revenue to a marketing area’s 

total classified use value of milk. 

The series of class prices that are 

applicable for any given month are not 

announced simultaneously. The Class I 

price and the Class II skim milk price 

are announced prior to the beginning of 

the month for which they will be 

effective. Class prices for milk in all 

other uses are not determined until on 

or before the 5th day of the following 

month. The Class I price is determined 

by adding a differential value to the 

higher of either an advanced Class III or 

Class IV value. These values are 

calculated based on a formula using 

National Agricultural Statistics Service 

(NASS) survey prices of cheese, butter, 

and nonfat dried milk powder for the 

first two weeks of the preceding month. 

For example, the Class I price for 

August is announced in late July and is 

based on the higher of the Class III or 

IV value computed using NASS 

commodity price surveys for the first 

two weeks of July. 

The Class III and IV prices for the 

month are determined and announced 

after the end of the month based on the 

NASS survey prices for the selected 

dairy commodities during the month. 

For example, the Class III and IV prices 

for August are based on NASS survey 

commodity prices during August. A 

large increase in the NASS survey price 

for the selected dairy commodities from 

one month to the next can result in the 

Class III or IV price exceeding the Class 

I price. This occurrence is commonly 

referred to by the dairy industry as a 

‘‘class price inversion.’’ A producer 

price inversion generally refers to when 

the Class III or IV price exceeds the 

classified use value, or blend price, of 

milk for the month. Price inversions 

have occurred with increasing 

frequency in Federal milk orders since 

the current pricing plan was 

implemented on January 1, 2000, 

despite efforts made during Federal 

Order Reform to reduce such 

occurrences. Price inversions can create 

an incentive for dairy farmers and 

manufacturing handlers who voluntarily 

participate in the marketwide pooling of 

milk to elect not to pool their milk on 

the order. Class I handlers do not have 

this option; their participation in the 

marketwide pool is mandatory. 

The producer price differential, or 

PPD, is the difference between the Class 

III price and the weighted average value 

of all Classes. In essence, the PPD is the 

dairy farmer’s share of the additional/ 

reduced revenues associated with the 

Class I, II and IV milk pooled in the 

market. If the value of the Class I, II and 

IV milk in the pool is greater than the 

Class III value, dairy farmers receive a 

positive PPD. However a negative PPD 

can occur if the value of the Class III 

milk in the pool exceeds the value of the 

remaining classes of milk in the pool. 

This can occur as a result of the price 

inversions discussed above. 

The UMW Federal order operates a 

marketwide pool. The Order contains 

pooling provisions which specify 

criteria that, if met, allow dairy farmers 

to share in the benefits that arise from 

classified pricing through pooling. The 

equalization of all class prices among 

handlers regulated by an order is 

accomplished through a mechanism 

known as the producer settlement fund 

(PSF). Typically, Class I handlers pay 

the difference between the blend price 

and their use-value of milk into the PSF. 

Manufacturing handlers typically 

receive a draw from the PSF, usually the 

difference between the Class II, III or IV 

price and the blend price. In this way, 

all handlers pay the class value for milk 


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54138 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

and all dairy farmer suppliers receive at 

least the order’s blend price. 

When manufacturing class prices of 

milk are high enough to result in a usevalue of milk for a handler that is higher 

than the blend price, manufacturing 

handlers may choose to not pool their 

milk receipts. Opting to not pool their 

milk receipts allows these handlers to 

avoid the obligation of paying into the 

PSF. The choice by a manufacturing 

handler to not pool their milk receipts 

is commonly referred to as ‘‘depooling.’’ When the blend price rises 

above the manufacturing class usevalues of milk these same handlers 

again opt to pool their milk receipts. 

This is often referred to as ‘‘re-pooling.’’

The ability of manufacturing handlers to 

de-pool and re-pool manufacturing milk 

is viewed by some market participants 

as being inequitable to both producers 

and handlers. 

The ‘‘De-pooling’’ Proposals. 

Proponents are in agreement that milk 

marketing orders should contain 

provisions that will tend to deter the 

practice of de-pooling. Four proposals 

intending to deter the de-pooling of 

milk were considered in this 

proceeding. The proposals offered 

different degrees of deterrence against 

de-pooling by establishing limits on the 

amount of milk that can be re-pooled. 

The proponents of these four proposals 

are generally of the opinion that depooling erodes equity among producers 

and handlers, undermines the orderly 

marketing of milk and is detrimental to 

the Federal order system. 

Two different approaches on how to 

best limit de-pooling are represented by 

these four proposals. The first approach, 

published in the hearing notice as 

Proposals 2 and 5, addresses de-pooling 

by limiting the volume of milk a handler 

can pool in a month to a specified 

percentage of what the handler pooled 

in the prior month. The second 

approach, published in the hearing 

notice as Proposals 3 and 4, addresses 

de-pooling by establishing what is 

commonly referred to as a ‘‘dairy farmer 

for other markets’’ provision. These 

proposals would require milk of a 

producer that was de-pooled to not be 

able to be re-pooled by that producer for 

a defined time period. All proponents 

agreed that while none of the proposals 

would completely eliminate de-pooling, 

they would likely deter the practice. 

Of the four proposals received that 

would limit de-pooling, this decision 

adopts Proposal 2, offered by Mid-West 

Dairymen’s Company (Mid-West) on 

behalf of Cass-Clay Creamery Inc. (CassClay); Dairy Farmers of America, Inc. 

(DFA); Foremost Farms USA 

Cooperative (Foremost Farms); Land 

O’Lakes Inc. (LOL); Milwaukee 

Cooperative Milk Producers (MCMP); 

Manitowoc Milk Producers Cooperative 

(MMPC); Swiss Valley Farms Company 

(Swiss Valley); and Woodstock 

Progressive Milk Producers Association 

(Woodstock). Hereinafter, this decision 

will refer to these proponents as ‘‘MidWest, et al.’’ Although Foremost Farms 

was a proponent of Proposal 2, no 

testimony was offered on their behalf. 

At the hearing, Plainview Milk Products 

Cooperative and Westby Cooperative 

Creamery also supported the testimony 

given on behalf of Mid-West, et al. The 

proponents of Proposal 2 are all 

cooperatives representing producers 

who supply the milk needs of the 

marketing area and is pooled on the 

UMW order. 

Specifically, adoption of Proposal 2 

will limit the volume of milk a handler 

can pool in a month to no more than 

125 percent of the volume of milk 

pooled in the prior month during the 

months of April through February, and 

to no more than 135 percent of the prior 

month’s pooled volume in the month of 

March. Milk diverted to nonpool plants 

in excess of this limit will not be 

pooled. Milk shipped to pool 

distributing plants in excess of the 

volume shipped to pool distributing 

plants in the prior month will not be 

subject to the 125 or 135 percent 

limitation. 

As published in the hearing notice, 

Proposal 5, offered by Dean Foods 

Company (Dean), addresses de-pooling 

in a similar manner as Proposal 2, but 

would establish a limit on the total 

volume of milk a handler could pool in 

a given month to 115 percent of the 

volume that was pooled in the prior 

month. Dean is a handler who operates 

manufacturing plants and distributing 

plants in the UMW marketing area. 

Producer milk shipped to and 

physically received at a pool 

distributing plant, and producer milk 

that was pooled continuously on 

another Federal Order during the 

previous 6 months, would not be subject 

to this pooling standard. Proposal 5 is 

not recommended for adoption. 

As published in the hearing notice, 

Proposals 3 and 4, also offered by Dean, 

address de-pooling by establishing 

defined time periods during which depooled milk could not be pooled. 

Proposal 3 would require an annual 

pooling commitment by a handler to the 

UMW market. As advanced in Proposal 

3, if the milk of a producer is de-pooled 

in a month, the milk of a producer could 

not re-establish eligibility for pooling on 

the order during the following 11 

months unless 10 day’s milk production 

of a producer was delivered to a pool 

distributing plant during the month. 

Under Proposal 3, handlers that de-pool 

milk have limited options to return milk 

to the pool, either shipping 10 day’s 

milk production of a producer to a pool 

distributing plant during the month or 

waiting 11 months to regain pooling 

eligibility. 

Proposal 4 is similar to Proposal 3 but 

is less restrictive. Under Proposal 4, as 

modified at the hearing, if a producer’s 

milk is de-pooled in any of the months 

of February through June, or during any 

of the preceding 3 months, or during 

any of the preceding months of July 

through January, the equivalent of at 

least 10 day’s milk production would 

need to be physically received at a pool 

distributing plant in order to pool all of 

the dairy farmer’s production for the 

month. Additionally, if the milk of a 

dairy farmer is de-pooled in any of the 

months of July through January, or in a 

preceding month, at least 10 day’s milk 

production of the dairy farmer would 

need to be delivered to a pool 

distributing plant to have all the milk of 

the dairy farmer pooled for the month. 

Proposals 3 and 4 are not adopted. 

The current Producer milk provision 

of the UMW order considers the milk of 

a dairy farmer to be producer milk when 

it is delivered directly from farms to a 

pool plant or diverted by a pool plant 

or cooperative handler to a nonpool 

plant. Milk is not eligible for diversion 

to nonpool plants unless at least 1 day’s 

production of such dairy farmer is 

received at a pool plant anytime during 

the initial qualifying month, often 

referred to as ‘‘touching-base.’’ To be 

eligible to pool all of its milk receipts, 

the pooling handler must ship at least 

10 percent of its milk receipts to a pool 

distributing plant, producer-handler, a 

partially regulated distributing plant, or 

a pool distributing plant regulated by 

another Federal order. A handler’s 

diversion of milk to nonpool plants can 

only be made to nonpool plants located 

in the States of Illinois, Iowa, 

Minnesota, Wisconsin, North Dakota, 

South Dakota, and the Upper Peninsula 

of Michigan. Milk that is subject to 

inclusion in another marketwide 

equalization program operated by a state 

government is not considered producer 

milk. The order currently does not limit 

a handler’s ability to re-pool milk. 

The proponents of Proposals 2, 3, 4 

and 5 are all of the opinion that the 

current pooling standards are 

inadequate because they enable 

manufacturing handlers to de-pool milk 

when advantageous to do so and 

immediately re-pool milk in a following 

month if advantageous to do so. 

According to the proponents, the UMW 

blend price is lowered when large 


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volumes of sometimes higher-valued 

milk used for manufacturing are depooled and when these large volumes of 

de-pooled milk return to the pool. 

Furthermore, the witnesses argued that 

de-pooling handlers do not account to 

the UMW pool at the order’s classified 

prices and therefore face different costs 

than their similarly situated pooling 

competitors. The proponents insisted 

that the pooling standards of the order 

need to be amended to ensure producer 

and handler equity, even though the 

proposals differed on how best to meet 

this end. 

A witness appearing on behalf of MidWest, et al., testified in support of 

Proposal 2. The witness was of the 

opinion that the underlying principles 

of the Federal order program are to 

supply milk to the fluid market, 

equitably share pool proceeds among all 

participating producers, and promote 

orderly marketing. The witness 

explained that the Federal order 

program achieves these objectives 

through classified pricing, through 

which Class I milk generates revenue for 

the pool; and marketwide pooling, 

which equalizes payments to all 

participating producers who serve the 

market regardless of how the milk of 

any single producer is utilized. 

The Mid-West, et al., witness said that 

currently milk utilized at manufacturing 

plants can be de-pooled and again 

pooled in a subsequent month when it 

is economically beneficial to the 

handler. When choosing to pool or not 

to pool, the witness explained, handlers 

assess whether participating in the 

marketwide pool would require them to 

make a payment into or receive a 

payment from the PSF. According to the 

witness, milk utilized as Class I must 

always be pooled regardless of whether 

the pooling handler would make a 

payment into, or receive a payment 

from, the PSF. 

The Mid-West, et al., witness testified 

that because manufacturing milk can 

freely exit and return to the pool, 

producers who regularly and 

consistently service the UMW fluid 

market are not being treated equitably 

under the terms of the order. According 

to the witness, these producers receive 

a lower blend price because the value of 

the milk that was de-pooled was not 

shared equitably among all the market’s 

producers. 

The Mid-West, et al., witness 

maintained that the ability of 

manufacturing handlers to de-pool milk 

creates inequities among handlers and 

producers. The witness said that when 

the PPD is negative, dairy farmers 

receive different payments for their milk 

depending on if their milk was pooled, 

and handlers are not required to account 

to the pool at classified prices 

depending on their pooling decisions. 

Class I handlers who must pool their 

milk receipts always have a 

disadvantage when the PPD is negative, 

explained the witness, because 

manufacturing handlers can opt to depool and avoid paying into the PSF. 

According to the witness, this results in 

higher prices that can be paid to the 

producers supplying manufacturing 

handlers. The witness contrasted that 

when the PPD is positive, milk that had 

been de-pooled seeks to return to the 

pool. According to the witness, this also 

dilutes the blend price paid to 

producers who had been supplying 

Class I handlers. 

The Mid-West, et al., witness, relying 

on Market Administrator statistics, 

noted that in May 2004, all producer 

milk pooled on the order was subject to 

a negative $1.97 per hundredweight 

(cwt) PPD. However, the witness 

emphasized that a manufacturing 

handler who chose to de-pool its milk 

supply and did not have to account to 

the pool at classified prices had an 

imputed PPD of zero. In other words, 

the witness explained, milk used in 

manufactured products was worth more 

than milk used in fluid products. 

Relying on additional Market 

Administrator statistics, the witness 

demonstrated that if 100 percent of 

eligible Class III milk had pooled in July 

2003 through May 2004, the estimated 

PPD would have averaged a negative 

$0.098 per cwt rather than the actual 

average PPD of negative $0.773 per cwt. 

The Midwest, et al., witness 

explained how adoption of Proposal 2 

would improve both producer and 

handler equity. The witness said that 

Proposal 2 would only limit the amount 

of milk a handler could pool up to 125 

or 135 percent of the previous month’s 

pooled volume and clarified that any 

milk delivered to a distributing plant 

would not be subject to the 125 or 135 

percent pooling calculation. If Proposal 

2 were adopted, the witness claimed, no 

current handler would have to change 

the physical operations of their plant. 

While adoption of this proposal would 

not end the practice of de-pooling, 

speculated the witness, it would 

establish financial consequences for 

handlers who might not otherwise 

consistently pool their milk receipts. 

In explaining why adoption of 

Proposal 2 would be reasonable and 

appropriate for the UMW order, the 

Mid-West, et al., witness said that a 125 

percent standard should accommodate 

any change in the potential growth of a 

handler’s pooled milk volume resulting 

from seasonal fluctuations in milk 

supply or the addition of new 

producers, assuming that the handler 

did not de-pool. Additionally, the 

witness added that to ensure no handler 

would need to change its physical 

operations, Proposal 2 allows a 135 

percent re-pooling standard in March 

because of the fewer calendar days in 

February. The witness stressed that the 

125 and 135 percent standards allow a 

handler to de-pool a portion of its milk 

supply and over a period of months, 

regain the ability to again pool its entire 

supply. The witness added that the 

proposal does not restrict the volume of 

milk able to be pooled in August since 

this is generally considered the start of 

the new marketing year. 

The Mid-West, et al., witness also 

emphasized that establishing a standard 

on the basis of the prior month’s pooled 

volume has been done in other orders. 

The Northeast order has a ‘‘producer for 

other markets’’ provision that restricts 

the ability to pool the milk of a producer 

if the milk of that producer had been 

previously de-pooled, noted the 

witness. Furthermore, the witness said, 

milk orders in the south and 

southeastern part of the country had 

provisions which limited the sharing of 

marketwide returns in the spring 

months to only those producers whose 

milk served the fluid market during the 

fall months. 

The Mid-West, et al., witness 

predicted that price volatility would 

continue in the future and result in 

negative PPD’s and the further depooling of milk. The witness was of the 

opinion that price volatility and depooling have created emergency 

marketing conditions that would 

warrant the Department to omit issuing 

a recommended decision. 

A witness from DFA, appearing on 

behalf of Mid-West, et al., testified in 

support of Proposal 2. The witness 

testified that DFA engages in the 

practice of de-pooling when warranted 

to earn sufficient revenue to pay their 

producer members a competitive milk 

price. The witness emphasized that depooling creates disorderly marketing 

conditions and supported Proposal 2 as 

the best option to deter the practice of 

de-pooling. The witness offered 

scenarios that demonstrated the 

financial incentives available to 

handlers who de-pool milk. The witness 

asserted that the current pooling 

standards of the UMW order, where 

producers qualify for pooling by 

meeting a one-day touch base standard, 

allow handlers the opportunity to reap 

financial rewards from the market by 

de-pooling and re-pooling their milk 

receipts. 


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The DFA witness explained that 

Proposal 2 was a compromise position 

among all the entities of Mid-West, et 

al., noting that its adoption would 

improve the current disorderly market 

conditions arising from the practice of 

de-pooling. The witness noted that 

many alternatives were considered but 

the proponents were of the opinion that 

Proposal 2 is a significant improvement 

to the order’s pooling provisions while 

still allowing handlers to make their 

own pooling decisions. 

Witnesses from LOL, Swiss Valley, 

Cass-Clay, MMPC, and DFA Central 

Council, all appearing on behalf of MidWest, et al., testified in support of 

Proposal 2. Many of the witnesses 

testified that their respective 

organizations engage in the practice of 

de-pooling when it is advantageous but 

that they recognize that the practice has 

a negative impact on the PPD and 

creates disorderly marketing conditions. 

Consequently, they are of the opinion 

that while a moderate level of depooling should be tolerated, a set of 

standards should be established to deter 

de-pooling to maintain orderly 

marketing conditions. 

The Mid-West, et al., witnesses 

identified above expressed support for 

Proposal 2 as an acceptable and 

moderate approach to limiting the 

practice of de-pooling. The proposal 

would allow flexibility in making 

pooling decisions, explained the 

witnesses, but would also establish 

significant consequences for those who 

opt to de-pool large volumes of their 

producer milk supply. In this regard, the 

witnesses said that Proposal 2 would 

result in improving equity among 

handlers and among producers during 

times of price inversions. 

A DFA dairy farmer member, whose 

milk is pooled on the UMW order, 

testified in support of Proposal 2. The 

witness was of the opinion that if dairy 

farmers want to participate in the UMW 

marketwide pool and share in the 

revenue generated from the market, they 

should be prepared to service the 

market every month. When handlers 

engage in the practice of de-pooling 

their milk receipts, the witness said, 

severe price fluctuations and larger, 

negative PPDs result that negatively 

affect the price paid to pooled 

producers. The witness was of the 

opinion that the adoption of Proposal 2 

would result in more stable pooled milk 

volumes and lessen the severe and 

volatile price changes that producers 

have experienced. 

A dairy farmer appearing on behalf of 

MCMP, whose milk is pooled on the 

UMW order, testified in support of 

Proposal 2. The witness said that their 

farm income was reduced during May 

2004 as a result of the negative $1.97 per 

cwt PPD. The witness added that 

neighboring farms that shipped milk to 

other handlers reported receiving a 

higher price for their milk. The opinion 

of the witness was that the practice of 

de-pooling has led to non-uniform 

prices received by farmers and that 

adoption of Proposal 2 would restore 

price equity among producers. 

Comments filed on behalf of the 

members of Midwest, et al., Westby 

Cooperative Creamery, and Woodstock 

Progressive Milk Producers Association 

expressed their support for the proposed 

re-pooling standards of Proposal 2 and 

increasing the maximum administrative 

assessment. Midwest, et al., clarified 

that the intent of Proposal 2 was to 

constrain the practice of de-pooling 

while still encouraging additional milk 

shipments for Class I use. Midwest, et 

al., proposed that the re-pooling 

standard be amended to exempt milk 

delivered to distributing plants in 

excess of the previous month’s pooled 

volume instead of the proposed 

standard that exempts all milk delivered 

to distributing plants. Midwest, et al., 

explained that their intent was not to 

exempt all milk delivered to distributing 

plants from the re-pooling standard, 

rather it was to exempt any incremental 

increase in distributing plant deliveries 

to ensure that handlers would not be 

discouraged from serving the Class I 

market. 

A witness appearing on behalf of 

Dean testified in opposition to Proposal 

2. The witness said that the pooling 

standards of Proposal 2 are too liberal 

and that unlimited pooling in the month 

of August could allow handlers to again 

take advantage of the pooling system. 

A witness appearing on behalf of 

Northwest Dairy Association (NDA) 

testified in opposition to Proposal 2. 

NDA is a dairy cooperative that markets 

7 billion pounds of milk annually with 

members in the States of Washington, 

Oregon, Idaho, and Northern California. 

The witness explained that NDA 

engages in the practice of de-pooling in 

other Federal orders as a way to recover 

costs in their manufacturing of butter 

and cheese because the Class III and IV 

make allowances do not adequately 

reflect such costs. The NDA witness was 

of the opinion that the practice of depooling should be addressed at a 

national hearing that would also 

consider other issues such as the make 

allowances used in the Class III and IV 

price formulas. 

A witness appearing on behalf of 

Dean testified in support of Proposals 3, 

4, and 5. The witness asserted that the 

intent of the Federal order system is to 

ensure a sufficient supply of milk for 

fluid use and provide for uniform 

payments to producers who stand ready, 

willing, and able to serve the fluid 

market. While some entities are of the 

opinion that the Federal order system 

should ensure a sufficient milk supply 

to all plants, the Dean witness was of 

the opinion that the Federal order 

system addresses only the need for 

ensuring a milk supply to distributing 

plants. The witness elaborated on this 

opinion by citing examples of order 

provisions that stress providing for a 

regular supply of milk to distributing 

plants as a priority of the Federal milk 

order program. 

The Dean witness was of the opinion 

that for the Federal milk order system to 

ensure orderly marketing, orders need to 

provide adequate economic incentives 

that will attract milk to fluid plants and 

to properly define regulations that 

identify the milk of those producers 

who can participate in the marketwide 

pool. The witness argued that a major 

flaw in the current regulations is that 

they allow handlers to choose when to 

participate in the pool. In this regard, 

the witness said, the order lacks the 

economic incentive for pool 

participation by its lack of an economic 

disincentive to the practice of depooling. 

The Dean witness testified that 

Proposals 3, 4, and 5 are designed to 

establish proper economic incentives for 

supplying the fluid market and maintain 

equity among handlers and producers. 

While each proposal offered a slightly 

different solution to the problem, the 

witness said, Dean Foods supports their 

adoption in the following order or 

preference: Proposal 3, Proposal 4, and 

then Proposal 5. 

A second witness appearing on behalf 

of Dean testified in support of Proposals 

3, 4, and 5. The witness argued that 

when handlers engage in the practice of 

de-pooling it creates a burden on the 

producers who consistently serve the 

Class I needs of the market. According 

to the witness, when the PPD is 

negative, there is an incentive for 

handlers to de-pool Class III and Class 

IV milk. When a handler opts to depool, it decreases the amount of pooled 

milk and makes the PPD more negative 

than it would have been had all milk 

been pooled, the witness said. When the 

PPD is positive, milk previously depooled seeks to be re-pooled which 

increases the volume of pooled milk 

valued at lower classified prices and 

lowers the blend price paid to all 

producers, the witness asserted. The 

major ‘‘losers’’ in this process, 

concluded the witness, are the 


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producers whose milk is continuously 

pooled regardless of the PPD. 

The second Dean witness said that 

Proposal 3 was designed to increase the 

availability of milk for fluid use and 

ensure that pool proceeds are only 

shared among producers who 

consistently service the fluid market. 

The witness said that if Proposal 3 is 

adopted, de-pooled milk could again 

become pooled as long as the producer 

delivered 10-day’s milk production to a 

pool distributing plant for 12 

consecutive months. Once that standard 

was met, the witness added, the 

producer’s milk could then be pooled 

under the more flexible provisions of 

the UMW order. 

The Dean witness asserted that there 

are three benefits to adoption of 

Proposal 3: (1) When the PPD is 

negative, more Class III milk would stay 

in the pool resulting in a less negative 

PPD; (2) Some Class III de-pooled milk 

would never be re-pooled which would 

result in a more positive PPD; and (3) 

Class III de-pooled milk would have to 

demonstrate regular and significant 

deliveries to distributing plants in order 

to be re-pooled. 

In explaining Proposal 4 as an 

alternative to Proposal 3, the second 

Dean witness indicated that the 

difference in the two proposals is the 

number of months that the 10-day touch 

base provision would be applicable 

before de-pooled milk could again be 

pooled under normal circumstances. 

The witness was of the opinion that 

Proposal 4 would discourage some depooling; however, the harm caused by 

the practice of de-pooling would be 

better prevented by the adoption of 

Proposal 3. 

The Dean witness also discussed 

Proposal 5 as a less desirable alternative 

to Proposals 3 and 4. According to the 

witness, Proposal 5 would limit the 

amount of milk that can be pooled to 

115 percent of the handler’s previous 

month’s pooled milk volume. The 

witness explained that the greater the 

volume of de-pooled milk, the more 

time needed under Proposal 5 for a 

handler to re-pool all its milk receipts. 

This, the witness said, ensures that the 

entities that benefit the most from the 

practice of de-pooling would not receive 

an immediate benefit that would 

otherwise occur when re-pooling. 

A third witness appearing on behalf of 

Dean testified in support of Proposal 3. 

The witness said that the current liberal 

pooling standards of the UMW order are 

one source of disorderly marketing and 

are preventing all producers from 

sharing equally in pool proceeds. The 

witness asserted that the Federal milk 

order system was designed so that 

through marketwide pooling all 

producers would share equally in pool 

proceeds, and that through classified 

pricing milk would move to the 

market’s highest-valued use. 

Relying on Market Administrator 

statistics for January 2000 through June 

2004, the Dean witness asserted that the 

volume of pooled Class III milk varied 

from 1.5 billion pounds in January 2004 

to 11 million pounds in April 2004. 

Furthermore, the witness said, the blend 

price in April 2004 would have been 

$2.97 higher if all Class III milk had 

been pooled. The witness was of the 

opinion that these large swings in the 

volume of pooled milk results in the 

disorderly marketing condition of 

inequitable sharing of pool proceeds 

among producers. 

A witness appearing on behalf of 

Oberweis Dairy testified in support of 

Proposals 2 and 3. Oberweis Dairy 

operates a distributing plant with 

approximately 40 dairy farmer suppliers 

and 32 ice cream stores in the Chicago 

and St. Louis area markets. The witness 

was of the opinion that it is inequitable 

to producers and Class I handlers when 

manufacturing handlers engage in the 

practice of de-pooling. The witness was 

of the opinion that either all handlers 

should be able to engage in the practice 

of de-pooling or it should be prohibited. 

While no proposal at the hearing 

proposed such a restriction, the witness 

was of the opinion that Proposal 3 

would be the best option to restore 

equity among producers. Nevertheless, 

the witness said that Oberweis would 

support the adoption of Proposal 2 if the 

Department finds it to be more 

appropriate. 

A witness appearing on behalf of the 

Wisconsin Farmers Union, Minnesota 

Farmers Union, and the North Dakota 

Farmers Union testified about the 

negative effects of de-pooling on dairy 

producers. According to the witness, 

these organizations represent farmers of 

various agricultural products in their 

respective States. The witness asserted 

that when a cooperative engages in the 

practice of de-pooling, dairy farmers are 

negatively affected because the revenue 

a cooperative gains from de-pooling is 

not paid to producers by the 

cooperatives. The witness insisted that 

the practice of de-pooling should be 

curbed so that producers are adequately 

paid for the total value of their milk. 

A witness appearing on behalf of 

Galloway Company (Galloway) testified 

in support of all proposals that would 

limit the practice of de-pooling. 

Galloway owns and operates a dairy 

manufacturing plant in the UMW 

marketing area. The witness was of the 

opinion that large negative PPD’s are 

due, in part, to de-pooling and that has 

a negative impact on the income of 

Galloway. The witness was of the 

opinion that changes to order provisions 

to limit the ability to re-pool are 

necessary but had no opinion as to 

which proposal would be the best 

option. 

A post-hearing brief submitted by 

Dean reiterated their opinion that the 

pooling standards of the order need to 

be amended to correct the disorderly 

marketing conditions arising from the 

practice of de-pooling. The brief argued 

that the practice of de-pooling is 

disorderly because a handler who depools milk avoids accounting to the 

pool at classified prices and is not 

required to pay its suppliers the 

minimum blend price. However, 

asserted Dean, a pooled handler not 

only accounts to the pool at classified 

prices and pays its suppliers the 

minimum blend price, the handler also 

finds it necessary to pay large premiums 

to keep its suppliers. 

According to the Dean brief, negative 

PPD’s and the resulting practice of depooling are not a national issue, noting 

that de-pooling typically occurs in 

markets with low Class I utilization 

such as the UMW. The Dean brief 

predicted that the practice of de-pooling 

would occur in the future and therefore 

concluded that the disorderly marketing 

conditions arising from the practice of 

de-pooling warrant emergency action 

from the Department by omitting a 

recommended decision. 

Comments filed on behalf of Dean in 

response to the Recommended Decision 

supported the Department’s decision to 

deter the practice of de-pooling. 

However, Dean expressed reservations 

that adoption of Proposal 2 would be 

sufficient to adequately deter the 

practice of de-pooling in the Upper 

Midwest marketing area. Dean also 

commented that the re-pooling standard 

for the month of February should be 

modified to 115 percent to account for 

additional days in January much like 

the re-pooling standard for the month of 

March was modified to account for the 

fewer days in February. 

A post hearing brief submitted on 

behalf of Lamers Dairy, Inc. (Lamers) 

asserted that the ability of some 

handlers to engage in the practice of depooling when it is economically 

advantageous is a disorderly marketing 

condition. Furthermore, the brief 

expressed the opinion that de-pooling 

causes inequitable treatment among 

handlers because pooling handlers must 

account to the PSF at minimum 

classified prices while handlers who depool their milk receipts do not. The 

Lamers brief supported adoption of 


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Proposal 3 as the most appropriate 

solution to limit the practice of depooling. 

A witness appearing on behalf of MidWest, et al., testified in opposition to 

Proposal 3. According to the witness, 

requiring a producer whose milk was 

de-pooled to deliver 10-day’s milk 

production to a pool distributing plant 

is a standard that would be extremely 

difficult to meet. The witness stressed 

that finding access to a pool distributing 

plant for 10-day’s production would not 

only be extremely difficult, it would 

also be costly. The Mid-West, et al., 

brief also contended that the proposals 

offered by Dean would require physical 

changes in plant operations that are not 

necessary to address the practice of depooling in the UMW market. 

The Mid-West, et al., brief disagreed 

with others who were of the opinion 

that the de-pooling issue should be 

addressed at a national hearing. The 

brief explained that historical Federal 

milk order policy is that the pooling 

provisions of orders be reflective of each 

order’s individual marketing conditions. 

Therefore, the brief concluded, it is 

appropriate to address the practice of 

de-pooling on an individual order basis. 

A witness appearing on behalf of 

Associated Milk Producers, Inc. (AMPI) 

testified in opposition to all proposals 

intended to limit the practice of depooling as specified in Proposals 2, 3, 4, 

and 5. The witness’ testimony was given 

on behalf of Alto Dairy Cooperative, 

Bongards’ Creameries, Ellsworth 

Cooperative Creamery, Family Dairies 

USA, First District Association, Davisco 

Foods, Valley Queen Cheese Company 

and Wisconsin Cheesemakers 

Association (WCA). The members 

consist of cooperative associations and 

handlers who market or purchase milk 

in the UMW marketing area. 

Hereinafter, this coalition of members 

will be referred to collectively as 

‘‘AMPI, et al.’’

The AMPI, et al., witness testified that 

the option to engage in the practice of 

de-pooling in response to price 

inversions has been a longstanding part 

of the Federal milk order system. The 

witness testified that as a result of 

timing differences in announcing 

classified prices, a lag between changes 

in the market value of milk used in 

manufacturing and corresponding 

changes in the Federal order Class I 

price sometimes results in price 

inversions. The witness explained that 

the occasional price inversion is caused 

by the announcement of the Class I 

price approximately two weeks prior to 

the month and the announcement of the 

price for milk used in Class II, III, and 

IV products occurring after the close of 

the month—a difference of six weeks. 

The witness drew attention to April 

2004 where the value of Class III milk 

increased $6.02 per cwt during the sixweek lag. This resulted in a blend price 

that was substantially less than the 

estimated Class III price, resulting in a 

large amount of de-pooled Class III milk 

because, the witness said, there was no 

incentive for manufacturing handlers to 

pool all of their milk receipts. 

The AMPI, et al., witness asserted that 

the argument that de-pooled milk does 

not serve, nor is available to serve, the 

fluid market is false. According to the 

witness, milk that is de-pooled is 

available to the Class I market during 

the month it is marketed and a decision 

to de-pool the milk is made after the end 

of the month when the Class II, III and 

IV prices are known. Additionally, the 

witness asserted that fluid milk plants 

always receive a continuous supply of 

fluid milk because of their contractual 

supply agreements. 

The AMPI, et al., witness 

characterized the proposals under 

consideration to address the practice of 

de-pooling as designed to penalize 

handlers who engage in de-pooling their 

Class III milk. AMPI, et al., the witness 

stated, is strongly opposed to this 

change in pooling philosophy. The 

witness was of the opinion that the 

Federal order system should continue to 

provide for the marketwide sharing of 

money derived from sales of Class I milk 

since it is Class I sales that historically 

generate additional revenue to 

producers. However, the witness said, 

the order should not force handlers to 

share money generated from 

manufactured milk products to offset a 

low Class I price. 

The AMPI, et al., witness was of the 

opinion that the practice of de-pooling 

is a national issue that should be 

addressed in a national hearing. The 

witness believed that a better solution to 

the practice of de-pooling would be to 

eliminate the advanced pricing of Class 

I milk and instead announce all Class 

prices after the end of the month. 

The AMPI, et al., witness also testified 

that emergency marketing conditions do 

not exist to warrant the omission of a 

recommended decision by the 

Department. The witness stressed that 

price inversions and the practice of depooling have occurred in the Federal 

order system for decades and any major 

change in Department policy regarding 

this practice should be addressed in a 

recommended decision where interested 

parties can file comments and 

exceptions. 

A post-hearing brief submitted on 

behalf of AMPI, et al., reiterated their 

opposition to all of the proposals that 

seek to deter de-pooling. The brief 

argued that the AMAA intended for the 

government to only require the sharing 

of the revenues generated from fluid 

sales. According to the brief, requiring 

manufactured milk to remain pooled 

oversteps the authority of the AMAA. 

The brief also expressed the opinion 

that Proposals 3, 4, and 5 are designed 

to limit a producer’s access to the 

market and should therefore be denied. 

Furthermore, the brief stressed that 

Proposals 3 through 5 would unfairly 

increase costs of some UMW handlers 

because of the increased transportation 

and capital investment that would be 

needed to comply with the proposed 

amendments. 

A witness appearing on behalf of 

WCA, testified in opposition to all 

proposals intended to limit the practice 

of de-pooling as specified in Proposals 

2, 3, 4, and 5. The witness testified that 

WCA represents dairy manufacturers 

and marketers with 32 of its members 

operating 42 pooled dairy facilities on 

the UMW order. According to the 

witness, 30 of the 42 pooled dairy 

facilities are small businesses and if the 

proposals to limit the practice of depooling were adopted, these small 

businesses would face new and 

significant costs to comply with the 

proposed new standards without benefit 

to their dairy farmer suppliers. 

The WCA witness expressed concern 

that Proposal 2 addressed the practice of 

de-pooling without regard to the cause 

of negative PPD’s, specifically the 

inversion of classified prices. The 

witness also said that Proposals 2, 3, 4 

and 5 would put an additional 

administrative burden on handlers by 

requiring them to designate which 

producers would remain pooled or depooled. The witness asserted that access 

to distributing plants in the UMW 

market is very limited and it would be 

hard for a de-pooled producer to reassociate with a distributing plant in 

order to be eligible to again pool their 

milk on the order. 

The WCA witness was of the opinion 

that Proposals 3 and 4 also would add 

additional transportation costs, 

administrative costs, and the potential 

need for additional silo capacity to 

accommodate the increased volume of 

milk that would be needed to meet the 

10-day production delivery standard at 

a pool distributing plant. The witness 

explained that many WCA members do 

not have the capacity to accommodate 

meeting a 10-day production delivery 

standard for each month. The witness 

was also of the opinion that existing 

supply contracts provide ample milk 

supplies for the Class I market and 

concluded that additional deliveries to 


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pool plants are not needed to assure an 

adequate supply to Class I facilities. 

Comments filed by on behalf of AMPI, 

Bongards’ Creameries, Ellsworth 

Cooperative Creamery, Family Dairies 

USA, First District Association, Davisco 

Foods, Valley Queen Cheese Company, 

and Wisconsin Cheese Markers 

Association (hereinafter referred to as 

‘‘AMPI Group’’) took exception to the 

re-pooling standard proposed in the 

Recommended Decision. They asserted 

that the proposed standard did not solve 

the underlying cause of the practice of 

de-pooling. The AMPI group asserted 

that the Department arbitrarily refused 

to consider proposals that would end 

the time lag in classified price 

announcements as a remedy to depooling and did not consider alternative 

proposals that would be less 

burdensome to handlers or requests to 

address the practice of de-pooling on a 

national basis. 

AMPI Group commented that 

provisions which allow the market 

administrator to waive the re-pooling 

standard for handlers that experience a 

significant change in their milk supply 

due to unusual circumstances should be 

more specific as to what constitutes an 

unusual circumstance. The AMPI Group 

argued that small manufacturers may 

experience a growth in their milk 

supply which would not be considered 

an unusual circumstance and that such 

a situation should not cause a handler 

to be penalized under the re-pooling 

standard. The AMPI Group also cited 

various legal issues as reasons why the 

Department should not adopt the repooling standards. 

Comments filed by Eau Galle Cheese 

Factory and the Wisconsin Cheese 

Makers Association took exception to 

the Department’s proposed re-pooling 

standards and offered support for the 

views expressed by the AMPI Group. 

Comments filed on behalf of Family 

Dairies USA took exception to 

amendments proposed in the 

Recommended Decision and reiterated 

the testimony given on their behalf at 

the hearing by the AMPI, et al., witness. 

A witness appearing on behalf of the 

National Family Farm Coalition, an 

organization representing family farms 

located in 32 states including those 

states comprising the UMW marketing 

area, testified in opposition to all 

proposals at the hearing. The witness 

was of the opinion that the entire 

Federal order system was in need of a 

complete reform. The witness asserted 

that the proponents of the proposals 

being heard were entities whose past 

actions have lowered prices received by 

family farmers. 

A post-hearing brief submitted on 

behalf of Alto Dairy (Alto), a cooperative 

with 580 dairy farmer members in 

Wisconsin and Michigan, reiterated 

their opposition to all proposals seeking 

to limit the practice of de-pooling. The 

brief stressed that a decision to de-pool 

is made separately from the decision to 

adequately supply the Class I needs of 

the market. 

Comments filed on behalf of Alto 

Dairy Cooperative and Foremost Farms 

USA took exception to the proposed 

regulations that would require a 

producer to be continuously pooled on 

another Federal order for the previous 6 

months to be exempted from the repooling standards. Their exception 

asserted that a producer should be 

allowed to have some de-pooled milk 

receipts during the previous 6 months 

and still be exempt from the re-pooling 

standards of the Upper Midwest order. 

An Extension Dairy Marketing 

Specialist from the University of 

Wisconsin testified on the issues 

surrounding the practice of de-pooling 

but did not support or oppose any 

specific proposal. The witness referred 

to and explained a research paper which 

identified and explained problems 

arising in the UMW marketing area by 

pooling distant milk, the practice of depooling, and the resulting economic 

impacts to producers. The witness said 

that if manufacturing prices for milk 

rapidly increase during the month there 

will be a negative PPD but as prices 

begin to decline, the PPD will again 

become positive over time. The witness 

also explained that a negative PPD does 

not mean that producers lost money. 

Rather, the witness clarified, the PPD is 

a calculation of the difference between 

the Class III price and the blend price 

that producers receive. However, 

concluded the witness, the ability to 

engage in the practice of de-pooling 

does result in volatile PPD’s and gives 

rise to inequities among producers and 

among handlers. 

Comments filed on behalf of Grande 

Cheese Company took exception to 

findings made by the Department in the 

Recommended Decision. Grande was of 

the opinion that the cause of negative 

PPD’s is the timing of classified price 

announcements. In addition, they were 

of the opinion that the Department was 

incorrect in establishing re-pooling 

standards as a way to address negative 

PPD’s. 

Comments filed on behalf of the Cedar 

Grove Cheese Company (CGCC) took 

exception to establishing re-pooling 

standards. CGCC was of the opinion that 

previous amendments to the order’s 

pooling provisions in a final partial 

decision (70 FR 58086) would deter the 

practice of de-pooling, making the 

establishment of a re-pooling standard 

unnecessary. CGCC advocated rejecting 

or delaying the implementation of the 

re-pooling standards until Upper 

Midwest market participants are given 

the opportunity to operate under the 

newly amended pooling standards. 

CGCC commented that the re-pooling 

standard would cause producers whose 

milk was de-pooled to be unfairly 

disadvantaged in subsequent months 

when prices are no longer inverted 

because their pooling handlers would be 

unable to pay a competitive price for 

their milk. CGCC also excepted to the 

discretion granted to the Market 

Administrator to determine if a handler 

has purposely misreported milk for the 

purpose of evading the re-pooling 

standard because it does not provide the 

Market Administrator or handlers with 

guidance for making such a finding. 

All Federal milk marketing orders 

require the pooling of milk received at 

pool distributing plants—which is 

predominantly Class I milk—and all 

pooled producers and handlers on an 

order share in the additional revenue 

arising from higher valued Class I sales. 

Manufacturing handlers and 

cooperatives of Class II, III and IV uses 

of milk who meet the pooling and 

performance standards make all of their 

milk receipts eligible to be pooled and 

usually find it advantageous. 

Manufacturing handlers and 

cooperatives who supply a portion of 

their total milk receipts to Class I 

distributing plants receive the difference 

between their use-value of milk and the 

order’s blend price. Federal milk orders, 

including the UMW order, establish 

limits on the volume of milk eligible to 

be pooled that is not for fluid uses 

primarily through diversion limit 

standards. However, manufacturing 

handlers and cooperatives are not 

required, as are Class I handlers, to pool 

all their eligible milk receipts. 

According to the record, 

manufacturing handlers and 

cooperatives have opted to not pool 

their milk receipts when the 

manufacturing class prices of milk are 

higher than the order’s blend price—

commonly referred to as being 

‘‘inverted.’’ During such months, 

manufacturing handlers and 

cooperatives have elected to not pool all 

of their eligible milk receipts because 

doing so would require them to pay into 

the PSF of the order, the mechanism 

through which handler and producer 

prices are equalized. When prices are 

not inverted, handlers would pool all of 

their eligible receipts and receive a 

payment or draw from the PSF. In 

receiving a draw from the PSF, such 


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54144 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

handlers will have sufficient money to 

pay at least the order’s blend price to 

their supplying dairy farmers. 

When manufacturing handlers and 

cooperatives opt to not pool all of their 

eligible milk receipts in a month, they 

are essentially avoiding a payment to 

the PSF. This, in turn, enables them to 

avoid the marketwide sharing of the 

additional value of milk that accrues in 

the higher-valued uses of milk other 

than Class I. When the Class I price 

again becomes the highest valued use of 

milk, or when other class-price 

relationships become favorable, the 

record reveals that these same handlers 

opt to again pool their eligible milk 

receipts and draw money from the PSF. 

It is the ability of manufacturing 

handlers and cooperatives opting to not 

pool milk and thereby avoid the 

marketwide sharing of the revenue 

accruing from non-Class I milk sales 

that is viewed by proponents as giving 

rise to disorderly marketing conditions. 

According to proponents, producers and 

handlers who cannot escape being 

pooled and priced under the order are 

not assured of equitable prices. 

The record reveals that since the 

implementation of Federal milk 

marketing order reform in January 2000, 

and especially in more recent years, 

large and rapid increases in 

manufactured product prices during 

certain months have provided the 

economic incentives for manufacturing 

handlers to opt not to pool eligible milk 

on the UMW order. For example, during 

the three-month period of February to 

April 2004, the Class III price increased 

over 65 percent from $11.89 per cwt to 

$19.66 per cwt. During the same time 

period, total producer milk pooled on 

the UMW order decreased by over 60 

percent from 1.94 billion pounds to 608 

million pounds. When milk volumes of 

this magnitude are not pooled the 

impacts on producer blend prices are 

significant. Producers who incur the 

additional costs of consistently 

servicing the Class I needs of the market 

receive a lower return than would 

otherwise have been received if they did 

not continue to service the Class I 

market. Prices received by dairy farmers 

who supplied the other milk needs of 

the market are not known. However, it 

is reasonable to conclude that prices 

received by dairy farmers were not 

equitable or uniform. 

The record reveals that ‘‘inverted’’

prices of milk are generally the result of 

the timing of Class price 

announcements. Despite changes made 

as part of Federal milk order reform to 

shorten the time period of setting and 

announcing Class I milk prices and 

basing the Class I price on the higher of 

the Class III or Class IV price to avoid 

price inversions, large month-to-month 

price increases in Class III and Class IV 

product prices sometimes trumped the 

intent of better assuring that the Class I 

price for the month would be the 

highest-valued use of milk. In all orders, 

the Class I price (and the Class II skim 

price) is announced prior to or in 

advance of the month for which it will 

apply. The Class I price is calculated by 

using the National Agricultural 

Statistics Service (NASS) surveyed 

cheese, butter, nonfat dry milk and dry 

whey prices for the two most current 

weeks prior to the 24th day of the 

preceding month and then adding a 

differential value to the higher of either 

the advanced Class III or Class IV price. 

Historically, the advance pricing of 

Class I milk has been used in all Federal 

orders because Class I handlers cannot 

avoid regulation and are required to 

pool all of their Class I milk receipts, 

they should know their product costs in 

advance of notifying their customers of 

price changes. However, milk receipts 

for Class III and IV uses are not required 

to be pooled thus, Class III and IV 

product prices (and the Class II butterfat 

value) are not announced in advance. 

These prices are announced on or before 

the 5th of the following month. Of 

importance here is that manufacturing 

plant operators and cooperatives have 

the benefit of knowing all the classified 

prices of milk before making a decision 

to pool or not pool eligible receipts. 

The record reveals that the decision of 

manufacturing handlers or cooperatives 

to pool or not pool milk is made on a 

month-to-month basis and is generally 

independent of past pooling decisions. 

Manufacturing handlers and 

cooperatives that elected to not pool 

their milk receipts did so to avoid 

making payments to the PSF and they 

anticipated that all other manufacturing 

handlers and cooperatives would do the 

same. However, the record indicates 

that normally pooled manufacturing 

handlers and cooperatives met the 

pooling standards of the order to ensure 

that the Class I market was adequately 

supplied and that they established 

eligibility to pool their physical 

receipts, including diversions to 

nonpool plants. Opponents to proposals 

to deter de-pooling are of the view that 

meeting the pooling standards of the 

order and deciding how much milk to 

pool are unrelated events. Proponents 

took the view that participation in the 

marketwide pool should be based on a 

long-term commitment to supply the 

market because in the long-term it is the 

sales of higher priced Class I milk that 

adds additional revenue to the pool. 

The producer price differential, or 

PPD, is the difference between the Class 

III price and the weighted average value 

of all Class I, II and IV milk pooled. In 

essence, the PPD is the residual revenue 

remaining after all butterfat, protein and 

other solids values are paid to 

producers. If the pooled value of Class 

I, II and IV milk is greater than the Class 

III value, dairy farmers receive a 

positive PPD. While the PPD is usually 

positive, a negative PPD can occur when 

class prices rise rapidly during the 6- 

week period between the time the Class 

I price is announced and the time the 

Class II butterfat and III and IV milk 

prices are announced. When 

manufacturing prices fall, this same lag 

in the announcement of class prices 

yields a positive PPD. 

As revealed by the record, when 

manufacturing plants and cooperatives 

opted to not pool milk because of 

inverted price relationships, PPD’s were 

much more negative. When this milk is 

not pooled, a larger percentage of the 

milk remaining pooled will be ‘‘lower’’

priced Class I milk. When 

manufacturing milk is not pooled the 

weighted average value of milk 

decreases relative to the Class II, III or 

IV value making the PPD more negative. 

For example, record evidence 

demonstrated that in April 2004, a 

month when a sizeable volume of milk 

was not pooled, the PPD was a negative 

$4.11 per cwt. If all eligible milk had 

been pooled, the PPD would have been 

$2.97 per cwt higher or a negative $1.14 

per cwt. This $2.97 per cwt represents 

the additional burden borne by those 

producers who remained pooled. 

The record reveals that when 

manufacturing handlers and 

cooperatives opt to not pool milk, 

unequal pay prices may result to 

similarly located dairy farmers. For 

example, Dean noted that when a 

cooperative delivers a high percentage 

of their milk receipts to a distributing 

plant, it lessens their ability to not pool 

milk, making them less competitive in 

a marketplace relative to other 

producers and handlers. Other evidence 

in the record supports conclusions 

identical to Dean that when a dairy 

farmer or cooperative is able to receive 

increased returns from shipping milk to 

a manufacturing handler during times of 

price inversions, other dairy farmers or 

cooperatives who may have shipped 

more milk to a pool distributing plant 

are competitively disadvantaged. 

The record of this proceeding reveals 

that the ability of manufacturing 

handlers and cooperatives to not pool 

all of their eligible milk receipts gives 

rise to disorderly marketing conditions 

and warrants the establishment of 


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Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54145 

1Official notice is taken of data and information 

published in Market Administrator Bulletins as 

posted on individual Market Administrator Web 

sites. 

additional pooling standards to 

safeguard marketwide pooling. Current 

pooling provisions do not require or 

prohibit handlers and cooperatives from 

pooling all eligible milk receipts. 

However, the record reveals that when 

handlers and cooperatives opt to not 

pool milk inequities arise among 

producers and handlers that are 

contrary to the intent of the Federal 

milk marketing order program—

maintaining orderly marketing 

conditions. 

The record contains extensive 

testimony regarding the effects on the 

milk order program resulting from 

advance pricing and the priority the 

milk order program has placed on the 

Class I price being the highest valued 

use of milk. It remains true that the 

Class I use of milk is still the highest 

valued use of milk notwithstanding 

those occasional months when milk 

used in usually lower-valued classes 

may be higher. This has been 

demonstrated by an analysis of the 

effective Class I differential values—the 

difference in the Class I price at the base 

zone of Cook County, Illinois, and the 

higher of the Class III or Class IV price—

for the 65 month period of January 2000 

through May 2005 performed by 

USDA.1 These computations reveal that 

the effective monthly Class I differential 

averaged $1.76 per cwt. Accordingly, it 

can only be concluded that in the 

longer-term Class I sales continue to be 

the source of additional revenue 

accruing to the pool even when, in some 

months, the effective differential is 

negative. 

Price inversions occur when the 

wholesale price for manufactured 

products rises rapidly indicating a 

tightening of milk supplies to produce 

those products. It is for this reason that 

the Department chose the higher of the 

Class III or Class IV prices as the mover 

of the Class I price. Distributing plants 

must have a price high enough to attract 

milk away from manufacturing uses to 

meet Class I demands. As revealed by 

the record, this method has not been 

sufficient to provide the appropriate 

price signals to assure an adequate 

supply of milk for the Class I market. 

Accordingly, additional measures are 

needed as a means of assuring that milk 

remains pooled and thus available to the 

Class I market. Adoption of Proposal 2 

is a reasonable measure to meet the 

objectives of orderly marketing. 

This final decision does find that 

disorderly marketing conditions are 

present when producers do not receive 

uniform prices. Handlers and 

cooperatives opting to not pool milk do 

not account to the pool at the classified 

use-value of those milk receipts. They 

do not share in all the additional costs 

and burdens with those producers who 

are pooled and are incurring the costs of 

servicing the Class I needs of the 

market. This is not a desired or 

reasonable outcome especially when the 

same handlers and cooperatives will 

again pool all of their eligible receipts 

when class-price relationships change 

in a subsequent month. These inequities 

borne by the market’s producers are 

contrary to the intent of the Federal 

order program’s reliance on marketwide 

pooling—ensuring that all producers 

supplying the market are paid uniform 

prices for their milk regardless of how 

the milk of any single producer is used. 

Exceptions filed by the AMPI Group, 

Eau Galle Cheese, WCMA, Family 

Dairies and Grande Cheese asserting 

that the re-pooling standards do not 

address the cause of de-pooling—price 

inversions—are unpersuasive. It is 

reasonable that the order contain 

pooling provisions intended to deter the 

disorderly conditions that arise when 

de-pooling occurs. Such provisions 

maintain and enhance orderly 

marketing. Accordingly, this final 

decision finds it reasonable to adopt 

provisions that limit the volume of milk 

a handler or cooperative may pool 

during the months of April through 

February to 125 percent of the total 

volume pooled by the handler or 

cooperative in the prior month and to 

135 percent of the prior month’s pooled 

volume during the month of March. 

Adoption of this standard will not 

prevent manufacturing handlers or 

cooperatives from electing to not pool 

milk. However, it should serve to 

maintain and enhance orderly 

marketing by encouraging participation 

in the marketwide pooling of all 

classified uses of milk. 

A modification proposed by Dean in 

their exceptions to the Recommended 

Decision to lower the re-pooling 

standard in February to 115 percent is 

denied. This modification was not 

discussed at the hearing. The 125 

percent re-pooling standard should 

adequately deter excessive de-pooling. 

Exceptions filed by the AMPI Group 

and CGCC to more specifically define 

‘‘unusual circumstances’’ are denied. 

This decision continues to adopt 

provisions that grant authority to the 

Market Administrator to waive the repooling standard for a bloc of milk due 

to unusual circumstances. This 

discretion has been previously granted 

to the Market Administrator to amend or 

waive other pooling standards and it is 

reasonable to make a similar 

accommodation here. 

Consideration was given on whether 

de-pooling should be considered at a 

national hearing with other, broader 

national issues of milk marketing. 

However, each marketing area has 

unique marketing conditions and 

characteristics that have area-specific 

pooling provisions to address those 

specific conditions. Because of this, 

pooling issues are considered unique to 

each order. Historically, pooling issues 

have been addressed on an order by 

order basis and despite exceptions filed 

by the AMPI Group this final decision 

continues to find that it would be 

unreasonable to address pooling issues, 

including de-pooling, on a national 

basis. Other objections by the AMPI 

Group that the Department should take 

into account a manufacturer’s cost of 

production are irrelevant in regards to 

the pooling standards of the order. The 

record does not support finding that 

manufacturers de-pool milk to recoup 

manufacturing costs that they otherwise 

cannot. The record clearly establishes 

that manufacturers de-pool their milk 

supply to avoid making a payment into 

the order’s PSF. Nevertheless, 

manufacturing allowances, which are 

uniform in all Federal orders, are 

currently being addressed by the 

Department on a national basis (71 FR 

545). 

Some manufacturing handlers and 

cooperatives argued at the hearing and 

noted in exceptions to the 

Recommended Decision that their milk 

did perform in meeting the Class I needs 

during the month and this occurred 

before making their pooling decisions. 

They argue that the Class I market is 

therefore not harmed and that the 

intents and goals of the order program 

are satisfied. With respect to this 

proceeding and in response to these 

arguments, this decision finds that the 

practice of de-pooling undermines the 

intent of the Federal order program to 

assure producers uniform prices across 

all uses of milk normally associated 

with the market as a critical indicator of 

orderly marketing conditions. 

Exceptions filed by Foremost, et al., 

regarding the interpretation of 

‘‘continuously pooled’’ and arguing that 

a producer should be allowed to de-pool 

some milk in each month without 

penalty is contrary to the goal of the 

Federal order program and would 

undermine the intent of the re-pooling 

standard. Handlers and cooperatives 

that de-pool purposefully do so to gain 

a momentary financial benefit (by 

avoiding making payments to the PSF) 

which would otherwise be equitably 


jlentini on PROD1PC65 with PROPOSALS3
54146 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

shared among all market participants. 

While the order’s performance 

standards tend to assure that 

distributing plants are adequately 

supplied with fresh, fluid milk, the 

goals of marketwide pooling are 

undermined by the practice of depooling. Producers and handlers who 

regularly and consistently bear the costs 

of serving the Class I needs of the 

market will not equitably share in the 

additional value arising momentarily 

from non-fluid uses of milk. These same 

producers and handlers will, in turn, be 

required to share the additional revenue 

arising from higher-valued Class I sales 

in a subsequent month when class price 

relationships change. In regards to the 

re-pooling standard, ‘‘continuously 

pooled’’ will be interpreted to mean that 

a producer’s milk is pooled every day 

on a Federal order. 

The four proposals considered in this 

proceeding to deter the practice of depooling in the UMW order have 

differences. They all seek to address the 

market disorder arising from the 

practice of de-pooling. However, this 

decision does not find adoption of the 

two ‘‘dairy farmer for other market’’

proposals—Proposals 3 and 4—

reasonable because they would make it 

needlessly difficult for milk to be repooled and because their adoption may 

disrupt prevailing marketing channels 

or cause the inefficient movement of 

milk. Likewise, Proposal 5, to restrict 

pooling in a month to 115 percent of the 

rior month’s volume pooled by the 

handler, is not adopted. Adoption of 

this proposal would disrupt current 

marketing conditions beyond what the 

record justifies. 

Therefore, this decision adopts 

Proposal 2 to limit the pooling of milk 

by a handler during the months of April 

through February to 125 percent of the 

total milk receipts the handler pooled in 

the prior month and to 135 percent of 

the prior month’s pooled volume during 

the month of March because it provides 

the most reasonable measure to deter 

the practice of de-pooling. 

A modification made by Midwest, et 

al., in their exceptions to the 

Recommended Decision to exempt all 

milk delivered to distributing plants in 

excess of the previous month’s pooled 

volume is adopted. It is clear from the 

record that the intent of re-pooling 

standards is to deter the practice of depooling while continuing to encourage 

shipments for Class I use. The 

Recommended Decision proposed that 

all distributing plants deliveries be 

exempt from the re-pooling standard. 

However, such a large exemption would 

continue to give rise to disorderly 

marketing conditions and could result 

in uneconomical movements of milk to 

distributing plants solely to circumvent 

the re-pooling standard. Exempting only 

distributing plant deliveries in excess of 

the previous month’s pooled volume 

will still encourage service to the Class 

I market while maintaining order in the 

marketplace. 

A request by CGCC in their exceptions 

to delay the implementation of the repooling standard until other new 

pooling standards are given the 

opportunity to operate is denied. The 

record clearly establishes that the 

practice of depooling gives rise to 

disorderly marketing conditions. The 

‘‘other’’ new pooling standards that 

were considered at the hearing were 

adopted on an interim basis on July 1, 

2005, and on a final basis on February 

1, 2006. Additionally, further delay of 

adopting the re-pooling standards will 

result in disorderly conditions as 

already described in this decision when 

pricing conditions again offer incentives 

to de-pool milk. 

B. Producer Definition 

A proposal published in the hearing 

notice as Proposal 6, seeking to specify 

the length of time a dairy farmer may 

lose Grade A status before losing 

producer status on the order, is not 

adopted. Proposal 6, offered by Dean, 

would amend the Producer definition 

by explicitly stating that a dairy farmer 

may lose Grade A status for up to 21 

calendar days per year before needing to 

requalify as a producer on the order. 

The UMW order currently does not 

specify the specific length of time a 

dairy farmer may lose Grade A status 

before needing to requalify as a 

producer on the order. Currently, a 

dairy farmer must deliver one day’s 

milk production to a pool plant during 

the first month a producer is to be 

pooled in order to have their milk 

pooled and priced under the terms of 

the order. 

A witness appearing on behalf of 

Dean testified in support of Proposal 6. 

The witness said the UMW order 

currently does not specify how long a 

dairy farmer who temporarily loses their 

Grade A status can retain producer 

status before they must requalify as a 

producer on the order. Proposal 6, the 

witness stated, sets a reasonable limit to 

the number of days a producer can lose 

Grade A status within a calendar year. 

Comments filed on behalf of Dean in 

response to the Recommended Decision 

took exception to the Department’s 

denial of Proposal 6 to define the term 

‘‘temporary’’ in the producer milk 

definition. Dean maintained that a 

producer should bear the burden of 

establishing that their temporary loss of 

Grade A approval was not a maneuver 

designed to avoid the new re-pooling 

standards. 

A witness appearing on behalf of MidWest, et al., testified in opposition to 

Proposal 6. The witness said that many 

situations could arise where a producer 

is unable to regain Grade A status in less 

than 21 days due to damages resulting 

from situations beyond their control. 

The current order language provides for 

waivers in pooling standards for pool 

plants due to such ‘‘acts of God’’ and, 

in the witness’’ opinion, is adequately 

provided for in the Producer definition 

of the current order language. 

The Producer definition of the UMW 

order does not define the length of time 

a producer may lose Grade A status 

before needing to requalify for producer 

status on the order. The issue of 

qualifying for producer status is 

important since it determines which 

producers and which producer milk is 

entitled to share in the revenues arising 

from the marketwide pooling of milk on 

the UMW order. 

The definition of ‘‘temporary’’ used 

by the Market Administrator has 

accommodated the Upper Midwest 

market by giving producers a reasonable 

amount of time to regain Grade A status 

without burdening the market with 

excessive touch-base shipments or 

recordkeeping requirements. Limiting 

the time period a producer can lose 

Grade A status would require handlers 

and the Market Administrator to track 

the producer’s loss of Grade A status 

throughout the year to determine when 

the 21 day limit is reached. 

Despite exceptions filed by Dean 

requesting an exact definition of 

‘‘temporary’’, this decision continues to 

find that the additional touch-base 

shipments that would be required for a 

dairy farmer to requalify for producer 

status on the order would cause 

uneconomic shipments of milk. 

Additionally, the increased 

recordkeeping requirements would 

burden handlers without contributing to 

the goals and application of the 

proposed amendments to the pooling 

standards contained in this decision. 

Other amendments adopted in this 

decision that grant the Market 

Administrator authority to disqualify 

milk for pooling if it is found that the 

handler attempted to circumvent the repooling standards provide an adequate 

safeguard against pooling abuses. 

Accordingly, Proposal 6 is not adopted. 

2. Administrative Assessment Rate 

A proposal, published in the hearing 

notice as Proposal 7, seeking to increase 

the maximum assessment rate of the 

UMW order, is adopted. Specifically, 


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Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54147 

2Official notice is taken of a letter from the UMW 

Market Administrator to UMW handlers, 

cooperatives and interested persons, dated 

September 28, 2005, that decreases the 

administrative assessment from 5 cents to 4 cents 

per cwt, effective with milk produced on or after 

September 1, 2005. 

the maximum administrative 

assessment rate is increased from the 

current rate of 5 cents per cwt to 8 cents 

per cwt. At the time of the hearing, the 

administrative assessment rate of 5 

cents per cwt applied to all milk pooled 

on the order and was the maximum 

assessment rate that could be charged. 

Adoption of this proposal will not 

increase the administrative assessment 

above the current rate but it will give 

the market administrator the ability to 

increase the assessment up to a 

maximum 8 cents per cwt, if necessary.2

According to the Market 

Administrator, Proposal 7 was offered 

because there is not sufficient milk 

volume being consistently pooled on the 

UMW order to generate adequate 

funding for the proper administration of 

the order. Administration of the UMW 

order generates substantial costs for the 

many services provided to UMW 

marketing area participants including 

pooling, auditing, gathering market 

information, and providing market 

services such as laboratory testing, 

explained the witness. The Market 

Administrator noted that there are also 

fixed expenses such as salaries and 

office leases and that the order must 

maintain a specified minimum level of 

operating reserves. 

The Market Administrator stated that 

from 2000 to 2002, the amount of 

producer milk on the UMW order 

ranged from 1.7 to 1.95 billion pounds 

per month. According to the Market 

Administrator, this volume of pooled 

milk generated sufficient funds for the 

administration of the order for the 4- 

cent per cwt assessment rate being 

assessed on pooled milk during that 

time. However, the Market 

Administrator said, from July through 

November 2003 almost 6.2 billion 

pounds of producer milk was de-pooled 

which resulted in the loss of nearly $2.5 

million in potential revenue for the 

administration of the order. According 

to the Market Administrator, this loss of 

revenue caused the assessment rate to 

be increased from 4 cents to 5 cents per 

cwt. The Market Administrator stressed 

that substantial de-pooling occurred 

again from March through May 2004 

when nearly 4.7 billion pounds of 

producer milk was de-pooled. 

The Market Administrator 

emphasized that the UMW order still 

services the de-pooled milk because 

handlers make decisions to de-pool 

their milk receipts after the end of the 

month after already utilizing many of 

the UMW order services. According to 

the Market Administrator, the UMW 

order must sometimes service an 

approximately 2 billion pound market 

per month while only collecting an 

assessment on 600 to 700 million 

pounds of milk. At the current 

assessment rate of 5 cents per cwt, noted 

the Market Administrator, the order 

needs approximately 1.5 billion pounds 

of pooled producer milk per month to 

operate and provide the services 

expected by market participants. 

The Market Administrator said that 

actions to reduce operating costs have 

taken place but an increase in the 

maximum assessment rate is needed to 

ensure the proper administration of the 

order and to maintain necessary 

operating reserves. The Market 

Administrator explained that increasing 

the maximum administrative 

assessment rate to 8 cents per cwt 

would not necessarily be the actual rate 

that would be charged to pooling 

handlers. The Market Administrator 

stressed that the proposed 8-cent 

assessment rate is a maximum level, and 

the actual assessment rate charged 

would only be as high as needed to 

operate the order. 

The Mid-West, et al., brief expressed 

support of the Proposal 7 but 

emphasized that the assessment rate 

should be viewed as a maximum. The 

brief speculated that if Proposal 2 is 

adopted, the volume of milk pooled 

consistently will stabilize making it 

unnecessary to raise the assessment rate. 

The brief also discussed the option of 

having the assessment rate vary to 

ensure that milk which is consistently 

pooled does not pay for services on milk 

that is de-pooled and does not pay an 

assessment. 

A witness appearing on behalf of 

Dean viewed Proposal 7 as an extra tax 

on those producers who already pay for 

the administration of the order every 

month, unlike those producers whose 

milk is de-pooled. The witness 

contended that if Proposal 3, 4, or 5 

were adopted, the amount of milk being 

de-pooled on the UMW order would 

decrease significantly, thus giving the 

Market Administrator a more consistent 

income stream. However, asserted the 

witness, if the Department decided to 

increase the administrative assessment, 

Dean would encourage an amended 

provision that would charge a higher 

assessment on milk not pooled in the 

previous month. 

Dean’s post-hearing brief reiterated 

support for increasing the maximum 

administrative rate while maintaining 

that adoption of Proposal 3 would 

prevent the need to actually increase the 

administrative assessment rate. The 

brief proposed that if the administrative 

assessment rate is increased, the Market 

Administrator should be granted the 

authority to insulate continuously 

pooled producers from paying the 

increased assessment. 

A witness appearing on behalf of 

WCA testified in opposition to Proposal 

7. The witness asserted that the Market 

Administrator should use other means 

to address what the witness 

characterized as short-term funding 

declines. 

A witness representing Oberweis 

Dairy also opposed adoption of Proposal 

7 because it would increase costs to 

producers. 

The hearing record reveals that 

fluctuations in the volume of milk 

pooled on the UMW order attributed to 

de-pooling can reduce the Market 

Administrator revenues to a level too 

low for proper administration of the 

order. At the current assessment rate of 

5 cents per cwt, 1.5 billion pounds of 

pooled milk is needed to generate 

sufficient funds for the administration 

of the order. However, de-pooling has 

resulted in pooled volumes far below 

that needed to generate an adequate 

revenue stream. 

The adoption of re-pooling standards 

to deter the de-pooling of milk should 

result in a more stable revenue stream 

for the administration of the UMW 

order. Nevertheless, it is reasonable to 

increase the maximum administrative 

assessment rate to ensure that the 

Market Administrator has the proper 

funds to carry out all of the services 

provided by the UMW order. While the 

maximum administrative rate is 

increased to 8 cents per cwt, the actual 

rate charged will only be as high as 

necessary to properly administer the 

order and provide the necessary services 

to market participants. 

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. 


jlentini on PROD1PC65 with PROPOSALS3
54148 Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 

General Findings 

The findings and determinations 

hereinafter set forth supplement those 

that were made when the UMW order 

was first issued and when it was 

amended. The previous findings and 

determinations are hereby ratified and 

confirmed, except where they may 

conflict with those set forth herein. 

(a) The tentative marketing agreement 

and the order, 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 marketing area, and the 

minimum prices specified in the 

tentative marketing agreement and the 

order, 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 tentative marketing agreement 

and the order, 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, the 

marketing agreement upon which a 

hearing has been held. 

Rulings on Exceptions 

In arriving at the findings and 

conclusions, and the regulatory 

provisions of this decision, each of the 

exceptions received was carefully and 

fully considered in conjunction with the 

record evidence. To the extent that the 

findings and conclusions and the 

regulatory provisions of this decision 

are at variance with any of the 

exceptions, such exceptions are hereby 

overruled for the reasons previously 

stated in this decision. 

Marketing Agreement and Order 

Annexed hereto and made a part 

hereof are two documents, a Marketing 

Agreement regulating the handling of 

milk, and an Order amending the order 

regulating the handling of milk in the 

Upper Midwest marketing area, which 

has been decided upon as the detailed 

and appropriate means of effectuating 

the foregoing conclusions. 

It is hereby ordered that this entire 

decision and the two documents 

annexed hereto be published in the 

Federal Register. 

Referendum Order To Determine 

Producer Approval; Determination of 

Representative Period; and Designation 

of Referendum Agent 

It is hereby directed that a referendum 

be conducted and completed on or 

before the 30th day from the date this 

decision is published in the Federal 

Register, in accordance with the 

procedures for the conduct of referenda 

[7 CFR 900.300–311], to determine 

whether the issuance of the order as 

amended and hereby proposed to be 

amended, regulating the handling of 

milk in the Upper Midwest marketing 

area is approved or favored by 

producers, as defined under the terms of 

the order, 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 area. 

The representative period for the 

conduct of such referendum is hereby 

determined to be March 2006. 

The agent of the Secretary to conduct 

such referendum is hereby designated to 

be H. Paul Kyburz, Upper Midwest 

Market Administrator. 

List of Subjects in 7 CFR Part 1030 

Milk marketing orders. 

Dated: September 1, 2006. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

Order Amending the Order Regulating 

the Handling of Milk in the Upper 

Midwest Marketing Area 

This order shall not become effective 

unless and until the requirements of 

§ 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 order was first 

issued and when it was 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 

agreement and to the order regulating 

the handling of milk in the Upper 

Midwest marketing area. 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 order 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 area. 

The minimum prices specified in the 

order 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 order as hereby amended 

regulates the handling of milk in the 

same manner as, and is applicable only 

to persons in the respective classes of 

industrial or commercial activity 

specified in, a marketing agreement 

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 Upper Midwest 

marketing area shall be in conformity to 

and in compliance with the terms and 

conditions of the order, as amended, 

and as hereby amended, as follows: 

The provisions of the order amending 

the order contained in the 

Recommended Decision issued by the 

Administrator, Agricultural Marketing 

Service, on February 15, 2006, and 

published in the Federal Register on 

February 22, 2006 (71 FR 9004), are 

adopted with one minor modification 

and shall be the terms and provisions of 

this order. The revised order follows. 

PART 1030—MILK IN THE UPPER 

MIDWEST MARKETING AREA 

1. The authority citation for 7 CFR 

part 1030 is amended to read as follows: 

Authority: 7 U.S.C. 601–674, and 7253. 

2. Section 1030.13 is amended by 

adding a new paragraph (f), to read as 

follows: 

§ 1030.13 Producer milk. 

* * * * * 

(f) The quantity of milk reported by a 

handler pursuant to either 

§ 1030.30(a)(1) or § 1030.30(c)(1) for 

April through February may not exceed 

125 percent, and March may not exceed 

135 percent of the producer milk 

receipts pooled by the handler during 

the prior month. Milk diverted to 

nonpool plants reported in excess of 

this limit shall be removed from the 


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Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / Proposed Rules 54149 

pool. Milk in excess of this limit 

received at pool plants, other than pool 

distributing plants, shall be classified 

pursuant to § 1000.44(a)(3)(v) and 

§ 1000.44(b). The handler must 

designate, by producer pick-up, which 

milk is to be removed from the pool. If 

the handler fails to provide this 

information, the market administrator 

will make the determination. The 

following provisions apply: 

(1) Milk shipped to and physically 

received at pool distributing plants in 

excess of the previous month’s pooled 

volume shall not be subject to the 125 

or 135 percent limitation; 

(2) Producer milk qualified pursuant 

to §l13 of any other Federal Order and 

continuously pooled in any Federal 

Order for the previous six months shall 

not be included in the computation of 

the 125 or 135 percent limitation; 

(3) The market administrator may 

waive the 125 or 135 percent limitation: 

(i) For a new handler on the order, 

subject to the provisions of 

§ 1030.13(f)(4), or 

(ii) For an existing handler with 

significantly changed milk supply 

conditions due to unusual 

circumstances; 

(4) A bloc of milk may be considered 

ineligible for pooling if the market 

administrator determines that handlers 

altered the reporting of such milk for the 

purpose of evading the provisions of 

this paragraph. 

3. Section 1030.85 is revised to read 

as follows: 

§ 1030.85 Assessment for order 

administration. 

On or before the payment receipt date 

specified under § 1030.71, each handler 

shall pay to the market administrator its 

pro rata share of the expense of 

administration of the order at a rate 

specified by the market administrator 

that is no more than 8 cents per 

hundredweight with respect to: 

(a) Receipts of producer milk 

(including the handler’s own 

production) other than such receipts by 

a handler described in § 1000.9(c) that 

were delivered to pool plants of other 

handlers; 

(b) Receipts from a handler described 

in § 1000.9(c); 

(c) Receipts of concentrated fluid milk 

products from unregulated supply 

plants and receipts of nonfluid milk 

products assigned to Class I use 

pursuant to § 1000.43(d) and other 

source milk allocated to Class I pursuant 

to § 1000.44(a)(3) and (8) and the 

corresponding steps of § 1000.44(b), 

except other source milk that is 

excluded from the computations 

pursuant to § 1030.60(h) and (i); and 

(d) Route disposition in the marketing 

area from a partially regulated 

distributing plant that exceeds the skim 

milk and butterfat subtracted pursuant 

to § 1000.76(a)(1)(i) and (ii) of this title. 

Marketing Agreement Regulating the 

Handling of Milk in the Upper Midwest 

Marketing Area 

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 

§§ 1030.1 to 1030.86 all inclusive, of the 

order regulating the handling of milk in the 

Upper Midwest marketing area (7 CFR Part 

1030 which is annexed hereto); and 

II. The following provisions: Record of 

milk handled and authorization to correct 

typographical errors. 

(a) Record of milk handled. The 

undersigned certifies that he/she handled 

during the month of March 2006, 

llllll hundredweight of milk covered 

by this marketing agreement. 

(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. 

Effective date. This marketing agreement 

shall become effective upon the execution of 

a counterpart hereof by the Department 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) lllllllllllllll

(Title) lllllllllllllllll

(Address) llllllllllllllll

(Seal) 

Attest 

[FR Doc. 06–7496 Filed 9–6–06; 8:45 am] 

BILLING CODE 3410–02–P 


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