[Federal Register Volume 71, Number 225 (Wednesday, November 22, 2006)]
[Proposed Rules]
[Pages 67489-67495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9341]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1124, 
1126, and 1131

[Docket No. AO-14-A76, et al.; DA-07-01]


Milk in the Northeast and Other Marketing Areas; Notice of 
Hearing on Proposed Amendments to Tentative Marketing Agreements and 
Orders

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  7 CFR part             Marketing area                   AO Nos.
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1001.........  Northeast........................  AO-14-A76
1005.........  Appalachian......................  AO-388-A20
1006.........  Florida..........................  AO-356-A41
1007.........  Southeast........................  AO-366-A49
1030.........  Upper Midwest....................  AO-361-A42
1032.........  Central..........................  AO-313-A51
1033.........  Mideast..........................  AO-166-A75
1124.........  Pacific Northwest................  AO-368-A37
1126.........  Southwest........................  AO-231-A70
1131.........  Arizona..........................  AO-271-A42
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AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; Notice of public hearing on proposed rulemaking.

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SUMMARY: A national public hearing is being held to consider and take 
evidence on a proposal seeking to amend the Class I and Class II milk 
price formulas applicable to all Federal milk marketing orders. 
Evidence also will be taken at the hearing to determine whether 
emergency marketing conditions exist that would warrant omission of a 
recommended decision under the rules of practice and procedure (7 CFR 
900.12(d)).

DATES: The hearing will convene at 1 p.m., Monday, December 11, 2006.

ADDRESSES: The hearing will be held at the Sheraton Station Square 
Hotel, 300 West Station Square Drive, Pittsburgh, Pa. 15219. Telephone 
number: (412) 261-2000.

FOR FURTHER INFORMATION CONTACT: Gino Tosi, Associate Deputy 
Administrator for Order Formulation and Enforcement, USDA/AMS/Dairy 
Programs, Stop 0231-Room 2971, 1400 Independence Avenue, SW., 
Washington, DC 20250-0231, (202) 720-2357, e-mail address: 
<a href="/cdn-cgi/l/email-protection#f7909e9998d98398849eb782849396d9909881"><span class="__cf_email__" data-cfemail="5e39373031702a312d371e2b2d3a3f70393128">[email protected]</span></a>.
    Persons requiring a sign language interpreter or other special 
accommodations should contact David Walker, Market Administrator, at 
(330) 225-4758; e-mail: <a href="/cdn-cgi/l/email-protection#b1d5c6d0dddad4c3f1d7dcdcd0d2ddd4c79fd2dedc"><span class="__cf_email__" data-cfemail="096d7e6865626c7b496f6464686a656c7f276a6664">[email protected]</span></a> before the hearing begins.

[[Page 67490]]


SUPPLEMENTARY INFORMATION: This administrative action is governed by 
the provisions of Sections 556 and 557 of Title 5 of the United States 
Code and, therefore, is excluded from the requirements of Executive 
Order 12866.
    Notice is hereby given of a public hearing to be held at the 
Sheraton Station Square Hotel, Pittsburgh, PA, beginning at 1 p.m. on 
Monday, December 11, 2006, with respect to proposed amendments to the 
tentative marketing agreements and to the orders regulating the 
handling of milk in the Northeast and other marketing areas.
    The hearing is called 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 governing the 
formulation of marketing agreements and marketing orders (7 CFR Part 
900).
    The purpose of the hearing is to receive evidence with respect to 
the economic and marketing conditions which relate to the proposed 
amendments, hereinafter set forth, and any appropriate modifications 
thereof, to the tentative marketing agreements and to the orders.
    Evidence will be taken at the hearing to determine whether 
emergency marketing conditions exist that would warrant omission of a 
recommended decision under the rules of practice and procedure (7 CFR 
900.12(d)) with respect to any proposed amendments.
    Also, since the proponent of the proposed amendment has requested 
that the hearing be held on an expedited basis, under the rules of 
practice and procedure (7 CFR 900.4(a)), it is determined that less 
than 15 days notice is reasonable under the circumstances.

Initial Regulatory Flexibility Analysis

    Actions under the Federal milk order program are subject to the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This Act seeks to 
ensure that, within the statutory authority of a program, the 
regulatory and information collection requirements are tailored to the 
size and nature of small businesses. For the purpose of the Act, a 
dairy farm is 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 (13 CFR 121.201). Most 
parties subject to a milk order are considered as a small business.
    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.
    USDA has identified that during 2005 approximately 51,060 of the 
54,652 dairy producers whose milk is pooled on Federal orders are small 
businesses. Small businesses represent about 93 percent of the dairy 
farmers who participate in the Federal milk order program.
    On the processing side, during June 2005 there were approximately 
350 fully regulated plants (of which 149 or 43 percent were small 
businesses) and 110 partially regulated plants (of which 50 or 45 
percent were small businesses). In addition, there were 48 producer-
handlers, of which 29 were considered small businesses for the purposes 
of this initial regulatory flexibility analysis, who submitted reports 
under the Federal milk order program during this period.
    The fluid use of milk represented more than 45.0 percent of total 
Federal milk marketing order producer deliveries during January 2006. 
Almost 237 million Americans, approximately 80 percent of the total 
U.S. population reside within the geographical boundaries of the 10 
Federal milk marketing areas.
    In order to accomplish the goal of imposing no additional 
regulatory burdens on the industry, a review of the current reporting 
requirements was completed pursuant to the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501 et seq.) In light of that review, it was 
determined that these proposed amendments would have little or no 
impact on reporting, record keeping, or other compliance requirements 
because these requirements would remain identical to those currently in 
effect under the Federal order program. No new or additional reporting 
would be necessary.
    This notice does not require additional information collection that 
requires clearance by the OMB beyond the currently approved information 
collection. Information currently collected through the use of OMB-
approved forms and the primary sources of data used to complete the 
forms are routinely used in business transactions. The forms require 
only a minimal amount of information that can be provided without data 
processing equipment or trained statistical staff. Thus, the 
information collection burden is relatively small. Requiring the same 
reports from all handlers does not disadvantage any handler that is 
smaller than the industry average.
    No other burdens are expected to fall upon the dairy industry as a 
result of overlapping Federal rules. This proposed rulemaking does not 
duplicate, overlap, or conflict with any existing Federal rules.
    To ensure that small businesses are not unduly or 
disproportionately burdened based on these proposed amendments, 
consideration was given to mitigating any negative impacts. Minimum 
pricing should not raise barriers regarding the ability of small 
handlers, including milk manufacturers and processors, to compete in 
the marketplace. It is similarly expected that small producers would 
not experience any particular disadvantage compared to larger producers 
as a result of the proposed amendments.
    The following economic analysis discusses impacts of the proposed 
amendments on market participants, including producers and milk 
manufacturers and processors. Interested parties are invited to present 
evidence on the probable regulatory and information collection impact 
of the hearing proposals on small businesses. Also, such parties may 
suggest modifications of the proposal for tailoring its applicability 
to small businesses.

Preliminary Economic Analysis

    In order to assess the impact of National Milk Producers Federation 
(NMPF) proposed changes to Federal order Class I and II pricing 
formulas, the Department has conducted an economic analysis. While the 
proposed changes have effects on Class I and II prices, they also have 
effects on the milk supply, product demand, and milk allocation. These 
dynamic effects impact all Federal order class prices.

Scope of Analysis

    Impacts of increasing Class I and II price movers were measured as 
changes from the USDA Agricultural Baseline Projections to 2015 (OCE-
2006-1, http://www.usda.gov/oce/commodity/ag_baseline.htm). The 
baseline projections are ``a Departmental consensus on a long-run 
scenario for the agricultural sector.'' Included is a national, annual 
projection of the supply-demand-price situation for milk. The USDA 
baseline and the model baseline assume: (1) The Milk Price Support 
Program (MPSP) will continue unchanged; (2) The Dairy Export

[[Page 67491]]

Incentive Program will be utilized to the maximum extent allowed 
beginning in the 2006/07 fiscal year; (3) The Milk Income Loss Contract 
(MILC) program will continue through September 2007; \1\ and (4) The 
Federal Milk Marketing Order Program will continue unchanged. This 
analysis maintains the first three assumptions as unchanged. The only 
changes to the Federal Milk Marketing Order Program are those that are 
proposed by NMPF. Since the model is an annual model, a simplifying 
assumption is made that the proposed changes become effective January 
1, 2007.
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    \1\ Dairy producers are not eligible to choose September 2007 as 
a month for which MILC payments are to be applied. This provision 
was included so that it would not be necessary to include MILC 
payments in the Federal budget for fiscal year 2007-08.
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    Demands for fluid milk and manufactured dairy products are 
functions of per capita consumption and population. Per capita 
consumption for the major milk and dairy products are estimated as 
functions of own prices, substitute prices, and income. Retail margins 
are assumed unchanged from the baseline. The demands for fluid milk and 
soft manufactured products are satisfied first by the eligible supply 
of milk. The milk supply for manufactured hard products is the volume 
of milk marketings remaining after satisfying the volumes demanded for 
fluid and soft manufactured products. Milk is manufactured into cheese, 
butter or nonfat dry milk (NFDM) according to returns to manufacturing 
in each class. Wholesale prices for cheese, butter, NFDM and dry whey 
reflect supply and demand for these products. These manufactured dairy 
product prices underlie the Federal order pricing system.

Discussion of Effects of NMPF Proposal on Federal Order Formulas

    The NMPF proposal effectively would increase current Class I and II 
price movers by constant amounts in Federal order formulas. The Class I 
skim milk pricing factor would increase by $0.73 per hundredweight 
(cwt.). The Class I butterfat pricing factor would increase by an 
equivalent $0.0073 per pound. While the Class I skim milk and butterfat 
pricing factors would be increased by the same amount, the Class II 
skim milk and butterfat pricing factors would increase by different 
amounts. The Class II skim pricing factor would increase by $0.0074 per 
cwt., much smaller than the proposed Class I skim milk pricing factor. 
The Class II butterfat pricing factor would increase by $0.0163 per 
pound, an amount larger than the proposed Class I butterfat pricing 
factor increase.
    The proposed increases to Class I and II movers have the same 
effect as increasing Class I and II differentials at all locations by 
the effective proposed changes. Although NMPF proposes butterfat and 
skim milk prices for Class I and II that differ from Class III and IV, 
the differences are by constant amounts. Class II prices at 3.5 percent 
butterfat would still change over time in lock step with Class IV 
advanced pricing factors as currently used in Federal order formulas. 
Class I prices at 3.5 percent butterfat would still change over time in 
lock step with the higher of Class III or IV advanced pricing factors 
as currently used in Federal order formulas.

Summary of Results for Proposed Changes to Class I and II Movers 
Combined

    The impacts of the changes to the Class I and Class II formulas 
that are set forth in NMPF's proposal are summarized using annual and 
nine-year, 2007-2015, average changes from the model baseline (Table 
1). This section discusses the model results of increasing both the 
Class I and Class II price movers together. The following section 
discusses the model results of proposed changes to Class I and II 
movers analyzed separately. The results presented for the Federal order 
system are in the context of the larger U.S. market. In particular, the 
Federal order price formulas use national manufactured dairy product 
prices.
    Producers. Over the nine-year period, the average Federal order 
minimum blend price for milk at test increases $0.11 from a baseline 
level of $14.71 per cwt. The average U.S. all-milk price increases by 
about $0.06 from a baseline level of $14.79 per cwt. Federal order 
marketings increase by an average 144 million pounds annually due to 
the production increase in response to higher producer milk prices. 
Federal order milk cash receipts increase by an average $167 million 
annually from baseline receipts of $19,165 million. U.S. milk 
marketings increase by an average of 227 million pounds annually, 
yielding an average annual producer revenue increase of $146 million 
from an average baseline value of $28,396 million.

      Table 1.--Model Results for National Milk Producers Federation Proposed Class I and Class II Changes
                                     [Nine-year averages, 2007 through 2015]
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                                                                                                     Class I and
                                                                             Class I      Class II    II movers
                                              Units             Baseline      movers       movers      increase
                                                                             increase     increase       \1\
----------------------------------------------------------------------------------------------------------------
Changes to Pricing Factors:
    Class I skim..................  $/cwt...................  ...........       0.7300           --       0.7300
    Class I skim..................  $/cwt...................  ...........           --       0.0074       0.0074
    Class I butterfat.............  $/pound.................  ...........       0.0073           --       0.0073
    Class II butterfat............  $/pound.................  ...........           --       0.0163       0.0163
F.O. Minimum Prices, 3.5% BF:
    Class I.......................  $/cwt...................        16.46         0.60        -0.02         0.58
    Class II......................  $/cwt...................        12.71        -0.13         0.04        -0.09
    Class III.....................  $/cwt...................        13.75        -0.13        -0.02        -0.15
    Class IV......................  $/cwt...................        12.01        -0.13        -0.02        -0.15
    Blend.........................  $/cwt...................        14.37         0.12         0.00         0.12
Average Class Butterfat Test:
    Class I.......................  % of milk...............         2.04         0.00         0.00         0.00
    Class II......................  % of milk...............         8.16         0.00         0.00         0.00
    Class III.....................  % of milk...............         3.49         0.00         0.00         0.00
    Class IV......................  % of milk...............         4.37        -0.03         0.00        -0.03
F.O. Minimum Prices at Test:
    Class I.......................  $/cwt...................        14.10         0.65        -0.01         0.64
    Class II......................  $/cwt...................        20.34        -0.28         0.09        -0.19

[[Page 67492]]

 
    Class III.....................  $/cwt...................        13.73        -0.13        -0.02        -0.15
    Class IV......................  $/cwt...................        13.42        -0.21        -0.02        -0.23
    Blend.........................  $/cwt...................        14.71         0.12         0.00         0.11
Product Prices:
    Cheddar.......................  $/pound.................       1.4594      -0.0112      -0.0019      -0.0131
    Butter........................  $/pound.................       1.5325      -0.0275      -0.0051      -0.0327
    Nonfat dry milk (NFDM)........  $/pound.................       0.8444      -0.0018       0.0001      -0.0017
    Whey..........................  $/pound.................       0.2750      -0.0015      -0.0002      -0.0017
    Mozzarella....................  $/pound.................       1.7915      -0.0071      -0.0012      -0.0083
    Retail ice cream..............  $/half gal..............       3.8555      -0.0230       0.0075      -0.0156
    CPI, other dairy products.....  index value.............        121.4         -0.5          0.1         -0.3
    Retail fluid milk \2\.........  $/gal...................  ...........       0.0560      -0.0011       0.0549
Federal Order Component Prices:
    Protein.......................  $/pound.................       2.3797      -0.0013       0.0004      -0.0009
    Class III and IV butterfat....  $/pound.................       1.7010      -0.0330      -0.0062      -0.0392
    Class I butterfat.............  $/pound.................       1.7010      -0.0257      -0.0062      -0.0319
    Class II butterfat............  $/pound.................       1.7010      -0.0330       0.0101      -0.0229
    Other solids..................  $/pound.................       0.1195      -0.0015      -0.0002      -0.0018
    Nonfat solids.................  $/pound.................       0.6973      -0.0018       0.0001      -0.0017
    Class I skim price............  $/cwt...................      10.7921       0.7169       0.0000       0.7169
    Class II skim price...........  $/cwt...................       6.9758      -0.0159       0.0083      -0.0076
    Class III skim price..........  $/cwt...................       8.0821      -0.0131       0.0000      -0.0131
    Class IV skim price...........  $/cwt...................       6.2758      -0.0159       0.0009      -0.0150
Federal Order Class Uses:
    Class I.......................  mil. pounds.............       45,875          -70            1          -68
    Class II......................  mil. pounds.............       17,489           63          -20           43
    Class III.....................  mil. pounds.............       51,152           30            4           34
    Class IV......................  mil. pounds.............       15,694          144           -9          135
    Total F.O. Marketings.........  mil. pounds.............      130,211          167          -24          144
Federal Order Cash Receipts:
    Class I.......................  mil. $..................        6,470          288           -6          282
    Class II......................  mil. $..................        3,561          -37           12          -25
    Class III.....................  mil. $..................        7,026          -61          -10          -71
    Class IV......................  mil. $..................        2,108          -14           -4          -18
    Total.........................  mil. $..................       19,165          176           -8          167
All Milk Price....................  $/cwt...................        14.79         0.07        -0.01         0.06
U.S. class use: \3\
    Class I.......................  mil. pounds.............       55,674          -85            2          -83
    Class II......................  mil. pounds.............       20,455           74          -24           50
    Class III.....................  mil. pounds.............       93,173           55            7           63
    Class IV......................  mil. pounds.............       22,911          210          -13          197
Milk Cows.........................  1000s...................        8,890            8           -1            7
Yield per Cow.....................  pounds..................       21,668            9           -1            8
U.S. Marketings \4\...............  mil. pounds.............      191,855          254          -27          227
Government removals of NFDM:
    Quantities....................  mil. pounds.............          290           13           -1           12
    Outlays \5\...................  mil. $..................  ...........           10           -1           10
U.S. Producer Revenue \6\.........  mil. $..................       28,396          158          -21         146
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\1\ Separate effects of increasing Class I and II movers do not necessarily add up to the combined effects due
  to differences in the dynamics over time.
\2\ Retail fluid milk porices are not projected in the model. Projected impacts are calculated by multiplying
  the Class I price per pound at test by 8.62 pounds of milk per gallon.
\3\ Total U.S. class use does not add to U.S. Marketings due to the presence of imported ingredients.
\4\ U.S. Marketings differs from U.S. milk production due to farm use of milk.
\5\ MPSP outlays are not projected in the model. For this table, outlays are computed by multiplying NDM net
  removal quantities by the NDM support price of $0.80. No attempt is made to estimate changes in storage,
  handling, transportation, processing, and
\6\ U.S. Producer Revenue includes MILC payments for 2007.

    Milk Manufacturers and Processors. Increasing Federal order Class I 
and II movers as proposed has the combined effect of increasing Class I 
prices and decreasing prices for the manufacturing milk classes. The 
retail price of fluid milk increases by $0.0549 per gallon. Since milk 
is less scarce due to increases in milk production, and reductions in 
Class I use, more milk moves into manufactured uses. As a result dairy 
product prices decrease to clear markets of production increases. Over 
the nine-year projection period, wholesale dairy product prices 
decrease as follows: $0.0131 per pound for cheddar cheese, $0.0327 for 
butter, $0.0017 for NFDM, $0.0017 for dry whey, and $0.0083 for 
mozzarella. The retail price for ice cream decreases by $0.0156 per 
half-gallon. The CPI for

[[Page 67493]]

other dairy products decreases by a value of 0.3. Most Federal order 
component prices decrease on average over the nine-year projection 
period: $0.0009 per pound for protein, $0.0017 for nonfat solids, and 
$0.0018 for other solids.
    The average Class III and IV butterfat price decreases by an 
average $0.0392 per pound over the nine-year projection period. The 
average Class I butterfat price decreases by an average $0.0319. The 
difference between the Class III and IV and Class I butterfat prices is 
$0.0073, the effective proposed formula change. The Class I butterfat 
price decreases because the proposed increase in the Class I butterfat 
pricing factor is not enough to offset the butter price decrease. The 
average Class II butterfat price decreases by $0.0229 per pound over 
the nine-year projection period. The difference between the Class IV 
butterfat price and the Class II butterfat price is $0.0163, the 
effective proposed formula change. The Class II butterfat price 
decreases because the proposed increase in the Class II butterfat 
pricing factor is not enough to offset the butter price decrease.
    The average Class III and IV skim milk prices decrease by an 
average $0.0131 and $0.0150 per cwt. respectively over the nine-year 
projection period. The average Class I skim milk price increases by an 
average $0.7169. The difference between the Class III and Class I 
average skim milk prices is $0.7300, the effective proposed formula 
change. The Class I skim milk price increases because the proposed 
formula change for the Class I skim milk pricing factor more than 
offsets the price decreases in the component prices used in pricing 
Class I and III. The average Class II skim milk price decreases by 
$0.0076 per cwt. over the nine-year projection period. The difference 
between the Class IV skim price and the Class II skim price is $0.0074, 
the effective proposed formula change. The Class II skim milk price 
decreases because the proposed formula change for the Class II skim 
milk pricing factor is not enough to offset the price decreases in the 
component prices used in pricing Class II and IV.
    There are notable differences between changes in Federal order 
class prices at 3.5 percent butterfat and changes in Federal order 
class prices at class butterfat percentages. Butterfat tests for the 
four Federal order milk classes differ from one class to another due to 
the mix of products within each class. Butterfat proportions are higher 
for Class II and IV milk than for Class I and III milk. Differences 
between prices at test and prices at 3.5 percent butterfat are greatest 
for Class II. The lower butterfat price plays a greater role in the 
Class II price at test because of the higher average fat content of the 
products in the class. While the Class II price at 3.5 percent 
butterfat decreases by an average $0.09 per cwt., the Class II price at 
test decreases by an average $0.19 per cwt.
    Consumers. The expected $0.64 per cwt increase in the minimum nine-
year average Class I price at test results in an average $0.0549 per 
gallon increase in the price of fluid milk for consumers. Consumers 
decrease consumption of fluid milk products, resulting in a decrease of 
68 million pounds in Federal order Class I marketings. Consumers 
increase consumption of manufactured dairy products in response to 
lower dairy product prices. The manufacturing Federal order class 
marketings increase as follows: 43 million pounds for Class II, 34 
million pounds for Class III, and 135 million pounds for Class IV. U.S. 
class marketing increase as follows: 50 million pounds for Class II, 63 
million pounds for Class III, and 193 million pounds for Class IV.
    Government Outlays. In 2007, with higher Class I prices, MILC 
payments decrease by $82 million below the baseline level of $190 
million. This impact rounds to approximately $0.04 per cwt. averaged 
over all of the milk production.
    With the proposed increases to Federal order Class I and II pricing 
factors, milk production increases, dairy product prices decrease, and 
government removals increase relative to baseline levels. Over the 
projection period, government removals of NFDM increase by an annual 
average of 12 million pounds per year. Government outlays related to 
government removals increase by an average of $10 million over the 
projection period.

Contrasting Effects of Increasing Class I and II Movers

    Effects of increasing Class I price movers differ significantly 
from effects of increasing Class II price movers. The differences are 
mainly due to the differences in price elasticity of demand \2\ of 
fluid milk versus Class II products. Model parameters indicate that 
fluid milk has a very inelastic demand price elasticity of -0.05. Class 
II products are much more price elastic with respect to demand. Model 
parameters indicate that frozen Class II products and other Class II 
products have demand price elasticities of -0.50 and -1.18 
respectively. To examine these effects, model scenarios were run to 
examine the effects of proposed changes to Class I and Class II movers 
separately.
---------------------------------------------------------------------------

    \2\ Price elasticity of demand is the percentage change in 
consumption corresponding to a 1 percent change in price.
---------------------------------------------------------------------------

    Effects of Changes to Class I Movers: Increasing Class I movers as 
proposed by NMPF results in higher Federal order Class I pool receipts 
of $288 million. Federal order Class I producer revenue increases 
because the increase in the Class I price at test ($0.65 per cwt.) more 
than offsets the decrease in Class I use (70 million pounds) that 
results from the higher price. With the proposed increases in Class I 
movers, the average Federal order blend price at test increases by 
$0.12 per cwt., the average all-milk price increases by $0.07 per cwt., 
and producer revenues increase by $158 million.
    Effects of Changes to Class II Movers: With the proposed increases 
in Class II movers, Federal order Class II use decreases by 20 million 
pounds. As Class II use decreases, relatively more milk is allocated to 
other products, lowering their prices. Product prices decrease for 
cheddar cheese ($0.0019 per pound), butter ($0.0051 per pound), and 
fluid milk (0.0011 per gallon). Since these demands have relatively low 
price elasticities, consumption does not increase very much for these 
products. Although Federal order Class II receipts increase by $12 
million, the increase is not enough to offset decreases in cash 
receipts for the other classes, and total Federal order class receipts 
fall by $8 million. The average reduction in the Federal order blend 
price at test rounds to zero. The all-milk price decreases by $0.01, 
and average U.S. producer revenue decreases by $21 million.

Detailed Analysis Information

    A complete Preliminary Economic Analysis, NMPF Proposed Changes to 
Class I and II Mover, is available at http://www.ams.usda.gov/dairy/hearings.htm. For further information contact Howard 
McDowell, Senior Economist, USDA/AMS/Dairy Programs, Office of the 
Chief Economist, Room 2753, South Building, U.S. Department of 
Agriculture, Washington, DC 20250, (202) 720-7091, e-mail address 
<a href="/cdn-cgi/l/email-protection#01696e766073652f6c62656e76646d6d41747265602f666e77"><span class="__cf_email__" data-cfemail="ed85829a8c9f89c3808e89829a888181ad989e898cc38a829b">[email protected]</span></a>.

Executive Order 12988, Civil Justice Reform

    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. If adopted, the proposed 
amendments would not preempt any state or local laws,

[[Page 67494]]

regulations, or policies, unless they present an irreconcilable 
conflict with this rule.
    The Agricultural Marketing Agreement Act provides that 
administrative proceedings must be exhausted before parties may file 
suit in court. Under Section 8c(15)(A) of the Act (7 U.S.C. 608c 
(15)(A)), any handler subject to an order may request modification or 
exemption from such order by filing with the Department of Agriculture 
(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's ruling on the petition, provided a bill in equity is 
filed not later than 20 days after the date of the entry of the ruling.
    Interested parties who wish to introduce exhibits should provide 
the Presiding Officer at the hearing with (6) copies of such exhibits 
for the Official Record. Also, it would be helpful if additional copies 
are available for the use of other participants at the hearing.
    The proposed amendments, as set forth below, have not received the 
approval of the Department.

Proposed by National Milk Producers Federation (NMPF):

Proposal 1

    Proposal 1 would change how the Class I skim milk price is 
determined for setting and moving Class I prices. Proposal 1 continues 
to essentially use the higher of the current advance Class III or 
advance Class IV skim milk price per hundredweight (cwt) in setting and 
moving Class I prices, but adds an adjustment factor of $0.73. The 
$0.73 per cwt factor is intended to reflect the increases in costs 
associated with supplying the Class I market. The proposal seeks to 
accomplish this objective by replacing the current Class I price mover 
(where all prices are U.S. average prices as reported by the National 
Agricultural Statistical Service (NASS)) with the higher of:
    a. Nonfat dry milk price x 8.9 - $0.52; or
    b. Cheese price x 10.0 + Dry whey price x 6.1 - Butter Price x 3.9 
- 1.44.
    Proposal 1 would eliminate direct reference to the advanced Class 
III and Class IV skim milk prices in the formula for determining the 
Class I skim milk price. While the make allowance factors used in 
determining Class III and Class IV formulas are under consideration for 
change in a separate rulemaking proceeding, the formulas above would be 
changed to reflect any future amendments made to product make 
allowances or product yield factors for cheese, nonfat dry milk, butter 
and dry whey as the result of formal rulemaking. The proposed formulas 
are based on current make allowances used in determining Class III and 
Class IV prices. The $0.52 and $1.44 factors presented in the above 
formulas are not revised make allowance factors. They represent the 
mathematical simplification of adjusting current advanced Class III and 
Class IV prices by a factor of $0.73.

Proposals 2 and 3

    In order to use the simplified formulas in Proposal 1, the proposed 
use of an advanced cheese skim milk price per cwt, an advanced butter-
powder skim milk price per cwt and an advanced butterfat price per 
pound would be used to replace the current advance Class III and Class 
IV skim milk prices per cwt. Additionally, the proposed advanced 
butterfat price per pound would be determined differently than it is 
currently.
    Proposal 2 would change the current advanced Class III skim milk 
pricing factor per cwt to an advanced cheese skim milk price per cwt 
factor. The cheese skim price per cwt would be determined by:
    a. Multiplying the weighted average of the 2 most recent NASS 
average weekly prices for block and barrel cheese by 10; multiplying 
the weighted average of the 2 most recent NASS average weekly survey 
prices for dry whey announced before the 24th day of the month times 
6.1;
    b. Multiplying the weighted average of the 2 most recent NASS 
weekly survey prices for butter announced before the 24th day of the 
month times 3.9;
    c. Adding the amounts computed in a. above; and subtracting the 
butter price per pound in b. above; and
    d. Subtracting $1.44.
    e. The advanced butterfat price per pound would be determined by 
multiplying the weighted average of the 2 most recent NASS survey 
prices for butter by 1.20; and from this product subtracting $0.1307.
    Proposal 3 would change referring to the current advanced Class IV 
skim milk pricing factor per cwt to a butter-powder skim milk price per 
cwt. The advanced butter powder skim milk price (nonfat dry milk) per 
cwt would be determined by:
    a. Multiplying the weighted average of the 2 most recent NASS 
weekly survey prices for nonfat dry milk announced before the 24th day 
of the month by 8.9; and
    b. From the product subtracting $0.52.

Proposal 4

    This proposal would change the way the Class II milk price is 
computed without noticeably changing the level of pricing. While the 
skim portion of milk used in Class II would continue to be announced in 
advance, it is proposed to be computed by:
    a. Multiplying the weighted average of the 2 most recent NASS 
survey prices for nonfat dry milk per pound announced before the 24th 
day of the month by 8.9; and
    b. From the product subtracting $0.54.

Proposal 5

    This proposal would change how the current Class II butterfat price 
is determined. As proposed the Class II butterfat price per pound would 
be the NASS AA Butter survey price reported by the Department for the 
month multiplied by 1.2; and from the product subtracting $0.1147. 
(Instead of adding $0.70 to the butterfat price (the current Class II 
differential), this proposal would add $1.53 per cwt).
    The five aforementioned proposals would modify the current 
provisions of all Federal milk marketing orders as follows:
    1. Amend Sec.  1000.50 by:
    a. Revising paragraph (e)
    b. Revising paragraph (g); and
    c. Revising paragraph (q) (1) (2) (3)
    The revisions and additions would read as follows:

Section 1000.50 Class Prices, Component Prices, and Advanced 
Pricing Factors.

* * * * *
    (e) Class II skim milk price. The Class II skim milk price per 
hundredweight shall be the weighted average of the 2 most recent 
U.S. average weekly survey NASS nonfat dry milk prices announced 
before the 24th day of the month, times 8.9, then subtracting from 
this product $0.54.
    (g) Class II butterfat price. The Class II butterfat price per 
pound, rounded to the nearest one hundredth cent, shall be the U.S. 
average NASS AA butter survey price reported by the Department for 
the month, multiplied by 1.20, then subtracting from this product 
$0.1147. * * *
    (q) * * *
    (1) An advanced cheese skim milk price per hundredweight, 
rounded to the nearest cent, shall be computed as follows:
    (i) Following the procedure set forth in paragraph (n)(1) of 
this section, but using the weighted average of the 2 most recent 
NASS

[[Page 67495]]

U.S. average weekly survey prices announced before the 24th day of 
the month, multiply the resulting cheese price by 10.
    (ii) Multiply the weighted average of the 2 most recent NASS 
U.S. average weekly survey dry whey prices announced before the 24th 
day of the month by 6.1.
    (iii) Multiply the weighted average of the 2 most recent NASS 
U.S. average weekly survey butter prices announced before the 24th 
day of the month by 3.9.
    (iv) Add the amounts computed in paragraphs (q)(1)(i) and (ii), 
subtract the amount in paragraph (q)(1)(iii), and subtract $1.44.
    (2) An advanced butter-powder skim milk price per hundredweight, 
rounded to the nearest cent, shall be computed as follows:
    (i) Multiply the weighted average of the 2 most recent NASS U.S. 
average weekly survey prices for nonfat dry milk announced before 
the 24th day of the month by 8.9; and
    (ii) From the amount computed in paragraph (q)(2)(i) subtract 
$0.52.
    (3) An advanced butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be calculated by computing a 
weighted average of the 2 most recent U.S. average NASS AA butter 
survey prices announced before the 24th day of the month, 
multiplying the result by 1.20, then subtracting $0.1307.
* * * * *

Proposed by Dairy Programs, Agricultural Marketing Service:

Proposal No. 6

    For all Federal Milk Marketing Orders, make such changes as may be 
necessary to make the entire marketing agreements and the orders 
conform with any amendments thereto that may result from this hearing.

List of Subjects in 7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030, 
1032, 1033, 1124, 1126, and 1131.

    Milk marketing orders.

    The authority citation for 7 CFR Parts 1000, 1001, 1005, 1006, 
1007, 1030, 1032, 1033, 1124, 1126, and 1131 continues to read as 
follows:

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

    Copies of this notice of hearing and the orders may be procured 
from the Market Administrator of each of the aforesaid marketing areas, 
or from the Hearing Clerk, United States Department of Agriculture, 
STOP 9200--Room 1083, 1400 Independence Avenue, SW., Washington, DC 
20250-9200, or may be inspected there.
    Copies of the transcript of testimony taken at the hearing will not 
be available for distribution through the Hearing Clerk's Office. If 
you wish to purchase a copy, arrangements may be made with the reporter 
at the hearing.
    From the time that a hearing notice is issued and until the 
issuance of a final decision in a proceeding, Department employees 
involved in the decision-making process are prohibited from discussing 
the merits of the hearing issues on an ex parte basis with any person 
having an interest in the proceeding. For this particular proceeding, 
the prohibition applies to employees in the following organizational 
units:

Office of the Secretary of Agriculture.
Office of the Administrator, Agricultural Marketing Service.
Office of the General Counsel.

    Dairy Programs, Agricultural Marketing Service (Washington office) 
and the Offices of all Market Administrators.
    Procedural matters are not subject to the above prohibition and may 
be discussed at any time.

    Dated: November 17, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 06-9341 Filed 11-20-06; 3:01 pm]
BILLING CODE 3410-02-P


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