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Appendix A

Legislative Language: Dairy Forward Pricing Pilot Program
A-2

H. R. 3428

To provide for the modification and implementation of the final rule for the consolidation and 

reform of Federal milk marketing orders, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

November 17, 1999

* * * * * *

SEC. 3. DAIRY FORWARD PRICING PROGRAM.

The Agricultural Adjustment Act (7 U.S.C. 601 et seq.), reenacted with amendments by the 

Agricultural Marketing Agreement Act of 1937, is amended by adding at the end the following 

new section:

SEC. 23. DAIRY FORWARD PRICING PILOT PROGRAM.

(a) PILOT PROGRAM REQUIRED- Not later than 90 days after the date of the enactment of 

this section, the Secretary of Agriculture shall establish a temporary pilot program under which 

milk producers and cooperatives are authorized to voluntarily enter into forward price contracts 

with milk handlers.

(b) MINIMUM MILK PRICE REQUIREMENTS- Payments made by milk handlers to milk 

producers and cooperatives, and prices received by milk producers and cooperatives, under the 

forward contracts shall be deemed to satisfy--

(1) all regulated minimum milk price requirements of paragraphs (B) and (F) of 

subsection (5) of section 8c; and

(2) the requirement of paragraph (C) of such subsection regarding total payments by each 

handler.

(c) MILK COVERED BY PILOT PROGRAM-

(1) COVERED MILK- The pilot program shall apply only with respect to the marketing 

of federally regulated milk that--

(A) is not classified as Class I milk or otherwise intended for fluid use; and

(B) is in the current of interstate or foreign commerce or directly burdens, 

obstructs, or affects interstate or foreign commerce in federally regulated milk.

(2) RELATION TO CLASS I MILK- To assist milk handlers in complying with the 
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limitation in paragraph (1)(A) without having to segregate or otherwise individually track the 

source and disposition of milk, a milk handler may allocate milk receipts from producers, 

cooperatives, and other sources that are not subject to a forward contract to satisfy the handler's 

obligations with regard to Class I milk usage.

(d) DURATION- The authority of the Secretary of Agriculture to carry out the pilot program 

shall terminate on December 31, 2004. No forward price contract entered into under the program 

may extend beyond that date.

(e) STUDY AND REPORT ON EFFECT OF PILOT PROGRAM-

(1) STUDY- The Secretary of Agriculture shall conduct a study on forward contracting 

between milk producers and cooperatives and milk handlers to determine the impact on milk 

prices paid to producers in the United States. To obtain information for the study, the Secretary 

may use the authorities available to the Secretary under section 8d, subject to the confidentiality 

requirements of subsection (2) of such section.

(2) REPORT- Not later than April 30, 2002, the Secretary shall submit to the Committee 

on Agriculture, Nutrition and Forestry of the Senate and the Committee on Agriculture of the 

House of Representatives a report containing the results of the study.'.

* * * * * *
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Appendix B

Final Rule: Dairy Forward Pricing Pilot Program
44408 Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations

information requirements and

duplication by industry and public

sector agencies. Finally, the Department

has not identified any relevant Federal

rules that duplicate, overlap or conflict

with this rule.

In addition, the Committee’s

subcommittee meeting on November 9,

1999, and the Committee meeting on

November 10, 1999, where this action

was deliberated, were public meetings

widely publicized throughout the raisin

industry. All interested persons were

invited to attend the meetings and

participate in the industry’s

deliberations.

A proposed rule concerning this

action was published in the Federal

Register on January 31, 2000 (65 FR

4583). Copies of the rule were mailed by

the Committee’s staff to all Committee

members and alternates, the Raisin

Bargaining Association, handlers, and

dehydrators. In addition, the rule was

made available through the Internet by

the Office of the Federal Register. That

rule provided for a 60-day comment

period which ended March 31, 2000.

One comment was received.

The commenter supports the change

in desirable carryout, but expressed

concern over the impact of the change

on the Committee’s program to promote

California raisin sales in foreign

markets. The purpose of this rulemaking

action is to change the desirable

carryout to more accurately reflect

actual carryout inventory and earlyseason shipments. Desirable carryout is

the amount of tonnage from a specific

crop year needed during the first part of

the succeeding crop year to meet market

needs. Failure to provide adequate

raisins for market needs during the first

part of the crop year would likely have

a negative impact on prices and sales

later in the season. Such an impact

would likely be felt in domestic and

foreign markets. The increase in

desirable carryout would make more

raisins available to handlers as free

tonnage, and might reduce the amount

of reserve raisins handlers purchase to

meet their market needs. However,

Committee sponsored promotional

activities are not expected to be

negatively impacted by this action.

Those promotional activities are

planned and implemented later in the

season, when carryin inventories and

the size of the new crop are known.

Additionally, those promotional

activities are planned by the Committee

with the most recent information

available, and approved by the

Department.

Accordingly, no changes will be made

to the rule, as proposed, based on the

comment received.

A small business guide on complying

with fruit, vegetable, and specialty crop

marketing agreements and orders may

be viewed at the following web site:

http://www.ams.usda.gov/fv/

moab.html. Any questions about the

compliance guide should be sent to Jay

Guerber at the previously mentioned

address in the FOR FURTHER INFORMATION

CONTACT section.

After consideration of all relevant

matter presented, including the

information and recommendation

submitted by the Committee, the

comment received, and other available

information, it is hereby found that this

rule, as hereinafter set forth, will tend

to effectuate the declared policy of the

Act.

Pursuant to 5 U.S.C. 553, it is also

found that good cause exists for not

postponing the effective date of this

action until 30 days after publication in

the Federal Register because: (1) The

2000–2001 crop year begins on August

1, 2000, and this rule should be effective

promptly because the order provides

that the Committee meet on or before

August 15 to compute and announce the

trade demand, and the desirable

carryout level is a necessary item in that

calculation; (2) this action is a

relaxation in that it will make more

raisins available to handlers especially

for use early in the season; (3) producers

and handlers are aware of this action

which was unanimously recommended

by the Committee at a public meeting;

and (4) a 60-day comment period was

provided for in the proposed rule, and

the comment received is addressed in

this final rule.

List of Subjects in 7 CFR Part 989

Grapes, Marketing agreements,

Raisins, Reporting and recordkeeping

requirements.

For the reasons set forth in the

preamble, 7 CFR part 989 is amended as

follows:

PART 989—RAISINS PRODUCED

FROM GRAPES GROWN IN

CALIFORNIA

1. The authority citation for 7 CFR

part 989 continues to read as follows:

Authority: 7 U.S.C. 601–674.

2. Section 989.154 is amended by

revising paragraph (a) to read as follows:

§ 989.154 Marketing policy computations.

(a) Desirable carryout levels. The

desirable carryout levels to be used in

computing and announcing a crop

year’s marketing policy shall be equal to

the total shipments of free tonnage

during August, September, and October

for each of the past 5 crop years, for

each varietal type, converted to a

natural condition basis, dropping the

high and low figures, and dividing the

remaining sum by three.

* * * * *

Dated: July 11, 2000.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable

Programs.

[FR Doc. 00–18073 Filed 7–17–00; 8:45 am]

BILLING CODE 3410–02–P

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1140

[Docket No. DA–00–06]

Final Rule for Dairy Forward Pricing

Pilot Program

AGENCY: Agricultural Marketing Service,

USDA.

ACTION: Final rule.

SUMMARY: This final rule establishes a

pilot program which exempts handlers

regulated under the Federal milk order

program from paying producers and

cooperative associations the minimum

Federal order price(s) for that portion of

their milk for nonfluid use that is under

forward contract. Establishment of the

pilot program is required by a November

1999 amendment to the Agricultural

Marketing Agreement Act of 1937

(AMAA).

EFFECTIVE DATE: July 19, 2000.

FOR FURTHER INFORMATION CONTACT:

Nicholas Memoli, Marketing Specialist,

Order Formulation Branch, USDA/

AMS/Dairy Programs, Room 2971,

South Building, P.O. Box 96456,

Washington, DC 20090–6456, (202) 690–

1932, e-mail address

Nicholas.Memoli@usda.gov.

SUPPLEMENTARY INFORMATION: This rule

implements an amendment to the

AMAA which directs the Secretary of

Agriculture to establish a temporary

pilot program for forward contracting of

milk under Federal milk marketing

orders. The effect of the amendment is

to permit a handler to pay producers or

cooperative associations a negotiated

price, rather than the minimum Federal

order price, for milk that is under

forward contract, provided that such

milk does not exceed the handler’s

nonfluid use of milk for the month. The

amendment appears in Section 3 of H.R.

3428 of the 106th Congress, as enacted

by Section 1001(a)(8) of Public Law

106–113 (113 Stat. 1536). It was signed

into law on November 29, 1999. The

Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations 44409

amendment specifies that the pilot

program shall only apply to federally

regulated milk that is not classified as

Class I milk or otherwise intended for

fluid use and that is in the current of

interstate or foreign commerce or

directly burdens, obstructs, or affects

interstate or foreign commerce in

federally regulated milk. The pilot

program expires December 31, 2004.

This pilot program does not

invalidate, supersede, or otherwise

change existing milk contracts between

handlers and dairy farmers. Contracts

eligible for this pilot program shall be

those contracts beginning no earlier

than the effective date of this final rule.

Pursuant to 5 U.S.C. 553, it is also

found and determined that good cause

exists for not postponing the effective

date of this rule until 30 days after

publication in the Federal Register

because: (1) The pilot program is a

voluntary program that does not require

extensive preparation for those handlers

and dairy farmers who choose to

participate in it; and (2) most handlers

and farmers desiring to participate in

the program are anticipating the

publication of this rule and would like

to have their contractual transactions

under the program effective as soon as

possible.

Executive Order 12988

This final rule has been reviewed

under Executive Order 12988, Civil

Justice Reform. This rule is not intended

to have a retroactive effect and will not

preempt any state or local laws,

regulations, or policies, unless they

present an irreconcilable conflict with

this rule. There are no administrative

procedures which must be exhausted

prior to judicial challenge to the

provisions of this rule.

Executive Order 12866

The Department is issuing this rule in

conformance with Executive Order

12866. This rule is not economically

significant for the purposes of Executive

Order 12866.

The forward pricing pilot program is

a voluntary program that will permit a

handler and a producer to negotiate

prices that, at times, may be below the

minimum order prices that would

otherwise apply to such milk. Some

producers, proprietary handlers, and

cooperative associations now negotiate

forward contracts on part or all of their

milk. The pilot program will expand the

opportunities to engage in forward

contracting by exempting participating

proprietary handlers from the minimum

prices to producers and cooperative

associations required under Federal

milk marketing orders. These

regulations do not affect the ability of

cooperative associations to forward

contract with their members.

The Regulatory Flexibility Act and the

Effects on Small Businesses

Pursuant to the requirements set forth

in the Regulatory Flexibility Act (RFA)

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

Marketing Service (AMS) considered the

economic impact of this rule on small

entities and has prepared this final

regulatory flexibility analysis.

The legal basis for this rule is set forth

in an amendment to the AMAA signed

into law on November 29, 1999, that

directs the Secretary of Agriculture to

establish the dairy forward pricing pilot

program. The Secretary was directed ‘‘to

establish a temporary pilot program

under which milk producers and

cooperatives are authorized to

voluntarily enter into forward price

contracts with milk handlers.’’

The pilot program will provide the

dairy industry, which has experienced

substantial price volatility in recent

years, with another tool to deal with

such volatility. With the phase-down of

the dairy price support program to a

safety-net program, the prices of dairy

products have fluctuated to a much

greater extent than they did during the

prior 20 years. This price fluctuation

has created problems for processors of

manufactured dairy products (e.g.,

butter, nonfat dry milk, and cheese), the

dairy farmers who supply these

processors, and the retailers, school

systems, and other public institutions

who provide these products to

consumers.

Under the Small Business

Administration’s definition, a dairy

farm is a small business if it has annual

gross revenues of less than $500,000 and

a handler is a small business if it has

fewer than 500 employees. For the

purposes of determining which dairy

farms are ‘‘small businesses,’’ the

$500,000 per year criterion was used to

establish a production guideline of

326,000 pounds per month. Although

this guideline does not factor in

additional monies that may be received

by dairy producers, it should be an

inclusive standard for most ‘‘small’’

dairy farmers. For purposes of

determining a handler’s size, if the plant

is part of a larger company operating

multiple plants that collectively exceed

the 500-employee limit, the plant will

be considered a large business even if

the local plant has fewer than 500

employees.

Based upon the most current

information available, USDA identified

as small businesses approximately

66,327 of the 71,716 dairy producers

(farmers) that had their milk pooled

under a Federal order in January 2000.

Thus, small businesses represent

approximately 92.5 percent of the dairy

farmers in the United States. On the

processing side, there were

approximately 1,200 plants associated

with Federal orders in January 2000,

and of these plants, approximately 720

qualify as ‘‘small businesses,’’

representing about 60 percent of the

total. At the present time, 142

cooperative associations represent

61,405 dairy farmers under the Federal

milk order program. In addition, there

were 10,311 dairy farmers who were not

affiliated with any cooperative

association in January 2000. Of these

nonmember producers, 9,559 meet the

SBA’s definition of a small business.

The recordkeeping and reporting

requirements for this rule are minimal.

At the present time, any handler that

enters into a forward contract with a

producer presumably has written proof

for such an arrangement. Under the

pilot program, a handler will be

required to submit a copy of each

forward contract with a producer or a

cooperative association to the market

administrator of the order that regulates

the milk. In addition, the handler will

be required to attach a specific

disclosure statement to each forward

contract with each producer under the

pilot program. The disclosure statement

will have to be signed by each dairy

farmer entering into a forward contract.

The disclosure statement explains that a

dairy farmer entering into a forward

contract under the pilot program forfeits

his or her right to receive the minimum

order price(s) for that portion of their

milk that is under contract for the

duration of the contract period. These

requirements are discussed further in

the Paperwork Reduction Act section of

this document.

In drafting the rule, the Department

considered whether any limit should be

established for the amount of milk that

a dairy farmer could forward contract.

We decided not to impose such a limit

because we did not wish to interfere

with a dairy farmer’s desire to forward

contract all of his or her milk. Also, in

order to gain as much knowledge as

possible about the types of forward

contracts that might be offered by

handlers, we believe it is beneficial to

allow handlers and dairy farmers to

decide between themselves how much

milk to put under forward contract and

how much milk to keep under

minimum Federal order pricing.

Comments were specifically requested

on the impact of this rule on small

businesses. Many comments,

particularly from dairy farmers and

44410 Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations

cheese plant operators, stated that the

pilot program would assist them in

running their business. No comments

were received from a small business

stating that the pilot program would be

a burden to them.

The Department does not believe that

the forward pricing pilot program will

unduly burden small entities or impair

their ability to compete in the

marketplace. In fact, by providing

another tool to reduce price risk, the

pilot program may aid small businesses

in competing with larger entities that

have the ability to use existing futures

and options markets, and other means,

to reduce their price risks.

Several provisions that were in the

proposed rule have been modified or

eliminated in response to those

commenters who noted that these

provisions could limit the ability of

small businesses to participate in the

pilot program. A provision that would

have provided a 3-day period in which

a forward contract could be canceled

has been removed to facilitate hedging

of forward contracts, and a provision

limiting initial forward contracts to 6

months has been changed to 12 months

to better reflect dairy farmers’ budgeting

practices. In addition, another change

was made so that proprietary handlers

that do not operate pool plants can

participate in the program. These

provisions are discussed in more detail

in the discussion of the rules applicable

to the pilot program.

The Department has not identified

any relevant Federal rules that

duplicate, overlap, or conflict with this

rule.

Paperwork Reduction Act of 1995

The information collection

requirements contained in this final rule

were submitted to the Office of

Management and Budget (OMB)

pursuant to the Paperwork Reduction

Act of 1995 (44 U.S.C. chapter 35) for

emergency approval and such approval

was granted. A separate 60-day notice

seeking public comment on the

information collection will be published

after this final rule is issued. OMB has

assigned this request No. 0581–0190.

Under the pilot program for the

forward contracting of milk under

Federal milk orders, a one-page

disclosure statement was designed so

that the Secretary’s representatives

administering the pilot program can be

certain that dairy farmers have entered

into the pilot program voluntarily. The

disclosure statement is attached to a fact

sheet containing general guidelines to

help dairy farmers understand the

forward contracting process. It also

explains to the dairy farmer that the

program is voluntary and that by

entering into the program with a

handler, the dairy farmer will be

forfeiting his or her right to the

minimum prices provided under the

order. The form should take no more

than 15 minutes to be read, understood,

and signed by a dairy farmer. We

estimate that the number of dairy

farmers involved would be

approximately 8,000, and the total

annual time burden would not exceed

2,000 hours.

Handlers will be required to submit

their forward contracts under the pilot

program to their respective market

administrator’s office. There are 2

reasons for this. First, the market

administrator must be able to review the

contract to ensure it is signed and to

verify that it complies with the

regulations provided here. Second, the

Department is required to conduct a

study of forward contracting under the

pilot program to determine the impact

on milk prices paid to producers in the

United States. This study must be

submitted to Congress no later than

April 30, 2002. In order to do such a

study, the Secretary will have to review,

summarize, and evaluate the different

types of contracts that were written

under the pilot program.

The time required for handlers to

prepare and submit copies of contracts

would approximate 30 minutes per

contract. If all of the nearly 1200 plants

associated with Federal orders decide to

forward contract under the pilot

program, the total annual burden to

submit these contracts would be 600

hours.

In the proposed rule, and as

continued in this final rule, the

disclosure statement described above

must be submitted each time that a

dairy farmer enters into a forward

contract under the pilot program.

Several commenters stated that this

requirement was redundant and

resulted in unnecessary paperwork.

They suggested that the disclosure

statement should only be required to be

submitted the first time that a dairy

farmer enters into a forward contract

under the pilot program. Except for

these comments with respect to the

disclosure statement, no other

comments were received that relate to

paperwork reduction or information

collection.

While we are concerned about

burdening handlers with unnecessary

paperwork, we do not believe that the

very short disclosure statement

specified in Section 1140.1(e) of this

final rule would create such a burden.

Furthermore, we are not convinced by

the argument that producers need be

told only once that entering into a

forward contract precludes them from

receiving the order minimum prices for

their milk. Forward contracting by

producers is a significant departure

from the historical regulatory

environment. As such, it is essential

that producers fully understand the

consequences of entering into a

voluntary contract that forfeits their

right to receive minimum order prices

for milk. By signing a disclosure

statement for each contract, producers

will be certifying that they have been

given the opportunity to review the

Forward Pricing Pilot Program Fact

Sheet that describes the program,

provides some advice, and cautions the

producer to fully understand the terms

and conditions of each contract.

Public Comments

A proposed rule was issued on

February 25, 2000 (44 FR 10981).

Interested parties were given 15 days to

file written comments concerning the

proposed rule. These comments were

accepted by regular mail, e-mail, and by

fax. A total of 97 comments were

received. These comments came from—

in order from most to least—dairy

farmers, handlers, federal and state

legislators, futures industry

representatives, banking industry

representatives, and other interested

parties. All of the comments are

available for viewing on our web site:

www.ams.usda.gov/dairy/

for_contr_pilot.htm.

Discussion of Rules Applicable to Pilot

Program

Under the rules adopted here to

administer the pilot program, producer

milk under forward contract with a

handler in compliance with the rules

will not be subject to a Federal milk

order’s minimum price requirements

provided that such milk does not exceed

the handler’s Class II, III, and IV

utilization of milk for the month in the

market that regulates the milk. This rule

contains a clarification in § 1140.2(a) to

make it clear that in order to be eligible

for exemption from minimum order

pricing under this pilot program

handlers must be in compliance with

the program rules.

For convenience, a handler’s

combined Class II, III, and IV utilization

is defined as the handler’s eligible milk.

In the case of a multi-plant handler, the

handler’s Class II, III, and IV utilization

will be combined together for all of the

handler’s milk regulated under one

order. A handler will only be exempt

from paying the order’s minimum

price(s) on its quantity of eligible milk.

Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations 44411

The determination of which

producers’ milk is over-contracted is left

to the handler. If the handler fails to

make this determination, the market

administrator will prorate the overcontract milk to each producer and

cooperative association having a

contract with the handler.

Although handlers participating in

the pilot program will not be required

to pay producers and cooperative

associations the order’s minimum

uniform or component prices for

contract milk, they will still be required

to account to the pool for all milk they

receive at the respective order’s

minimum class prices. In the case of

milk received by transfer from a

cooperative association’s pool plant, a

handler may forward contract for all

such transferred milk that is not used in

Class I and will be exempt from paying

the cooperative the minimum class

prices for contract milk.

In the proposed rule (See § 1140.2(a)),

forward contracting under the pilot

program was restricted to a handler that

operates ‘‘one or more pool plants.’’ In

this final rule, this has been changed to

read ‘‘any handler defined in §§ 1000.9

and 1135.9.’’ The language in the

proposed rule would have excluded

proprietary handlers that do not operate

pool plants from participating in the

pilot program. As noted by Kraft Foods

in its comment, ‘‘this limitation is not

in the statute creating the pilot program,

and would unnecessarily exclude a

number of handlers and producers from

enjoying the benefits intended by

Congress.’’

The language contained in the

proposed rule would not have permitted

forward contracting for many

manufacturing plants that use pooled

milk for their manufactured dairy

products. In fact, many nonpool plants

that receive producer milk by diversion

from pool plants would have been

unable to forward contract under the

pilot program.

In providing for the forward contract

pilot program, Congress provided

handlers who forward contract with an

exemption from paying the minimum

Federal order price to producers with

whom they have contracted. The

November 1999 amendments to the Act

did not permit handlers who

manufacture Class II, III, and IV

products to forward contract because

any handler, even handlers with all

Class I milk, could have forward

contracted prior to the amendments.

What the amendments did do, however,

was excuse handlers from paying

producers minimum order prices for

Class II, III, and IV milk under forward

contract.

The language in § 1140.2(a) for the

proposed rule stated that only pool

plant operators could forward contract

and be exempt from minimum Federal

order pricing. This language, however,

does not take into consideration the

complex marketing arrangements that

exist between pool plants, cooperative

association bulk tank handlers, and

nonpool plants.

In many markets, milk of nonmember

producers that is regularly received at a

nonpool plant is actually pooled by a

pool plant operator or by a cooperative

association through its deliveries to a

pool plant. The nonmember milk

delivered to the nonpool plant is

reported as producer milk diverted to a

nonpool plant by the cooperative

association on its monthly report of

receipts and utilization to the market

administrator. Alternatively, if a

cooperative association is not involved

in the transaction, such milk could be

reported by a pool plant operator on its

report.

Many nonpool plant operators that

receive nonmember milk that is pooled

through another handler issue checks to

their nonmember producers. They

submit their payrolls showing these

payments to the market administrator.

Nevertheless, these nonpool plant

operators are not responsible under the

order for paying their nonmember

producers the minimum Federal order

price; it is the handler—i.e., either the

cooperative association or pool plant

operator—that pools the milk for them

who would be held responsible for an

underpayment.

In this final rule, only producer milk

that is under forward contract with a

handler in compliance with the rules

provided here will be exempt from the

order’s minimum prices. In the case of

nonmember milk that is reported as

producer milk by a cooperative

association handler or pool plant

operator, but payrolled by a nonpool

plant operator, the cooperative

association or pool plant operator,

respectively, will be held responsible

for any underpayment to a nonmember

producer in the event that milk under

contract becomes subject to minimum

order pricing (for instance, in the case

of over-contracted milk). In this way,

cooperative association handlers, pool

plant operators, and nonpool plant

operators may continue the complex

arrangements that have evolved to pool

milk under the Federal milk order

program and all will be permitted to

participate in the pilot program.

The language in § 1140.2(a) of this

final rule has been modified to reflect

the change from ‘‘handler that operates

one or more pool plants’’ to simply

‘‘handler.’’ As defined in § 1000.9,

handler includes not only the operator

of a pool plant or a nonpool plant, but

also a broker serving as a handler as

provided in § 1000.9(b) and a

cooperative association acting as a

handler with respect to milk delivered

to a pool plant or diverted to a nonpool

plant. Finally, the term ‘‘handler’’

includes a proprietary bulk tank handler

as defined in § 1135.9 of the Western

order.

Any handler participating in the pilot

program will still be required to file all

of the reports that are now required

under an order. This includes reports of

receipts and utilization of milk and

monthly payroll reports that show all

information now required under the

orders.

Handlers participating in the pilot

program will have to submit to the

market administrator a copy of each

contract for which it is claiming

exemption from the order’s minimum

pricing. This contract must be signed

prior to the 1st day of the 1st month for

which the contract applies and must be

received by the market administrator by

the 15th day of that month. For the first

month that the pilot program is

effective, contracts must be signed on or

after the day on which the program

becomes effective. For example, if the

program becomes effective on July 17,

contracts for August milk must be

signed between July 17 and July 31 and

must be in the market administrator’s

office by August 15.

It is the responsibility of each handler

to give to each contracting dairy farmer

or cooperative association a disclosure

statement informing them of the nature

of the pilot program and providing them

with certain information that they

should consider before entering into a

forward contract. The disclosure

statement must be signed on the same

date as the contract by the dairy farmer

or cooperative association

representative and will have to be

returned to the market administrator

together with the contract by the 15th

day of the month. Any contract that is

submitted to the market administrator

without the disclosure statement will be

considered to be invalid for the purpose

of being exempt from the order’s

minimum pricing and will be returned

to the handler.

Several commenters objected to

having to submit a disclosure statement

each time they contract with a producer.

They argued that attaching a disclosure

statement to the first forward contract

with a producer was sufficient and that

having to do so with each succeeding

contract involved unnecessary

paperwork.

44412 Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations

As noted earlier in the section dealing

with the Paperwork Reduction Act, we

do not believe that the very short

disclosure statement specified in

Section 1140.1(e) of this final rule

would create such a burden. In fact, it

is only one paragraph long and can

easily be incorporated in the body of a

forward contract itself or can be handled

as a one-page supplement that may be

attached to the forward contract.

In its proposed rule, the Department

proposed 2 provisions to help dairy

farmers adjust to the new program. One

provision would have required that each

forward contract under the pilot

program contain a clause that gives a

dairy farmer 3 days to change his or her

mind about forward contracting their

milk. The 2nd proposed provision

would have limited the contract period

for first-time contracts under the pilot

program to 6 months. Both of these

proposals were opposed by a majority of

the commenters who addressed these

issues.

Numerous commenters contended

that these 2 provisions would be very

damaging to the pilot program, even

rendering it totally ineffective. One

commenter who specializes in hedging

price risks noted that the 3-day

cancellation provision would severely

constrain a handler in offsetting its risk

if it had to wait for 3 days after signing

a contract before it could safely hedge

a price commitment that it had made 3

days earlier. With respect to the

proposed rule limiting first-time

contracts to 6 months, many

commenters observed that a 6-month

contract would not match up with a

dairy farmer’s budgeting process.

In response to those commenters who

argued that having to wait 3 days would

subject handlers to extraordinary,

unreasonable price risk, we undertook a

careful review of the options available

to handlers for hedging such risk. In

particular, we analyzed the costs

associated with purchasing at-themoney put options in lieu of selling

futures to hedge forward contracts

during the 3 days when a forward

contract could be canceled. We also

looked at the costs incurred in selling

futures and simultaneously purchasing

an equivalent amount of at-the-money

call options to hedge the price risks

associated with entering into forward

contracts during the 3 days when the

contract could be canceled. Our analysis

indicates that the costs of the 3-day

cancellation provision could amount to

between 10 and 15 cents per

hundredweight. These costs would

likely be passed on to producers in the

form of lower contract prices which

could dampen any interest in the pilot

program.

In proposing the 3-day cancellation

clause for producers who enter into

forward contracts under the pilot

program it was our intent to help

farmers adjust to the new program and

to protect them from undue pressure in

signing forward contracts. However,

based on the comments and on our

analysis it is clear that the 3-day

cancellation provision would result in

some additional costs to handlers who

enter into forward contracts and hedge

such contracts by using the futures

market. Such costs could be passed on

to producers in terms of lower forward

contract prices. Therefore, while we

continue to see merit in this provision,

we must conclude that, on balance, the

3-day cancellation provision could work

against the interests of dairy farmers by

denying them the opportunity to utilize

forward contracts under the pilot

program. Accordingly, this provision

has been removed from this final rule.

Nevertheless, we will carefully monitor

whether producers have been provided

with adequate time and information

before entering into forward contracts

with handlers under the pilot program

and will revisit this issue if necessary.

With respect to the 6-month forward

contract restriction for producers

forward contracting for the first time, we

still believe that a restriction for firsttime forward contracts would have

merit. However, we are convinced by

the comments submitted that the

maximum contract length should be

changed from 6 months to 12 months to

be more consistent with budgeting and

banking practices. After a producer has

entered into his or her first forward

contract under the pilot program,

subsequent contracts could be written

for longer periods of time.

A 3rd proposed provision that was

widely opposed by commenters and

received virtually no support would

have required the basis for pricing milk

under a forward contract to be the same

as the basis for pricing milk that was not

under forward contract. Specifically, in

the 4 Federal orders with butterfat and

skim milk pricing, forward contracts

would have been required to be written

in those terms, and in the 7 orders with

component pricing of milk, forward

contracts would have been required to

be written in terms of those same

components. This provision was

proposed for 2 reasons. First, we

thought such pricing would be more

understandable to producers who had

part of their milk subject to minimum

order pricing and part of it subject to

forward contract pricing. Second, we

thought that such pricing would be

easier for producers to verify using

testing data provided by the market

administrator.

This proposal was seen by

commenters to be unnecessarily limiting

and an obstacle to effectively hedging

contract prices, which may be based

upon futures market prices that may not

price each component of milk.

Therefore, it has been removed.

However, producers who are not

members of a cooperative association

should understand that their milk

weights and tests will continue to be

handled in the same way by the market

administrator even if they choose to

enter into a forward contract which

prices their milk on a basis that differs

from the order in which their milk is

pooled. For example, if a producer

under the Appalachian Order, which

prices milk to dairy farmers on the basis

of skim milk and butterfat, enters into

a contract that prices milk on the basis

of protein, butterfat, other solids, and

somatic cell count, the producer will

not receive data from the market

administrator to compare against the

buying handler’s test data. If the

producer wishes to verify these tests, he

or she will have to do so at their own

expense.

As proposed, payments specified

under a forward contract must be made

on the same dates as order payments

which they replace. No comments were

received in opposition to this provision

and it should be carried forward for

several reasons. First, nearly every

handler entering into forward contracts

would have some milk that is subject to

minimum order pricing. It is highly

unlikely that these handlers would

establish a dual accounting and

payment system even if they thought

that different payment dates would be

preferable to those specified under the

order. Second, if handlers paid

producers under contract at different

times than producers not under

contract, this disparate treatment could

cause problems which might influence

the success of the pilot program for

reasons entirely apart from more

predictable pricing. Third, from an

administrative standpoint, it will be

much easier to administer the pilot

program if payments are made on the

same day as minimum order payments.

Some commenters argued that the

market administrator should enforce

forward contract prices just as they do

minimum order prices. Another

comment stated that the regulations

should enforce payment of all contracts.

The Act requires the Secretary to

establish a forward pricing pilot

program. Milk for nonfluid use which is

covered by forward contracts under the

Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations 44413

pilot program is exempt from the

minimum price provisions of the orders.

We do not believe it should be the role

of the market administrator or the

Department to determine the terms of

forward contracts or to enforce

negotiated prices. Payment for milk

covered under forward contract is

required to be made by the dates

specified in § 1140.2(e) of the

regulations.

Some commenters argued that

allowing a handler to draw money from

the producer-settlement fund and not

pass it on to its producers could create

disorderly marketing conditions. One

commenter concluded that allowing a

handler to keep the difference between

the order’s blend price and the contract

price was an unjustified windfall to the

handler.

This issue merits some discussion.

Frankly, we do not know what form

forward contracts will take under the

pilot program. We do know the nature

of some forward contracts prior to the

pilot program. In the Upper Midwest,

where much of the milk that is pooled

is used for Class III use, many forward

contracts provided for a Class III price

plus a pool draw. If a handler was a

cheese operation, the pool draw would

equal the difference between the order’s

blend price and the Class III price.

It may be that this same formula will

be the popular way to forward contract

under the pilot program, but there are

several variables that make this unclear.

First, the pilot program applies to all

Federal order markets, with Class I

utilizations ranging from 90 percent to

10 percent. There is a significant

difference in the pool draw between

these extremes. Second, forward

contracts may only cover milk used for

Class II, III, or IV use. While a contract

providing for a Class III price plus the

pool draw might make sense for a

cheese plant, it may not fit well with an

ice cream or butter-powder operation.

Producers who are contemplating

forward contracting should keep in

mind that their benchmark price is the

Federal order blend price. That is the

minimum price that they would receive

in the absence of a forward contract.

Thus, it seems reasonable that when

producers negotiate a forward contract

price, they would hope to approximate,

ideally, the minimum blend price plus

applicable premiums averaged over the

forward contract period.

As noted above, we do not know how

handlers will arrive at forward contract

prices. They could look at futures

markets for guidance. A forward

contract price could be a flat blend price

approximation; it could be an average

futures market cheese price plus a pool

draw; or, for a butter-powder operation,

it could be an average future butter and

powder price on a hundredweight basis

plus a pool draw.

Over time, we would expect to see

forward prices to producers below the

blend price in some months and above

the blend price in other months. When

the contract price is below the blend

price, the pool draw could accrue to the

contracting handler. On the other hand,

when the contract price is above the

blend price, the contracting handler will

have to supplement the pool draw to

pay the producer the contract price. On

balance, the pluses and minuses should

cancel each other out since, one could

argue, the desired objective of forward

contracting is to remove the uncertainty

and variability in prices, not to reduce

a handler’s cost by cutting its payments

to producers. In fact, if producers

continually find that they are losing

money by forward contracting, it would

seem illogical for them to continue to do

so.

Some commenters also argued that

handlers with forward contracts under

the pilot program should be prohibited

from excluding milk from regulation or,

as it more commonly called, depooling

milk.

This issue would by necessity involve

amendments to Federal orders, unlike

the pilot program, which involves no

amendments to Federal orders. The

depooling issue is really separate from

forward contracting and is not

appropriate for consideration in this

informal rulemaking process.

Participation in the pilot program

must be entirely voluntary on the part

of dairy farmers and handlers. If the

Department believes that the program is

being used to coerce dairy farmers into

signing contracts providing for prices

that, on average, are consistently below

minimum order prices, steps will be

taken to halt such practices. One

indication that such practices could be

occurring would be complaints from

dairy farmers that they were dropped

because they refused to sign a forward

contract with a handler. Another

indication might be manifested by the

replacement of one group of dairy

farmers with another group of dairy

farmers who have entered into forward

contracts with the handler. It is

conceivable that some farmers might

intentionally enter into a forward

contract that would consistently provide

a price below the minimum order price

simply to get their milk pooled on a

particular market for possible future

benefit. This type of activity would

undermine the concept of minimum

prices to dairy farmers and lead to the

type of conditions that the AMAA was

enacted to remedy. Should these types

of activities occur after the pilot

program becomes effective, the

Secretary would consider appropriate

actions to halt such activities.

Many commenters, including several

members of Congress, took issue with

our reference to suspend or terminate

the pilot program in the discussion part

of the proposed rule. Other commenters,

however, specifically welcomed the

discussion of these contingencies.

It may be true, as one commenter

stated, that it is unnecessary to state that

the Secretary of Agriculture can

terminate the pilot program if he finds

that it is operating in conflict with the

Agricultural Marketing Agreement Act.

However, we see no harm in stating

what may not be obvious to all pilot

program participants: If the program is

abused, steps will be taken to stop the

abuse.

Therefore, based on the rationale set

forth in the proposed rule and in this

document we are adopting provisions of

the proposal as a final rule, with the

changes discussed in this document, as

well as several technical changes made

for clarity.

Additional information about the

pilot program is included in the

Department’s program announcement.

The information is also available on the

Dairy Programs’ web site

(www:ams.usda.gov/fmor/index.htm)

and is available from local market

administrator offices.

For the reasons set forth in the

preamble, Title 7 of Chapter X of the

CFR is amended by adding a new Part

1140 as follows:

PART 1140—DAIRY FORWARD

PRICING PILOT PROGRAM

Subpart A—Definitions

Sec.

1140.1 Definitions.

Subpart B—Rules Governing Forward

Contracts

1140.2 Rules governing forward contracts.

Authority: 7 U.S.C. 601 et seq.

Subpart A—Definitions

§ 1140.1 Definitions.

(a) Pilot program means the dairy

forward pricing pilot program provided

by an amendment to the Agricultural

Marketing Agreement Act of 1937 (7

U.S.C. 601 et seq.) signed into law on

November 29, 1999 (Section 3 of H.R.

3428 of the 106th Congress, as enacted

by section 1001(a)(8) of Public Law 106–

113 (113 Stat. 1536)).

(b) Eligible milk means the quantity of

milk equal to the contracting handler’s

Class II, III, and IV utilization of

44414 Federal Register / Vol. 65, No. 138 / Tuesday, July 18, 2000 / Rules and Regulations

1Contracts that have been signed prior to the

effective date of these rules are invalid under the

pilot program.

producer milk, in product pounds,

during the month, combining all plants

of a single handler regulated under the

same Federal order.

(c) Forward contract means an

agreement covering the terms and

conditions for the sale of milk from a

producer defined in §§ 1001.12,

1005.12, 1006.12, 1007.12, 1030.12,

1032.12, 1033.12, 1124.12, 1126.12,

1131.12, and 1135.12, or a cooperative

association defined in § 1000.18, and a

handler defined in §1000.9 or 1135.9.

(d) Contract milk means the producer

milk covered by a forward contract.

(e) Disclosure statement means the

following statement which must be

signed by each producer entering into a

forward contract with a handler before

the market administrator will recognize

the terms and conditions provided in

such contract.

Disclosure Statement

I am voluntarily entering into a forward

contract with llll (handler’s name). I

have been given a copy of the contract and

I have received the USDA’s Pilot Program

Fact Sheet to which this disclosure statement

was attached. By signing this form, I

understand that I am forfeiting my right to

receive the order’s minimum prices for that

portion of my milk that is under forward

contract for the duration of the contract. I

also understand that my milk will be priced

in accordance with the terms and conditions

of the contract.

Printed Name: llllllllllllll

Signature: llllllllllllllll

Date: llllllllllllllllll

Address: llllllllllllllll

Producer No: llllllllllllll

(f) Other definitions. The definition of any

term in parts 1000–1135 of this chapter apply

to, and are hereby made a part of, this part.

Subpart B—Rules Governing Forward

Contracts

§ 1140.2 Rules governing forward

contracts.

(a) Any handler defined in §§ 1000.9

and 1135.9 may enter into forward

contracts with producers or cooperative

associations for the handler’s eligible

milk. Milk under forward contract in

compliance with these rules will be

exempt from the minimum payment

provisions that would apply to such

milk pursuant to §§ 1001.73, 1005.73,

1006.73, 1007.73, 1030.73, 1032.73,

1033.73, 1124.73, 1126.73, 1131.73 and

1135.73 for the period of time covered

by the contract.

(b) A forward contract with a

producer or cooperative association

participating for the first time in this

pilot program may not exceed 12

months. In no event shall a forward

contract executed pursuant to this part

extend beyond December 31, 2004.

(c) Forward contracts must be signed

and dated by the contracting handler

and producer (or cooperative

association) prior to the 1st day of the

1st month for which they are to be

effective and must be in the possession

of the market administrator by the 15th

day of that month.1 The disclosure

statement provided in § 1140.1(e) must

be signed on the same date as the

contract by each producer entering into

a forward contract under the pilot

program, and this signed disclosure

statement must be attached to each

contract submitted to the market

administrator.

(d) In the event that a handler’s

contract milk exceeds the handler’s

eligible milk for any month in which the

specified contract price(s) are below the

order’s minimum prices, the handler

must designate which producer milk

shall not be contract milk. If the handler

does not designate the suppliers of the

over-contracted milk, the market

administrator shall prorate the overcontracted milk to each producer and

cooperative association having a

forward contract with the handler.

(e) Payments for milk covered by a

forward contract must be made on or

before the dates applicable to payments

for milk that is not under forward

contract under the respective Federal

order.

(f) Handlers participating in the pilot

program will continue to be required to

file all reports that are currently

required under the respective marketing

orders and will continue to be required

to account to the pool for all milk they

receive at their respective order’s

minimum class prices.

(g) Nothing in this part shall impede

the contractual arrangements that exist

between a cooperative association and

its members.

Dated: July 13, 2000.

Kathleen A. Merrigan,

Administrator, Agricultural Marketing

Service.

[FR Doc. 00–18113 Filed 7–17–00; 8:45 am]

BILLING CODE 3410–02–P

FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 900, 917, 926, 944, 950,

952, 961 and 980

[No. 2000–34 ]

RIN 3069–AA97

Federal Home Loan Bank Advances,

Eligible Collateral, New Business

Activities and Related Matters

AGENCY: Federal Housing Finance

Board.

ACTION: Final rule.

SUMMARY: The Federal Housing Finance

Board (Finance Board) is amending its

Advances Regulation and other

regulations to implement the

requirements of the Federal Home Loan

Bank System Modernization Act of 1999

by: allowing the Federal Home Loan

Banks (Banks) to accept from

community financial institution (CFI)

members new categories of collateral to

secure advances; expanding the

purposes for which the Banks may make

long-term advances to CFI members;

and removing the limit on the amount

of a member’s advances that may be

secured by other real estate-related

collateral. The Finance Board also is

making related and other technical

changes to its regulations on General

Definitions, Powers and Responsibilities

of Bank Boards of Directors and Senior

Management, Federal Home Loan Bank

Housing Associates, Community

Support Requirements, Community

Investment Cash Advance Programs and

Standby Letters of Credit, and adopting

a new regulation on New Business

Activities.

DATES: The final rule is effective on

August 17, 2000.

FOR FURTHER INFORMATION CONTACT:

James L. Bothwell, Director, (202) 408–

2821, Scott L. Smith, Deputy Director,

(202) 408–2991, or Julie Paller, Senior

Financial Analyst, (202) 408–2842,

Office of Policy, Research and Analysis;

or Eric E. Berg, Senior AttorneyAdvisor, (202) 408–2589, Eric M.

Raudenbush, Senior Attorney-Advisor,

(202) 408–2932, or Sharon B. Like, (202)

408–2930, Senior Attorney-Advisor,

Office of General Counsel, Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Background

A. Historical Benefits of Federal Home

Loan Bank System

The Federal Home Loan Bank System

(Bank System) comprises twelve

regional Banks that are instrumentalities

C-1

Appendix C

Forward Pricing Pilot Program Fact Sheet and Disclosure Statement

and

Questions & Answers Concerning Pilot Forward

Contracting Pricing Program
C-2

Forward Pricing Pilot Program Fact Sheet and Disclosure Statement

Agricultural Marketing Service, U.S. Department of Agriculture

1. The Forward Pricing Pilot Program is a voluntary program that allows dairy farmers 

and handlers buying their milk to enter into forward contracts for that portion of milk that 

the handler uses for nonfluid milk products. Dairy farmers are under no obligation to 

participate in this program and may continue to have their milk priced under the order’s 

minimum payment provisions. If a handler pressures a dairy farmer to sign a forward 

contract, this should be reported to the market administrator immediately.

2. By entering into a forward contract with a handler, a dairy farmer gives up the right to 

receive the minimum Federal order prices for the amount of their milk under contract.

3. The first forward contract involving a dairy farmer or cooperative association that is 

participating in the pilot program for the first time is restricted to 12 months. Thereafter, 

subsequent contracts may be of unlimited duration provided that they do not extend 

beyond the pilot program termination date, December 31, 2004.

4. Dairy farmers entering into a forward contract should understand all of the terms of the 

contract, including how their milk will be priced, the length of the contract, and any 

charges or deductions that will made. If a formula will be used to price your milk, you 

should understand how the formula works and what factors affect its movement. You 

should understand what will happen if you cannot fulfill the terms of the contract. What 

may you be liable for? You should also understand what remedies are available to you if 

the processor defaults on the contract. 

5. The terms and conditions of a contract must be in writing. If you and the handler to 

whom you deliver your milk renegotiate or modify any terms of the contract, the changes 

must be put in writing as an amendment to the contract and submitted to the market 

administrator. The contract should contain a clause explaining how disagreements will be 

settled.

6. Market administrators will continue to be responsible for verifying the accuracy of the 

weights and tests of your milk on the same basis as if your milk was subject to Federal 

order pricing. If you should choose to price components of your milk that are not tested 

for and priced under the order in which your milk is pooled, you will have to arrange for 

private testing of your milk to verify the buying handler’s weights and tests.

7. The following disclosure statement must be signed by each dairy farmer that enters 

into a forward contract with a handler under the pilot program. The disclosure statement 

must be attached to each contract submitted to the market administrator. Contracts that 

are submitted without the disclosure statement will be considered to be invalid for the 

purpose of exempting a handler from an order’s minimum pricing provisions. Forward 

contracts must be signed by the producer and handler prior to the first day of the month 

for which they are effective and must be in the possession of the market administrator by 

the 15th day of that month.
C-3

Disclosure Statement

I am voluntarily entering into a forward contract with ___________ (handler’s name). I

have been given a copy of the contract and I have received the USDA’s Pilot Program 

Fact Sheet to which this disclosure statement was attached. By signing this form, I 

understand that I am forfeiting my right to receive the order’s minimum prices for that 

portion of my milk that is under contract for the duration of the contract. I also 

understand that my milk will be priced in accordance with the terms and conditions of the 

contract.

Printed Name: ____________________

Signature: ____________________

Date: ____________________

Address: ____________________

Producer No. ____________________
C-4

Questions & Answers Concerning Pilot

Forward Contract Pricing Program

Q: Will all dairy farmers be guaranteed an opportunity to participate in this pilot 

program?

A: In order to participate in this program, two things are necessary. First, the handler to 

which a dairy farmer delivers milk must be willing to offer the dairy farmer a forward 

contract. Second, the handler must have non-fluid uses of milk--i.e., butter, powder, 

cheese, ice cream, yogurt, etc.--to cover the quantity of milk under forward contract.

Q: Can a handler force a producer to enter into a forward contract?

A: A handler cannot force a producer to enter into a forward contract. The Consolidated

Appropriations Act 2000 (i.e., Section 3 of H.R. 3428 of the 106th Congress, as enacted 

by Section 1001(a)(8) of Public Law 106-113), gives the Secretary of Agriculture the 

authority to implement this pilot program. If the program is abused, the Secretary will 

take appropriate remedial action.

Q: How do we know that a producer has “voluntarily” entered into a forward contract 

with a handler?

A: Before a handler can be exempt from paying a producer the Federal order’s minimum 

price(s), the market administrator must have a signed copy of a forward contract with 

both the handler’s and producer’s signatures. The contract must be signed prior to the 

first day of the month for which it is to be effective and must be in the possession of the 

market administrator by the 15th day of the month. In addition, attached to each contract 

must be a disclosure statement signed by the dairy farmer or cooperative association 

representative entering into the forward contract.

Q: Is there any restriction concerning the length of a forward contract?

A: A contract with a producer or cooperative association participating for the first time 

under the pilot program is limited to 12 months. Thereafter, any contract under the pilot 

program involving this producer or cooperative association may be unlimited in length 

provided that it does not extend beyond the pilot program termination date, December 31, 

2004.

Q: Can a producer enter into a forward contract with more than one handler?

A: Yes.
C-5

Q: Will the market administrator verify the weights and tests of milk under forward 

contract?

A: The market administrator will verify the weights and tests of milk of producers who 

are not members of a cooperative association in the same manner as would be done if the 

milk were not under contract.

Q: What happens if, after a handler has entered into forward contracts, the handler’s nonfluid use drops below the amount of milk covered by forward contracts?

A: If this should happen and the contract price exceeded the order’s minimum price(s) for 

the month, the issue would be moot and the handler would continue to pay the producer 

the agreed-upon contract price for the milk covered by the contract. If, on the other hand, 

the contract price was below the order’s minimum price(s) for the month, the handler 

would be required to pay the higher minimum price(s) for the quantity of over-contracted 

milk.

Q: In the situation just described, who determines which producers get the higher 

minimum order price for their over-contracted milk?

A: This determination is left to the handler. If the handler fails to indicate which milk is 

over-contract milk, the market administrator will prorate the quantity of over-contract 

milk to each producer and cooperative association having a forward contract with the 

handler.

Q: Can a handler enter into a forward contract with a cooperative association?

A: Yes.

Q: Can a forward contract between a handler and a cooperative association cover milk 

transferred from the cooperative association’s plant?

A: Forward contracts can apply to bulk milk or milk components transferred from a 

cooperative association’s plant.

Q: How will a handler’s Class II, III, and IV utilization be determined?

A: Each month the market administrator will combine all of the handler’s reported Class 

II, III, and IV utilization for all of the handler’s plants receiving producer milk under the 

specific order.
C-6

Q: Will a handler’s forward contracts with producers relieve the handler of responsibility 

for supplying the market with milk for fluid use if the market administrator increases 

shipping requirements for supply plants, balancing plants, and/or a system of supply 

plants?

A: No, any handler operating a pool plant will be responsible for meeting the order’s 

pooling requirements regardless of the impact such requirements may have on a handler’s 

outstanding forward contracts. This responsibility would extend to any modification of 

shipping requirements resulting from a market administrator’s adjustment of such 

requirements under the order.

Q: Will market administrators enforce payment of the contract price for milk covered by 

forward contracts?

A: No, market administrators will only enforce payment of the minimum order prices 

provided under the order for milk that is not subject to a forward contract.

Q: For that portion of their milk covered by forward contracts, will handlers still be 

subject to the order’s classified pricing system?

A: Yes, even though a handler has forward contracted for a portion of its milk supply at a 

price that is higher or lower than the minimum order price, the handler will still be 

required to account for all of its milk receipts at the classified prices provided by the 

order and will still be required to make a payment into the producer-settlement fund if its 

classified use value exceeds the marketwide average. On the other hand, if a handler’s 

classified use value is below the marketwide average, the handler will draw a payment 

out of the producer-settlement fund at the difference between its classified use value and 

the value of the milk at the marketwide average use value.

Q: For milk under forward contract, will a handler have to make partial and final 

payments by the dates required under the order?

A: Milk under forward contract will not be subject to the amount of payment specified 

under the order but contract payments will be required to be made on the same day as 

minimum order payments are required to be made.

Q: Can the components of milk under forward contract be priced on a different basis than 

the components of milk that is subject to minimum Federal order pricing?

A: Yes, milk under forward contract can be priced any way that the handler and producer 

mutually agree upon.

Q: Why restrict forward contracting to milk that is not used for fluid use?

A: This restriction was specified by the legislative amendment.
C-7

Q: Will market administrators have any role in reviewing or approving forward 

contracts?

A: Market administrators will review a forward contract to be certain that it is in 

compliance with the rules governing the pilot program. They will ensure that the contract 

is signed by both parties and will make certain that a signed disclosure statement is 

attached to each contract entered into by a dairy farmer under the pilot program. Other 

than reviewing the contract for these items, the market administrator will not comment on 

or seek to change a contract that has been approved between a producer and a handler.
D-1

Appendix D

Computation of Prices for Dairy Forward 

Pricing Pilot Program Study
D-2

Computation of Prices for Dairy Forward Pricing Pilot Program Study

The method used to compare prices for contracted milk is outlined below. Prices are 

calculated for contracted milk at test—the contract price; for the same milk had it not 

been contracted—the non-contract price; and for the same milk had it been it been priced 

under the Federal order—the Federal order minimum price. The method applies equally 

well to the variety of methods in pricing and quantifying contract milk and components 

found in Dairy Forward Pricing Pilot Program forward contracts.

As noted in the discussion, handlers have used a wide variety of methods in pricing and 

quantifying contract milk and components. This raises some difficulties in aggregating 

data to compute average prices. This is further complicated by the fact that payroll data 

provided by handlers usually does not distinguish between contract and non-contract milk 

for the producers who have part of their milk under contract.

The approach is to first calculate the non-contract value of all milk delivered by each 

contracting producer by applying the handler’s prices for milk components and the 

handler’s PPD to the milk delivered. The non-contract price per hundredweight is 

calculated by dividing this value by total milk delivered. The non-contract value is then 

subtracted from the total gross value paid before deductions, yielding the value attributed 

to the contract. This contract value is divided by contract volume to yield the contract 

value per hundredweight. The contract price per hundredweight is the sum of the noncontract price and the contract value per hundredweight. The key assumption is that the 

PPD and premium paid by the handler apply to both contracted and non-contracted milk. 

Similarly, the Federal order minimum price per hundredweight is calculated for the milk 

using the Federal order prices adjusted for location and the producer’s milk tests.

 

Price Calculations

The price computation for non-contract milk is straightforward. Participating handlers 

usually use pricing formulas that are the same or similar to Federal milk marketing order 

(FMMO) minimum pricing formulas. For example, in an order with component pricing, 

most handlers pay a producer price differential (PPD), butterfat price, protein price, other 

solids price, and a somatic cell count adjustment. These component prices, which may or 

may not be the same as the FMMO minimum prices, have been provided to the market 

administrator offices. In our example, handler component prices are the same, but the 

PPD paid by the handler is less than the Federal order PPD adjusted for location. 

Handlers often pay premiums in addition to component prices. Although in most cases 

handlers have not provided their formulas for premiums to the market administrator, the 

total premium paid to each producer has been provided. To determine if a handler has 

met FMMO minimum pricing requirements for non-contract milk, the price at test per 

hundredweight, including the premium, is compared to the FMMO minimum blend price 

at test. 
D-3

Payroll data provided by handlers includes the gross value of the milk before deductions 

for hauling, promotion, and marketing charges. It also provides pounds of milk delivered 

and the component tests. Since we have information necessary to compute non-contract 

milk prices at test, we can calculate a gross value before deductions that a forwardcontracting producer would have received had there been no contract. We attribute to the 

contract the difference between this computed gross value and the gross value that the 

producer actually received. From the contract, we know the contract pounds. We can 

therefore derive a price received, at test, for contract milk.

The following example serves as an illustration:

Payroll Information

Gross value on payroll for all milk, before deductions

 for hauling, promotion, and marketing charges $11,770.18

Total pounds 86,305 lbs.

Contract pounds 40,000 lbs.

Butterfat pounds 3,219 lbs.

Protein pounds 2,563 lbs.

Other solids pounds 4,919 lbs.

Somatic cell count adjustment $77.67

Premium $516.53

Non-contract prices paid by handler

PPD $0.7100 per cwt.

Butterfat price $1.3817 per pound

Protein price $2.0884 per pound

Other solids price $0.0965 per pound

Federal Minimum order prices

Same as handler’s non-contract prices in this example, except that the

 Federal order minimum PPD adjusted for location is $0.7600.

Computation of gross value of all milk had there been no contract

Handler’s PPD value ($0.71 X 86,305lbs.) / 100 = $ 612.77

Butterfat value $1.3817 X 3,219lbs. = 4,447.69

Protein value $2.0884 X 2,563lbs. = 5,352.57

Other solids value $0.0965 X 4,919lbs. = 474.68

Somatic cell count

 Adjustment 77.67

Premium 516.53

Non-contract gross value before deductions for hauling, 

 promotion and marketing $11,481.91
D-4

Computation of Federal order minimum gross value of all milk had there 

been no contract.

PPD value ($0.76 X 86,305lbs.) / 100 = $ 655.92

Butterfat value $1.3817 X 3,219lbs. = 4,447.69

Protein value $2.0884 X 2,563lbs. = 5,352.57

Other solids value $0.0965 X 4,919lbs. = 474.68

Somatic cell count

 Adjustment 77.67

Federal order minimum non-contract gross value before

 deductions for hauling, promotion and marketing $10,533.85

Handler’s milk price at test before deductions had there been no 

contract:

Gross value total pounds

($11,481.91 / 86,305) X 100 = $13.30

Federal Order minimum blend price at test before deductions 

had there been no contract:

Gross value total pounds

($10,533.85 / 86,305) X 100 = $12.21

Computation of price received for contract milk at test:

Gross value for all milk received, before deductions $11,770.18

Gross value of all milk had there been no contract 11,481.91

Difference attributed to contract $ 288.27

Difference per cwt. attributed to contract:

($288.27 / 40,000 contract lbs.) X 100 = $0.72

Computed price received for contract milk at test:

Milk price at test had there been no contract $13.30

Difference attributed to contract 0.72

Computed price received for contract milk at test $14.02

This method of computing the price received for non-contract milk assumes that the 

producer price differential and premium are calculated identically for contract and non-
D-5

contract milk. In other words, we assume that there is no price discrimination relevant to 

the producer price differential and the premium with respect to contract v. non-contract 

milk. Some contracts state, for example, that a producer will be paid “all applicable 

premiums,” without any further details. Such language may leave room for some error in 

this assumption. We also assume that the component proportions for contract milk are 

the same as that for non-contract milk.

We can now compute a gross value of contract milk, a gross value of contract milk had 

there been no contract, and a gross value of contract milk if the Federal order minimum 

blend price had been applicable:

Gross value of contract milk:

Contract pounds Contract price per cwt. Gross value of contract milk

 (40,000 X $14.02) / 100 = $5,608

Gross value of contract milk had there been no contract:

Contract pounds Non-contract price per cwt. Gross value of contract milk

 had there been no contact

 (40,000 X $13.30) / 100 = $5,320

Gross value of contract milk if the Federal order minimum blend price had been 

applicable:

Contract pounds Federal order minimum Gross value of contract milk at

 blend price per cwt. Federal order minimum blend price

 (40,000 X $12.21) / 100 = $4,884 

To compute the average contract price per hundredweight for a month or signing-delivery 

quarter combination, we total the gross value of contract milk for all of the producers, 

divide by contract pounds, and multiply by 100. Actual stated contract prices usually do 

not include premiums or PPDs. They are usually in addition to the contract price. Since 

we do not use actual contract prices to compute this average price, our computed price is 

technically the average price received for contract milk rather than the average contract 

price. For ease of reading, however, we call it the average contract price.

To obtain a valid comparison of the contract price to the non-contract price for a month 

or signing-delivery quarter combination, we total the gross value had there been no 

contract for all of the producers, divide by contract pounds, and multiply by 100. We 

then get the average price of contract milk had there been no contract. This is not the 

average price paid for non-contract milk since we have weighted the price with contract 

pounds instead of non-contract pounds. For ease of reading, however, we call it the 

average non-contract price. We follow the same procedure for the Federal order 

minimum blend price.
D-6

To compute average contract, non-contract, and Federal order minimum blend prices for 

the study period, we compute simple averages of the weighted monthly averages as 

described above.
E-1

Appendix E

Producer Questionnaire,

Plant Questionnaire,

and

Cooperative Questionnaire
Form Q-P 

FORWAR

According to the Paperwork Reduction collection of information unless it display0190. The time required to complete thireviewing instructions, searching existing collection of information.The U.S. Department of Agriculture (USDAsex, religion, age, disability, political beliPersons with disabilities who require altercontact USDA’s TARGET Center at 202-72To file a complaint of discrimination, writAvenue, SW, Washington, DC 20250-941AMS Control Number TO BE COMPLETED BY 

1. Pounds of milk produ

 Less than 100,000  100,000 to 400,00 400,000 to 1,000,0 More than 1 millio

2. My farm delivers to ____________________3. My farm is located in 4. How many potential 

 One.  Two or three.  Four or more. 

5. Have you used forwa

price changes in: (Se

 Feed? Fuel or energy? Cull cows?  Milk (other than th

6

The handler receivin
AMS Control Number 

7. Did you sign a contract as part of the Forward Contracting Pilot Program? 

 Yes. (Skip 8 and 9 below. Proceed to questions 10 through 14.)  No. (Proceed to question 8.) 

COMPLETE ONLY IF YOU DID NOT SIGN A FORWARD CONTRACT UNDER THE FORWARD CONTRACTING PILOT PROGRAM:

8. If you did not sign a forward contract under the Forward Contracting Pilot Program, 

please mark all of the following statements that apply to you. 

 My handler did not offer forward contracts, and I did not want to change handlers.  I thought that the market price would be higher than the contract price offered.  I heard about the contract offer too late to contract.  I probably will sign a forward contract in the near future.  I wished to sign a forward contract, but my handler denied a contract to me. (If you 

check this box, please answer question 9. Otherwise, stop here.) 

9. If you were denied a contract even though your handler had contracts with other producers, 

what was the reason(s)? 

 Volume too small.  I was too late. Contracts were offered on a “first come, first serve” basis.  Quality problems.  Other. Please specify: 

_________________________________________________________________________ 

COMPLETE ONLY IF YOU SIGNED AT LEAST ONE FORWARD CONTRACT UNDER THE FORWARD CONTRACTING PILOT PROGRAM:

10. What were your reasons for signing a forward contract? (Select all that apply.) 

 To assure a more stable cash flow.  To satisfy lender requirement.  Attractive contract price.  To maintain a relationship with my current buyer. 

AMS Control Number 

11. What information di

 Discussions with n USDA, university Futures market pr Comparison to oth My own analysis o Other, please spec

_________________

12. Although the Forwa

 order to retain a rela

 Strongly agree.  Slightly agree.  Don’t know.  Slightly disagree.  Strongly disagree. 

13. If your contract pric

 during the contract p

 Probably will not  Probably will redu Will have no effec Not applicable. M

contract period. 

14. If you contracted to 

 comparison price du tradeoff for the price 

 Yes, it was reason No, it was too larg Not applicable. M

contract period. 
AMS Control Number 

7. Did you sign a contract as part of the Forward Contracting Pilot Program? 

 Yes. (Skip 8 and 9 below. Proceed to questions 10 through 14.)  No. (Proceed to question 8.) 

COMPLETE ONLY IF YOU DID NOT SIGN A FORWARD CONTRACT UNDER THE FORWARD CONTRACTING PILOT PROGRAM:

8. If you did not sign a forward contract under the Forward Contracting Pilot Program, 

please mark all of the following statements that apply to you. 

 My handler did not offer forward contracts, and I did not want to change handlers.  I thought that the market price would be higher than the contract price offered.  I heard about the contract offer too late to contract.  I probably will sign a forward contract in the near future.  I wished to sign a forward contract, but my handler denied a contract to me. (If you 

check this box, please answer question 9. Otherwise, stop here.) 

9. If you were denied a contract even though your handler had contracts with other producers, 

what was the reason(s)? 

 Volume too small.  I was too late. Contracts were offered on a “first come, first serve” basis.  Quality problems.  Other. Please specify: 

_________________________________________________________________________ 

COMPLETE ONLY IF YOU SIGNED AT LEAST ONE FORWARD CONTRACT UNDER THE FORWARD CONTRACTING PILOT PROGRAM:

10. What were your reasons for signing a forward contract? (Select all that apply.) 

 To assure a more stable cash flow.  To satisfy lender requirement.  Attractive contract price.  To maintain a relationship with my current buyer. 

AMS Control Number 

11. What information di

 Discussions with n USDA, university Futures market pr Comparison to oth My own analysis o Other, please spec

_________________

12. Although the Forwa

 order to retain a rela

 Strongly agree.  Slightly agree.  Don’t know.  Slightly disagree.  Strongly disagree. 

13. If your contract pric

 during the contract p

 Probably will not  Probably will redu Will have no effec Not applicable. M

contract period. 

14. If you contracted to 

 comparison price du tradeoff for the price 

 Yes, it was reason No, it was too larg Not applicable. M

contract period. 
Form Q-H 

FORWA

According to the Paperwork Reduca collection of information unless it 0581-0190. The time required to cofor reviewing instructions, searching the collection of information.The U.S. Department of Agriculture origin, sex, religion, age, disability, pprograms.) Persons with disabilities audiotape, etc.) should contact USTo file a complaint of discriminationAvenue, SW, Washington, DC 2025AMS Control Number TO BE COMPLETED 

1. Of the milk you pool 

Class I 

ٱ

Class II 

ٱ

Class III 

ٱ

Class IV 

ٱ

2. Total pounds of milk 

 Less than  10 to 20 m 20 to 30 m More than 

3. The plant is generally 

_________________

4. The plant is located i

5. The plant is owned b

 A 

i

l

d
AMS Control Number 

6. If your primary use is Class I, how has the Forward Contracting Pilot Program affected your ability 

to attract a supply of milk for Class I uses?

 Made it easier.  Unchanged.  Made it harder.  Not applicable. 

7. How has the Forward Contracting Pilot Program affected your ability to attract a supply of milk for 

manufacturing (Class II, III, or IV) uses? 

 Made it easier.  Unchanged.  Made it harder.  Not applicable. 

8. With regards to your plant’s dairy operation, have you used forward contracts, futures, or options to 

protect against prices change in: (Select all that apply.) 

 Fuel or energy.  Labor.  Dairy product markets.  Milk (other than through the Forward Contracting Pilot Program)  Other, please specify:  ___________________________________________________________. 

9. Did you offer contracts under the Forward Contracting Pilot Program? 

 Yes. (Skip number 10. Answer questions 11 through 15.)  No. (Answer only question 10 below.) 

COMPLETE ONLY IF YOU DID NOT OFFER FORWARD CONTRACTS UNDER THE FORWARD CONTRACTING PILOT PROGRAM

10. If you did not offer forward contracts under the Forward Contracting Pilot Program to your 

 producers, please mark all of the following that apply. 

 The competition did not offer forward contracts.  Producers were not interested in forward contracting.  Most of o

r milk is 

sed for Class I p

rposes and is therefore ineligible for contracting 

AMS Control Number COMPLETE ONLY IF CONTRACTING PILO11. Did you offer the sa

 Yes.  No. 

12. For contracts offered

 Accept firs Accept firs Accept all  Accept for 

 _________

 No produc

13. How did you cover y

 Long-term  Used the F Self-protec

14. Would you continue 

 2004?

 Yes.  Only if nec No.  Don’t know

15. Did you sell more of 

 able to forward cont

 No.  Less than 2 From 25 to  50 percent 
AMS Control Number 

6. If your primary use is Class I, how has the Forward Contracting Pilot Program affected your ability 

to attract a supply of milk for Class I uses?

 Made it easier.  Unchanged.  Made it harder.  Not applicable. 

7. How has the Forward Contracting Pilot Program affected your ability to attract a supply of milk for 

manufacturing (Class II, III, or IV) uses? 

 Made it easier.  Unchanged.  Made it harder.  Not applicable. 

8. With regards to your plant’s dairy operation, have you used forward contracts, futures, or options to 

protect against prices change in: (Select all that apply.) 

 Fuel or energy.  Labor.  Dairy product markets.  Milk (other than through the Forward Contracting Pilot Program)  Other, please specify:  ___________________________________________________________. 

9. Did you offer contracts under the Forward Contracting Pilot Program? 

 Yes. (Skip number 10. Answer questions 11 through 15.)  No. (Answer only question 10 below.) 

COMPLETE ONLY IF YOU DID NOT OFFER FORWARD CONTRACTS UNDER THE FORWARD CONTRACTING PILOT PROGRAM

10. If you did not offer forward contracts under the Forward Contracting Pilot Program to your 

 producers, please mark all of the following that apply. 

 The competition did not offer forward contracts.  Producers were not interested in forward contracting.  Most of o

r milk is 

sed for Class I p

rposes and is therefore ineligible for contracting 

AMS Control Number COMPLETE ONLY IF CONTRACTING PILO11. Did you offer the sa

 Yes.  No. 

12. For contracts offered

 Accept firs Accept firs Accept all  Accept for 

 _________

 No produc

13. How did you cover y

 Long-term  Used the F Self-protec

14. Would you continue 

 2004?

 Yes.  Only if nec No.  Don’t know

15. Did you sell more of 

 able to forward cont

 No.  Less than 2 From 25 to  50 percent 
Form Q-C OMB No. 0581-0190 

FORWARD CONTRACTING PILOT PROGRAM STUDY 

COOPERATIVE QUESTIONNAIRE

According to the Paperwork Reduction Act of 1995, an agency may not conduct or sponsor, and a person is not required to, respond to, a 

collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0581-

0190. The time required to complete this information collection is estimated to average 15 minutes per response, including the time for 

reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the 

collection of information. 

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin,

sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all programs.) 

Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.)

should contact USDA’s TARGET Center at 202-720-2600 (voice and TDD). 

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence 

Avenue, SW, Washington, DC 20250-9410, or call 202-720-5964 (voice and TDD). USDA is an equal opportunity provider and employer.

AMS Control Number 

TO BE COMPLETED BY ALL COOPERATIVES

1. Total pounds of milk handled per month during the past year: 

 Less than 10 million pounds. 

 10 to 50 million pounds. 

 50 to 250 million pounds. 

 250 to 500 million pounds. 

 More than 500 million pounds. 

2. Of the milk you pool under Federal orders, what percentage falls into each class? 

 Class I ٱ %. 

 Class II ٱ %. 

 Class III ٱ %. 

 Class IV ٱ %. 

3. Of the milk you pool under Federal orders, what annual percentage is pooled in each order? Please 

enter percentages adding to 100%. 

Northeast ٱٱ Appalachian Florida 

Southeast ٱٱ Upper Midwest Central 

Mideast ٱٱ Pac. Northwest Southwest 

AZ-Las Vegas ٱٱ Western 

 1 
AMS Control Number 

4. Has the cooperative used forward contracts, futures market contracts, or options to protect itself 

against price changes in: (Select all that apply.) 

 Feed? 

 Fuel or energy? 

 Labor? 

 Dairy product markets? 

 Milk (other than through the Forward Contracting Pilot Program)? 

5. Has the cooperative offered forward contracts to members? 

 Yes. (If yes, proceed to question 6.) 

 No. (If no, skip question 6. Proceed to question 7.) 

6. If the cooperative has offered forward contracts to its members, has the Forward Contracting Pilot 

Program: (Select all that apply) 

 

 Made it easier to offer forward contracts to your members? 

 Encouraged you to offer forward contracts to your members? 

 Made it necessary for you to offer forward contracts to your members to meet competition? 

 Had little or no effect on the cooperative’s ability or need to forward contract with its 

members? 

7. With how many of your buyers have you signed a contract as part of the Forward 

Contracting Pilot Program? 

 None. (If you answer “None,” stop here.) 

 One. 

 2 or 3. 

 4 or 5. 

 More than 5. 

COMPLETE ONLY IF THE COOPERATIVE SIGNED FORWARD CONTRACTS UNDER THE PILOT 

PROGRAM

8. What were the reasons for signing a forward contract(s) to sell your members’ milk? 

 (Select all that apply.) 

 To cover forward contracts with member producers. 

 To assure a market for a portion of the members’ milk. 

 To lock in an attractive price. 

 To maintain a relationship with a buyer. 

 Other, please specify: 

___________________________________________________________________________. 

9. What information did you rely upon to determine a suitable contract price? (Select all 

 answers that apply.) 

 USDA, university, and/or private price forecasts. 

 Futures market prices. 

 Comparison to other forward contract price offers. 

 Our own price forecast. 

 Other, please specify. 

 ____________________________________________________________________________. 

 2 
F-1

Appendix F

Monthly Price Comparisons:

Contract and Non-Contract Milk Prices
F-2

Table F-1: Average Monthly Prices for Contracted Milk Volumes in Seven Orders 1/: With Contract, Without 

 Contract, and at FMMO Minimum Prices2/

Weighted average prices at test Price differences

Year and 

Month

Contract milk 

delivered and 

pooled Contract price

Non-contract 

price (had 

there been no 

contract)

Federal order 

minimum 

blend price

Contract 

minus noncontract

Contract 

minus Federal 

order blend 

price

1000s lbs $/cwt. $/cwt.

2000

Sept. 46,592.3 14.029 13.088 11.821 0.941 2.208

Oct. 51,287.6 14.273 13.127 11.416 1.146 2.857

Nov. 53,143.8 14.786 12.039 10.829 2.747 3.957

Dec. 54,456.4 14.671 12.725 11.502 1.946 3.169

2001

Jan. 127,384.0 14.009 12.860 11.656 1.149 2.353

Feb. 126,135.4 13.821 13.052 11.729 0.769 2.092

Mar. 144,748.2 13.858 14.154 12.754 -0.296 1.105

Apr. 176,840.5 13.569 14.544 13.326 -0.975 0.242

May 142,175.4 13.396 16.053 14.803 -2.657 -1.407

June 151,544.5 13.406 16.911 15.604 -3.506 -2.198

July 169,016.0 13.382 17.104 15.787 -3.722 -2.405

Aug. 195,752.7 13.226 17.013 15.961 -3.786 -2.735

Sept. 205,016.2 13.819 17.753 16.683 -3.934 -2.864

Oct. 170,891.6 14.046 16.646 15.501 -2.600 -1.454

Nov. 195,199.0 14.308 14.060 13.338 0.248 0.970

Dec. 199,839.9 13.774 13.777 12.832 -0.003 0.943

2002

Jan. 86,514.1 14.666 14.084 12.955 0.582 1.711

Feb. 74,383.1 14.855 13.890 12.664 0.965 2.191

Mar. 100,636.4 14.450 12.843 11.926 1.607 2.523

Sept 00-Mar 02 

Average 130,082.0 14.018 14.512 13.320 -0.494 0.698

St. Dev. 55,743.5 0.507 1.803 1.830 -1.296 -1.323

Minimum 46,592.3 13.226 12.039 10.829 1.187 2.397

Maximum 205,016.2 14.855 17.753 16.683 -2.898 -1.827

Range 158,423.9 1.629 5.714 5.854 -4.085 -4.225

Nov 00-Mar 02 

Average3/ 139,628.1 14.003 14.677 13.521 -0.674 0.482

St. Dev. 50,746.8 0.534 1.839 1.833 -1.305 -1.299

Minimum 53,143.8 13.226 12.039 10.829 1.187 2.397

Maximum 205,016.2 14.855 17.753 16.683 -2.898 -1.827

Range 151,872.5 1.629 5.714 5.854 -4.085 -4.225

/1 Seven Orders refers to the seven Federal orders with participation in the Program during the study period—the Central,

 Mideast, Northeast, Pacific Northwest, Southeast, Upper Midwest, and Western orders. 

/2 For a detailed description of how average prices are computed, see Appendix D.

/3 To allow comparisons to Tables F-2 and F-3, statistics for the 17-month period from November 2000 through March

 2002 are provided.
F-3

Table F-2: Average Monthly Prices for Contracted Milk Volumes in Upper Midwest Federal Order: With

 Contract, Without Contract, and at FMMO Minimum Prices 1/

Weighted average prices at test Price differences

Year and Month

Contract milk 

delivered and 

pooled Contract price

Non-contract 

price (had 

there been no 

contract)

Federal order 

minimum 

blend price

Contract 

minus noncontract

Contract 

minus Federal 

order blend 

price

1000s lbs $/cwt. $/cwt.

2000

Nov. 26,608.2 14.826 11.771 10.425 3.056 4.401

Dec. 27,519.2 14.707 12.474 11.110 2.234 3.597

2001

Jan. 88,580.6 13.836 12.639 11.373 1.197 2.464

Feb. 85,033.3 13.660 12.936 11.504 0.724 2.156

Mar. 93,985.0 13.649 14.026 12.577 -0.377 1.072

Apr. 121,854.9 13.281 14.330 13.144 -1.048 0.138

May 62,520.1 12.668 15.353 14.518 -2.685 -1.850

June 60,823.5 12.582 16.094 15.334 -3.512 -2.752

July 68,294.6 12.575 16.291 15.565 -3.715 -2.990

Aug. 95,329.0 12.655 16.340 15.738 -3.686 -3.083

Sept. 121,698.9 13.135 17.269 16.499 -4.135 -3.365

Oct. 91,417.0 13.364 16.151 15.425 -2.787 -2.062

Nov. 117,727.7 13.652 13.542 12.948 0.110 0.704

Dec. 118,473.2 13.183 13.402 12.693 -0.219 0.489

2002

Jan. 30,827.9 14.383 13.709 12.605 0.674 1.778

Feb. 20,396.3 15.204 14.026 12.259 1.177 2.944

Mar. 39,523.7 14.201 12.386 11.399 1.815 2.802

Monthly avg.-

17 months2/ 74,742.0 13.621 14.279 13.242 -0.658 0.379

St.Dev. 35,888.8 0.819 1.669 1.898 -0.850 -1.079

Minimum 20,396.3 12.575 11.771 10.425 0.805 2.150

Maximum 121,854.9 15.204 17.269 16.499 -2.066 -1.296

Range 101,458.5 2.628 5.499 6.074 -2.870 -3.446

/1 For a detailed description of how average prices are computed, see Appendix D.

/2 For the Upper Midwest Federal order, price statistics are provided for 17 months rather than 19 months. Data for 

 September and October of 2000 are restricted due to Program participation by less than 3 handlers. Data provided by

 fewer than three parties is considered restricted because aggregation of such information may not prevent individual

 disclosure.
F-4

Table F-3: Average Monthly Prices for Contracted Milk Volumes in Six Orders1/: With Contract, Without

 Contract, and at FMMO Minimum Prices 2/

Weighted average prices at test Price differences

Year and Month

Contract milk 

delivered and 

pooled Contract price

Non-contract 

price (had

there been no 

contract)

Federal order 

minimum 

blend price

Contract 

minus noncontract

Contract 

minus Federal 

order blend 

price

1000s lbs $/cwt. $/cwt.

2000

Nov. 26,535.6 14.745 12.308 11.234 2.437 3.511

Dec. 26,937.2 14.634 12.982 11.903 1.653 2.732

2001

Jan. 38,803.4 14.404 13.363 12.303 1.040 2.101

Feb. 41,102.1 14.154 13.293 12.194 0.861 1.960

Mar. 50,763.2 14.246 14.392 13.080 -0.146 1.166

Apr. 54,985.6 14.205 15.018 13.731 -0.813 0.474

May 79,655.2 13.968 16.603 15.027 -2.634 -1.059

June 90,721.0 13.958 17.459 15.785 -3.501 -1.827

July 100,721.4 13.929 17.656 15.937 -3.727 -2.008

Aug. 100,423.8 13.769 17.651 16.173 -3.882 -2.404

Sept. 83,317.3 14.819 18.460 16.951 -3.641 -2.132

Oct. 79,474.5 14.832 17.216 15.587 -2.385 -0.756

Nov. 77,471.2 15.305 14.847 13.931 0.458 1.373

Dec. 81,366.7 14.636 14.324 13.034 0.312 1.602

2002

Jan. 55,686.2 14.823 14.291 13.148 0.532 1.674

Feb. 53,986.8 14.724 13.839 12.817 0.885 1.907

Mar. 61,112.8 14.611 13.139 12.267 1.472 2.343

Monthly avg.-

17 months3/ 64,886.1 14.457 15.108 13.830 -0.652 0.627

St.Dev. 23,831.7 0.419 1.976 1.743 -1.557 -1.324

Minimum 26,535.6 13.769 12.308 11.234 1.461 2.535

Maximum 100,721.4 15.305 18.460 16.951 -3.155 -1.647

Range 74,185.8 1.536 6.152 5.717 -4.616 -4.181

/1 Six Orders refers to the six Federal orders with participation in the Program other than the Upper Midwest

 —the Central, Mideast, Northeast, Pacific Northwest, Southeast, and Western orders.

/2 For a detailed description of how average prices are computed, see Appendix D.

/3 For the Six Orders, price statistics are provided for 17 months rather than 19 months. Data for September and October

 of 2000 are restricted due to Program participation by less than 3 handlers. Data provided by fewer than three parties is

 considered restricted because aggregation of such information may not prevent individual disclosure.
G-1

Appendix G

Farm Cash Receipts Comparisons

at

Contract and Non-Contract Milk Prices
G-2

Table G-1. Gross Cash Receipts for Contracted Milk in the Upper Midwest Federal Order With

 Comparisons

Milk volumes

Gross cash receipts before deductions for hauling, 

promotion, and marketing charges1/

Differences in gross cash 

receipts

Year 

and 

Month

Total 

pooled milk 

of 

Program2/

producers

Contract

Milk

Total pooled 

milk of 

Program 

producers

Contract 

milk

Contract 

milk had 

there been 

no contract

Contract 

milk at 

Federal 

order 

minimum 

prices 

Contract 

minus no 

contract 

Contract 

minus 

Federal 

order 

minimum 

1000s lbs. $1000 $1000

2000

Nov. 31,865.1 26,608.2 4,581.0 3,945.0 3,132.0 2,773.9 813.0 1,171.1

Dec. 33,643.2 27,519.2 4,829.9 4,047.3 3,432.6 3,057.4 614.7 989.9

2001

Jan. 128,197.6 88,580.6 17,203.2 12,256.2 11,195.8 10,073.9 1,060.4 2,182.2

Feb. 119,315.9 85,033.3 16,075.3 11,615.4 10,999.7 9,782.0 615.7 1,833.4

Mar. 136,928.4 93,985.0 18,868.7 12,827.8 13,182.2 11,820.6 -354.3 1,007.2

Apr. 167,119.6 121,854.9 22,883.4 16,184.0 17,461.6 16,016.2 -1,277.6 167.7

May 95,832.1 62,520.1 13,304.0 7,919.9 9,598.8 9,076.5 -1,678.9 -1,156.6

June 92,152.2 60,823.5 12,921.3 7,652.9 9,789.0 9,326.8 -2,136.1 -1,673.9

July 98,003.3 68,294.6 13,520.4 8,588.3 11,125.6 10,630.2 -2,537.3 -2,041.9

Aug. 146,205.2 95,329.0 20,497.4 12,063.4 15,576.9 15,002.7 -3,513.4 -2,939.3

Sept. 170,866.1 121,698.9 24,481.8 15,984.8 21,016.7 20,079.4 -5,032.0 -4,094.6

Oct. 123,673.6 91,417.0 17,440.9 12,216.6 14,764.7 14,101.4 -2,548.0 -1,884.7

Nov. 172,773.3 117,727.7 23,506.5 16,072.4 15,942.9 15,243.5 129.5 828.9

Dec. 178,556.9 118,473.2 23,652.7 15,617.9 15,877.4 15,038.0 -259.4 579.9

2002

Jan. 65,999.1 30,827.9 9,061.7 4,433.9 4,226.2 3,885.7 207.7 548.2

Feb. 33,333.0 20,396.3 4,833.3 3,101.0 2,860.9 2,500.4 240.1 600.6

Mar. 77,575.1 39,523.7 10,259.9 5,612.6 4,895.4 4,505.4 717.2 1,107.3

Totals 1,872,039.8 1,270,613.3 257,921.3 170,139.5 185,078.2 172,914.1 -14,938.7 -2,774.7

/1 For a description of how gross values are computed, see Appendix D.

/2 Program refers to Dairy Forward Pricing Pilot Program.
G-3

Table G-2: Gross Cash Receipts for Contracted Milk in Six Orders1/ With Comparisons

Milk volumes

Gross cash receipts before deductions for hauling, 

promotion, and marketing charges2/

Differences in gross cash 

receipts

Year 

and 

Month

Total 

pooled milk 

of 

Program3/

producers

Contract

Milk

Total pooled 

milk of 

Program 

producers

Contract 

milk

Contract 

milk had 

there been 

no contract

Contract 

milk at 

Federal 

order 

minimum 

prices 

Contract 

minus no 

contract 

Contract 

minus 

Federal order 

minimum 

1000s lbs. $1000 $1000

2000

Nov. 35,385.8 26,535.6 4,966.5 3,912.6 3,266.1 2,981.1 646.6 931.6

Dec. 37,759.0 26,937.2 5,339.0 3,942.1 3,496.9 3,206.3 445.2 735.8

2001

Jan. 53,515.7 38,803.4 7,581.7 5,589.1 5,185.5 4,774.0 403.6 815.1

Feb. 60,960.0 41,102.1 8,506.3 5,817.7 5,463.8 5,011.9 353.9 805.8

Mar. 75,838.8 50,763.2 10,892.1 7,231.7 7,305.8 6,640.0 -74.1 591.8

Apr. 84,305.0 54,985.6 12,265.8 7,810.8 8,258.0 7,550.1 -447.3 260.6

May 125,291.0 79,655.2 18,757.9 11,126.6 13,224.8 11,970.1 -2,098.2 -843.5

June 138,708.9 90,721.0 21,093.3 12,662.9 15,839.3 14,320.1 -3,176.4 -1,657.2

July 145,636.9 100,721.4 21,913.8 14,029.4 17,783.7 16,051.6 -3,754.3 -2,022.2

Aug. 145,682.7 100,423.8 21,785.6 13,827.4 17,726.1 16,241.8 -3,898.7 -2,414.4

Sept. 119,793.4 83,317.3 19,023.5 12,346.9 15,380.5 14,123.4 -3,033.5 -1,776.4

Oct. 112,859.8 79,474.5 17,505.2 11,787.3 13,682.6 12,388.0 -1,895.3 -600.7

Nov. 109,642.3 77,471.2 16,546.6 11,856.8 11,502.4 10,792.8 354.4 1,064.0

Dec. 119,532.8 81,366.7 17,450.6 11,908.8 11,655.0 10,605.0 253.8 1,303.8

2002

Jan. 84,620.3 55,686.2 12,504.1 8,254.2 7,958.1 7,321.9 296.1 932.4

Feb. 70,052.6 53,986.8 10,238.4 7,949.0 7,471.0 6,919.5 478 1,029.4

Mar. 83,934.8 61,112.8 12,004.2 8,929.1 8,029.5 7,496.9 899.6 1,432.2

Totals 1,603,519.6 1,103,064.1 238,374.6 158,982.5 173,229.0 158,394.4 -14,246.6 588.1

/1 Six Orders refers to the six Federal orders with participation in the Program other than the Upper Midwest—

 the Central, Mideast, Northeast, Pacific Northwest, Southeast, and Western orders. 

/2 For a description of how gross values are computed, see Appendix D.

/3 Program refers to Dairy Forward Pricing Pilot Program.