76832 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1000, 1001, 1005, 1006,

1007, 1030, 1032, 1033, 1124, 1126,

1131, and 1135

[Docket No. AO–14–A69, et al.: DA–00–03]

Milk in the Northeast and Other

Marketing Areas; Tentative Decision

on Proposed Amendments and

Opportunity To File Written Exceptions

to Tentative Marketing Agreements

and to Orders

AGENCY: Agricultural Marketing Service,

USDA.

ACTION: Proposed rule.

7 CFR

part Marketing area AO Nos.

1001 ..... Northeast ............ AO–14–A69

1005 ..... Appalachian ....... AO–388–A11

1006 ..... Florida ................ AO–356–A34

1007 ..... Southeast ........... AO–366–A40

1030 ..... Upper Midwest ... AO–361–A34

1032 ..... Central ................ AO–313–A43

1033 ..... Mideast ............... AO–166–A67

1124 ..... Pacific Northwest AO–368–A27

1126 ..... Southwest .......... AO–231–A65

1131 ..... Arizona-Las

Vegas.

AO–271–A35

1135 ..... Western .............. AO–380–A17

SUMMARY: This tentative decision

responds to a Congressional mandate to

reconsider the Class III and Class IV

pricing formulas included in the final

rule for the consolidation and reform of

Federal milk orders. The mandate was

included in the Consolidated

Appropriations Act, 2000. A hearing

was held May 8–12, 2000, in

Alexandria, Virginia, to consider

proposals submitted by the industry to

change the formulas. The material

issues on the record of the hearing relate

to the elements of the Class III and Class

IV pricing formulas, including:

commodity prices, manufacturing

(make) allowances, factors related to

product yield, role of producer costs of

production, and the issue of whether to

omit a recommended decision.

The major changes in the decision

would reduce the cheese make

allowance used in the Class III

component price calculations, increase

the make allowances used in the Class

IV component price calculations,

provide for separate Class III and Class

IV butterfat prices, and remove the

butterfat adjustment factor from the

protein price formula. In addition, the

decision requires that processes be

undertaken to determine if producers

approve issuance of the amended orders

on an interim basis.

DATE: Comments are due on or before

February 5, 2001.

ADDRESSES: Comments (six copies)

should be filed with the Hearing clerk,

Room 1081, South Building, U.S.

Department of Agriculture, Washington,

DC 20250.

FOR FURTHER INFORMATION CONTACT:

Constance M. Brenner, Marketing

Specialist, USDA/AMS/Dairy Programs,

Order Formulation Branch, Room 2968,

South Building, P.O. Box 96456,

Washington, DC 20090–6456, (202) 720–

2357, e-mail address

connie.brenner@usda.gov.

SUPPLEMENTARY INFORMATION: This

administrative action is governed by the

provisions of sections 556 and 557 of

Title 5 of the United States Code and,

therefore, is excluded from the

requirements of Executive Order 12866.

These proposed amendments have

been reviewed under Executive Order

12988, Civil Justice Reform. This action

is not intended to have a retroactive

effect. If adopted, this proposed action

will not preempt any state or local laws,

regulations, or policies, unless they

present an irreconcilable conflict with

this rule.

The Agricultural Marketing

Agreement Act of 1937, as amended (7

U.S.C. 601–674), provides that

administrative proceedings must be

exhausted before parties may file suit in

court. Under section 608c(15)(A) of the

Act, any handler subject to an order may

request modification or exemption from

such order by filing with the Secretary

a petition stating that the order, any

provision of the order, or any obligation

imposed in connection with the order is

not in accordance with the law. A

handler is afforded the opportunity for

a hearing on the petition. After a

hearing, the Secretary would rule on the

petition. The Act provides that the

district court of the United States in any

district in which the handler is an

inhabitant, or has its principal place of

business, has jurisdiction in equity to

review the Secretary’s ruling on the

petition, provided a bill in equity is

filed not later than 20 days after the date

of the entry of the ruling.

Regulatory Flexibility Analysis

This decision responds to a

Congressional mandate to reconsider the

Class III and Class IV pricing formulas

included in the final rule for the

consolidation and reform of Federal

milk orders. The mandate was included

in the Consolidated Appropriations Act,

2000 (Pub. L. 106–113, 115 Stat. 1501).

In accordance with the Regulatory

Flexibility Act (RFA) (5 U.S.C. 601 et

seq.), the Agricultural Marketing Service

(AMS) has considered the economic

impact of this action on small entities

and has prepared this regulatory

flexibility analysis. When preparing

such analysis an agency shall address:

the reasons, objectives, and legal basis

for the anticipated proposed rule; the

kind and number of small entities

which would be affected; the projected

recordkeeping, reporting, and other

requirements; and federal rules which

may duplicate, overlap, or conflict with

the proposed rule. Finally, any

significant alternatives to the proposal

should be addressed. This final

regulatory flexibility analysis considers

these points and the impact of this final

regulation on small entities. The legal

basis for this action is discussed in the

preceding section.

The RFA seeks to ensure that, within

the statutory authority of a program, the

regulatory and informational

requirements are tailored to the size and

nature of small businesses. For the

purpose of the RFA, a dairy farm is

considered a ‘‘small business’’ if it has

an annual gross revenue of less than

$500,000, and a dairy products

manufacturer is a ‘‘small business’’ if it

has fewer than 500 employees. For the

purposes of determining which dairy

farms are ‘‘small businesses,’’ the

$500,000 per year criterion was used to

establish a production guideline of

326,000 pounds per month. Although

this guideline does not factor in

additional monies that may be received

by dairy producers, it should be an

inclusive standard for most ‘‘small’’

dairy farmers. For purposes of

determining a handler’s size, if the plant

is part of a larger company operating

multiple plants that collectively exceed

the 500-employee limit, the plant will

be considered a large business even if

the local plant has fewer than 500

employees.

USDA has identified as small

businesses approximately 66,327 of the

71,716 dairy producers (farmers) that

have their milk pooled under a Federal

order. Thus, small businesses constitute

approximately 92.5 percent of the dairy

farmers in the United States. On the

processing side, there are approximately

1,200 plants associated with Federal

orders, and of these plants,

approximately 720 qualify as ‘‘small

businesses,’’ constituting about 60

percent of the total.

During January 2000, there were

approximately 240 fully regulated

handlers (of which 186 were small

businesses), 43 partially regulated

handlers (of which 28 were small

businesses), and 71 producer-handlers

of which all were considered small

businesses for the purpose of this initial

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76833

regulatory flexibility analysis,

submitting reports under the Federal

milk marketing order program. This

volume of milk pooled under Federal

orders represents 72 percent of all milk

marketed in the U.S. and 74 percent of

the milk of bottling quality (Grade A)

sold in the country. Forty-four

distributing plants were exempt from

Federal order regulation on the basis of

their small volume of distribution.

Producer deliveries of milk used in

Class I products (mainly fluid milk

products) totaled 3.965 billion pounds

in January 2000—38.8 percent of total

Federal order producer deliveries. More

than 200 million Americans reside in

Federal order marketing areas—

approximately 77 percent of the total

U.S. population.

In order to accomplish the goal of

imposing no additional regulatory

burdens on the industry, a review of the

current reporting requirements was

completed pursuant to the Paperwork

Reduction Act of 1995 (44 U.S.C.

Chapter 35). In light of this review, it

was determined that these proposed

amendments would have little or no

impact on reporting, recordkeeping, or

other compliance requirements because

these would remain identical to the

current Federal order program. No new

forms have been proposed, and no

additional reporting would be

necessary.

This notice does not require

additional information collection that

requires clearance by the OMB beyond

the currently approved information

collection. The primary sources of data

used to complete the forms are routinely

used in most business transactions.

Forms require only a minimal amount of

information which can be supplied

without data processing equipment or a

trained statistical staff. Thus, the

information collection and reporting

burden is relatively small. Requiring the

same reports for all handlers does not

significantly disadvantage any handler

that is smaller than industry average.

No other burdens are expected to fall

upon the dairy industry as a result of

overlapping Federal rules. This

proposed rulemaking does not

duplicate, overlap or conflict with any

existing Federal rules.

To ensure that small businesses are

not unduly or disproportionately

burdened based on these proposed

amendments, consideration was given

to mitigating negative impacts.

One of the principal issues considered

at the hearing was the source of price

data that should be used to generate

prices for milk components and,

thereby, prices to be paid to producers.

The options considered were the

National Agricultural Statistics Service

(NASS) surveys of selling prices of

manufactured dairy products, Chicago

Mercantile Exchange (CME) prices, and

producer costs of production. The

decision selects the NASS-reported

prices as the most appropriate for use in

determining product prices because of

the considerably larger volume of

product represented in those prices

series than in the CME price data.

Producer cost of production was not

included in the calculation of prices

because assuring dairy farmers that their

costs of production will be covered

addresses only the milk supply side of

the market and ignores factors

underlying demand or changes in

demand for milk and milk products.

Various proposals to reduce or

increase the levels of the manufacturing

(make) allowances of butter, nonfat dry

milk, cheddar cheese and dry whey

were considered. This decision adjusts

these make allowances from their

current levels on the basis of data and

testimony contained in the hearing

record. Most of the adjustments are

minimal. Primarily, manufacturing cost

surveys done by USDA’s Rural

Cooperative Business Service and the

California Department of Food and

Agriculture were used to determine the

most appropriate levels of make

allowance for the products used in

calculating Federal order class prices.

The only other actual collection of

manufacturing cost data for cheddar

cheese and dry whey that was cited in

the hearing record was a survey of

cheddar cheese and dry whey

manufacturing costs arranged for by the

National Cheese Institute. This survey

was conducted by persons unfamiliar

with the dairy industry among cheese

processors who would benefit from

having overstated costs included in the

results, and as a result has less

reliability than the two studies used to

determine the cheddar cheese make

allowance. In addition, one nonfat dry

milk manufacturer testified to costs of

manufacture that exceeded those of the

two studies by a significant amount,

mostly in the areas of return on

investment and marketing costs. The

data did not include any information

about the pounds of product

manufactured, and could not have been

weighted with the data from the two

other studies.

Several proposals to change the factor

reflecting the yield of nonfat dry milk

from nonfat solids in milk would have

increased the nonfat solids price, and

the Class IV skim price, but ignored the

need to reflect the generally lower price

and higher manufacturing cost of

buttermilk powder that also must be

considered in calculating the Class IV

nonfat solids price. Testimony and data

in the record was used to determine a

factor more representative of nonfat dry

milk yield and the effect of buttermilk

powder price and cost. The alternatives

to the formula adopted did not include

consideration of the price, cost, and

volume of buttermilk powder relative to

those of nonfat dry milk.

Proposals were made to reduce the

butter and cheese product prices used in

calculating the Class IV butterfat price

and the Class III prices. The record of

this proceeding continues to support the

use of the product prices adopted in the

final rule in the Federal milk order

reform process as representing

accurately the values of these products.

In the case of adjusting the Grade AA

butter price to reflect the value of Grade

A butter, the record fails to reveal any

source of information for obtaining

current prices for Grade A butter. In the

case of proposals to remove the 3-cent

adjustment between the barrel and 40-

pound block cheese prices, there was no

testimony about the actual difference in

cost between the two types of packaging

that overcame testimony that 3 cents is

the actual cost difference, or data that

indicates that the customary price

difference is at least 3 cents.

Proposals to reconsider the class price

relationships in the orders were

considered, although a proposal to use

a weighted average of the Class III and

Class IV prices as a Class I price mover

was not noticed for hearing in this

proceeding. The hearing record supports

the continued relationships between the

Class IV and Class II prices, and

between the higher of the manufacturing

class prices and the Class I price.

A proposal that the Class II

differential be changed to negate any

changes in the Class IV price formula

that would affect the current price

relationship between nonfat dry milk

and Class II failed to consider that the

Class II-Class IV price difference

adopted in Federal order reform is based

on the difference in the value of milk

used to make dry milk and the value of

milk used to make Class II products.

Proposals that any increases resulting

from changes to the Class III and Class

IV price formulas not be allowed to

result in increases in Class I prices did

not address the rationale for the current

Class I price differentials above the

manufacturing price levels for the

purpose of obtaining an adequate

supply of milk for fluid (drinking) use.

The changes to the Class III and Class

IV price formulas included in this

decision should have no special impact

on small handler entities. All handlers

manufacturing dairy products from milk

76834 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

classified as Class III or Class IV would

remain subject to the same minimum

prices regardless of the size of their

operations. Such handlers would also be

subject to the same minimum prices to

be paid to producers. These features of

minimum pricing are required by the

Agricultural Marketing Agreement Act

and should not raise barriers to the

ability of small handlers to compete in

the marketplace. It is similarly expected

that small producers would not

experience any particular disadvantage

to larger producers as a result of any of

the proposed amendments.

Interested parties are invited to

comment on the probable regulatory and

informational impact of the amended

provisions of this decision on small

businesses. Also, parties may suggest

modifications of this decision for the

purpose of tailoring the applicability of

the provisions to small businesses.

An analysis was done on the effects

of the alternatives selected, and is

summarized below.

Analysis

In order to assess the impact of

changes in Federal order milk pricing

formulas, the Department conducted an

economic analysis. While the primary

purpose of this decision is to amend the

product pricing formulas used to price

milk regulated under Federal milk

marketing orders and classified as either

Class III or Class IV milk, these product

price formulas also affect the prices of

regulated milk classified as Class I and

Class II.

The modifications in this decision are

analyzed simultaneously as a change

from the current set of formulas. This

analysis focuses on impacts on milk

marketed under all Federal milk

marketing orders, and treats the Federal

order system as a single entity. Milk

marketed in California, milk marketed

under other state regulations and

unregulated milk are treated separately.

The hard manufactured dairy product

markets are national.

Scope of Analysis

Impacts were measured as changes

from the model baseline as adapted

from the USDA dairy baseline published

in February 2000. The USDA baseline is

a national, annual projection of the

supply-demand-price situation for milk

and dairy products. Baseline

assumptions are: (1) The price support

program would end on December 31,

2000; (2) the Dairy Export Incentive

Program would continue to be utilized;

and (3) the Federal Milk Marketing

Order Program would continue as

reformed on January 1, 2000.

It was necessary to make the

following simplifying assumptions in

order to conduct the analysis. The

Federal order share of U.S. milk

marketings is about 67 percent. About

60 percent of all milk manufactured

(Classes II, III, and IV) is marketed

under Federal order regulation. Given

the prominence of Federal order

marketings in the U.S. milk

manufacturing industry, prices paid for

manufactured milk under Federal orders

cannot get too far out of alignment with

the value of milk for manufacturing in

the rest of the United States. Similarly,

the fluid prices in non-Federal order

markets are largely reflective of Federal

order minimum Class I prices.

California stands out as the state with

the highest production and has its own

market regulations. California milk

marketings are estimated as a function

of the California pool price. NonCalifornia milk marketings are estimated

as a function of an all-milk price that

incorporates the Federal order pool

price and over-order payment estimates.

The Federal order share of those nonCalifornia marketings is estimated as a

function of the Federal order all-milk

price relative to the estimated value of

manufactured milk.

Cooperatives manufacture about 40

percent of the cheese and about 70

percent of the butter and nonfat dry

milk manufactured nationally, and sell

such dairy products in wholesale and

retail markets in competition with other

manufacturers. A baseline assumption is

that a cooperative passes through to its

members the best price and best return

on investment that it can. A higher

minimum Federal order price could

result in cooperatives paying higher

monthly prices for milk, but would

result in lower returns on investments

paid at the end of the year. Total cash

receipts for member milk marketings

processed by cooperatives would be

changed only by changes in wholesale

product prices.

Specifically, it is assumed that

changes in pay prices and cash receipts

to cooperative members for raw milk

marketed by cooperatives, or to nonmembers for milk marketed to

proprietary handlers would be fully

reflected by lower or higher Federal

minimum class prices. Changes in pay

prices and cash receipts to cooperative

members for milk manufactured by

cooperatives would be fully reflected by

the manufacturing milk price that

moves with changes in manufactured

product prices only. This applies to 40

percent of the Class III milk and 70

percent of the Class IV milk. In the case

of cooperatives, it is assumed that

differences between the model

generated average value for

manufactured milk and the average of

the Class II, Class III, and Class IV prices

would be passed on to producermembers in the form of higher or lower

pay prices. In the case of proprietary

plants, it is assumed that the plants

would retain the differences. However,

in the case of a loss, proprietary

manufacturing plants could de-pool

milk to equalize their margins with

cooperative plant margins. In the model,

this is accounted for by an equation that

estimates the Federal order share of

non-California marketings as a function

of the ratio of the Federal order all-milk

price relative to the estimated value of

manufactured milk. The Federal order

share increases as the price ratio

increases.

In addition to altering the sharing of

manufacturing proceeds between

manufacturing plants and producers the

decision’s formula changes have an

impact on Class I and Class II prices.

Class II prices move in concert with

changes in Class IV. The effects on Class

I prices depend upon the effect on the

Class III price relative to the Class IV

price. Class I prices are based on the

higher of the Class III or Class IV prices.

Retail prices of fluid milk and Class

II soft manufactured products are

assumed to respond penny for penny to

changes in the milk cost of these

products. Wholesale and retail margins

are assumed unchanged from baseline.

Demands for Class I and Class II

products are functions of price, per

capita consumption and population.

Wholesale prices for cheese, butter and

nonfat dry milk reflect supply and

demand for these products. The milk

supply for manufacturing these hard

products is the result of milk marketings

minus the volumes demanded for Class

I and Class II products. The remaining

volume is allocated to Class III and

Class IV according to returns to

manufacturing in each class. Demands

for products in these classes are

functions of per capita consumption and

population. Per capita consumption for

the major milk and dairy products are

estimated as functions of price, income,

and the proportion of food expenditures

spent away from home.

Summary of Results

The results of the amendments to the

Class III and Class IV formulas are

summarized using five-year, 2001–2005,

average changes from the model

baseline. The results presented for the

Federal order system are in the context

of the larger U.S. market. In particular,

the Federal order price formulas use

national manufactured dairy product

prices.

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76835

In addition, the advanced Class I base

price is driven by the higher of the Class

III or Class IV prices. With the amended

formulas, the Class I base price is the

Class IV price in all years of the

analytical period. In each year, the Class

I price, at the class average test of 2

percent butterfat, is slightly above the

baseline. This results in a small

reduction in the demand for skim milk,

and to a lesser extent butterfat, for Class

I use. Milk generally shifts from Class I

use to the production of butter, nonfat

dry milk, and cheese in generally the

same proportions as in the baseline. As

a result, the wholesale prices of butter,

nonfat dry milk and cheese each

decrease slightly.

Producers. Over the five-year period,

the changes taken as a whole result in

a small increase of about $0.007 per

hundredweight in the Federal order

minimum blend price for milk at test.

Including the effect of premiums, the

average milk price received by Federal

order producers is expected to average

up $0.009 per hundredweight. Federal

order marketings increase by an average

139 million pounds and cash receipts

increase by $30 million (0.18 percent)

from baseline receipts of $16,414

million. U.S. milk marketings increase

by an average 24 million pounds

annually, and cash receipts increase by

$15.5 million (0.07 percent) from

baseline receipts of $23,841 million.

There is an increase of $0.007 per

hundredweight in the five-year annual

average U.S. all-milk price.

Milk Manufacturers and Processors.

For 2001, the Class III price at test (3.61

percent butterfat) is increased by $0.02

per hundredweight under the amended

marketing orders. For the second year,

Class III is unchanged from baseline and

then decreases slightly in 2003–2005.

For the five-year period, Class III at test

averages down about $0.015 per

hundredweight.

The major change is the five-year

annual average increase in the

minimum Class III butterfat price of

about $0.73 per pound, and a decline in

the average minimum Class III skim

milk price of about $2.72 per

hundredweight. The estimated NASS

cheese price, at 38 percent moisture,

decreases an average $0.003 per pound

(0.2 percent).

Butterfat prices for Class II and Class

IV average down slightly ($0.008 per

pound) for the five-year period, while

skim milk prices increase about $0.11

per hundredweight. This results in an

increased Class II milk cost, at test, to

processors of about 0.12 percent. The

butter price decreases an average 0.5

percent while the average nonfat dry

milk price decreases by about 0.3

percent for the period.

The average U.S. value of milk in

manufactured products decreases by

about $0.03 per hundredweight for the

period.

Class I costs to fluid processors (at the

class average butterfat of 2 percent)

average about $0.03 per hundredweight

(0.23 percent) higher, as a result of

higher skim milk prices each year.

Consumers. The expected $0.03 per

hundredweight increase in the Class I

price for 2001–2005 results in about a

$0.0025 increase in the price per gallon

of fluid milk for consumers. Consumer

costs for fluid milk are estimated to

increase on average by about $10.4

million annually over the five-year

period.

The price of butter is estimated to

decrease on average $0.006 per pound

for the period. Cheese is estimated to

decrease $0.003 per pound. Consumer

expenditures on butter are estimated to

decrease by about $5.6 million, and on

American cheese, decrease by about

$10.6 million annually over the fiveyear period.

A complete economic analysis is

available upon request from Howard

McDowell, Senior Economist, USDA/

AMS/Dairy Programs, Office of the

Chief Economist, Room 2753, South

Building, U.S. Department of

Agriculture, Washington, DC 20250,

(202) 720–7091, e-mail address

howard.mcdowell@usda.gov

Civil Rights Impact Statement

This decision is based on the record

of a public hearing held May 8–12,

2000, in Alexandria, Virginia, in

response to a mandate from Congress

via the Consolidated Appropriations

Act, 2000, that required the Secretary of

Agriculture to conduct a formal

rulemaking proceeding to reconsider the

Class III and Class IV milk pricing

formulas included in the final rule for

the consolidation and reform of Federal

milk orders. The consolidated orders

were implemented on January 1, 2000.

Pursuant to Departmental Regulation

(DR) 4300–4, a comprehensive Civil

Rights Impact Analysis (CRIA) was

conducted and published with the final

decision on Federal milk order

consolidation and reform. That CRIA

included descriptions of (1) the purpose

of performing a CRIA; (2) the civil rights

policy of the U.S. Department of

Agriculture; and (3) basics of the

Federal milk marketing order program

to provide background information.

Also included in that CRIA was a

detailed presentation of the

characteristics of the dairy producer and

general populations located within the

former and current marketing areas.

The conclusion of that analysis

disclosed no potential for affecting dairy

farmers in protected groups differently

than the general population of dairy

farmers. All producers, regardless of

race, national origin, or disability, who

choose to deliver milk to handlers

regulated under a Federal order will

receive the minimum blend price. It also

was concluded that ‘‘one of the reasons

for success of the Federal milk order

program is that all producers benefit

through assistance in developing steady,

dependable markets, reducing price

instability and unnecessary price

fluctuations, and assurances of a

minimum price for their milk. With this

assurance, producers are more willing to

make the significant cost investments in

milk cows and equipment needed to

produce high-quality milk. Federal

orders provide the same assurance for

all producers, without regard to sex,

race, origin, or disability. The value of

all milk delivered to handlers

competing for sales within a defined

marketing area is divided equally among

all producers delivering milk to those

handlers.’’

The issues addressed at the May 2000

hearing are issues that were addressed

as part of Federal milk order

consolidation and reform. Establishing

representative make allowances in the

formulas that price milk used in Class

III and Class IV dairy products is an

issue that affects the obligations of

handlers of those products to the

Federal milk order pool, and similarly

the pool obligations of Class I and Class

II handlers. The decision should result

in no differential benefits in dividing

the pool among all producers delivering

milk to those regulated handlers.

Therefore, USDA sees no potential for

affecting dairy farmers in protected

groups differently that the general

population of dairy farmers.

Decisions on proposals to amend

Federal milk marketing orders must be

based on testimony and evidence

presented on the record of the

proceeding. The hearing notice in this

proceeding invited interested persons to

address any possible civil rights impact

of the proposals being considered in

testimony at the hearing. No such

testimony was received.

Copies of the Civil Rights Impact

Analysis done for the final decision on

Federal milk order consolidation and

reform can be obtained from AMS Dairy

Programs at (202) 720–4392; any Milk

Market Administrator office; or via the

Internet at: www.ams.usda.gov/dairy/.

76836 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

Prior documents in this proceeding:

Notice of Hearing: Issued April 6, 2000;

published April 14, 2000 (65 FR 20094).

Preliminary Statement

Notice is hereby given of the filing

with the Hearing Clerk of this tentative

decision with respect to proposed

amendments to the tentative marketing

agreements and orders regulating the

handling of milk in the Northeast and

other marketing areas. This notice is

issued pursuant to the provisions of the

Agricultural Marketing Agreement Act

of 1937, as amended (7 U.S.C. 601 et

seq.), and the applicable rules of

practice and procedure governing the

formulation of marketing agreements

and marketing orders (7 CFR Part 900).

Interested parties may file written

exceptions to this tentative decision

with the Hearing Clerk, United States

Department of Agriculture, Washington,

DC 20250, by the 60th day after

publication of this decision in the

Federal Register. Six copies of the

exceptions should be filed. All written

submissions made pursuant to this

notice will be made available for public

inspection at the office of the Hearing

Clerk during regular business hours (7

CFR 1.27(b)).

The Hearing notice specifically

invited interested persons to present

evidence concerning the probably

regulatory and informational impact of

the proposals on small businesses. To

the extent that this issue was raised, it

is considered in the following findings

and conclusions.

This decision responds to a

Congressional mandate to reconsider the

Class III and Class IV pricing formulas

included in the final rule for the

consolidation and reform of Federal

milk orders. The mandate was included

in the Consolidated Appropriations Act,

2000 (Pub. L. 106–113, 115 Stat. 1501).

The findings and conclusions set forth

below are based on the record of a

public hearing to consider proposals

submitted by the industry to change the

pricing formulas in the marketing

agreements and the orders regulating the

handling of milk in the Northeast and

ten other marketing areas held in

Alexandria, Virginia, on May 8–12,

2000. Notice of such hearing was issued

on April 6, 2000 and published on April

14, 2000 (65 FR 20094).

Brief Summary of Changes to Class III

and IV Formulas

As instructed by the legislation

requiring this proceeding, the Class III

and IV pricing formulas, and all of the

elements of the formulas, were reconsidered in developing this decision.

The changes made in the Class IV

component formulas are minimal. The

product prices used in the Class IV

formulas (butterfat and nonfat solids)

are unchanged. The make allowances

for butter and nonfat dry milk are

increased slightly, by .1 cents for butter

and .3 cents for nonfat dry milk. The

divisor used in the Class IV butterfat

component formula is unchanged, while

the 1.02 divisor used in the nonfat

solids price formula to reflect the

relative values and yields of buttermilk

powder and nonfat dry milk is

eliminated.

The Class III component price

formulas are changed to a greater

degree. The most substantive change is

to calculate a Class III butterfat price on

the basis of the value of butterfat in

cheese, not on its value in butter. At the

same time, the protein price formula

would reflect the value of protein in

cheese, without including a butterfat

factor in the formula to adjust for the

differential value of butterfat used in

butter and cheese. The product price for

cheese is changed to reflect a 38-percent

moisture adjustment in the barrel cheese

price to place that price on the same

moisture basis as the block cheese price.

The dry whey price, for computing the

other solids price, is unchanged. The

change in the make allowance for

cheese is minimal, and the whey

powder make allowance is increased

only enough to remain the same as that

for nonfat dry milk. As with the current

component prices, the Van Slyke

formula is used to determine the yield

effects of both the Class III protein and

butterfat prices.

The material issues on the record of

the hearing relate to:

1. Role of producer costs of production.

2. Commodity prices (CME vs. NASS).

3. Commodity and component price issues.

a. General approaches on make allowances.

b. Class IV butterfat and nonfat solids

prices.

c. Class III butterfat, protein and other

nonfat solids prices.

d. Effects of changes to Class III and Class

IV price formulas.

4. Class price relationships.

5. Class I price mover.

6. Miscellaneous and conforming changes.

a. Advance Class I butterfat price.

b. Classification.

c. Distribution of butterfat value to

producers.

d. Inclusion of Class I other source

butterfat in producer butterfat price

computation.

7. Issue of whether to omit a recommended

decision.

Findings and Conclusions

The following findings and

conclusions on the material issues are

based on evidence presented at the

hearing and the record thereof:

1. Role of Producer Costs of Production

Proposal 29 in the hearing notice

proposed that producers’ costs of

production be incorporated into the

Class III and Class IV pricing formulas.

A number of dairy farmer witnesses

testified that, just as manufacturing

processors are assured that their costs of

processing milk products will be

covered, dairy farmers should also have

some assurance that they will be able to

continue to operate their dairy farms

without losing money. Under the

current system, according to the

National Farmers Union (NFU) witness,

incorporating a make allowance for

processors but not for producers leaves

dairy farmers to bear the entire burden

of changes in supply and demand.

Unfortunately, as explained in both

the proposed and final rules under

Federal order reform, assuring

producers that their costs of production

will be covered addresses only the milk

supply side of the market and ignores

factors underlying demand or changes

in demand for milk and milk products.

As noted by the DFA witness, although

pricing proposals incorporating cost of

production have been noticed and

reviewed several times in the last

decade without success, if a sound

mechanical concept could be advanced

that overcomes the objections relative to

supply and demand, it should be

considered.

The witnesses testifying on behalf of

NFU and National Farmers Organization

(NFO) both supported the concept of

variable make allowances, in which the

allowances would be adjusted for

changes in supply and demand as a

means of addressing the problem of

manufacturers being insulated from

changes in supply and demand by their

fixed make allowances. In other words,

increases in dairy farmers’ costs of

production would be reflected in

reductions in manufacturers’ margins.

Both proposals would divide Class III

and Class IV values by dairy farmers’

costs of production. The NFU proposal

would use an average national cost of

production, presumably as published by

USDA’s Economic Research Service,

and the NFO proposal would use the

CDFA milk production cost index.

Although the concept of assuring that

as costs of production increase,

manufacturing allowances would

decline to the extent product prices do

not also increase has appeal, it is

difficult to believe that such a proposal

would be in the best long-term interests

of dairy farmers, processors, or

consumers. It certainly could easily fail

to cover processors’ costs to the extent

that would keep them operating. It is

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76837

easy to construct a situation in which

milk production costs increase because

of feed shortages, resulting in reduced

make allowances to processors. When

the manufacturers’ make allowances

decline to the point the variable costs of

processing are not covered, they would

have little choice but to cease

processing. At that point, dairy farmers

who are facing high costs of production

would have to find alternative outlets

for their milk. If many processors reach

the point at which they must make the

decision to cease operating near the

same time, there likely would be very

disorderly conditions among dairy

farmers looking for outlets for their

milk. In addition, consumers would be

likely to find shortages in the

availability of dairy products.

This proceeding must join the list of

those in which cost of production

proposals have been considered and

found wanting in terms of being able to

reflect both the supply and demand

sides of the market for dairy products.

There is no evidence in the record that

either the ERS or the CDFA index has

been used to price milk. As noted by the

NFO witness, the current pricing system

uses the interaction of supply and

demand for milk products as an indirect

method of meeting the pricing

requirements of the Agricultural

Marketing Agreement Act of 1937 for

milk. According to the witness,

producer milk has a value before it is

processed. In today’s market, it is hard

to agree that milk has a market value to

consumers without being pasteurized, at

least.

2. Commodity Prices (CME vs. NASS)

As recommended in the proposed rule

and adopted in the final rule on Federal

order reform (published on September

1, 1999 (64 FR 47898)), commodity

prices determined by surveys conducted

by USDA’s National Agricultural

Statistics Service (NASS) are currently

being used in the component price

formulas that replaced the BFP. This

decision makes no changes in the source

of product price data.

Several proposals (1, 5, 10 and 19)

were considered during the current

proceeding that recommended using

prices reported by the Chicago

Mercantile Exchange (CME) instead of

the NASS surveys to determine

commodity prices. Both the CME and

the NASS surveys were supported by

testimony at the hearing and in briefs.

The CME is a cash market where

speculators, producers, and processors

can buy and sell products. It is a

mechanism for establishing prices on

which the dairy industry relies. Thus, a

lot of contracts to buy and sell dairy

products are based on CME prices. A

USDA witness testified that he is

unaware of any other indices used to

price cheese in the U.S. According to

several witnesses, cheese and butter

processors generally base their contract

sales on CME prices.

The NASS price survey gathers selling

prices of cheddar cheese, Grade AA

butter, nonfat dry milk and dry whey

from a number of manufacturers of these

products nationwide. At the time the

proposed rule on Federal order reform

was published (January 30, 1998), the

NASS survey included prices for

cheddar cheese only. This survey had

begun in March 1997. In September

1998, before the final decision was

published in April 1999, NASS began

surveys of Grade AA butter prices, dry

whey prices, and nonfat dry milk prices.

In developing these commodity surveys,

input was obtained from the dairy

industry on appropriate types of

products, packaging, and package sizes

to be included for the purpose of

obtaining unbiased representative

prices. A sale is considered to occur

when a transaction is completed, the

product is shipped out, or title transfer

occurs. In addition, all prices are f.o.b.

the processing plant/storage center, with

the processor reporting total volume

sold and total dollars received or price

per pound. NASS Dairy Products Prices

reports wholesale cheddar cheese prices

for both 500-pound barrels and 40-

pound blocks, USDA Grade AA butter,

USDA Extra Grade or USPH Grade A

non-fortified dry milk and USDA Extra

Grade edible non-hygroscopic dry whey.

A more-detailed description of the

surveys can be found in the final

decision of April 2, 1999 (64 FR 16093).

The proponents of proposal 1,

Western States Dairy Producers Trade

Association, et al. (WSDPTA), a group of

several trade associations and

cooperatives, proposed that the NASS

commodity prices for butter, cheese,

and nonfat dry milk that currently are

used for computing the Federal order

component prices be replaced with

prices determined by trading on the

CME. Dry whey was not included in the

proposal because there is no dry whey

cash contract traded on the CME. A

witness from WSDPTA did not oppose

the collection and reporting of NASS

data, but expressed the opinion that

while it serves an important function as

information, it should not be used to

establish prices. The proponents

presented several benefits of using the

CME over the NASS survey for

commodity prices.

Proponents explained that by using

CME prices in the formulas, prices

would be known immediately rather

than a week later when the NASS prices

are published, reflecting more quickly

the supply-demand conditions for dairy

products. The one-week delay is caused

by the time necessary to collect data. A

witness for National Farmers

Organization noted that interested

persons are able to check the CME value

of products on a daily basis and use the

reported prices as a factor to establish

what they’re going to be paying or paid

for cheese.

A witness from WSDPTA went on to

explain that buyers, sellers, and

speculators trade the CME, trying to

obtain a price in their favor, while the

price actually is determined by supply

and demand forces. He described the

rules as fair and the results as

transparent, with participants having a

number of interests. The witness

continued by noting that the CME price

result is instant and results cannot be

altered. In contrast, he stated, NASS

prices are reported by sellers only, who

are not disinterested parties. He argued

that NASS respondents can modify their

numbers or file an initial report after

calculating the price impact of the latest

reports.

The proponents also concluded that

the urging by many hearing participants

that the NASS price series include

mandatory participation and be audited

proves that the NASS series is not

reliable enough to be used as a pricediscovery method.

Finally, the witness from WSDPTA

expressed the view that the NASS price

series would feed on itself and result in

price setting, not price discovery. He

continued by noting that plants and

their buyers will obtain prices one week

and sell the commodity in the following

week at a price derived in large part

from the price obtained in the prior

week. The witness compared the NASS

survey to the California State survey of

powder prices which, he claimed,

results in a circular pricing system that

is mathematically incapable of fully

reflecting the top of the market price for

powder because so little of the survey

volume is priced off of the spot market.

Proponents expressed the belief that this

circularity causes prices to remain lower

than they would without it, and that

prices would increase more slowly and

decrease more rapidly than would

prices on the CME, causing overall

lower prices for dairy farmers.

Opponents of changing from NASS to

CME prices to compute component

prices included International Dairy

Foods Association (IDFA), Dairy

Farmers of America (DFA), and National

Milk Producers Federation (NMPF).

Witnesses for these parties argued that

the NASS survey includes pricing based

76838 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

on a significantly larger volume of

product than does the CME. In the case

of the nonfat dry milk market, the table

of 1999 monthly Chicago Mercantile

Exchange Cash Markets data from the

1999 Annual Dairy Market Statistics

showed that there were no sales

reported for either extra grade or Grade

A in the year 1999.

According to a witness from IDFA, the

volume of cheddar cheese in the NASS

survey is equal to 26.4 percent of all

cheddar cheese production in the U.S.

for the period September 1998 through

February 2000. During the same period,

the CME volume of cheddar cheese

traded represented only 1.7 percent of

U.S. cheddar cheese production. The

witness stated that for the same 18-

month period, the NASS survey

volumes represented 14.4 percent of all

U.S. butter production while CME

trading consisted of only 2.6 percent. He

also noted that switching from the

NASS survey data to the CME data

would result in a change from a very

broad to an extremely thin

representation of actual product

transactions.

Opponents to the proposal to use

CME prices also pointed out that prices

at the CME are Chicago or Midwest

prices based on the delivery location

specification of the contract. Therefore,

they argued, the scope of the reported

prices for cheese, butter, and nonfat dry

milk are not national. A witness for

Kraft noted that reliance on the CME

alone would exclude the substantial and

growing volume of cheese produced in

the western United States (U.S.),

particularly California. A witness for

Northwest Dairy Association suggested

that a transportation credit would need

to be used with CME prices, at least in

the West, to reduce the value of the

CME to a more representative level.

Opponents went on to explain that since

the NASS survey contains data from

plants located all over the United States,

NASS prices represent a national scope

of the prices of each of the particular

commodities.

According to the testimony in the

record and a number of the briefs, the

cheese and butter sellers and buyers

look to the CME to identify the most

current price levels. As a result, prices

move in response to supply and demand

conditions in the marketplace as

reflected at the CME. Since the

transaction prices of commodities are

based off of the CME, it is difficult to see

how the NASS survey can cause, or

result in, circularity. The NASS prices

reflect the CME prices with a short lag,

but are based on a much greater volume,

enhancing the stability of the price

series. Continued use of the NASS price

survey appears to be the best method of

obtaining reliable data about commodity

prices.

As stated in the final decision on

Federal order reform, NASS data

traditionally have been collected via a

survey with voluntary participation.

The price information, like most NASS

data, is not audited. NASS, however,

applies various statistical techniques

and cross-checking with other sources

to provide the most reliable information

available. The issue of mandatory and

audited NASS data, however, will not

be discussed further as NASS is not

authorized to conduct such activities,

and these issues are not within the

scope of this rulemaking.

3. Commodity and Component Price

Issues

a. General Approaches on Make

Allowances

Changes to the make allowances for

each of the product formulas used in

calculating component prices were

proposed and discussed at length during

this proceeding. Except in the case of

dry whey, make allowances adopted in

the component price formulas in this

decision are calculated using a weighted

average of the most recent California

cost of production study and the Rural

Business Cooperative Services (RBCS)

study. A marketing cost of $.0015 per

pound is added to both the California

costs and the RBCS costs, as in the Final

Rule, and the California value for return

on investment is used to adjust the

RBCS cost. This is generally the same

approach used to determine the

appropriate make allowances in the

current orders, and results in values that

differ little from the formulas in the

current orders.

For the calculation of the Class III

‘‘other nonfat solids’’ price, neither the

California nor RBCS studies included

information on the cost of making dry

whey, and a survey done for this

proceeding under the auspices of IDFA

was not considered sufficiently reliable

for use in establishing a make

allowance. Consequently, the ‘‘other

solids’’ make allowance should

continue to be the same as that used for

nonfat dry milk.

A number of the proposals considered

in this proceeding would change the

manufacturing, or make, allowances

adopted for the pricing formulas under

Federal order reform. There was

considerable testimony on the

appropriate factors to be considered in

establishing make allowances, and

several sources of data were cited as the

most accurate to use for such a purpose.

In addition, a number of witnesses

testified about the philosophical basis

for determining appropriate

manufacturing allowances for milk

pricing formulas.

Two surveys of product

manufacturing costs that were averaged

for use in calculating make allowances

under Federal order reform were the

California Department of Food and

Agriculture (CDFA) study, which is

done annually and includes nearly 100

percent of dairy products manufactured

in California, and the Rural Business

Cooperative Service (RBCS) study,

which is conducted annually by USDA

as an in-plant benchmark study for

participating cooperative associations.

These two surveys had both been

updated since earlier versions had been

used in determining the manufacturing

allowances used in the current

component pricing formulas. In

addition, the National Cheese Institute

(NCI), an affiliate of the International

Dairy Foods Association (IDFA),

contracted with a third party to conduct

a survey of the costs of manufacturing

cheese and whey powder for use in this

proceeding.

A witness for National Milk Producers

Federation (NMPF) stated that make

allowances should reflect the costs

incurred by average plants

manufacturing the particular dairy

product used in the component/Class

price formulas: butter, nonfat dry milk,

cheese, and dry whey. The witness went

on to explain that the procedure used by

the Secretary for determining the make

allowances for the Final Rule, using an

average of the California cost of

production studies and the Rural

Business Cooperative Services (RBCS)

study, was sound and that the same

procedure should be used as a result of

this hearing, using the updated data

from both surveys. In calculating an

appropriate make allowance, the

witness supported addition of a

marketing cost of $.0015 per pound to

both the California costs and the RBCS

costs, as in the Final Rule, and the

California value for return on

investment used to adjust the RBCS

costs in the Final Rule. The witness

explained that both of these factors

should be included as they are

legitimate and necessary costs incurred

in operating manufacturing plants.

The witness for IDFA supported

inclusion of the California cost studies

in the computation of the make

allowance; however, the witness stated

that the appropriate procedure for

computing the make allowance for

cheese was to compute a weighted

average of the California cost studies

and the NCI survey. The witness

explained that the RBCS study does not

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76839

include all the necessary costs that must

be recovered in the make allowance,

and that the NCI survey is needed to

determine what the additional cost

values should be. The costs that the

IDFA witness pointed out that are not

included in the RBCS survey, but are

included in the NCI survey, are general

plant administrative costs, such as the

plant manager’s salary and corporate

overhead; return on investment or

capital costs; and marketing costs.

The IDFA representative testified that

the danger inherent in regulated prices

is setting the manufacturing allowance

at a level too low to assure that

manufacturers will be able to recover

their costs of manufacturing finished

products and have the money needed to

invest in new plants. The witness

pointed out that an inadequate make

allowance would force manufacturers

either to move to areas that do not have

regulated pricing or go out of business.

At the very least, the witness explained,

the manufacturers would not invest in

new plants and equipment, which in the

long run would cause a decline in the

productivity of the dairy industry. A

number of briefs filed on the basis of the

hearing transcript emphasized the

importance of covering all of handlers’

costs of manufacturing, and not just

average costs.

The IDFA witness explained that if

make allowances are established at too

low a level, proprietary plants are

placed at a competitive disadvantage

relative to cooperative-owned plants.

The witness explained that since

cooperatives do not have to pay their

producers the minimum order price, as

proprietary plants are required to do,

cooperative plants can reduce the prices

paid to member producers to make up

the difference in cost.

The IDFA witness explained further

that the problem with a make allowance

established below the amount needed to

cover plant costs occurs because the

plant sells the finished product at the

same price that is used in the formula

for establishing the minimum price the

plant must pay for the raw material,

milk. The manufacturing allowances are

the only place the plant has the

opportunity to cover its costs, and those

allowances are fixed in the formula that

determines the raw material price.

The witness for IDFA asserted that

there was very little risk in setting a

make allowance too high. He explained

that if the make allowance is established

at a level above plant costs, the

additional revenue stream will be

corrected through market forces by

requiring the plant operators to pay

competitive over-order premiums to

milk suppliers to obtain an adequate

supply of milk.

A witness for Western States Dairy

Producers Trade Association, et al.

(WSDPTA), explained that the most

important part of determining a

manufacturing allowance is to pick a

method and stick with that method. The

witness testified that the appropriate

method is to use the results of the RBCS

study with adjustments to include

factors for marketing costs and for

capital costs. The witness pointed out

that use of the RBCS study is

appropriate because the study is

voluntary, represents the costs of

making the particular commodities, and

the plants are geographically widely

dispersed. The WSDPTA witness stated

that including the results of the

California study in the computation of

the make allowance for pricing Federal

order milk is inappropriate since there

is no logical reason for considering the

manufacturing costs of plants that do

not procure any of the milk that would

be priced using those costs.

A witness for the National Farmers

Organization (NFO) proposed a variable

make allowance using the RBCS make

allowances as a base adjusted by the

relationship between the particular

commodity prices for butter, nonfat dry

milk, dry whey, and cheese, and the

California Department of Food and

Agriculture (CDFA) milk production

cost index. The witness explained that

a fixed make allowance, as contained in

the current pricing system, does not

vary with market conditions and creates

a situation in which manufacturers will

not respond to market signals since the

manufacturers will receive a profit no

matter what the supply and demand is

for the finished products. The witness

explained that as long as the make

allowance allows manufacturers a

sufficient return the manufacturers will

continue to produce the finished

product even if there is limited demand

for the product, thus resulting in a

continued low price paid to producers

for their milk. The witness characterized

a variable make allowance tied to the

cost of producing milk as a marketoriented system.

A witness for National Farmers Union

(NFU) also proposed a variable make

allowance composed of the weighted

average RBCS and California

manufacturing cost surveys, without a

marketing allowance, adjusted by the

national average cost of production. The

witness explained that the current

system does not have market

accountability, since there is no

incentive for a manufacturer to restrict

production when declining prices

indicate reduced demand for the

product. As a result, according to the

witness, the pricing system effectively

isolates the manufacturing side of the

industry from supply and demand

forces, leaving the producers left to bear

the burden of changes in supply and

demand. The witness explained that the

California system, in which

manufacturers’ production costs are

covered by producers through the make

allowance, continues to produce a large

quantity of lower-valued products

because the pricing system makes the

manufacturer immune to the supply of

and demand for the products. The

witness blamed the California make

allowance system for the traditionally

low milk prices in California, that, he

claimed, result in expansion of dairy

herds to make up for reduced cash flow.

The witness predicted that if the Federal

order system follows the same pricing

path, the same production patterns as

witnessed in California would follow in

the rest of the United States.

Most hearing participants agreed that

the make allowance should cover the

cost of converting milk to a finished

manufactured dairy product. However,

several participants disagreed with the

IDFA contention that there is very little

risk in setting the make allowance too

high. They argued that if the make

allowance is set in excess of the cost to

manufacture finished products, the

additional revenue would be kept by the

manufacturing plants as higher profits

and not distributed to the producers

supplying milk to the plant. They

explained that in many parts of the

country there is little if any competition

for the dairy farmers’ milk and therefore

no incentive for a plant to pay above the

minimum Federal order price. These

plants, according to the witnesses, could

be expected to keep the extra make

allowance for themselves.

Several witnesses opposed the idea of

setting make allowances at levels that

guarantee plants a profit, or at least a

return on investment, when the dairy

farmers supplying milk to the

manufacturing plants have no similar

assurances for covering the costs of

producing milk. These witnesses

pointed to the Agricultural Marketing

Agreement Act of 1937, Sec. 608c(18),

as justification for setting a lower make

allowance for plants, resulting in higher

milk prices that would come closer to

covering dairy farmers’ costs of

producing milk.

As supported by most of the hearing

participants, the make allowances

incorporated in the component price

formulas under the Federal milk orders

should cover the costs of most of the

processing plants that receive milk

pooled under the orders. In part, this

76840 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

approach is necessary because pooled

handlers must be able to compete with

processors whose milk receipts are not

priced in regulated markets. The

principal reason for this approach,

however, is to assure that the market is

cleared of reserve milk supplies.

Although the RBCS survey does not

include such costs as general plant

administrative costs, return on

investment or capital costs, and

marketing costs, it is a survey that has

been done for sixteen years with the

same fundamental methodology, and

with some continuity of participants.

Because the survey is done for the

benefit of the participating organizations

(cooperatives) to help them identify

their costs and compare them with those

of their peer group, there is every reason

to believe that the costs provided are as

accurate as possible. In addition, the

years of experience with the survey

have enabled USDA to shape the

questions to obtain more accurate

results.

When the RBCS survey results are

adjusted to include the factors that were

mentioned above as not included by

using the values for those factors from

the CDFA survey, the two surveys’ costs

are comparable, especially considering

that the RBCS survey represents

manufacturing plants with a wide

distribution around the U.S., while the

CDFA survey includes only California

plants. The CDFA survey is also done

every year, and is done according to a

published procedure manual, with the

costs being audited by personnel

employed by the State for that purpose.

Although no CDFA employee was

available to respond to questions about

the conduct of the survey, official notice

was taken of the procedure manual and

of California publications associated

with manufacturing cost data. In

addition, several witnesses who are

deeply involved with the California

dairy industry testified regarding the

perceived reliability of the survey

results.

In contrast to the RBCS and CDFA

surveys, the survey of cheese and whey

powder manufacturing costs arranged

for by NCI was developed solely for the

purpose of establishing costs to be used

in determining make allowances for this

proceeding. The survey was conducted

by persons unfamiliar with the dairy

industry among cheese processors who

would benefit from having overstated

costs included in the results. No one

who actually conducted the survey was

made available to testify, and although

the IDFA witness stated that survey

participants would testify regarding

their responses to the survey later in the

hearing, none of the participating firms’

witnesses would respond to questions

about their firms’ results. Although less

weight must be given the NCI survey

than either the RBCS or the CDFA

surveys for the reasons stated above, the

NCI survey’s resulting manufacturing

costs for cheese are not considerably

different from a weighted average of the

RBCS and the CDFA surveys. In fact,

although the IDFA hearing participants

went to great lengths to discredit the

RBCS study for use in identifying an

appropriate level of manufacturing

costs, the hearing record reflects that the

NCI survey of cheese and dry whey

manufacturing costs used the RBCS

1996 survey results to identify outliers

(plus or minus 10 percent) in the study

commissioned by NCI.

As a result of the differences in

conduct of the three surveys,

manufacturing costs used to determine

appropriate make allowances for

cheddar cheese, butter and nonfat dry

milk in this proceeding are calculated

primarily from a weighted average of the

RBCS and CDFA surveys, with a check

against the NCI survey cost of

manufacturing cheddar cheese. The cost

of manufacturing nonfat dry milk

continues to be used as the cost of

making whey powder due to the nature

of the information in the hearing record

about the actual costs of drying whey.

One proposal included in the hearing

notice would have eliminated any

marketing allowance from the make

allowances, and a number of witnesses’

testimony objected to the inclusion of

return on investment. The American

Farm Bureau witness questioned the

need for a marketing allowance since

producers already pay a 15-cent

assessment for promotion and research.

A brief filed by the proponent of

eliminating the marketing allowance

stated that the allowance appears to be

an ‘‘adjustment’’ or a ‘‘hedge,’’ since it

is not defined in the final rule.

There was general agreement among

those testifying that a marketing

allowance should be included in

manufacturing costs, but no consensus

about the appropriate number. Some of

the costs covered by the marketing

allowance include maintaining and

staffing warehouses, supporting a

marketing and sales staff, transporting

product to market, and accounting costs

associated with the sale of products.

The NCI survey identified a marketing

cost of $.0011 per pound of product,

while the Dairy Farmers of America

(DFA) witness stated that DFA’s costs

were approximately $.0018. The DFA

witness testified that because the costs

included in the activities designated as

marketing generally fall within a

common department under common

management, it is appropriate to apply

the same allowance to each product.

A witness for Northwest Dairy

Association, a cooperative association in

the Pacific Northwest, stated that their

marketing costs are $.0026, but

identified costs associated with the

aging of cheese as included in that

number. Since the NASS survey price

does not include cheese intended for

aging, the marketing allowance certainly

should not include costs of aging

cheese. The Associated Milk Producers,

Inc., (AMPI) witness used a $.0024

marketing allowance in the calculation

of AMPI’s proposed make allowance for

nonfat dry milk. The witness for AgriMark, Inc., a large Northeast cooperative

association with several processing

plants, stated that Agri-Mark’s estimates

of marketing costs ranged from $.0025 to

$.005.

The costs identified as those included

in a marketing allowance are necessarily

incurred in getting a product to market,

and are not related to the consumer

education and advertising activities

covered by the National Dairy Board

assessment. Since the marketing cost

determined by NCI is the only one of the

estimates included in the hearing record

that is supported by a survey, and it

varies from the $.0015 rate included in

the Final Rule by only 4 one-hundredths

of a cent and applies only to cheese and

dry whey, there seems to be no solid

basis for making any change to the

current marketing allowance.

Some producer witnesses objected to

the inclusion of any allowance for

return on investment in manufacturing

allowances on the basis that dairy

farmers are assured of no such return.

The CDFA manufacturing cost surveys

include allowances for depreciation,

included in the non-labor processing

costs; and for return on investment,

which represents the opportunity cost of

the processors’ resources invested in the

business. These costs are supported by

audited data.

Both the marketing allowance and

return on investment factors should be

included in the manufacturing

allowances provided in the component

price formulas at the rates supported by

the California data. If processors are not

provided enough of a manufacturing

allowance to market the product they

process, or to earn any return on

investment, they will not continue to

provide processing capacity for

producers’ milk. At the same time, the

manufacturing allowances incorporated

in the formulas will not provide enough

of an allowance to assure that every

processor, no matter how inefficient or

high-cost, will earn a profit. Allowances

set at such a level certainly could result

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76841

in the situation warned of by producer

groups in which processors manufacture

greater volumes of product than the

market demands because they are

guaranteed a profit on all their

production. As a result, the only way to

market all of the product would be to

reduce prices, with a profit still locked

in through the make allowance, which

would result in decreasing prices paid

to producers. In addition, manufacturers

who are assured a profit on all of their

output would have no incentive to make

a sufficient quantity of milk available

for fluid use—a basic goal of the Federal

milk order program.

One area addressed by several hearing

participants in testimony and in briefs

as appropriate to consider in

establishing make allowances or yields

was the loss of milk components during

manufacturing processes. The orders

have always provided an allowance for

shrinkage, and continue to do so, but

inflating costs of production or reducing

yield factors to reflect shrinkage would

not properly reflect the value of

producers’ milk used in manufactured

products. Processing costs determined

by the surveys described above, which

underlie the manufacturing costs

incorporated in the pricing formulas, are

expressed in cents per pound of end

product manufactured, not in the cost

per hundredweight of milk of

converting milk to manufactured

products. The component pricing

formulas are based on the content of

those components in the finished

products for which a manufacturing cost

per pound has been established. Both

the CDFA and RBCS cost surveys

allocate all plant costs to actual end

product, a process which should take

shrinkage into account. Similarly, the

yield factors in the formulas refer to the

amount of finished product resulting

from the processing of a given volume

of input. Both of these factors in the

pricing formulas include consideration

of shrinkage.

The detailed explanation of each

product’s manufacturing allowance is

included with the description of its

primary component’s pricing formula

later in this decision.

b. Class IV Butterfat and Nonfat Solids

Prices.

Class IV Butterfat Price. This decision

continues to use the NASS price for

Grade AA butter for calculating the

Class IV butterfat price, and changes the

manufacturing allowance in the

butterfat price formula by 1⁄10 of a cent

per pound of butter. The .82 divisor in

the price formula is unchanged.

Several proposals were heard that

would reduce butterfat prices, either by

reducing the butter price used in the

computation of the butterfat prices for

all classes, or subtracting a fixed amount

from the butterfat price computed for

Class IV. Proposals also were made that

would change the make allowance used

in calculation of the butterfat prices.

There were no proposals to change the

butterfat divisor of .82, although one

witness representing a western

cooperative association suggested that it

be reconsidered as he felt it didn’t

include a shrinkage factor.

Product Price (Butter). Several

witnesses for proprietary processor

proponents of the proposal to deduct six

cents from the butter price before

computing the butterfat price stated that

historically the value of butterfat in the

Federal milk orders has been based on

the price of Grade A butter. The

witnesses explained that an equivalent

price determination had been issued in

1998 when the CME discontinued

trading Grade A butter that nine cents

would be subtracted from the Grade AA

butter price for use in calculating

Federal order butterfat prices. This

equivalent price, according to the

witnesses, was found to be ‘‘essential’’

to the continued operation of the

Federal milk order program and

continued the policy of basing butterfat

pricing under the Federal milk orders

on a value below that of Grade AA

butter.

The witnesses complained that under

Federal order reform the butterfat value

is determined by using the NASS Grade

AA price of butter, which effectively

increases the butterfat value under

Federal milk orders. According to

proponents’ calculations, the increase

does not amount to a full nine cents, but

is tempered by the use of the NASS

Grade AA price, which has averaged

approximately three cents below the

CME Grade AA price, in the butterfat

pricing formula. Therefore, they stated,

the actual increase in the butter price

used to calculate butterfat prices is

approximately six cents. According to

the witnesses, subtraction of six cents

from the NASS butter price would

return the relationship between the

butterfat value under the orders and the

selling price of butter to the relationship

that existed prior to Federal order

reform.

Several witnesses explained that

when handlers must pay for butterfat on

the basis of the Grade AA butter market

they cannot then sell cream or finished

products at a price that would allow

them to recover their costs. They

testified that cream is sold at a price that

is termed a ‘‘multiple’’ of the butter

price, and that the multiples used when

the butterfat price was calculated from

the Grade A butter price have not

adjusted to the new pricing formula

using Grade AA butter.

The IDFA witness pointed out that the

IDFA proposal to subtract six cents from

the NASS Grade AA butter price would

apply not only to the butterfat formula

for Class II, Class III, and Class IV but

would apply to the advance butterfat

formula used for computing the Class I

butterfat price. The witness testified that

by applying the same formula to all

classes of butterfat the current

relationship between the class prices

would be maintained. The witness

contended that there is no justification

for changing the relationships between

the class prices, particularly if the

adjustment would widen the class price

spreads or, in effect, increase the Class

I and Class II differentials.

Witnesses for National Milk

Producers Federation (NMPF) and

several large cooperative associations

testified in support of NMPF’s proposal

to reduce the calculated butterfat price

by six cents, with the reduction applied

to Class IV butterfat only. Under this

proposal, the computation of the

butterfat prices for other classes would

not contain the six-cent adjustment.

Several witnesses representing

cooperative associations that process

butter explained that butter

manufacturers incur additional costs

when procuring cream used for

manufacturing butter as opposed to the

cost of converting producer milk to

butter. The witnesses explained that

these additional costs include

transportation, additional handling, and

additional pasteurization. The witness

for Land O’Lakes (LOL) testified that the

additional costs amounted to 4.57 cents

per pound of butterfat for transportation

and .4 cents per pound for receiving,

storing, and repasteurization. A witness

for Agri-Mark stated that Agri-Mark’s

transportation costs are slightly less

than LOL’s, probably due to the

proximity of the Agri-Mark plant to the

sources of cream, but that the other

additional costs are slightly higher than

the LOL costs, at .5 cents per pound of

butterfat.

The proponents of reducing the Class

IV butterfat value also referred to the

computation of the California Class 4a

butterfat price, which involves a

subtraction of 4.5 cents per pound from

the CME Grade AA butter price to adjust

for the costs of moving butter from the

west coast to the Midwest.

Those parties who favored reducing

the butter price before using the

butterfat price formula to calculate any

of the butterfat prices disagreed

vehemently with the proposal to reduce

only the Class IV butterfat price. They

76842 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

argued that such a reduction would

distort the relationship between the

Class II and Class IV prices, resulting in

a greatly-increased price for Class II

butterfat in relation to Class IV butterfat.

Specifically, the projected increase in

the Class II-Class IV butterfat price

difference was cited as 6.7 cents per

pound (from the current difference of .7

cents). These parties argued that

butterfat values would most

appropriately be reduced to the same

degree in all classes.

The Class IV butterfat price should be

computed by subtracting a make

allowance of .115 dollars per pound

from the monthly average NASS Grade

AA butter price and dividing the result

by .82. The Class II butterfat price

should continue to be the Class IV

butterfat price plus .007 cents, while the

Class I butterfat price will be the higher

of the advance Class III and advance

Class IV butterfat prices plus the

applicable Class I differential.

Contrary to the belief stated by some

witnesses, whether qualified experts or

not, the use of the Grade AA butter price

for computing the butterfat price under

Federal order reform was not an

‘‘oversight.’’ Trading of Grade A butter

on the CME was ended (not by USDA,

as implied in one brief, but by the CME)

because the volume of Grade A butter

traded was not great enough to warrant

maintaining a trading venue. Although

one brief argued that the Grade A butter

price represents a minimum price, and

that there is no need for concern that

there will not be an available market for

Grade A and Grade B butter, with the

end of trading in Grade A butter on the

CME there is no published (or any other

known) source for obtaining a price for

Grade A butter.

The use of the Grade AA butter price

for establishing butterfat prices is

appropriate since that is the only grade

of butter that has significant enough

trading volume to warrant a publiclyreported price. Grade AA butter prices

are the only butter prices regularly

available, and represent the vast

majority (about 95 percent) of the butter

sold. Although the ‘‘multiples’’ of the

butter price apparently had not adjusted

to the use of the Grade AA price during

the first 4 months of experience under

the revised orders, and probably should

not be expected to adjust during the

period in which this proceeding is

under consideration, the marketplace

should, in time, make the needed

adjustments.

Various witnesses estimated that

Grade A and Grade B butter combined

make up 3–7 percent of the butter in the

U.S. Although a witness noted that the

Minnesota-Wisconsin (M–W) price for

non-Grade A milk continued to be

surveyed even after the percentage of

milk eligible for the survey had fallen

below a 5-percent level, it was widely

recognized for some time that a pricing

alternative to the M–W must be found

because the M–W eventually would no

longer provide a representative price for

a large volume of unregulated milk.

Similarly, with the decline of Grade A

butter (and the unavailability of prices

for that product), the only alternative

available for determining price is Grade

AA butter. A finding in the equivalent

price determination that a Grade A

butter price was ‘‘essential’’ to

continued operation of the orders

referred solely to the fact that the Grade

A price was specified in all of the orders

at that time, not that the butterfat value

under Federal milk orders could never

be based on any other price.

Making an adjustment to a clearly

valid price series to approximate a price

series that has been discontinued for

several years due to insufficient volume

for trading is inappropriate. In any case,

it is impossible to determine what the

current difference between these prices

would be because there are no reports

of the Grade A price available. The vast

majority of butter made and sold in the

U.S. is Grade AA, and that is the

appropriate product to which to look for

a value of butterfat used in butter. The

3-cent average difference between the

CME and NASS butter prices makes up

2⁄3 of the 4.5-cent adjustment made by

California in calculating the value of

butterfat used in butter. An additional 6

cents deducted from the Class IV

butterfat price calculated from the

NASS price would much more than

make up the remaining 1.5-cent

difference. Also, the 4.5-cent California

adjustment is made for the purpose of

reflecting the cost of moving butter from

California to Chicago. The butterfat

price calculated under the Federal order

program is not intended to apply to only

one state. The NASS price is a

nationwide survey, and likely includes

a significant representation of California

butter prices. If there are additional

costs involved in making butter, they

would more appropriately be included

in the make allowance for butter.

Make Allowance (Butter). The make

allowance factor in the Class IV butterfat

formula should be derived from a

combination of the manufacturing costs

determined by the California

Department of Food and Agriculture

(CDFA) and by USDA’s Rural Business

Cooperative Service (RBCS), as they

were in the final decision. The CDFA

cost data is divided into two groups

representing high cost and low cost

butter plants, with the 4 plants in the

high cost group manufacturing, on

average, about the same average number

of pounds of butter as the 7 plants in the

RBCS study. Use of the data for the

California high-cost group of butter

plants is more appropriate than use of

the weighted average cost for all of the

CDFA plants because it is more likely

that the high-cost plants, like the plants

in the RBCS survey, serve a

predominately balancing function.

When the RBCS data is adjusted to

reflect the same packaging cost, general

and administrative costs, and return on

investment as the CDFA data for the

high cost group, and a marketing

allowance of $0.0015 is added to both

sets of data, the weighted average of the

two data sets is $0.115. This butter

manufacturing allowance is very close

to the current allowance of $0.114, and

should continue to provide a

representative level of the costs of

making butter in plants that serve a

balancing function.

The increased costs of making butter,

not including transportation, cited by

the proponents of reducing the Class IV

butterfat price are expected to be

included in this manufacturing

allowance, which exceeds the low cost

group in the CDFA survey by 3 cents per

pound. The only class of use for which

adjustments for transportation have

regularly been included under Federal

order regulation is Class I. Assuring that

the order provides an allowance for

moving milk for use in manufactured

products would interfere with

provisions designed to assure an

adequate supply of milk for fluid use.

Yield (Butter). Although one witness

suggested that the divisor in the butter

price formula that reflects the butterfat

content of butter be reconsidered, he did

not indicate any number more

appropriate than the .82 divisor used in

the current formula. There was no other

testimony in the record questioning the

butter content factor. In fact, the only

data in the record applicable to the issue

was a CDFA report on butter and

powder yields at California plants in

1996 that was included in an exhibit.

This report shows a 1.2213 weighted

average butter yield (1 pound of

butterfat results in 1.2213 pounds of

butter), which corresponds to the use of

the .82 divisor.

The record does not support adoption

of a Class IV butterfat price that is not

reflected directly in the Class II butterfat

price. There was testimony from several

witnesses that the current Class IV-Class

II price relationship is rational and

appropriate, and an adjustment to the

Class IV butterfat price that is not

reflected in the Class II butterfat price

would disrupt the current relationship.

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76843

In addition, it would seem reasonable

that some of the extra costs claimed by

butter manufacturers, such as

transportation costs for supplemental

cream supplies, butterfat

standardization of outside cream

sources, and additional pasteurization

would be as applicable for Class II

manufacturers of high-fat products

using surplus cream as for butter

makers. Accordingly, reduction of the

Class IV butterfat price only is not

considered appropriate.

Class IV Nonfat Solids Price. This

decision maintains the use of the NASS

survey price reported for nonfat dry

milk and increases the make allowance

for nonfat dry milk from 13.7 cents to

14 cents per pound of nonfat dry milk.

In addition, the 1.02 divisor used in the

current nonfat solids price formula to

reflect the incorporation of dry

buttermilk (with a lower product price

and higher make allowance) in the

nonfat solids price formula is changed

to 1; or, in other words, eliminated.

Six proposals to change some part of

the nonfat solids price formula were

considered at the hearing. Three of the

proposals dealt with the manufacturing

allowance for nonfat dry milk (NFDM),

with two of the proposals advocating

use of the RBCS survey results and one

proposal supporting an increase in the

make allowance. The other three

proposals supported changes in the

yield factor of the nonfat solids price

formula that would reflect greater

powder yield from a pound of nonfat

solids. Two of the proposals to change

yield factors included using CME NFDM

prices instead of the NASS survey. As

discussed earlier in this decision, the

product prices used in the component

pricing formulas should continue to be

obtained from the NASS survey.

Product Price (Nonfat dry milk). No

proposals were considered that would

have changed the product price used in

the nonfat solids price formula, and the

record contains no basis for making any

change in this formula factor.

Make Allowance (Nonfat dry milk). At

the time the hearing notice was issued,

the most recent RBCS data were not

available, and those costs were not

specified in the proposals. By the time

the hearing was held, however, the

RBCS data had been released and were

included in the information introduced

at the hearing. National Milk Producers

Federation (NMPF) supported

continued use of a weighted average of

the California and the RBCS

manufacturing cost surveys, with

inclusion of a marketing allowance and

the California factor for return on

investment. NMPF proposed that the

NFDM make allowance be $0.140.

South East Dairy Farmers Association

also proposed that the RBCS survey be

used to determine a make allowance for

NFDM, but did not propose that a

marketing allowance be included. The

necessity of including a marketing

allowance is discussed earlier in this

decision.

Associated Milk Producers, Inc.

(AMPI), proposed that the NFDM

manufacturing allowance be increased

from $0.137 to $0.1563, a rate based on

AMPI’s cost of making NFDM at its own

three plants in the upper Midwest over

a 5-year period. The AMPI witness

stated that in addition to a processing

and packaging cost of $0.1254, the make

allowance should include a marketing

allowance of $0.0024 and return on

investment of $0.026, for a total

allowance of $0.1538, modified from the

level proposed in the hearing notice.

The witness testified that the three

AMPI plants operate at approximately

80 percent of capacity.

On the basis of the data and testimony

included in the hearing record, the

manufacturing cost level that appears to

be most appropriate for use in the

pricing formula for nonfat solids is

$0.14. This value is calculated by using

a weighted average of the RBCS survey

and the two less-cost California groups

of plants, adding the California General

and Administrative costs and Return on

Investment expenses for those two

groups to the RBCS numbers, and a

$0.0015 marketing allowance to both

sets of data. The basis for using the two

lower-cost groups of California plants

are that the mid-cost group is of a

similar average size as the group

included in the RBCS survey, and that

the lowest-cost California group has a

very similar total cost to the mid-cost

group. These three groups of plants (the

RBCS plants and the two California

groups) are similar enough in size and

cost to consider as fairly representative,

and should encompass those plants that

perform a market balancing function.

The highest-cost California group

should not be included, as its average

cost is more than ten cents per pound

of NFDM above the RBCS group or

either of the other two California

groups.

The AMPI cost numbers cannot be

included in the weighted average since

the number of pounds of NFDM

associated with those costs is not

available. When the AMPI marketing

allowance and return on investment

estimates are replaced with the more

moderate numbers used in the make

allowance calculation, the AMPI

manufacturing costs do not differ much

from the other two sources. This is true

even of a comparison between the RBCS

data and the AMPI data despite the

wide discrepancy in the capacity

utilization percentage estimates for the

two data sets (80 percent for the AMPI

plants versus less than 50 percent for

the plants in the RBCS survey).

Inclusion of the AMPI costs in the RBCS

survey would have included a larger

representation of NFDM manufactured

outside California. However, the record

indicates that a high percentage of the

NFDM manufactured in the U.S. comes

from California, and the proportion of

cost data representing California in the

manufacturing allowance is reasonable.

Yield (Nonfat solids). A considerable

portion of the testimony dealing with

the nonfat solids pricing formula

pertained to the divisor of 1.02, which

is intended to reflect the amount of

nonfat solids in NFDM, with an

adjustment for the small amount of

buttermilk powder that is made in

conjunction with the manufacture of

butter and NFDM. Testimony by a

number of witnesses asserted that the

product price minus the make

allowance should be either multiplied

by a number greater than 1 (such as

1.02) or divided by a number smaller

than 1 (such as .99 or .975) to reflect the

fact that more than 1 pound of NFDM

can be expected to be manufactured

from 1 pound of nonfat solids due to the

moisture content of NFDM.

Many of the hearing participants

supported the current 1.02 divisor, and

expressed understanding of the

approach of adjusting the ‘‘yield’’ of

NFDM to compensate for the fact that

some of the powdered product made

from Class IV milk is buttermilk powder

(BMP). Although 1.03 to 1.05 pounds of

NFDM generally can be obtained per

pound of nonfat solids, the formula also

recognizes a lower value and higher

manufacturing cost for BMP.

Several witnesses correctly assessed

an alternate solution to the dilemma of

calculating a component price from two

commodities with different prices and

different make allowances as one

requiring addition of dry buttermilk as

another component price in the Federal

milk order pricing system. As described

by at least one witness, such an

undertaking would require adding dry

buttermilk to the NASS price survey,

determining a separate make allowance,

and calculating a yield factor. This

procedure would be a burdensome

undertaking for very little benefit, since

dry buttermilk represents only about 5

percent of the dry products resulting

from the manufacture of butter and

nonfat dry milk. The issue that remains

is how best to reflect the value of nonfat

solids used in both NFDM and BMP in

the same component pricing formula.

76844 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

The IDFA witness testified that for the

19-month period beginning with

September 1998, the central states’ dry

buttermilk average price had averaged

$0.798 per pound, while the central

states’ ‘‘mostly’’ price for NFDM

averaged $1.043. The Land O’Lakes

witness similarly testified that the 1999

Northeast ‘‘mostly’’ price for NFDM

averaged $1.0389, while the BMP price

was $0.7686 per pound. On the basis of

these numbers, it would appear that the

price of BMP is roughly 75% that of

NFDM. However, comparison of BMP

and NFDM prices for the years of 1996

through 1999 and into 2000 reflects a

more complex relationship between

these prices than the hearing testimony

would indicate. The BMP price as a

percentage of the nonfat dry milk price

(using Western prices) was 100.9% in

1996, 94.5% in 1997, 88 percent in

1998, and 71% in 1999. During the first

third of 2000, BMP prices generally

averaged less than 70% of NFDM prices.

As the year 2000 has progressed,

however, the percentage has increased,

being at levels up to 100% in late July.

The witness representing Agri-Mark

stated that Agri-Mark employees

engaged in manufacturing operations

had estimated that the costs of

producing BMP range from 1 to 3 cents

more per pound than those of producing

NFDM. Given that the manufacturing

costs estimated by the Agri-Mark

witness for other products were

somewhat higher than those supported

by the bulk of the hearing record, it is

reasonable to consider the extra cost of

manufacturing BMP to be generally not

more than 2 cents in excess of the cost

of manufacturing NFDM. In addition, it

is difficult to justify increasing the

powder make allowance for all of the

powdered product represented in the

make allowance since the RBCS witness

testified that manufacturing costs of

BMP manufactured at the plants

included in the RBCS survey are

included in the powder costs reported

by RBCS.

Testimony regarding actual yields of

NFDM and BMP were provided by only

one witness representing a

manufacturing plant operator. The

numbers provided, while not complete

enough for an exact accounting of the

ultimate disposition of the plant’s

receipts of producer milk, indicate

strongly that the approximate loss of

nonfat solids used in the manufacture of

NFDM at the specific plant was 3

percent, with 16 percent lost in the

manufacture of BMP; a weighted

average loss of more than 3.5 percent. In

comparison, data published by the State

of California showed a weighted average

loss of solids not fat of 2.13 percent in

the manufacture of butter and powdered

products.

The California data indicate a

weighted average powder yield of

1.0252 pounds of NFDM and BMP from

1 pound of nonfat solids. One witness

discounted this data by observing that

the ‘‘high’’ California yield was reported

as 1.0406, which would represent a

higher-than-allowable moisture content.

This number is undoubtedly influenced

by the ‘‘high’’ reported BMP yield of

.0749.

As noted above, the general

impression conveyed by testimony in

the hearing record, that BMP is worth

considerably less than NFDM and that

the cost of processing it is significantly

greater than that of processing NFDM, is

misleading. The average BMP price over

the period 1996–July 2000 is

approximately 87 percent of the NFDM

price, and the cost of manufacturing

BMP is, on the basis of the information

available, no more than 2 cents in

excess of the $0.14 recommended as the

NFDM make allowance. These small

adjustments to the product price and the

make allowance used in the nonfat

solids formula apply to little more than

5 percent of powder manufactured. It is

apparent from the information

contained in the record of this

proceeding that the 1.02 factor, as a

divisor, is excessive.

The following information from the

hearing record was used to determine a

multiplier or divisor for the total nonfat

solids pricing formula that would result

in a minimum price for nonfat solids

while incorporating the data and

testimony in the record about the

manufacture of NFDM and BMP. To

assure that the result represents a

minimum price, the low or high areas of

ranges of numbers related to the

manufacture of these two products were

used. The CDFA report on butter and

powder yield in California plants in

1996 was used in making some of the

calculations regarding this factor.

a. The price of BMP represents

roughly 80 percent of the price of NFDM

(80 percent is less than the average

historical relationship of these prices

over the past 5 years).

b. The cost of manufacturing BMP is

not more than 2 cents greater than the

make allowance for manufacturing

NFDM.

c. Using a theoretical yield of 1.03

pounds of powder containing 3 percent

moisture made from milk containing

8.62 percent nonfat solids would result

in .054 pounds of BMP and .976 pounds

of NFDM.

d. Adjusting the theoretical yield of

1.03 pounds to minimal yield of 1.01

pounds (the ‘‘low’’ yield in the CDFA

report) and prorating the BMP and

NFDM to 1.01 pounds instead of to 1.03

pounds, the amount of BMP

manufactured from a pound of nonfat

solids used in butter/powder is

approximately .053 pounds. When the

NFDM yield is prorated, the resulting

minimum yield is .957 pounds.

Using a NFDM price of $1.03 per

pound, a make allowance of $0.14 cents

per pound of NFDM, and a divisor (or

multiplier) of 1, the resulting

calculation is: $1.03¥$0.14 = $0.89 per

pound of nonfat solids. The same result

is achieved through a more complicated

calculation using both product prices

and make allowances, as follows:

Buttermilk powder:

($1.03 × .80)¥$0.16 = $0.664; $0.664 ×

.053 = $0.03519 + Nonfat dry milk:

$1. $. $0. ; $0. . $0.

$0.

(

03 014 89 89 957 85173

88692

− = ×=

Rounded to $0.89)

Therefore, no multiplier or divisor is

necessary in this formula.

c. Class III Butterfat, Protein and Other

Nonfat Solids Prices

In a change from the current orders,

a Class III butterfat price is calculated

from the value of butterfat in cheese

rather than using the same butterfat

price as is used in Class IV that is

calculated from the value of butter. The

Class III butterfat price, like the protein

price, is calculated to represent the

value of the component in the NASS

cheddar cheese price. The only

modification made to the specifications

of the cheese price, currently a weighted

average of the prices of cheese sold in

40-pound blocks and 500-pound barrels

(with a 3-cent addition to the barrel

price) is to adjust the price of 500-

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76845

pound barrels to 38 percent moisture

instead of the 39 percent moisture price

currently reported by NASS.

This decision would reduce the make

allowance for cheese from 17.02 to 16.5

cents per pound. Using the Van Slyke

cheese yield formula to represent the

effects of butterfat and protein on cheese

yield, the cheese price minus the make

allowance is multiplied by 1.582 to

calculate the Class III butterfat price,

while the cheese price minus the make

allowance is multiplied by 1.405 to

calculate the protein price. The portion

of the current protein price formula that

adjusts the protein price to

accommodate the differential value of

butterfat in cheese, as opposed to butter,

is eliminated. Both the protein and

butterfat components of milk used to

make cheese should track the cheese

price much more closely than has been

the case using the current Class III

component pricing formulas.

The other nonfat solids price would

continue to be calculated by subtracting

the make allowance from the NASSreported price for dry whey and

dividing by .968. However, the make

allowance is increased from 13.7 cents

to 14 cents per pound of dry whey.

Class III Product Price (Cheese).

Several proposals included in the

hearing notice would, if adopted,

change the NASS cheese price used in

the Class III pricing formulas. One

proposal would limit the cheese prices

included to 40-pound blocks reported

by the Chicago Mercantile Exchange

(CME), while another would add 640-

pound blocks to the prices surveyed by

NASS for inclusion in the cheddar

cheese price. A third proposal would

replace the current 3-cent price

adjustment between 500-pound barrel

prices and 40-pound block prices to a

value that reflects the actual differential

industry cost of making 40-pound

blocks over 500-pound barrels. Still

another proposal would adjust 40-

pound block cheese prices for moisture,

as 500-pound barrel prices are adjusted.

As discussed above, CME commodity

prices should not be used as the basis

for calculating component prices.

Eliminating 500-pound barrels, which

represent approximately two-thirds of

the cheese represented in the NASS

survey, from calculation of the market

value of cheddar cheese would reduce

greatly the degree to which the current

product prices represent U.S. cheddar

cheese prices. The record of this hearing

provides no support for relying solely

on prices for 40-pound blocks to

identify a market price of cheddar

cheese.

The NASS weighted average cheese

price should not include the value of

640-pound block cheese. Several parties

testified that including 640’s in the

cheese price computation would

improve the reliability of the average

cheese price by adding a substantial

quantity of cheese to the price survey.

Witnesses’ estimates of the percentage

of U.S. cheddar cheese production

represented by 640-pound blocks ranged

from 20 to 27 percent. Witnesses

testified that the increased volume

would better reflect the true value of

cheese and additionally would reduce

the potential for price distorting

manipulation by individual handlers.

Opponents to inclusion of the 640’s in

the cheese price computation explained

that the vast majority of 640’s are made

on a custom basis to customers’

specifications, and therefore are not

sufficiently uniform to have a standard

identity.

Without a standard identity for the

product, standardized pricing cannot be

developed. At the beginning of the

NASS survey, price data for 640-pound

blocks initially was collected, but was

discontinued due to lack of volume and

too few participants to allow disclosure

of data. Even earlier (1995–96), the

former National Cheese Exchange

attempted to include trading in 640-

pound blocks, but discontinued doing

so because of lack of interest. Several of

the witnesses who testified in favor of

including 640-pound blocks in the

NASS survey also indicated that the

640-pound blocks manufactured by

their organizations are used internally.

Thus, the prices represented by these

products would not be eligible for

inclusion in the NASS survey.

Several witnesses at the hearing and

comments contained in post-hearing

briefs advocated reducing the three-cent

adjustment that is added to the barrel

price for computing the weighted

average cheese price to one cent or

eliminating it altogether. The witnesses

argued that since the barrel cheese price

is adjusted to 39 percent moisture and

block cheese is approximately 38

percent moisture, at least 2 cents of the

observed difference in price between 40-

pound blocks and 500-pound barrels is

due to moisture and has nothing to do

with actual differences in costs. In fact,

they argued that there is no difference

in packaging costs between block and

barrel cheese.

The witness for DFA, a cooperative

that manufactures cheese packaged in

both 40-pound blocks and 500-pound

barrels, testified that three cents is an

acceptable and reasonable spread

between blocks and barrels and that

there is no compelling reason to change

the three-cent addition to the barrel

price. The witness for LOL testified that

the three cents is an appropriate

difference between blocks and barrels

and that adding three cents to the barrel

price when computing the weighted

cheese price is an appropriate

adjustment. A brief filed on behalf of

DFA and the Association of Dairy

Cooperative in the Northeast argued that

the record supports a conclusion that

the 3-cent adjustment of the barrel price

is attributable to volume utility and cost

differences in packaging and handling.

The National Cheese Institute, which

proposed reducing or eliminating the 3-

cent adjustment, argued that the

adjustment should include only the

actual cost differences involved in

manufacturing and packaging the two

sizes of cheese. Although a number of

witnesses representing cheese

manufacturers testified in favor of

reducing or eliminating the adjustment,

including one whose employer makes

both sizes of cheddar, none of them

addressed the actual cost differences of

packaging and manufacturing 40-pound

blocks and 500-pound barrels. Instead,

the only testimony that was offered

involved attributing a 2-cent difference

to the moisture-adjusted value of the

two sizes of cheese packages.

If the difference between the block

and barrel prices were due to the

difference in moisture, the difference

between the prices should widen as the

cheese price increases since the

moisture adjustment is based on the

price and moisture of the cheese. An

analysis of historical cheese prices

indicates that the difference between the

block cheese and barrel cheese prices

does not change with changes in price

level. In fact, three of the largest

differences between the block and barrel

prices occurred at approximately the 40-

month NASS weighted average monthly

prices.

The record contains no basis for

concluding that the actual cost of

manufacturing and packaging the two

sizes of cheese is not the historical 3-

cent price spread. In fact, during the

period September 1998 through June

2000 the difference between the block

and barrel prices has been 4.4 cents per

pound. The record of this proceeding

does not support reducing or

eliminating the 3-cent addition to the

barrel cheese price.

An expert witness, and several other

witnesses, testified that the moisture

content of the cheese used for

determining the NASS cheese prices

and the moisture content used in the

Van Slyke cheese yield formula used for

computing the ‘‘yield’’ coefficients in

the protein formula should be the same.

The witnesses explained that failure to

align the formula and the moisture

76846 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

content represented by the cheese price

survey would result in over or

understating the formula coefficients.

The expert witness explained that the

barrel cheese price is reported at 39

percent moisture after being adjusted

from the actual moisture, while the

block cheese price is reported at an

unknown moisture level. The only

testimony dealing with the actual

moisture level of block cheese indicates

that it averages about 38 percent.

The coefficients originally used for

determining the Class III protein price

and the Class III butterfat price, and

used in the formulas in this decision,

were derived from using the Van Slyke

cheese yield formula at 38 percent

moisture. Therefore, it is appropriate to

use cheese prices that reflect cheese

containing 38 percent moisture. The

current practice of using the 40-pound

block cheese price unadjusted for

moisture and the 500–lb barrel price

adjusted for moisture should be

continued, but with the barrel price

adjusted to 38 percent moisture instead

of 39.

The hearing record provides no basis

for altering the composition of cheese

prices surveyed for use in the Class III

pricing formulas, or for changing the

calculation of the NASS weighted

average cheese price, other than the

moisture adjustment to 38 percent for

500-pound barrels.

Several witnesses testified that types

of cheeses other than cheddar should be

included in the NASS price survey as a

more comprehensive basis for

identifying a cheese price, although

such a proposal was not included in the

hearing notice. The cheddar cheese

included in the NASS survey meets

certain standard criteria that makes

prices for the reported cheese sales

comparable. If the survey included other

descriptions of cheddar and other types

of cheese, such as mozzarella, it would

not be possible to consider the reported

price as representative of the value of

any particular product. Further, the

manufacturing costs surveyed are, to a

great extent, limited to the costs of

processing cheddar cheese.

Class III Make Allowance (Cheese).

Several proposals to adjust the

manufacturing allowance for cheese

were included in the hearing notice and

considered at the hearing. The NMPF

witness testified that the organization

had determined that the most

appropriate cheese make allowance

would be a weighted average of the

updated RBCS and CDFA surveys, with

addition of a marketing allowance, and

modified the Federation’s proposal

accordingly, supporting adoption of a

cheese make allowance of $0.1536.

Several witnesses representing

cooperative associations supported the

NMPF $0.1536 proposal and the

inclusion of cost factors for a marketing

allowance and return on investment.

One witness testified that the make

allowance should be based on data from

actual plant operations through the

surveys conducted by RBCS and CDFA

and testimony from individual plant

operators; that it should include

California data, as California plants

represent a large proportion of cheese

manufacture; and that it should be

generous enough to assure adequate

plant capacity for continued

manufacture of cheese.

The witness representing NCI testified

that the cheese make allowance should

be no less that $0.1687, the weighted

average of the NCI-sponsored and CDFA

surveys with the addition of a marketing

cost of $0.0011. He stated that such an

allowance would represent the

production of 24 cheese plants and 53%

of U.S. cheese. Several cheese

manufacturer representatives supported

use of the NCI-supported make

allowance, stressing the importance of

adoption of an allowance that covers all

of the costs of manufacturing cheese.

A witness representing Farmers

Union and the American Farm Bureau

witness both supported adoption of a

make allowance of $0.1521, as a

weighted average of RBCS and CDFA

data, and a witness for National Farmers

Organization supported a make

allowance of $0.141 composed of the

RBCS cost with the addition of a

marketing allowance and return on

investment.

The make allowance used for

computing the Class III protein and

butterfat prices, $.165, was determined

by combining the CDFA plant survey

with the RBCS survey. As was pointed

out by several witnesses at the hearing,

several cost factors that are necessary to

maintain the viability of processing

plants are not represented in one or both

of the RBCS and the CDFA studies.

These cost factors include marketing

costs, return on investment, and general

and administrative expenses. A

discussion of these expenses is included

earlier in this decision. Neither the

CDFA nor the RBCS survey included a

marketing cost, so the $0.0015

marketing allowance was added to both

studies. In addition, the CDFA return on

investment cost of $0.0103 and general

and administrative expense of $0.0190

was added to the RBCS study, which

included neither factor. The resulting

adjusted costs for each survey are

$0.1708 for RBCS and $0.15996 for

CDFA. A weighted average of the two

studies was computed using the

respective adjusted make allowances

and the pounds of cheese reported in

each study; 466,396,548 for the CDFA

study and 633,142,812 for the RBCS

study, to arrive at the Class III price

make allowance of $0.165.

Class III Butterfat Price (and effect of

butterfat on cheese yield). Testimony at

the hearing and analysis of the

relationship between the current cheese,

butterfat and protein prices revealed

that the current Class III pricing

formulas cause inequities in producer

payments based on the relationship

between producers’ butterfat and

protein tests. The inequities were

attributed to the use of the 1.28 factor

used in the portion of the protein price

formula that is designed to incorporate

the butterfat value of milk used in

cheese that is not already accounted for

by the Class III and IV butterfat price.

Further analysis also revealed that there

is very little relationship between the

current butterfat price and the cheese

price or between the current protein

price and the cheese price.

Under the current system, market

distortions occur due to using the Class

IV butterfat price, calculated from the

value of butterfat in butter, to also

represent the value of butterfat in

cheese, (Class III), and trying to

incorporate the difference in value in

the protein price. As a result, instances

have occurred when the protein price

declines while, at the same time, the

cheese price is increasing. This outcome

is completely contrary to the concept of

pricing components on the basis of the

value of the products in which they are

used. The same inverse price scenario

has affected the butterfat price, with

occurrences in which the Class III

butterfat price increases because the

butter price has increased while the

cheese market has been declining. For

example, in April of 2000 the protein

price was $1.7399, based on a cheese

price of $1.1011, while in May the

cheese price increased slightly to

$1.1022 but the protein price declined

approximately $0.18 to $1.5514. The

decline in the protein price was directly

attributable to the increase in the butter

price and the resulting increase in the

butterfat price.

The reasons for using the same

butterfat price in Class III and Class IV

under Federal order reform have been

outweighed by the outcome of that

decision. The pricing concept of

reflecting the value of a manufactured

product in the prices for the milk

components that are instrumental in the

yield of that product require that the

Class III protein and butterfat prices be

tied more directly to their value in the

cheese that is produced using those

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76847

components. Therefore, it is necessary

to separate the value of butterfat used in

the manufacture of cheese from the

value of that component in butter. The

pricing system contained in this

decision will eliminate the distorted

relationships between the Class III

butterfat and protein prices and the

cheese price.

Calculating the Class III butterfat price

on the basis of the effect of butterfat on

cheese yield, as described in the Van

Slyke cheese yield formula, rather than

from the butter price makes alternative

uses based on price differences clearly

visible. The Class III butterfat price

formula should be:

(NASS weighted average cheese

price¥.165) ×1.582. Adoption of more

logical relationships between the value

of butterfat and its various uses will

allow butterfat to move to the use with

best return.

Protein price (and effect of protein on

cheese yield). The method of computing

the protein price described in this

decision results in a protein price that,

like the recommended Class III butterfat

price, has a 100 percent correlation with

the cheese market. In addition, the

recommended formula eliminates many

of the problems discussed at the hearing

concerning the current formula. The

protein price formula will be modified

by removing the butterfat portion of the

formula. Removal of the butterfat

pricing factor from the protein price

formula eliminates the contentious issue

of the 1.28 butterfat-to-protein ratio.

As contained in this decision, the

protein price will be: (NASS weighted

average cheese price¥.165) ×1.405.

Class III—Other Nonfat Solids Price

(Dry Whey)

This decision continues to calculate

the price of the nonfat solids other than

protein in milk used to make cheese by

subtracting a manufacturing allowance

from the NASS dry whey price and

dividing the result by the content of

these ‘‘other nonfat solids’’ in dry whey.

No change is made, or was proposed, in

the dry whey product price or divisor in

the formula. The manufacturing

allowance for dry whey is increased

from 13.7 cents to 14 cents per pound

of dry whey to reflect the increase in the

NFDM make allowance. The decision

would snub the other nonfat solids price

at zero rather than allowing it to become

a negative factor in determining

payments to producers.

The hearing included several

proposals that would change the dry

whey or other solids price formula by

changing the make allowance. Although

the hearing notice included a proposal

to use the CME average dry whey price,

the proponent withdrew support for the

proposal when it became apparent that

the CME has no cash exchange market

for dry whey. The NASS survey that

currently is being used to identify

commodity prices has included price

data on dry whey since September 1998.

There were no proposals to change the

0.968 yield factor in the other solids

price formula. The 0.968 factor reflects

the solids content of dry whey, given a

3.2 percent moisture content.

Make Allowance (Dry Whey). Since

the most recent CDFA and RBCS cost

surveys did not include costs for drying

whey, there is no information from

those two studies to use for computing

the dry whey make allowance. A

witness from the National Milk

Producers’ Federation suggested using

the nonfat dry milk manufacturing cost

allowance for dry whey since both

products involve similar processing

equipment, and then adding $0.01 per

pound to reflect the additional energy

and higher equipment costs incurred in

drying whey. Since the proposed make

allowance for nonfat dry milk is $0.140,

this procedure would result in a dry

whey make allowance of $0.150.

Dairy Farmers of America (DFA)

proposed a dry whey make allowance of

$0.1478 per pound based on costs at its

plant at Smithfield, Utah. The plant is

a cheddar block plant running

throughout the year that condenses and

dries whey from the cheese

manufactured in this Smithfield plant

only. The DFA costs include both direct

and indirect costs, and return on

investment and marketing cost data.

A witness from WSDPTA testified

that there is no reason to change the

other solids price computation from the

current formula, and that it is a

necessary component of the cheese

pricing formula. He noted that the use

of dry whey as a commodity is correct

and that the 0.968 factor in the pricing

formula reflects 96.8 pounds of solids in

100 pounds of dry whey.

Most witnesses who testified about

the cost of drying whey expressed the

belief that drying whey costs more than

drying nonfat dry milk. Two cooperative

association witnesses testified that their

organizations have determined that the

returns from whey powder with the

current make allowance would not

cover the costs associated with building

and operating whey powder plants.

IDFA presented the results of the

survey, discussed earlier in this

decision, contracted for by NCI. The

IDFA witness testified that the survey

showed a dry whey make allowance of

at least $0.1592. The IDFA witness

testified that using the nonfat dry milk

make allowance significantly

understates the manufacturing cost of

dry whey due to the relatively higher

percentage of water in liquid whey

compared to skim milk, and the

additional crystallization process

required.

A witness representing Leprino Foods

testified on the differences in the

manufacturing processes for dry whey

and nonfat dry milk that result in higher

costs to produce whey powder. The

witness concluded that the cost of

making dry whey is $0.02559 above the

cost of drying nonfat dry milk.

The brief submitted by Leprino

argued that the additional costs of

processing whey powder over those of

processing nonfat dry milk should

include additional staffing, cleaning,

and maintenance associated with the

additional equipment for whey product.

A witness from Kraft agreed that the

dry whey manufacturing costs are about

2.6 cents per pound greater than the

nonfat dry milk manufacturing costs.

Although Kraft described its Tulare

plant as large and efficient, it also

represents a recent capital investment,

meaning that depreciation costs are

likely higher than average.

Although a number of witnesses

testified that the cost of drying whey is

greater than that of drying nonfat milk,

the record does not provide clear

support for any particular differential

over the NFDM make allowance. The

differential costs of manufacturing whey

powder over those of nonfat dry milk do

not provide close enough agreement

with the NCI-sponsored survey to use

either means of determining a make

allowance with any confidence. Neither

of the witnesses who testified that the

extra costs of drying whey are 2.6 cents

greater than the costs of drying nonfat

dry milk testified about the total costs

of the operations they were describing.

Therefore, the make allowance used to

calculate the other solids price should

continue to be the same as that used in

the total nonfat solids component price

formula. The other solids price will be

computed by subtracting the make

allowance of $0.14 from the NASS dry

whey survey price and dividing the

result by .968.

The other solids price should be

snubbed at zero. This means that if the

NASS dry whey price minus the make

allowance results in a negative number,

the other solids price would become

zero. A brief filed by Michigan Milk

Producers Association (MMPA)

supported the inclusion of such a

‘‘snubber’’ concept for the whey price.

The brief cited testimony in which the

DFA witness referred to the difficulty of

explaining to producers a negative

component price.

76848 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

The value of other solids used in the

Class III milk price should add to the

value of milk and not be allowed to

subtract from the milk value. Snubbing

the other solids price to zero will

prevent it from negatively affecting the

value of other Class III components or

having a negative impact on the

producer price differential.

d. Effects of Changes to Class III and

Class IV Price Formulas

The changes to the Class III and Class

IV component price formulas discussed

above would result not only in changes

to the respective component prices, but

to the resulting Class III and Class IV

skim milk and hundredweight milk

prices at 3.5 percent butterfat. With the

exception of the 38-percent moisture

adjustment to barrel cheese prices, all of

the differences calculated between the

current prices and the proposed prices

are due to changes in the formulas’

make allowances and/or the ‘‘yield’’

coefficients.

It is important to note that these

calculated class price differences are

based on historical product price data,

and not on product prices that will

occur in the future. The price

differences calculated in this portion of

the decision cannot be used to calculate

or estimate changes in revenue that

would have occurred or may occur in

the future, as changing intersections of

supply and demand for each product

result in different prices.

All of the comparisons that follow are

calculated based on the NASS weighted

average commodity prices from

September 1998 through June 2000.

NASS weighted average commodity

prices for this time period were

available, and no estimates of the

relevant commodity prices need to be

made. Although this time period is

relatively short, a number of interesting

price relationships occurred in the data

series. For instance during this period

the cheese market went from a record

high of $1.8643 per pound to $1.1011

per pound, which is just over the $1.10

per pound support price for 40-pound

blocks of cheddar. During this same 22-

month period the NASS weighted

average nonfat dry milk price showed

almost no movement, ranging from

$1.0864 per pound to $1.0071 per

pound, approximately two cents below

the support price. In fact, the nonfat dry

milk price has stayed below the support

price since March 1999. Unlike the

cheese and nonfat dry milk market, the

butter price has not traded anywhere

near the butter support price of $0.65,

trading in a range from $2.6726 per

pound to a low of $0.8820 per pound.

It is important to keep in mind that

since all milk is priced on the basis of

butterfat and skim or nonfat

components under Federal orders,

focusing on the calculated

hundredweight prices at 3.5 percent

butterfat that are announced for

comparison purposes can result in

misleading conclusions.

Changing the Class IV butterfat price

make allowance from $0.114 to $0.115

results in a calculated average decline in

the Class IV butterfat price of $0.0012

over the 22-month period studied. The

two changes to the Class IV nonfat

solids formula, increasing the make

allowance from $0.137 to $0.140 and

eliminating the 1.02 divisor, would

result in a net increase of $0.0144 per

pound in the Class IV nonfat solids

price in the absence of any other

changes. Since the Class II prices are to

continue to be computed on the basis of

the Class IV formulas plus the Class II

differential of $0.70, changes to the

Class II prices will be the same as the

changes to the Class IV prices. The

calculated Class IV skim milk price

would increase by an average of $0.13

per hundredweight. The calculated 3.5

percent Class IV milk price would

increase by an average of $0.12 per

hundredweight, reflecting the net

difference between the $0.13 increase in

the skim milk price and the very small

decline in the Class IV butterfat price.

As a result of the 38-percent moisture

adjustment to barrel cheese prices, the

NASS weighted average cheese price

used for computing the Class III protein

and Class III butterfat price would be

calculated to have increased by $0.014

per pound over the 22-month period

September 1998 thru June 2000.

The changes to the formulas used to

compute the Class III component prices

would result in fairly significant

changes to the component prices, as

might be expected. For instance, since

the current Class III butterfat price is

based on the butter market and the

proposed butterfat price is based on the

cheese market, the proposed Class III

butterfat price would average $0.4651

per pound above the current Class III

butterfat price over the 22-month period

if cheese and butter prices had been the

same. However, the component prices

are expected to track the underlying

commodity prices to a much greater

extent than they did previously.

The change in the protein formula

over the past 22 months would result in

a calculated protein price averaging

approximately 53 cents below the

current protein price. At the same time,

the increase from $0.137 to $0.14 in the

dry whey make allowance for

calculating the other solids price results

in a calculated decline in the other

solids price of $0.003 over the 22-month

period. The combination of the

reductions in both the protein price and

the other solids price would have

resulted in an average $1.65 decrease in

the Class III skim milk price over the 22-

month period if cheese and dry whey

prices were unchanged.

The calculation of the Class III price

at 3.5 percent butterfat, based on the

formulas contained in this decision,

would have averaged $0.02 per

hundredweight above the 3.5 percent

Class III price based on the current Class

III formulas.

4. Class Price Relationships

The price relationships between

classes established in the Final rule

under the Federal order reform process

should be maintained. One proposal

heard in this proceeding would have

reduced the Class IV butterfat price

without affecting the computation of

other butterfat or product prices. That

proposal is addressed specifically in the

section of this decision dealing with

Class IV Butterfat price.

Several witnesses testified as to what

the class price relationships should be

if changes were made to any of the Class

III or Class IV component price

formulas. The current pricing system

uses the same formulas for computing

the advance component prices used to

compute the Class I skim milk and

butterfat prices and Class II skim milk

price as are used to calculate the Class

III and Class IV component prices. The

witness for IDFA and several other

parties stated that any changes to the

Class III and Class IV formulas should

also apply to the advance price formulas

used for computing the Class I and Class

II prices. The witness explained that

failure to use the same formulas

between the related classes of use would

result in a direct impact on the Class I

and Class II differentials which was

clearly not the intent of Congress when

Congress instructed the Secretary to

conduct a rulemaking proceeding

concerning the Class III and Class IV

price formulas.

A witness for Hershey Foods pointed

out that the Secretary went to great

lengths to justify the seventy-cent Class

II differential above the Class IV price.

The witness said that there is no

justification or new evidence for

changing the current price relationship

that exists between the manufactured

products (butter and nonfat dry milk)

and the Class II price if the Class IV

formulas were revised as suggested in

several proposals. The witness stated

that such changes in price relationships

clearly were not the intent of Congress.

A brief filed on behalf of IDFA stated

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76849

that the correct price relationship

between NFDM and Class II is 70 cents,

and that the record provides no basis for

changing that relationship. Actually, as

explained in the final decision on

Federal order reform, 70 cents

represents the correct price relationship

between milk used to make dry milk

powder and milk used in Class II, as

nearly as can be determined from the

information available.

A proposal by two parties that any

increases resulting from changes to the

Class III and Class IV price formulas not

be allowed to result in increases in Class

I prices was supported in testimony by

one of the parties, who argued that any

increases in the Class I price mover

should be balanced with reductions in

Class I differentials. The witness stated

that the proponents want to be sure that

Class I prices are not further decoupled

from Class III and Class IV pricing

formulas, or that Class I prices are not

artificially inflated.

Neither the price relationships

established in the final decision

between milk used in Class III or Class

IV and milk used in Classes I and II

should be changed. To the extent that

there may be differences in the Class III

or Class IV prices between the current

prices and those adopted in this

decision as a result of adjustments to the

component pricing formulas, those

changes should be reflected in the Class

I and Class II prices. Any reevaluation

of the formulas used to price the

components used in manufactured

products should be carried through to

the class prices that are based on those

component prices. A change in the

computation of the nonfat solids price,

for instance, is intended to better reflect

the value of those solids in dry milk

products. If the new nonfat solids price

formula results in an increase in the

Class IV price, the record provides no

basis for changing the difference in the

value of the milk used in those solids

between Class IV and Class II use.

Similarly, the availability of milk for use

in Class I is related to the higher of the

alternative manufacturing values for

that milk. The current relationships

should be maintained.

5. Class I Price Mover

Although not included in the hearing

notice, a proposal was made by Family

Dairies, USA, to change the Class I price

mover from the higher of the Class III

and Class IV prices to a weighted

average of the two. The witness for

Family Dairies testified that the results

of the current regulation are disturbing

and unanticipated with the unexpected

strength of the Class IV price relative to

Class III. He complained that 10 percent

of production under Federal orders

(milk used to make nonfat dry milk) has

been driving the (Class I) price of 40%

of the milk. As a result, he testified,

milk production for fluid purposes is

encouraged in markets with high Class

I differentials and relatively high Class

I use at a time when marketing

conditions (an oversupply of milk)

should have the opposite effect. As

fluid-oriented markets are receiving

increased prices relative to markets in

which cheese is the dominant use, he

complained, inequities in blend prices

between markets are increasing.

A group representing upper Midwest

producer interests filed a brief that

described the recent movement of milk

from the Upper Midwest pool onto the

Central and Mideast marketwide pools

as disorderly marketing caused by

increases of Class I prices in these

higher-Class I use markets. This shift in

the pooling of milk from the upper

Midwest to higher-valued markets has

been a long-sought outcome on the part

of upper Midwest producer groups. It is

difficult to understand why it is now

seen as a manifestation of disorderly

marketing.

A brief filed by another group

representing fluid milk handlers

suggested that USDA should give

careful consideration to the proposal to

use a weighted average of the Class III

and Class IV prices to move Class I

prices. Any means of reducing Class I

prices to handlers should meet with the

approval of these processors, regardless

of the economic merits of the proposal.

In several briefs it was argued that the

Regulatory Impact Analysis (RIA)

published with the final decision on

Federal order reform stated that the

price formulas adopted therein were

expected to generate a sufficient

quantity of milk, and that both the

adoption of Class I pricing option IA

and use of the higher of the Class III and

IV prices as the price mover have

worked to enhance Class I price levels.

It should be noted that use of the higher

of the Class III and IV prices was

included in that decision and

considered in the RIA, not added later

by Congress, as was the change in the

Class I pricing surface.

Another brief argued that since the

1960’s the dairy industry has used a

Class I mover tied to a market-clearing

price represented by a weighted average

of milk used in butter, cheese and

powder. The price referred to, first the

Minnesota-Wisconsin price series, and

later that price adjusted by a weighted

average of current product prices for the

products mentioned, was specific to the

upper Midwest area and included very

little powder, as that area manufactures

a higher percentage of cheese, relative to

NFDM, than the rest of the U.S. The

current pricing system is much more

representative of national supply and

demand for manufactured dairy

products than either of the versions of

the former Class I mover.

As explained in the final decision on

Federal order reform, the higher of the

Class III or Class IV prices are used to

move the Class I price to assure that

fluid plants will be better able to attract

milk away from manufacturing uses.

Use of the weighted average of the two

prices when there is a significant

difference between them would provide

no assurance that milk would be

available as needed for fluid uses, and

would be more likely to result in Class

price inversions (where the Class I price

falls below one or more of the

manufacturing class prices). In addition,

use of a weighted average Class I price

mover would increase the occurrence of

the blend price falling below the Class

III or IV price in markets with low Class

I utilization.

Aside from the fact that the proposal

to use a weighted average of the Class

III and Class IV prices as the Class I

mover was not noticed for consideration

in this proceeding, it should be rejected

on the basis of its lack of merit.

6. Miscellaneous and Conforming

Changes

a. Advanced Class I Butterfat Price

Because of changes in the Class III

and Class IV pricing formulas made in

this decision, especially the adoption of

different butterfat prices for the two

classes, a conforming change should be

made to the procedure for calculating

the Class I butterfat and hundredweight

prices. The advanced butterfat price

used for pricing Class I butterfat would

be the butterfat price used in calculating

the higher of the advanced Class III or

Class IV prices on a 3.5 percent butterfat

basis.

b. Classification

As a conforming change to the

development of different prices for

butterfat used in Class III and Class IV

products, the classification of

anhydrous milkfat, butteroil, and plastic

cream should be changed from Class III

to Class IV. The record contains a

plethora of testimony about the use of

these products as substitutes for

butterfat, and therefore for butter, in

manufactured products. In a pricing

plan where butterfat used in Class III

products has the same value as butterfat

used in Class IV products, a difference

between the classification of these

products, which have a very high

76850 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

butterfat content, and butter should not

cause any market dislocation. However,

as extensively pointed out in testimony,

continuing to classify these products as

Class III when the Class III butterfat

price is changed to reflect the value of

butterfat in cheese, rather than its value

in butter, would place the

manufacturers of these products at a

significant competitive disadvantage to

manufacturers of butter.

c. Distribution of Butterfat Value to

Producers

There were several responses to the

issue of whether the butterfat price paid

to producers should be the result of

pooling butterfat prices from the

different classes or continue to reflect

the value of butterfat in Class III. A

witness from Northwest Dairy

Association testified that being able to

line up the Class III price to plants with

the component value calculation for

producers is helpful, especially with

regard to forward pricing. A brief filed

on behalf of DFA and ADCNE supported

continued use of the Class III butterfat

price as the producer butterfat price.

According to the brief, changes in direct

pricing to the producer are not prudent

at this time, and any change between

the Class III and Class IV butterfat price

should be settled through the producer

price differential mechanism in the

market order pools. The brief continued

that the producer price differential is a

blending of various debits and credits in

the pooling process and the additional

equalizing of any butterfat pricing

adjustments through this procedure

currently makes the most sense.

The post-hearing brief filed by

National All-Jersey urged that USDA

retain the current practice of using Class

III milk component values to price

producer component values. The brief

noted that this scenario makes it easier

to use accepted hedging tools, such as

Class III futures contracts, and helps

simplify pricing for producers. The brief

further stated that the current procedure

maintains the same producer butterfat

price in all Federal orders with multiple

component pricing.

Although hearing participants

supported continuing to use the same

butterfat price for Class III milk and

producer payments, the butterfat values

of the 4 classes should be pooled in

calculating the value of butterfat

received from producers. Producers

should see the classified use value of

the butterfat portion of their milk

reflected in the value they receive for

that component of their milk. Pooling

the butterfat values would accomplish

this principle. In addition, potential

large differences between the Class III

and Class IV/II butterfat prices as a

result of the Class III component prices

calculated from the formulas in this

decision would be likely to result in

significant distortions in the effect of

those differences on the producer price

differential. It is possible that pool

calculations in some markets would

result in a negative producer price

differential if the producer butterfat

price is not changed to represent a blend

of the values of butterfat in the four

classes of use.

Pooling butterfat values will also have

the effect of providing more consistency

among the orders. Currently, the four

orders that do not have component

pricing pool the class use butterfat

values and return a weighted average

butterfat price to producers. In the

component pricing orders, butterfat

values are not pooled and producers

receive the Class III butterfat value.

Pooling butterfat values to producers

will result in producers sharing in the

class use value of butterfat.

d. Inclusion of Class I Other Source

Butterfat in Producer Butterfat Price

Computation

In pooling the class butterfat values to

determine butterfat prices to producers,

the value associated with the occasional

classification of other source milk as

Class I should be included. This change

should be made so that the value of all

of the butterfat in the pool will be

reflected in the producer butterfat price.

In addition, a change in the

component pricing orders should be

made in the paragraph in which the

‘‘Handler’s value of milk’’ is calculated

by replacing the differential value of

other source milk allocated to Class I

with the Class I value of that milk.

These orders currently subtract the

Class III value of such milk from its

Class I value in the ‘‘Handler’s value of

milk computation,’’ include that

differential value in the ‘‘Computation

of producer price differential,’’ and

credit the handler for the other source

milk that was classified in Class I at the

producer price differential in ‘‘Payments

to the producer-settlement fund.’’

With the adoption of a producer

butterfat price that can be expected to

differ from the Class III butterfat price,

however, it is more appropriate to

include in the ‘‘Handler’s value of milk’’

the entire Class I value of other source

milk classified as Class I, deduct the

portion of its producer value that does

not include the producer price

differential during the computation of

the producer price differential, and

credit the handler for the milk’s value

at producer prices in the calculation of

‘‘Payments to the producer-settlement

fund.’’

7. Issue of Whether To Omit a

Recommended Decision

The statute requiring that this

proceeding be held to reconsider the

Class III and Class IV pricing formulas

also requires that a final decision be

published by December 1, 2000, with

any amendments to the orders to be

effective January 1, 2001.

A number of hearing participants

indicated understanding of the

difficulty in issuing a recommended

decision, allowing for comments and

exceptions on the decision, and then

issuing a final decision by the deadline

of December 1, 2000. However, the

hearing record reflects unanimity among

those addressing the issue that the

industry should be afforded the

opportunity to comment on a decision

before its content results in a final rule.

Therefore, USDA is issuing this

Tentative Final Decision, which will

require producer approval before the

included proposed amendments become

effective in an Interim Final Rule, with

a subsequent Final Decision and Final

Rule to follow. This procedure will

allow industry comment on the content

of this decision, while allowing USDA

to comply with the statutorily-imposed

timetable.

Rulings on Proposed Findings and

Conclusions

Briefs and proposed findings and

conclusions were filed on behalf of

certain interested parties. These briefs,

proposed findings and conclusions and

the evidence in the record were

considered in making the findings and

conclusions set forth above. To the

extent that the suggested findings and

conclusions filed by interested parties

are inconsistent with the findings and

conclusions set forth herein, the

requests to make such findings or reach

such conclusions are denied for the

reasons previously stated in this

decision.

General Findings

The findings and determinations

hereinafter set forth supplement those

that were made when each of the

aforesaid orders were first issued and

when they were amended. The previous

findings and determinations are hereby

ratified and confirmed, except where

they may conflict with those set forth

herein.

The following findings are hereby

made with respect to each of the

aforesaid interim marketing agreements

and orders;

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76851

(a) The interim marketing agreements

and the orders, as hereby proposed to be

amended, and all of the terms and

conditions thereof, will tend to

effectuate the declared policy of the Act;

(b) The parity prices of milk as

determined pursuant to section 2 of the

Act are not reasonable in view of the

price of feeds, available supplies of

feeds, and other economic conditions

which affect market supply and demand

for milk in the aforesaid marketing

areas, and the minimum prices specified

in the interim marketing agreements and

the orders, as hereby proposed to be

amended, are such prices as will reflect

the aforesaid factors, insure a sufficient

quantity of pure and wholesome milk,

and be in the public interest; and

(c) The interim marketing agreements

and the orders, as hereby proposed to be

amended, will regulate the handling of

milk in the same manner as, and will be

applicable only to persons in the

respective classes of industrial and

commercial activity specified in,

marketing agreements upon which a

hearing has been held.

Interim Marketing Agreement and

Interim Order Amending the Orders

Annexed hereto and made a part

hereof are two documents, an Interim

Marketing Agreement regulating the

handling of milk, and an Interim Order

amending the orders regulating the

handling of milk in the aforesaid

marketing areas, which have been

decided upon as the detailed and

appropriate means of effectuating the

foregoing conclusions.

It is hereby ordered, That this entire

tentative decision and the interim order

and the interim marketing agreement

annexed hereto be published in the

Federal Register.

Referendum Order To Determine

Producer Approval; Determination of

Representative Periods; and

Designation of Referendum Agents

It is hereby directed that referenda be

conducted and completed on or before

the 30th day from the date this decision

is issued, in accordance with the

procedure for the conduct of referenda

(7 CFR 900.300–311), to determine

whether the issuance of the orders as

amended and as hereby proposed to be

amended, regulating the handling of

milk in the Northeast and Mideast

marketing areas is approved or favored

by producers, as defined under each of

those orders, as amended and as hereby

proposed to be amended, who during

such representative period were

engaged in the production of milk for

sale within the aforesaid marketing

areas.

The representative period for the

conduct of such referenda is hereby

determined to be May 2000 for the

Northeast order and September 2000 for

the Mideast order.

The agents of the Secretary to conduct

such referenda are hereby designated to

be the respective market administrators

of the aforesaid orders.

Determination of Producer Approval

and Representative Periods for All

Other Orders

May 2000 is hereby determined to be

the representative period for the

purpose of ascertaining whether the

issuance of the orders, as amended and

as hereby proposed to be amended,

regulating the handling of milk in the

Appalachian, Southeast and Florida

marketing areas are approved or favored

by producers, as defined under the

terms of each of those orders as

amended and as hereby proposed to be

amended, who during such

representative period were engaged in

the production of milk for sale within

the aforesaid marketing areas.

September 2000 is hereby determined

to be the representative period for the

purpose of ascertaining whether the

issuance of the orders, as amended and

as hereby proposed to be amended,

regulating the handling of milk in the

Upper Midwest, Central, Pacific

Northwest, Southwest, Arizona-Las

Vegas and Western marketing areas are

approved or favored by producers, as

defined under the terms of each of those

orders as amended and as hereby

proposed to be amended, who during

such representative period were

engaged in the production of milk for

sale within the aforesaid marketing

areas.

List of Subjects in 7 CFR Parts 1000,

1001, 1005, 1006, 1007, 1030, 1032,

1033, 1124, 1126, 1131, and 1135

Milk marketing orders.

Dated: November 29, 2000.

Enrique E. Figueroa,

Deputy Under Secretary, Marketing and

Regulatory Programs.

Interim Order Amending the Orders

Regulating the Handling of Milk in the

Northeast and Other Marketing Areas

This interim order shall not become

effective unless and until the

requirements of § 900.14 of the rules of

practice and procedure governing

proceedings to formulate marketing

agreements and marketing orders have

been met.

Findings and Determinations

The findings and determinations

hereinafter set forth supplement those

that were made when the orders were

first issued and when they were

amended. The previous findings and

determinations are hereby ratified and

confirmed, except where they may

conflict with those set forth herein.

(a) Findings. A public hearing was

held upon certain proposed

amendments to the tentative marketing

agreements and to the orders regulating

the handling of milk in the aforesaid

marketing areas. The hearing was held

pursuant to the provisions of the

Agricultural Marketing Agreement Act

of 1937, as amended (7 U.S.C. 601–674),

and the applicable rules of practice and

procedure (7 CFR part 900).

Upon the basis of the evidence

introduced at such hearing and the

record thereof, it is found that:

(1) The said orders as hereby

amended, and all of the terms and

conditions thereof, will tend to

effectuate the declared policy of the Act;

(2) The parity prices of milk, as

determined pursuant to section 2 of the

Act, are not reasonable in view of the

price of feeds, available supplies of

feeds, and other economic conditions

which affect market supply and demand

for milk in the aforesaid marketing

areas; and the minimum prices specified

in the orders as hereby amended are

such prices as will reflect the aforesaid

factors, insure a sufficient quantity of

pure and wholesome milk, and be in the

public interest; and

(3) The said orders as hereby

amended regulate the handling of milk

in the same manner as, and are

applicable only to persons in the

respective classes of industrial or

commercial activity specified in,

marketing agreements upon which a

hearing has been held.

Order Relative to Handling

It is therefore ordered, that on and

after the effective date hereof, the

handling of milk in the Northeast and

other marketing areas shall be in

conformity to and in compliance with

the terms and conditions of the orders,

as amended, and as hereby amended, as

follows:

The authority citation for 7 CFR parts

1000, 1001, 1005, 1006, 1007, 1030,

1032, 1033, 1124, 1126, 1131, and 1135

continues to read as follows:

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

106–113, 115 Stat. 1501.

PART 1000–GENERAL PROVISIONS

OF FEDERAL MILK MARKETING

ORDERS

1. Section 1000.40 is amended by

removing and reserving paragraph

76852 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

(c)(1)(ii) and revising paragraph (d)(1)(i)

to read as follows:

§ 1000.40 Classes of Utilization.

* * * * *

(c) * * *

(1) * * *

(ii) [Reserved]

* * * * *

(d) Class IV milk shall be all skim

milk and butterfat:

(1) Used to produce:

(i) Butter, plastic cream, anhydrous

milkfat, and butteroil; and

* * * * *

2. Section 1000.50 is amended by

revising the last sentence of the

introductory text and paragraphs (a), (b),

(c), (g), (h), (j), (l), (m), (n), (o), (p)(1),

and (q)(3) and adding paragraph (q)(4) to

read as follows:

§ 1000.50 Class prices, component prices,

and advanced pricing factors.

* * * The price described in

paragraph (d) of this section shall be

derived from the Class II skim milk

price announced on or before the 23rd

day of the month preceding the month

to which it applies and the Class IV

butterfat price announced on or before

the 5th day of the month following the

month to which it applies.

(a) Class I price. The Class I price per

hundredweight shall be the adjusted

Class I differential specified in § 1000.52

plus the higher of the advanced Class III

or advanced Class IV prices calculated

in paragraph (q)(4) of this section.

(b) Class I skim milk price. The Class

I skim milk price per hundredweight

shall be the adjusted Class I differential

specified in § 1000.52 plus the advanced

Class III or advanced Class IV skim milk

price used in the calculation of the

higher of the advanced Class III or

advanced Class IV prices calculated in

paragraph (q)(4) of this section.

(c) Class I butterfat price. The Class I

butterfat price per pound shall be the

adjusted Class I differential specified in

§ 1000.52 divided by 100, plus the

advanced Class III or advanced Class IV

butterfat price used in the calculation of

the higher of the advanced Class III or

advanced Class IV prices calculated in

paragraph (q)(4) of this section.

* * * * *

(g) Class II butterfat price. The Class

II butterfat price per pound shall be the

Class IV butterfat price plus $.007.

(h) Class III price. The Class III price

per hundredweight, rounded to the

nearest cent, shall be .965 times the

Class III skim milk price plus 3.5 times

the Class III butterfat price.

* * * * *

(j) Class IV price. The Class IV price

per hundredweight, rounded to the

nearest cent, shall be .965 times the

Class IV skim milk price plus 3.5 times

the Class IV butterfat price.

* * * * *

(l) Class III and Class IV butterfat

prices.

(1) The Class III butterfat price per

pound, rounded to the nearest onehundredth cent, shall be computed as

follows:

(i) Compute a weighted average of the

following prices:

(A) The U.S. average NASS survey

price for 40-lb. block cheese reported by

the Department for the month; and

(B) The U.S. average NASS survey

price for 500-pound barrel cheddar

cheese (38 percent moisture) reported

by the Department for the month plus 3

cents;

(ii) Subtract 16.5 cents from the price

computed pursuant to paragraph (l)(1)(i)

of this section and multiply the result

by 1.582;

(2) The Class IV butterfat price per

pound, rounded to the nearest onehundredth cent, shall be the U.S.

average NASS AA butter survey price

reported by the Department for the

month less 11.5 cents, with the result

divided by 0.82.

(m) Nonfat solids price. The nonfat

solids price per pound, rounded to the

nearest one-hundredth cent, shall be the

U.S. average NASS nonfat dry milk

survey price reported by the Department

for the month less 14 cents.

(n) Protein price. The protein price

per pound, rounded to the nearest onehundredth cent, shall be computed by

subtracting 16.5 cents from the price

computed pursuant to paragraph (l)(1)(i)

of this section and multiplying the

result by 1.405;

(o) Other solids price. The other solids

price per pound, rounded to the nearest

one-hundredth cent, shall be the U.S.

average NASS dry whey survey price

reported by the Department for the

month minus 14 cents, with the result

divided by 0.968. The other solids price

shall not be less than zero.

(p) * * *

(1) Multiply .0005 by the weighted

average price computed pursuant to

paragraph (l)(1)(i) of this section and

round to the 5th decimal place;

* * * * *

(q) * * *

(3) Calculate the advanced Class III

and advanced Class IV butterfat prices

as follows:

(i) The advanced Class III butterfat

price shall be calculated by subtracting

16.5 cents per pound from a weighted

average of the 2 most recent U.S.

average NASS survey prices for 40-

lb.block cheese and for 500-pound

barrel cheddar cheese (at 38 percent

moisture) plus 3 cents announced before

the 24th day of the month, with the

result multiplied by 1.582;

(ii) The advanced Class IV butterfat

price shall be calculated by subtracting

11.5 cents from a weighted average of

the 2 most recent U.S. average NASS

AA butter survey prices announced

before the 24th day of the month, with

the result divided by 0.82.

(4) Calculate the advanced Class III

and advanced Class IV prices as follows:

(i) The advanced Class III price shall

be the sum of the value calculated

pursuant to paragraph (q)(1) of this

section multiplied by .965 plus the

value calculated pursuant to paragraph

(q)(3)(i) of this section multiplied by 3.5,

rounded to the nearest cent.

(ii) The advanced Class IV price shall

be the sum of the value calculated

pursuant to paragraph (q)(2) of this

section multiplied by .965 plus the

value calculated pursuant to paragraph

(q)(3)(ii) of this section multiplied by

3.5, rounded to the nearest cent.

PART 1001—MILK IN THE

NORTHEAST MARKETING AREA

1. Section 1001.60 is amended by

revising paragraphs (c)(3), (d)(2), and (h)

to read as follows:

§ 1001.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(h) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76853

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1001.61, is revised to read

as follows:

§ 1001.61 Computation of producer

butterfat price and producer price

differential.

For each month, the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight for producer milk

receipts. The report of any handler who

has not made payments required

pursuant to § 1001.71 for the preceding

month shall not be included in the

computation of these prices, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the aforementioned

conditions, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1001.60(h) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential.

(1) Combine into one total the values

computed pursuant to § 1001.60 for all

handlers required to file reports

prescribed in § 1001.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1001.60(a)

through (g) and § 1001.60(i) by the

protein price, other solids price, and

producer butterfat price, respectively;

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1001.60(h) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1001.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1001.60(h); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1001.62 is amended by

revising paragraphs (e) and (g) to read as

follows:

§ 1001.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(g) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1001.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1001.61(b).

4. Section 1001.71 is amended by

revising paragraphs (b)(2) and (3) to read

as follows:

§ 1001.71 Payments to the producersettlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively; and

(3) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1001.60(h) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1001.75 applicable at the

location of the plant from which

received.

5. Section 1001.73 is amended by

revising paragraphs (a)(2)(ii) and

(b)(3)(vi) to read as follows:

§ 1001.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

(ii) Multiply the pounds of butterfat

received by the producer butterfat price

for the month;

* * * * *

(b) * * *

(3) * * *

(vi) Multiply the pounds of butterfat

in Class III and Class IV milk by the

respective butterfat prices for the

month;

* * * * *

PART 1005—MILK IN THE

APPALACHIAN MARKETING AREA

1. Section 1005.60 is amended by

revising paragraph (e) to read as follows:

§ 1005.60 Handler’s value of milk.

* * * * *

(e) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1005.61 is amended by

revising paragraphs (a) and (b)(4) to read

as follows:

§ 1005.61 Computation of uniform prices.

* * * * *

(a) Uniform butterfat price. The

uniform butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1005.60(e) for other

76854 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) * * *

(4) Subtract the value of the total

pounds of butterfat for all handlers. The

butterfat value shall be computed by

multiplying the sum of the pounds of

butterfat in producer milk and other

source milk used to calculate the values

in paragraghs (a)(1) and (a)(2) of this

section by the butterfat price computed

in paragraph (a) of this section;

* * * * *

PART 1006—MILK IN THE FLORIDA

MARKETING AREA

1. Section 1006.60 is amended by

revising paragraph (e) to read as follows:

§ 1006.60 Handler’s value of milk.

* * * * *

(e) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1006.61 is amended by

revising paragraphs (a) and (b)(4) to read

as follows:

§ 1006.61 Computation of uniform prices.

* * * * *

(a) Uniform butterfat price. The

uniform butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1006.60(e) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) * * *

(4) Subtract the value of the total

pounds of butterfat for all handlers. The

butterfat value shall be computed by

multiplying the sum of the pounds of

butterfat in producer milk and other

source milk used to calculate the values

in paragraphs (a)(1) and (a)(2) of this

section by the butterfat price computed

in paragraph (a) of this section;

* * * * *

PART 1007—MILK IN THE SOUTHEAST

MARKETING AREA

1. Section 1007.60 is amended by

revising paragraph (e) to read as follows:

§ 1007.60 Handler’s value of milk.

* * * * *

(e) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1007.61 is amended by

revising paragraphs (a) and (b)(4) to read

as follows:

§ 1007.61 Computation of uniform prices.

* * * * *

(a) Uniform butterfat price. The

uniform butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1007.60(e) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) * * *

(4) Subtract the value of the total

pounds of butterfat for all handlers. The

butterfat value shall be computed by

multiplying the sum of the pounds of

butterfat in producer milk and other

source milk used to calculate the values

in paragraphs (a)(1) and (a)(2) of this

section by the butterfat price computed

in paragraph (a) of this section;

* * * * *

PART 1030—MILK IN THE UPPER

MIDWEST MARKETING AREA

1. Section 1030.60 is amended by

revising paragraphs (c)(3), (d)(2), and (i)

to read as follows:

§ 1030.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(i) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76855

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1030.61 is revised to read

as follows:

§ 1030.61 Computation of producer

butterfat price and producer price

differential.

For each month the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight for producer milk

receipts. The report of any handler who

has not made payments required

pursuant to § 1030.71 for the preceding

month shall not be included in the

computation of these prices, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the conditions of this

paragraph, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1030.60(i) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential. (1)

Combine into one total the values

computed pursuant to § 1030.60 for all

handlers required to file reports

prescribed in § 1030.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1030.60(a)

through (h) and § 1030.60(j) by the

protein price, other solids price, and

producer butterfat price, respectively,

and the total value of the somatic cell

adjustment pursuant to § 1030.30(a)(1)

and (c)(1);

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1030.60(i) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1030.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1030.60(i); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1030.62 is amended by

revising paragraphs (e) and (h) to read

as follows:

§ 1030.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(h) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1030.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1030.61(b).

4. Section 1030.71 is amended by

revising paragraphs (b)(2) and (b)(4) to

read as follows:

§ 1030.71 Payments to the producersettlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively;

* * * * *

(4) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1030.60(i) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1030.75 applicable at the

location of the plant from which

received.

5. Section 1030.73 is amended by

revising paragraphs (a)(2)(ii), (c)(2)(v),

and (c)(3)(ii) to read as follows:

§ 1030.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

(c) * * *

(2) * * *

(v) The pounds of butterfat in Class III

and Class IV milk by the respective

butterfat prices for the month;

* * * * *

(3) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

PART 1032—MILK IN THE CENTRAL

MARKETING AREA

1. Section 1032.60 is amended by

revising paragraphs (c)(3), (d)(2), and (i)

to read as follows:

§ 1032.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(i) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

76856 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1032.61 is revised to read

as follows:

§ 1032.61 Computation of producer

butterfat price and producer price

differential.

For each month the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight for producer milk

receipts. The report of any handler who

has not made payments required

pursuant to § 1032.71 for the preceding

month shall not be included in the

computation of these prices, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the conditions of this

paragraph, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1032.60(i) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential. (1)

Combine into one total the values

computed pursuant to § 1032.60 for all

handlers required to file reports

prescribed in § 1032.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1032.60(a)

through (h) and § 1032.60(j) by the

protein price, other solids price, and

producer butterfat price, respectively,

and the total value of the somatic cell

adjustment pursuant to § 1032.30(a)(1)

and (c)(1);

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1032.60(i) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1032.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1032.60(i); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1032.62 is amended by

revising paragraphs (e) and (h) to read

as follows:

§ 1032.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(h) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1032.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1032.61(b).

4. Section 1032.71 is amended by

revising paragraphs (b)(2) and (3) to read

as follows:

§ 1032.71 Payments to the producersettlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively;

* * * * *

(4) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1032.60(i) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1032.75 applicable at the

location of the plant from which

received.

5. Section 1032.73 is amended by

revising paragraphs (a)(2)(ii), (c)(2)(v),

and (c)(3)(ii) to read as follows:

§ 1032.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

(c) * * *

(2) * * *

(v) The pounds of butterfat in Class III

and Class IV milk by the respective

butterfat prices for the month;

* * * * *

(3) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

PART 1033—MILK IN THE MIDEAST

MARKETING AREA

1. Section 1033.60 is amended by

revising paragraphs (c)(3), (d)(2), and (i)

to read as follows:

§ 1033.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(i) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76857

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1033.61 is revised to read

as follows:

§ 1033.61 Computation of producer

butterfat price and producer price

differential.

For each month the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight for producer milk

receipts. The report of any handler who

has not made payments required

pursuant to § 1033.71 for the preceding

month shall not be included in the

computation of these prices, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the conditions of this

paragraph, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1033.60(i) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential. (1)

Combine into one total the values

computed pursuant to § 1033.60 for all

handlers required to file reports

prescribed in § 1033.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1033.60(a)

through (h) and § 1033.60(j) by the

protein price, other solids price, and

producer butterfat price, respectively,

and the total value of the somatic cell

adjustment pursuant to § 1033.30(a)(1)

and (c)(1);

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1033.60(i) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1033.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1033.60(i); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1033.62 is amended by

revising paragraphs (e) and (h) to read

as follows:

§ 1033.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(h) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1033.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1033.61(b).

4. Section 1033.71 is amended by

revising paragraphs (b)(2) and (4) to read

as follows:

§ 1033.71 Payments to the producer—

settlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively;

* * * * *

(4) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1033.60(i) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1033.75 applicable at the

location of the plant from which

received.

5. Section 1033.73 is amended by

revising paragraphs (a)(2)(ii) and

(b)(3)(v) to read as follows:

§ 1033.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

(b) * * *

(3) * * *

(v) The pounds of butterfat in Class III

and Class IV milk by the respective

butterfat prices for the month;

* * * * *

PART 1124—MILK IN THE PACIFIC

NORTHWEST MARKETING AREA

1. Section 1124.60 is amended by

revising paragraphs (c)(3), (d)(2), and (h)

to read as follows:

§ 1124.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(h) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

76858 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

2. Section 1124.61, including the

section heading, is revised to read as

follows:

§ 1124.61 Computation of producer

butterfat price and producer price

differential.

For each month, the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight. The report of any

handler who has not made payments

required pursuant to § 1124.71 for the

preceding month shall not be included

in these computations, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the aforementioned

conditions, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1124.60(h) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential. (1)

Combine into one total the values

computed pursuant to § 1124.60 for all

handlers required to file reports

prescribed in § 1124.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1124.60(a)

through (g) and § 1124.60(i) by the

protein price, other solids price, and

producer butterfat price, respectively;

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1124.60(h) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1124.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1124.60(h); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1124.62 is amended by

revising paragraphs (e) and (g) to read as

follows:

§ 1124.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(g) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1124.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1124.61(b).

4. Section 1124.71 is amended by

revising paragraphs (b)(2) and (3) to read

as follows:

§ 1124.71 Payments to the producersettlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively; and

(3) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1124.60(h) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1124.75 applicable at the

location of the plant from which

received.

5. Section 1124.73 is amended by

revising paragraphs (a)(2)(ii), (c)(2)(v),

and (c)(3)(ii) to read as follows:

§ 1124.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

(c) * * *

(2) * * *

(v) The pounds of butterfat in Class III

and Class IV milk by the respective

butterfat prices for the month;

* * * * *

(3) * * *

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

PART 1126—MILK IN THE

SOUTHWEST MARKETING AREA

1. Section 1126.60 is amended by

revising paragraphs (c)(3), (d)(2), and (i)

to read as follows:

§ 1126.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(i) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1126.61, is revised to read

as follows:

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76859

§ 1126.61 Computation of producer

butterfat price and producer price

differential.

For each month, the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight. The report of any

handler who has not made payments

required pursuant to § 1126.71 for the

preceding month shall not be included

in these computations, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the aforementioned

conditions, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1126.60(i) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential. (1)

Combine into one total the values

computed pursuant to § 1126.60 for all

handlers required to file reports

prescribed in § 1126.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1126.60(a)

through (h) and § 1126.60(j) by the

protein price, other solids price, and

producer butterfat price, respectively,

and the total value of the somatic cell

adjustment pursuant to § 1126.30(a)(1)

and (c)(1);

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1126.60(i) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1126.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1126.60(i); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1126.62 is amended by

revising paragraphs (e) and (h) to read

as follows:

§ 1126.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(h) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1126.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1126.61(b).

4. Section 1126.71 is amended by

revising paragraphs (b)(2) and (4) to read

as follows:

§ 1126.71 Payments to the producersettlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively;

* * * * *

(4) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1126.60(i) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1126.75 applicable at the

location of the plant from which

received.

5. Section 1126.73 is amended by

revising paragraphs (a)(2)(ii) and

(b)(3)(v) to read as follows:

§ 1126.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

(ii) Multiply the pounds of butterfat

received times the producer butterfat

price for the month;

* * * * *

(b) * * *

(3) * * *

(v) The pounds of butterfat in Class III

and Class IV milk by the respective

butterfat prices for the month;

* * * * *

PART 1131—MILK IN THE ARIZONALAS VEGAS MARKETING AREA

1. Section 1131.60 is amended by

revising paragraph (e) to read as follows:

§ 1131.60 Handler’s value of milk.

* * * * *

(e) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1131.61 is amended by

revising paragraphs (a) and (b)(4) to read

as follows:

§ 1131.61 Computation of uniform prices.

* * * * *

(a) Uniform butterfat price. The

uniform butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1131.60(e) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

76860 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) * * *

(4) Subtract the value of the total

pounds of butterfat for all handlers. The

butterfat value shall be computed by

multiplying the sum of the pounds of

butterfat in producer milk and other

source milk used to calculate the values

in (a)(1) and (a)(2) of this section by the

butterfat price computed in paragraph

(a) of this section;

* * * * *

PART 1135—MILK IN THE WESTERN

MARKETING AREA

1. Section 1135.60 is amended by

revising paragraphs (c)(3), (d)(2) and (h)

to read as follows:

§ 1135.60 Handler’s value of milk.

* * * * *

(c) * * *

(3) Add an amount obtained by

multiplying the pounds of butterfat in

Class III by the Class III butterfat price.

(d) * * *

(2) Add an amount obtained by

multiplying the pounds of butterfat in

Class IV by the Class IV butterfat price.

* * * * *

(h) Multiply the Class I skim milk and

Class I butterfat prices applicable at the

location of the nearest unregulated

supply plants from which an equivalent

volume was received by the pounds of

skim milk and butterfat in receipts of

concentrated fluid milk products

assigned to Class I pursuant to

§ 1000.43(d) and § 1000.44(a)(3)(i) and

the corresponding step of § 1000.44(b)

and the pounds of skim milk and

butterfat subtracted from Class I

pursuant to § 1000.44(a)(8) and the

corresponding step of § 1000.44(b),

excluding such skim milk and butterfat

in receipts of fluid milk products from

an unregulated supply plant to the

extent that an equivalent amount of

skim milk or butterfat disposed of to

such plant by handlers fully regulated

under any Federal milk order is

classified and priced as Class I milk and

is not used as an offset for any other

payment obligation under any order.

* * * * *

2. Section 1135.61 is revised to read

as follows:

§ 1135.61 Computation of producer

butterfat price and producer price

differential.

For each month, the market

administrator shall compute a producer

butterfat price per pound of butterfat

and a producer price differential per

hundredweight. The report of any

handler who has not made payments

required pursuant to § 1135.71 for the

preceding month shall not be included

in these computations, and such

handler’s report shall not be included in

the computation for succeeding months

until the handler has made full payment

of outstanding monthly obligations.

Subject to the conditions of this

paragraph, the market administrator

shall compute the producer butterfat

price and the producer price differential

in the following manner:

(a) Producer butterfat price. The

producer butterfat price per pound,

rounded to the nearest one-hundredth

cent, shall be computed by:

(1) Multiplying the pounds of

butterfat in producer milk allocated to

each class pursuant to § 1000.44(b) by

the respective class butterfat prices;

(2) Adding the butterfat value

calculated in § 1135.60(h) for other

source milk allocated to Class I pursuant

to § 1000.43(d) and the steps of

§ 1000.44(b) that correspond to

§ 1000.44(a)(3)(i) and § 1000.44(a)(8) by

the Class I price; and

(3) Dividing the sum of paragraphs

(a)(1) and (a)(2) of this section by the

sum of the pounds of butterfat in

producer milk and other source milk

used to calculate the values in

paragraphs (a)(1) and (a)(2) of this

section.

(b) Producer price differential. (1)

Combine into one total the values

computed pursuant to § 1135.60 for all

handlers required to file reports

prescribed in § 1135.30;

(2) Subtract the total of the values

obtained:

(i) By multiplying the total pounds of

protein, other solids, and butterfat

contained in each handler’s producer

milk for which an obligation was

computed pursuant to § 1135.60(a)

through (g) and § 1135.60(i) by the

protein price, other solids price, and

producer butterfat price, respectively;

(ii) By multiplying each handler’s

pounds of skim milk and butterfat for

which a value is computed pursuant to

§ 1135.60(h) by the Class III skim milk

price and the producer butterfat price,

respectively;

(3) Add an amount equal to the minus

location adjustments and subtract an

amount equal to the plus location

adjustments computed pursuant to

§ 1135.75;

(4) Add an amount equal to not less

than one-half of the unobligated balance

in the producer-settlement fund;

(5) Divide the resulting amount by the

sum of the following for all handlers

included in these computations:

(i) The total hundredweight of

producer milk; and

(ii) The total hundredweight for

which a value is computed pursuant to

§ 1135.60(h); and

(6) Subtract not less than 4 cents nor

more than 5 cents from the price

computed pursuant to paragraph (b)(5)

of this section. The result shall be

known as the producer price differential

for the month.

3. Section 1135.62 is amended by

revising paragraphs (e) and (g) to read as

follows:

§ 1135.62 Announcement of producer

prices.

* * * * *

(e) The producer butterfat price;

* * * * *

(g) The statistical uniform price

computed by adding the following

values:

(1) The Class III skim milk price

computed in § 1000.50(i) multiplied by

.965;

(2) The producer butterfat price

computed in § 1135.61(a) multiplied by

3.5; and

(3) The producer price differential

computed in § 1135.61(b).

* * * * *

4. Section 1135.71 is amended by

revising paragraph (b)(2) and adding

paragraph (b)(3) to read as follows:

§ 1135.71 Payments to the producer—

settlement fund.

* * * * *

(b) * * *

(2) An amount obtained by

multiplying the total pounds of protein,

other solids, and butterfat contained in

producer milk by the protein, other

solids, and producer butterfat prices

respectively; and

(3) An amount obtained by

multiplying the hundredweight, the

pounds of skim milk, and the pounds of

butterfat for which a value was

computed pursuant to § 1135.60(h) by

the producer price differential, the Class

III skim milk price, and the producer

butterfat price, respectively, as adjusted

pursuant to § 1135.75 applicable at the

location of the plant from which

received.

* * * * *

5. Section 1135.73 is amended by

revising paragraphs (a)(2)(ii) and

(b)(3)(v) to read as follows:

§ 1135.73 Payments to producers and to

cooperative associations.

(a) * * *

(2) * * *

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Proposed Rules 76861

1First and last sections of order.

2Appropriate Part number.

3Next consecutive section number.

4Appropriate representative period for the order.

(ii) The pounds of butterfat received

times the producer butterfat price for

the month;

* * * * *

(b) * * *

(3) * * *

(v) The pounds of butterfat in Class III

and Class IV milk times the respective

butterfat prices for the month;

* * * * *

Marketing Agreement Regulating the

Handling of Milk in Certain Marketing

Areas

The parties hereto, in order to effectuate

the declared policy of the Act, and in

accordance with the rules of practice and

procedure effective thereunder (7 CFR Part

900), desire to enter into this marketing

agreement and do hereby agree that the

provisions referred to in paragraph I hereof

as augmented by the provisions specified in

paragraph II hereof, shall be and are the

provisions of this marketing agreement as if

set out in full herein.

I. The findings and determinations, order

relative to handling, and the provisions of

§§lll1 to lll, all inclusive, of the

order regulating the handling of milk in the

(lll Name of order lll) marketing area

(7 CFR PART lll2) which is annexed

hereto; and

II. The following provisions: § lll3

Record of milk handled and authorization to

correct typographical errors.

(a) Record of milk handled. The

undersigned certifies that he/she handled

during the month of lll4, lll

hundredweight of milk covered by this

marketing agreement.

(b) Authorization to correct typographical

errors. The undersigned hereby authorizes

the Deputy Administrator, or Acting Deputy

Administrator, Dairy Programs, Agricultural

Marketing Service, to correct any

typographical errors which may have been

made in this marketing agreement.

§lll3 Effective date. This marketing

agreement shall become effective upon the

execution of a counterpart hereof by the

Secretary in accordance with Section

900.14(a) of the aforesaid rules of practice

and procedure.

In Witness Whereof, The contracting

handlers, acting under the provisions of the

Act, for the purposes and subject to the

limitations herein contained and not

otherwise, have hereunto set their respective

hands and seals.

Signature

By (Name) lllllllllllllll

(Title) lllllllllllllllll

(Address) llllllllllllllll

(Seal)

Attest

[FR Doc. 00–30816 Filed 12–1–00; 9:19 am]

BILLING CODE 3410–02–P