I

105TH CONGRESS

1ST SESSION H. R. 646

To improve price discovery in milk and dairy markets by reducing the effects

of the National Cheese Exchange on the basic formula price established

under milk marketing orders, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 6, 1997

Mr. OBEY (for himself, Mr. KIND of Wisconsin, Mr. JOHNSON of Wisconsin,

and Mr. BARRETT of Wisconsin) introduced the following bill; which was

referred to the Committee on Agriculture

A BILL

To improve price discovery in milk and dairy markets by

reducing the effects of the National Cheese Exchange

on the basic formula price established under milk marketing orders, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Milk Price Discovery

5 Improvement Act of 1997’’.

6 SEC. 2. FINDINGS.

7 Congress finds that—
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1 (1) the National Cheese Exchange, located in

2 Green Bay, Wisconsin, is the only cash market for

3 bulk cheese in the United States, trades less than 1

4 percent of all bulk cheese sold nationally, and cur5 rently functions as the only price discovery mecha6 nism for bulk cheese throughout the industry;

7 (2) the National Cheese Exchange opinion price

8 directly influences milk prices paid to farmers be9 cause of its use in the Department of Agriculture’s

10 basic formula price under Federal milk marketing

11 orders;

12 (3) opinion prices at the National Cheese Ex13 change influence the price for much of the bulk

14 cheese bought and sold in the United States and di15 rectly or indirectly influences the price of milk paid

16 to producers throughout the United States;

17 (4) the National Cheese Exchange is a thinly

18 traded, illiquid, and highly concentrated market that

19 is increasingly volatile;

20 (5) a report issued by the University of Wiscon21 sin and funded by the United States Department of

22 Agriculture concluded that the National Cheese Ex23 change is vulnerable to price manipulation;

24 (6) the thin nature of the National Cheese Ex25 change and the characteristics of that market that
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1 may facilitate price manipulation have led to wide2 spread producer concern about the validity of prices

3 at the National Cheese Exchange; and

4 (7) it is in the national interest to ensure that

5 prices on cash markets that directly and indirectly

6 affect milk prices are determined in the most com7 petitive manner practicable and to improve price dis8 covery for milk and other dairy products.

9 SEC. 3. BASIC FORMULA PRICE.

10 Section 143(a) of the Agricultural Market Transition

11 Act (7 U.S.C. 7253(a)) is amended by adding at the end

12 the following:

13 ‘‘(5) NATIONAL CHEESE EXCHANGE.—

14 ‘‘(A) IN GENERAL.—In carrying out this

15 subsection and section 8c(5) of the Agricultural

16 Adjustment Act (7 U.S.C. 608c(5)), reenacted

17 with amendments by the Agricultural Market18 ing Agreement Act of 1937, the Secretary shall

19 not, directly or indirectly, use a price estab20 lished on the National Cheese Exchange to de21 termine the basic formula price for milk or any

22 other milk price regulated by the Secretary.

23 ‘‘(B) REGULATIONS.—Not later than 60

24 days after the date of enactment of this para25 graph, the Secretary shall review and amend
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1 the applicable regulations promulgated by the

2 Secretary to ensure that the regulations comply

3 with subparagraph (A).

4 ‘‘(C) EFFECT ON FURTHER REVISION.—

5 Subparagraph (B) shall not preclude a further

6 revision to, or replacement of, the basic formula

7 price under this subsection or section 8c(5) of

8 the Agricultural Adjustment Act (7 U.S.C.

9 608c(5)), reenacted with amendments by the

10 Agricultural Marketing Agreement Act of 1937,

11 except that the revision or replacement shall be

12 consistent with subparagraph (A).’’.

13 SEC. 4. DAIRY PRICE DISCOVERY AND REPORTING SYSTEM.

14 Section 203 of the Agricultural Marketing Act of

15 1946 (7 U.S.C. 1622) is amended by adding at the end

16 the following:

17 ‘‘(o) DAIRY PRICE DISCOVERY AND REPORTING SYS18 TEM.—

19 ‘‘(1) IN GENERAL.—Not later than 1 year after

20 the date of enactment of this subsection, the Sec21 retary shall develop a price discovery system for raw

22 milk, bulk cheese, and other dairy products in order

23 to facilitate orderly marketing conditions.

24 ‘‘(2) ADMINISTRATION.—In carrying out para25 graph (1), the Secretary shall—
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1 ‘‘(A) collect and disseminate, on a weekly

2 basis, statistically reliable information, obtained

3 from all cheese manufacturing areas in the

4 United States on prices and terms of trade for

5 spot and forward contracts, reported separately,

6 transactions involving bulk cheese, including in7 formation on the national average price and re8 gional average prices for bulk cheese sold

9 through spot and contract transactions;

10 ‘‘(B) provide technical assistance to any

11 person, group of persons, or organization seek12 ing to organize a cash market alternative to the

13 National Cheese Exchange that the Secretary

14 believes will improve price discovery; and

15 ‘‘(C) not later than 180 days after the date

16 of enactment of this subsection—

17 ‘‘(i) in cooperation with the Commod18 ity Futures Trading Commission, conduct

19 a study and report to Congress on means

20 of encouraging improved volume in futures

21 trading for milk, bulk cheese, and other

22 dairy products; and

23 ‘‘(ii) conduct a study and report to

24 Congress on the feasibility and desirability
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1 of the creation of an electronic exchange

2 for cheese and other dairy products.

3 ‘‘(3) CONFIDENTIALITY.—All information pro4 vided to, or acquired by, the Secretary under para5 graph (2)(A) shall be kept confidential by each offi6 cer and employee of the Department of Agriculture,

7 except that general weekly statements may be issued

8 that are based on the information and that do not

9 identify the information provided by any person.’’.

10 SEC. 5. OVERSIGHT OF CASH MARKETS AFFECTING FED11 ERAL MILK MARKETING ORDERS.

12 Section 8c of the Agricultural Adjustment Act (7

13 U.S.C. 608c), reenacted with amendments by the Agricul14 tural Marketing Agreement Act of 1937, is amended by

15 adding at the end the following:

16 ‘‘(20) OVERSIGHT OF CASH MARKETS AFFECT17 ING FEDERAL MILK MARKETING ORDERS.—

18 ‘‘(A) DEFINITION OF NONCOMPETITIVE

19 PRACTICE.—In this paragraph, the term ‘non20 competitive practice’ means an action or meas21 ure that involves engaging in a course of busi22 ness or act for the purpose or with the effect

23 of—

24 ‘‘(i) manipulating or controlling a

25 price on a cash market that affects the
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1 price of milk regulated under an order is2 sued under this section;

3 ‘‘(ii) creating a monopoly in the ac4 quiring, buying, selling, or dealing in a

5 product; or

6 ‘‘(iii) restraining commerce.

7 ‘‘(B) GENERAL RULE.—In order to ensure

8 fair trade practices and orderly marketing con9 ditions for milk and milk products under this

10 section, the Secretary shall prohibit non11 competitive practices on a cash exchange for

12 milk, cheese, and other milk products that the

13 Secretary finds affects or influences the price of

14 milk regulated under an order issued under this

15 section.

16 ‘‘(C) OTHER AGENCIES AND STATES.—

17 This paragraph shall not affect the authority of

18 the Federal Trade Commission, Commodity Fu19 tures Trading Commission, Department of Jus20 tice, any other Federal agency, or any State

21 agency to regulate a noncompetitive practice de22 scribed in subparagraph (B).

23 ‘‘(D) ENFORCEMENT.—The enforcement

24 provisions of sections 203, 204, and 205 of the

25 Packers and Stockyards Act, 1921 (7 U.S.C.
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1 193, 194, 195) shall apply, to the extent prac2 ticable (as determined by the Secretary), to this

3 paragraph.’’.

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