[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)]
[Proposed Rules]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26906]
[[Page Unknown]]
[Federal Register: November 2, 1994]
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Part II
Department of Agriculture
_______________________________________________________________________
Agricultural Marketing Service
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7 CFR Part 1030 et al.
Milk in the Chicago Regional and Other Marketing Areas; Recommended
Decision and Opportunity To File Written Exceptions on Proposed
Amendments to Tentative Marketing Agreements and to Orders; Proposed
Rule
Federal Register / Vol. 59, No. 211 / Wednesday, November 2, 1994 /
Proposed Rules
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1030, 1065, 1068, 1076 and 1079
[Docket Nos. AO-361-A31, etc.; DA-92-27]
Milk in the Chicago Regional and Other Marketing Areas;
Recommended Decision and Opportunity To File Written Exceptions on
Proposed Amendments to Tentative Marketing Agreements and to Orders
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7 CFR
part Marketing area AO Nos.
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1030.. Chicago Regional............................. AO-361-A31
1065.. Nebraska-Western Iowa........................ AO-86-A50
1068.. Upper Midwest................................ AO-178-A48
1076.. Eastern South Dakota......................... AO-260-A32
1079.. Iowa......................................... AO-295-A44
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AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: This document recommends changes in the Federal milk marketing
orders for five north-central marketing areas based on industry
proposals considered at a public hearing. The decision recommends
adopting a plan for pricing milk on the basis of its protein and other
nonfat solids, as well as butterfat, components. The proposed plan
includes adjustments per hundredweight of all producer milk based on
the somatic cell count of the milk. The intended effect of this rule is
to better reflect the value of the nonfat solids components in the skim
portion of milk.
DATES: Comments are due on or before December 2, 1994.
ADDRESSES: Comments (six copies) should be filed with the Hearing
Clerk, Room 1083, South Building, United States Department of
Agriculture, Washington, DC 20250.
FOR FURTHER INFORMATION CONTACT: Constance M. Brenner, Marketing
Specialist, USDA/AMS/Dairy Division, Order Formulation Branch, Room
2971, South Building, P.O. Box 96456, Washington, DC 20090-6456, (202)
720-2357.
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.
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the
Agency to examine the impact of a proposed rule on small entities.
Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural
Marketing Service has certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
The amendments would promote orderly marketing of milk by producers and
regulated handlers.
The amendments to the rules proposed herein have been reviewed
under Executive Order 12778, Civil Justice Reform. They are not
intended to have a retroactive effect. If adopted, the proposed
amendments would not preempt any state or local laws, 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 file 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 and requesting a modification of an order or to
be exempted from the order. 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.
Prior documents in this proceeding:
Notice of Hearing: Issued December 22, 1993; published January 4,
1994 (59 FR 260).
Extension of Time for Filing Briefs: Issued April 22, 1994;
published April 24, 1994 (59 FR 22138).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
recommended decision with respect to proposed amendments to the
tentative marketing agreements and the orders regulating the handling
of milk in the Chicago Regional and certain other marketing areas. This
notice is issued pursuant to the provisions of the Agricultural
Marketing Agreement Act 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 decision
with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC
20250, by the 30th 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 proposed amendments set forth below are based on the record of
a public hearing held at Bloomington, Minnesota, on January 25-27,
1994, pursuant to a notice of hearing issued December 22, 1993; (59 FR
260).
The material issues on the record of hearing relate to:
1. Adoption of multiple component pricing.
2. Orders to be included.
3. Components and component prices.
a. Protein.
b. Other nonfat solids.
c. Butterfat.
d. Miscellaneous issues.
4. Somatic cell adjustment.
5. Conforming changes.
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. Adoption of Multiple Component Pricing
Proposals to incorporate multiple component pricing in the Chicago
Regional (Order 30), Nebraska-Western Iowa (Order 65), Upper Midwest
(Order 68), Eastern South Dakota (Order 76) and Iowa (Order 79) Federal
milk marketing orders (the five orders) should be adopted, with some
modifications. The pricing plan generally would be patterned after the
multiple component pricing plan proposed by National All-Jersey, Inc.
and other dairy organizations. Producers would be paid on the basis of
the pounds of butterfat, protein and other nonfat solids (solids-not-
fat other than protein) in their milk, and would share in the value of
the pool's Class I and Class II uses on a per hundredweight basis.
Regulated handlers would pay for the milk they receive on the basis of
total butterfat, the protein and other nonfat solids used in Classes II
and III, skim milk used in Class I, and the hundredweight of total
product used in Classes I and II. A somatic cell adjustment, per
hundredweight, would also apply to payments for all producer milk.
At the present time, milk received by handlers under the five
orders is priced according to the pounds of producer milk allocated to
each class of use multiplied by the prices per hundredweight of milk
testing 3.5 percent butterfat, as determined under the orders for each
class of use. Adjustments for such items as overage, reclassified
inventory, location and other source milk allocated to Class I are
added to or subtracted from the classified use value of the milk. The
resulting amount is divided by the total producer milk in the pool to
calculate a price per hundredweight of milk testing 3.5 percent
butterfat to be paid to producers for the milk they have delivered to
handlers. The price paid to each producer is then adjusted according to
the specific butterfat test of the producer's milk by means of a
butterfat differential. The butterfat differential is computed by
multiplying the wholesale selling price of Grade A (92-score) bulk
butter per pound on the Chicago Mercantile Exchange, as reported for
the month by the U.S. Department of Agriculture, by 0.138 and
subtracting the Minnesota-Wisconsin price at test, also as reported by
the U.S. Department of Agriculture, multiplied by .0028.
The multiple component pricing (MCP) plan was originally proposed
for Orders 30, 68 and 79 by National All-Jersey, Inc. (NAJ) and other
dairy organizations. In addition, Land O'Lakes, Inc., proposed that the
multiple component plan be considered for Orders 65 and 76. Most other
proposals considered at the hearing were modifications of the NAJ
proposal and are discussed below.
The first NAJ witness stated that the current milk pricing system
used in the five orders does not meet current marketing needs and
should be replaced with a multiple component pricing system. Much of
the general NAJ testimony in favor of multiple component pricing was
later reiterated by witnesses expert in the field of economics and
dairy chemistry testifying for NAJ, and a representative for Land
O'Lakes. Also testifying in favor of the NAJ proposal were two dairy
farmer members of the cooperative association Swiss Valley Farms
Company, a representative of the Brown Swiss Cattle Breeders
Association of U.S.A., Inc., and a representative of Tri-State Milk
Cooperative. It was indicated in testimony that Alto Dairy Cooperative
also supported the NAJ proposal.
The representative for the proponents said the intent of their
proposal was to:
1. Use the M-W price as the base;
2. Pay all producers on four factors--pounds of butterfat, pounds
of protein, pounds of other solids, and each producer's share of the
fluid differential on a per hundredweight basis;
3. Leave Class I handler obligations on a skim-butterfat basis;
4. Determine Class II and III handlers' obligations on the basis of
pounds of butterfat, protein, and other solids; and
5. Change only the order provisions needed to implement the NAJ
proposal.
The NAJ witness said that there were five reasons for replacing the
current milk pricing system with a multiple component pricing system.
The first reason, according to the NAJ witness, is that the current
skim-butterfat pricing system does not give dairy farmers economic
incentives to produce milk high in nonfat solids, especially protein.
He stated that under the current pricing system a pound of water
receives the same price as a pound of protein or other solids, yet it
is these solids that give milk its functional and nutritional value.
The second reason given by the NAJ witness for adopting MCP was
that over a period of years much of the value of milk has shifted from
butterfat to the skim portion of milk. The proponent's witness said
that in 1960, butterfat represented 77% of the value of the M-W price,
and skim represented 23%. By 1993, he testified, these values were
reversed, with butterfat representing only 23% of the value of the M-W,
while the skim portion of the milk represented 77%.
According to the NAJ witness, the shift in value from butterfat to
skim was partially caused by the USDA decision to decrease the support
price for butter and increase the support price for nonfat dry milk.
The support price for butter declined from $1.53 per pound in 1981 to
65 cents per pound in 1993, with most of the decrease occurring since
1989. Nonfat dry milk purchase prices under the support program
increased from 72.75 cents per pound in 1988 to $1.034 per pound in
1993. In addition, the witness said, the butterfat differential under
Federal orders has been dropping since the mid-1980s because of a
decline in the market price for butter. This drop was accelerated by a
change in the method of computing the butterfat differential,
implemented in 1990, that had the impact of reducing the butterfat
differential even more.
The third reason the witness gave for implementing multiple
component pricing was the shift in types of dairy products consumers
are purchasing. According to the witness, some of the decline in
butterfat value relative to skim value has been caused by a shift in
consumption from whole milk to lowfat and skim fluid milk products. The
witness presented data to show that from 1970 to 1991, national fluid
milk sales of lowfat and skim milk increased 232%, while sales of whole
milk declined 50%. In addition, he stated, consumption of lowfat
manufactured products is growing faster than consumption of relatively
high-fat manufactured products.
The NAJ witness discussed equity in Federal orders as the fourth
reason for implementing multiple component pricing. He said that the
current skim-butterfat pricing system is equitable for neither
producers nor handlers since it does not properly recognize the value
of protein, especially in manufactured products such as cheese. The
witness provided examples to show how a producer with high protein milk
may currently receive the same Federal order minimum price as a
producer with low protein milk. Similarly, a cheese maker who purchases
high protein milk could have a cost advantage at minimum order prices
over a cheese maker who purchases low protein milk.
The fifth reason presented by the NAJ witness was the existence of
a number of voluntary multiple component pricing plans in the areas
covered by the five orders. Data were presented to show that nearly all
producers in the five orders currently are eligible to be paid under
one of these voluntary multiple component pricing plans. The witness
stated that many of the plans have inadequacies which contribute to
disorderly marketing. According to the witness, these inadequacies
would be addressed by adopting the NAJ proposal.
A witness from Land O'Lakes, Inc. (LOL), testified in support of
the adoption of MCP in the five orders in general, and the NAJ proposal
specifically. He discussed how the NAJ multiple component pricing
proposal would better reflect the market value of nutrients in the milk
to the farmer. He stated that the proposed system, compared with the
current system, would essentially eliminate the value of milk used in
manufacturing that is currently associated with water which, he said,
has very little market value in dairy products. The witness said that
MCP would affect the cost of milk to LOL as a handler in that it will
come closer to equalizing the cost of milk relative to the value of the
products derived from the milk.
The LOL witness also described four major weaknesses in the
existing voluntary MCP plans. The first weakness, he said, was that the
current plans emphasize component test instead of component yield. He
said that the price paid to each producer should be tied more directly
to the value of the products that can be produced from the producer's
milk.
The second weakness described by the LOL witness is that many
existing plans do not provide for deductions for milk with low
component levels. This, he said, indicates that the plans recognize the
higher value of milk with more pounds of components, but do not
recognize that milk with fewer pounds of components is worth less. He
said that competitive, rather than economic, factors are the reason
deductions for low component levels generally do not exist, as many
producers do not like to see deductions on their milk checks.
According to the LOL witness, an inequitable feature of the
voluntary MCP plans is that they generally pay no component premiums
when the somatic cell count of the milk is above a fixed level,
resulting in high test producers losing their component premium because
of high somatic cells, while low test producers with high somatic cell
counts lose nothing.
The fourth weakness described by the witness is that some existing
MCP plans pay premiums for protein, while others pay premiums for
solids-not-fat. He said that most producers in Wisconsin receive
premiums based on protein, while most producers in Minnesota, Iowa,
Nebraska and South Dakota receive premiums based on solids-not-fat. The
witness claimed that the variety of payment plans currently in
existence do a poor job of transmitting market signals to the
producers, are not economically consistent, and lead to confusion among
farmers. He said that the NAJ proposal would address the deficiencies
in the current situation.
Most participants at the hearing advocated the introduction of MCP
for payments to producers and for milk delivered to handlers for Class
II and Class III use in the five orders. There was no support for
pricing Class I milk on other than the current butterfat and skim
basis.
In addition to NAJ and LOL, adoption of some form of multiple
component pricing in the five orders was supported by Central Milk
Producers Cooperative (CMPC), the Trade Association of Proprietary
Plants (TAPP), Farmers Union Milk Marketing Cooperative (FUMMC),
National Farmers Organization (NFO), Kraft General Foods (Kraft),
Associated Milk Producers, Inc., North Central Region (AMPI North
Central), Wisconsin Cheese Makers Association (WCMA), Dean Foods, and
National Cheese Institute (NCI).
The CMPC witnesses strongly supported the need for implementing
multiple component pricing in the five orders and proposed a plan very
similar to that of NAJ. The fundamental difference between the two
plans is that the CMPC proposal would result in lower protein prices
than the NAJ proposal. The appropriate level of the protein price is
discussed under Issue 3a below.
The CMPC proposal was supported in testimony and in a post-hearing
brief by NFO. A witness for WCMA testified in support of the CMPC
proposal for multiple component pricing. A witness for Dean Foods
testified in support of the concept of MCP, and in response to a
question about which proposal he favored, he expressed support for the
CMPC proposal. AMPI North Central Region submitted a brief in support
of the CMPC proposal for multiple component pricing.
A witness for NCI testified in support of the CMPC multiple
component pricing proposal with one primary modification. The NCI
proposal would calculate a ``residual fluid price'', instead of an
other solids price. This proposal is discussed further under Issue 3b
below in this decision. Kraft testified and submitted a brief in
support of the NCI proposal for multiple component pricing.
A witness for the Trade Association of Proprietary Plants (TAPP)
and Farmers Union Milk Marketing Cooperative (FUMMC) testified in
support of the TAPP proposal, a variation of the CMPC proposal that
would price both butterfat and protein on a differential basis, rather
than on a per pound basis.
The five north central Federal milk orders included in this
proceeding should be amended to include multiple component pricing. On
the basis of the record of this proceeding, multiple component pricing
would entail pricing milk on the basis of the pounds of butterfat,
protein and other nonfat solids contained in the milk, with a somatic
cell adjustment to the hundredweight price paid to producers. The
record indicates that a large percentage of the producers pooled under
these orders are already eligible for or receive some form of multiple
component pricing and that many of these component pricing plans use
protein as a pricing component.
The record also shows that the diverse component pricing programs
that currently exist promote disorderly and inefficient marketing
conditions in the procurement of milk supplies by competing handlers.
The different programs establish non-uniform bases of payments to
producers. The adoption of multiple component pricing will allow the
Orders to recognize the additional value of milk with a higher-than-
average solids content.
In the five orders included in this proceeding, the vast majority
of the milk pooled is utilized in manufactured products. The total
solids in the milk used for manufacturing are the primary determinants
of product yield. In addition, it is the solids in fluid milk that give
it its nutritional value and taste. In both types of products, the
current pricing system used in the five orders does not properly
recognize the value of nonfat milk solids, nor encourage producers to
increase the quantity of nonfat milk solids in the milk they produce.
As a result of the shift in value in recent years from the
butterfat portion of milk to the skim portion, most of the value of
milk is determined on a volume basis without any consideration of the
value of the skim components. Adoption of the multiple component
pricing plan recommended in this decision will enable the market to
reflect the value of the skim components in milk to producers.
In addition to butterfat, protein is clearly the most appropriate
component of milk on which payment should be based. Most of the milk
pooled under these five orders is used for manufacturing, and 86% of
the milk used in manufacturing is used to produce cheese. Because
protein is a main determinant of cheese yield, and it is cheese that
determines the profitability for most of the dairy industry in the 5-
market area, the milk pricing system should recognize the value of the
protein component of milk as it is used in the manufacture of cheese.
Record evidence clearly shows that protein has a higher demand than
other components of milk because of its functional, nutritional and
economic value in the marketplace. The functional characteristics of
protein allow it to form the matrix in the production of cheese and
yogurt. Protein is also important to the air formation in the
manufacture of certain products and provides some required nutrients in
the human diet. Milk containing a higher percentage of protein will
result in greater yields of most manufactured products than milk with a
lower protein test. Additionally, handlers receiving milk that results
in greater volumes of finished products such as cheese and cottage
cheese than an equivalent volume of milk testing lower in protein
should be required to pay more for the higher-testing milk. At the same
time, the dairy farmer producing milk that yields greater amounts of
finished products deserves to be paid more for it than a dairy farmer
producing the same volume of milk that results in less product yield.
Thus, sending an economic signal to dairy farmers will encourage them
to maximize the production of those components which have the greatest
demand in the marketplace.
According to analysis of the record, proponents are correct that
attribution of all of the skim value of the M-W price to protein would
result in an overstatement of the value of protein used in cheese and
most other uses. In order to maintain fairly uniform prices between
orders for milk used in manufactured products, it is necessary to
assign the residual value of the M-W price minus the butterfat and
protein values to either other nonfat solids or a fluid carrier price.
The discussion of this residual component may be found in Issue 3b
below.
A witness for the Galloway Company testified in support of TAPP and
Galloway's own proposals to exclude sweetened condensed milk, ice cream
and ice cream mix from pricing under a multiple component pricing
system. The witness stated that such products should continue to be
priced under the current pricing system.
The Galloway witness said that some Class II manufactured products,
together with other products such as sour cream, whipping cream, half
and half, eggnog, yogurt, nonfat dry milk and butter, are not affected
in yield by the protein content of the milk from which the products are
manufactured. Instead, according to the witness, it is total skim
solids that affect the yield of these products. Accordingly, the
witness stated, it would not be equitable to price such products under
a multiple component pricing system which prices protein at a level
higher than the remaining skim solids in the milk. The witness argued
that these products should be left out of any MCP plan adopted.
The Galloway witness testified, and post-hearing briefs filed on
behalf of Anderson-Erickson (A-E) and Galloway asserted, that yields
are affected by the level of total skim solids rather than protein,
making the pricing of protein irrelevant for Class II pricing. The
Galloway witness testified that there have been months in which the
monthly average protein level and other nonfat solids level of milk
moved in opposite directions. In addition, the A-E and Galloway briefs
asserted that MCP would significantly increase the cost of Class II
milk, which would put them at an even greater disadvantage than
currently with respect to products made from nonfat dry milk priced at
the Class III-A price.
The Galloway witness stated that the primary product manufactured
by the Galloway Company is sweetened condensed milk. According to the
witness, this product competes on a national basis with other
manufacturers who do not have to procure their milk under Federal
orders with MCP provisions. The witness stated that it would be unfair
to force his organization to procure milk under a set of regulations
that differ from those regulating his competitors.
A portion of the TAPP proposal would require a classification
change for sweetened condensed milk from Class II to Class III.
Although the Galloway witness expressed strong concern over the impact
of multiple component pricing on his company, the effect of the
classification of sweetened condensed milk on the Galloway company is
not part of the MCP issue. Reclassification of this product is a
separate issue that was discussed thoroughly at a previous hearing, and
in the decision issued as a result of that hearing (58 FR 27774). No
new evidence was presented at this hearing that would justify
reclassifying sweetened condensed milk.
Milk used to produce sweetened condensed milk, or any other Class
II product, should not be exempted from multiple component pricing. The
MCP plan recommended for adoption will cover all Class II and Class III
products.
Testimony at the hearing indicated that there are essentially two
groups of Class II products that differ with respect to the impact of
multiple component pricing on the handlers that make these products.
The first group of Class II products are those in which there generally
seemed to be agreement in the hearing record that yields are greatly
affected by the level of protein in the milk. These products include
the various cottage cheeses and other similar soft, high-moisture
cheeses. The handlers that make these products benefit directly from
higher levels of protein in milk and should be accountable to the pool
for this added benefit.
The second group of Class II products are those where there was
some disagreement in the record about the affect of protein on the
yield. These products include ice cream and frozen desserts and mixes,
fluid creams, sour creams, yogurt, sweetened condensed milk and others.
Considerable debate took place on whether it was appropriate to include
these products in a multiple component pricing system.
Occurrences of average protein level and other nonfat solids level
of milk moving in opposite directions appears to be an exception rather
than the rule. Evidence presented in ``Analysis of Component Levels and
Somatic Cell Counts in Individual Herd Milk at the Farm Level, 1992,
Upper Midwest Marketing Area'', indicates that about 60% of the
variation in solids-not-fat is caused by variation in protein, and that
higher protein levels are positively correlated with higher solids-not-
fat levels. Data presented in this and other documents show that the
level of other solids in milk tends to be relatively constant with,
generally, small month-to-month variation. Thus, when a handler
purchases milk with higher than average protein levels, he will also,
generally, be purchasing milk with higher than average levels of
solids-not-fat.
In addition, the sum of the value of the protein and other solids
under this recommended pricing plan equals the value of the total
nonfat solids. The value of total nonfat solids, therefore, is a
weighted average of the quantity and price of the protein and the
quantity and price of the other nonfat solids contained in the milk.
Analysis based on the average tests of the five markets shows that
under the recommended pricing plan, the value of total nonfat solids
would range from approximately $.002 per pound below the current value
to approximately $.008 per pound above the current value.
This estimated price difference is certainly not the significant
increase that is claimed in the briefs. In hearing testimony, the
Galloway witness stated that an analysis of the effect of the CMPC
proposal on the Galloway Company showed a nine-cent increase per
hundredweight in the cost of Galloway's milk only when the CMPC somatic
cell adjustment was included. Without the somatic cell adjustment, the
analysis showed that the cost of milk to Galloway would be reduced
under the CMPC multiple component pricing plan.
It is appropriate to include all Class II products in the multiple
component pricing system being proposed here. All Class II products
derive benefit from butterfat, protein and/or other solids in the milk.
The benefit may be in enhanced yield, such as protein for cottage
cheese, or a combination of protein and other solids (i.e. the solids-
not-fat in the milk) in many of the other Class II products. Or, the
benefit may be in some other area. For example, the NAJ dairy chemist
witness testified about the importance of protein in the functionality
of many of these products, such as in ice cream, whipping cream, and
yogurt. Some testimony even went so far as to discuss the importance of
protein in fluid milk, in terms of the nutrient content and the mineral
carrying content of the milk. However, since there was no substantial
support for including Class I milk in the multiple component pricing
system being proposed here, only Class II and Class III products will
be priced on multiple components.
2. Orders To Be Included
A proposal to incorporate the multiple component pricing plan
adopted in this proceeding in the Nebraska-Western Iowa and Eastern
South Dakota Federal milk orders as well as in the Chicago Regional,
Iowa, and Upper Midwest orders should be adopted.
The witness for Land O'Lakes (LOL), proponent of the proposal,
listed a number of reasons for including the multiple component pricing
plan in the Nebraska-Western Iowa and Eastern South Dakota orders as
well as in the orders proposed by NAJ. The witness explained that all
five orders are similar in that their predominant use of milk is for
manufacturing Class III products. He testified that the primary
organizations that supply the Nebraska-Western Iowa and Eastern South
Dakota markets also are major participants in one or more of the
Chicago Regional, Iowa, and Upper Midwest order marketing areas. The
witness stated that inclusion of the Nebraska-Western Iowa and Eastern
South Dakota orders in the multiple component pricing plan would allow
those organizations that have producers and market milk in multiple
orders to standardize their payrolls and billings, thus maintaining
uniformity and reducing confusion among producers and handlers.
The decision to include additional orders in this decision should
not be made entirely on the basis of convenience to the parties
marketing milk on the various orders. The decision is based on whether
inclusion of the two orders would tend to effectuate the policy of the
Agricultural Marketing Agreement Act. Certainly, including the
Nebraska-Western Iowa and Eastern South Dakota orders in this decision
will contribute to orderly marketing.
The data supplied by the market administrators' offices describing
the milksheds of the various orders shows a considerable overlap of
milksheds. For example, many South Dakota counties have milk pooled on
three of the five orders during the same month. In the absence of
uniform pricing provisions between the five orders, disorderly
marketing could occur, particularly when orders have overlapping
milksheds, if one order were pricing milk on a skim and butterfat basis
while another order was pricing milk on the basis of its components. If
a producer's milk tests high for nonfat components but is pooled under
an order that prices milk on a skim-butterfat basis, the producer would
attempt to maximize returns by changing the market under which his milk
is pooled to benefit from his high component levels. The opposite
situation would occur if the milk of a producer testing below average
for nonfat components is pooled under an order with MCP provisions.
Such a producer would maximize returns by changing the order under
which his milk is pooled to one with skim-butterfat pricing. This
shuffling of producers in the same geographic area because of
nonuniform pricing provisions would not constitute orderly marketing.
Since the inclusion of the Nebraska-Western Iowa and Eastern South
Dakota orders in the multiple component pricing decision would tend to
reduce disorderly marketing in the region, benefit handlers by allowing
a standardized payroll, and there was no opposition to their inclusion,
multiple component pricing should be adopted for these two orders as
well as the other three.
3. Components and Component Prices
Unlike the multiple component pricing plans adopted previously in
other Federal milk marketing orders, this decision recommends the
adoption of a pricing plan for milk based on three components rather
than two. Under the five orders involved in this decision, milk should
be priced on the basis of its protein, other nonfat solids, and
butterfat components.
The protein price contained in this decision is based on the value
of protein in the manufacture of cheese, as determined by cheese market
prices, and is not a residual of the Minnesota- Wisconsin (M-W) price
minus butterfat value as is the case in other MCP plans. The butterfat
price would be based on the butter market, as it is in other multiple
component pricing systems. ``Other nonfat solids'' will be priced as a
residual of the M-W price minus protein value and butterfat value. The
butterfat, protein, and other nonfat solids prices shall be expressed
in dollars per pound carried to the fourth decimal place. In addition,
payments to each producer should reflect the value of participation in
the marketwide pools on a hundredweight basis.
As in other orders for which multiple component pricing has been
adopted, this decision maintains the relationship of the value of
producer milk to the
M-W price. If the sum of the butterfat value and the protein value is
greater than the M-W price, a situation which would result in a
negative other nonfat solids price, the protein price will be adjusted
such that the other nonfat solids price will be zero.
In testimony and brief a witness for the Trade Association of
Proprietary Plants (TAPP) and Farmers Union Milk Marketing Cooperative
(FUMMC) presented a plan that would pay producers for protein above a
neutral zone of 3.00% to 3.29%, and provide deductions for protein
levels below the neutral zone. The level of adjustment would be tied to
the price of barrel cheddar cheese on the National Cheese Exchange, and
would be used to adjust pay prices to producers in a manner similar to
the current butterfat differential.
The witness said that milk traditionally has been purchased on a
per hundredweight basis, with differential adjustments for levels of
components. According to the witness, not only are producers usually
paid on a per hundredweight basis, but milk is measured on a per
hundredweight basis for purposes of plant accounting, payments between
plants and to haulers, and by breed associations and DHIA with
adjustments for percentages of components where necessary. The witness
also claimed that using differential pricing would be revenue neutral.
The TAPP/FUMMC witness is correct that switching payments to
producers from a per hundredweight system to one of pounds of
components, as adopted in this decision, is not a minor change. Some
expense will be incurred by handlers and producers in adapting to the
new system. However, the benefits to the industry in the affected areas
of adopting a uniform multiple component pricing system outweigh the
one-time costs of its adoption. The implication that everyone connected
with the dairy industry must adopt this system is not correct. Pounds
of milk must still be accounted for under the multiple component
pricing system. For example, nothing in this decision would prevent a
handler from continuing to pay haulers on a hundredweight basis. No
testimony at the hearing from witnesses that have producers pooled
under Federal orders that have already adopted multiple component
pricing indicated that moving to a pricing system that prices milk
component by the pound was an onerous burden. The transcript does
reveal disagreement with the level of the protein price under some
Federal orders with multiple component pricing, but little
dissatisfaction with the system itself, nor complaints about the
difficulty of switching to a component pricing system.
As to the argument that pricing protein and butterfat on the basis
of price differentials would be revenue neutral, the multiple component
pricing system recommended for adoption is designed neither to enhance
nor reduce total producer returns. The only changes in the total pool
value that may occur because of the recommended changes would result
from differences in the protein and other nonfat solids content between
milk pooled under the orders included in this proceeding and the milk
included in the Minnesota-Wisconsin survey. In addition, some
redistribution of the dollars involved in each pool can be expected
between producers, and between handlers.
The proposal by TAPP and FUMMC to leave butterfat on a differential
pricing basis and to price protein on a differential basis with a
neutral range is not included in this decision. To continue to pay
producers for butterfat and to add payment for protein on the
``traditional'' differential system would confuse and frustrate
producers in the understanding of their milk checks. Continued use of
differentials would perpetuate the volume-based pricing system with a
high value on water, and would fail to give producers a true price
signal of what the marketplace wants.
The use of differentials in pricing milk components is not widely
understood. There is no valid reason to continue an outmoded and
confusing pricing system in valuing milk components. Pricing components
on a per-pound basis will allow producers to see clearly what
components have the most value, a result which plainly fits the goal of
encouraging producers to produce those components which have the
highest value in the market place. Per-pound pricing also makes clear
to producers that it is the pounds of components that result in
payment, rather than the percentages of those components in milk.
Producers would be better able to look at the cost of producing pounds
of components, and compare those costs with possible returns.
Application of a neutral zone would discourage producers from
increasing protein production marginally unless such an increase would
raise the protein level above the neutral range.
A. Protein
The protein price for milk pooled under the five north central
Federal milk orders should be calculated by multiplying the monthly
average of 40-pound block cheese prices on the Green Bay Cheese
Exchange by 1.32, without including a value for whey protein.
No opposition was expressed at the hearing to pricing protein on
the basis of its value in the manufacture of cheese. The differences
between participants came in determining the appropriate level of the
protein price.
A proposal submitted and supported by National All-Jersey, Inc.
(NAJ), and supported by a number of cooperative associations and other
dairy organizations, would calculate the protein price in two parts:
(1) Multiply the National Cheese Exchange monthly average 40-pound
block cheese price by 1.32, and (2) add the monthly average whey
protein concentrate price multiplied by .735. The sum of these two
values would equal the protein price.
The NAJ proponent witness explained that one of the objectives of
the NAJ proposal was to establish a protein price that was high enough
to give producers an incentive to produce protein. He added that a
second objective was to determine the protein price from market forces
rather than as a residual value, as is used in other Federal orders.
The witness explained that the 1.32 factor used in the NAJ proposal
comes from the modified Van Slyke cheese yield formula that is commonly
used by the industry. The 1.32 factor represents the pounds of 38-
percent moisture Cheddar cheese obtained from one pound of protein with
75 percent of the protein going into the cheese.
The witness gave four reasons for using the National Cheese
Exchange 40-pound Cheddar block price (block price): (1) The majority
of the cheese in the five Federal orders is priced using the block
price as the base price, (2) the block price is used in determining the
somatic cell adjustment in the Eastern Ohio-Western Pennsylvania,
Indiana, and Ohio Valley orders, as well as being used in the
computation of the Class II price in all Federal orders, and in the
determination of the Class 4a price in California, (3) since there is
over twice as much American cheese manufactured in blocks as is made in
barrels, and the Wisconsin assembly point barrel cheese price is within
one cent of the block price, the block price represents a minimum
cheese price, and (4) the protein price determined pursuant to this
proposal gives a greater incentive to producers to produce protein and
is more equitable to handlers and producers than the (lower) protein
price contained in the other proposals.
The NAJ witness continued by explaining that the proposal includes
the value of whey protein in the protein price so that all of the
protein in the milk would be accounted for. As explained by the
proponent witness, the .735 factor was determined by dividing 25
percent, which is the protein left in whey after making cheese, by 34
percent, which is the percent of protein in whey protein concentrate.
The resulting value, .735, is multiplied by the monthly average 34
percent whey protein concentrate price to yield the whey contribution
to the protein price. The witness stated that the whey protein
concentrate price was selected because it is a better indicator of the
value of the protein contained in whey than is dry whey or animal feed
whey.
An economist supporting the NAJ proposal testified that even though
the butterfat price is determined at its marginal value, that is, the
value of butterfat in butter, the protein price should be determined by
the value of protein in the most common use of protein in the five
markets included in this proceeding. The witness pointed out that the
most common use of protein is in the manufacture of cheese, with 85.9
percent of the milk marketed in 1992 in Wisconsin being used in the
manufacture of cheese. The witness testified that the appropriate
cheese price to be used in computing the protein price was the block
price because it is a ``conservative estimate of the price actually
received for block cheddar cheese''. The witness went on to explain
that the reported block price is closer to what manufacturing plants
receive for barrel cheese than is the reported barrel price because
when the customary premiums are added to the reported barrel cheese
price the result is approximately equal to the block price.
The academic NAJ witness reiterated the NAJ position that the value
of whey protein should be included in the protein price because the
total value of the protein in producer milk would thus be reflected in
the protein price, giving producers an incentive to produce more
protein.
A witness for Central Milk Producers Cooperative (CMPC) explained
that the CMPC proposal would use the monthly average Green Bay Cheese
Exchange barrel price (barrel price) instead of the block price, and
would not include the value of whey protein. The witness for CMPC
testified that the barrel price better represents the value of cheese
than the block price because there is a greater volume of trading in
barrel cheese than in block cheese. The resulting protein price would
be lower than the protein price computed under the NAJ proposal. A
witness for CMPC explained that their proposed protein price was based
on the understanding that Federal order prices are minimum prices, and
that the CMPC proposal, using the barrel cheese price and not including
a value for whey protein, would result in a minimum price for protein.
The CMPC protein price proposal was supported at the hearing by
other hearing participants, including National Farmers Organization
(NFO), Kraft, Inc., Galloway Co., Wisconsin Cheese Makers Association
(WCMA), National Cheese Institute (NCI), Farmers Union Milk Marketing
Cooperative (FUMMC), and the Trade Association of Proprietary Plants
(TAPP). A witness for NCI explained that if the protein price is set at
too high a level, cheese manufacturers would experience a declining
gross margin as the price for protein increases above the return the
plant can obtain from additional protein. He explained that this would
be the case with the protein price as proposed by NAJ, but not with the
NCI and CMPC proposed protein price.
Other witnesses supporting a lower protein price than that proposed
by NAJ explained that protein should not be priced at a high level
because the higher price may disadvantage handlers who do not
manufacture cheese. They testified that the higher protein price would
not be recoverable in certain products such as nonfat dry milk,
condensed milk, or certain Class II products, and that even though the
lower protein price still may not be recoverable, it offers the best
alternative.
The Galloway witness stated that if a multiple component pricing
plan that derives a protein price from a cheese market value were
adopted, the protein price should represent a minimum value, should be
based on the barrel cheese market, and should not include a value for
whey protein concentrate. He argued that such a price would have the
impact of minimizing the difference between the protein and other
solids prices.
The TAPP/FUMMC witness testified that protein should be priced at a
level somewhat below its full value in cheddar cheese and whey for
several reasons. He said that too high a protein price could invite the
use of non-dairy protein, whey solids, and casein, and thereby cause an
increase in the production of imitation cheese. He also said that since
some Class II and III products do not recoup as much value from high
protein milk as cheese and cottage cheese, the protein price should be
set at a level less than its full value for cheese. The witness
expressed concern that too high a protein price could result in a zero
value for the residual component, or other solids. According to the
witness, a zero value for the residual would fail to reflect a
realistic value, and would not cover a make allowance.
In the post-hearing brief filed by NAJ, the position of using a
``justifiably high'' protein price to send a signal to producers that
protein is the most valuable component in milk was reiterated. In post
hearing briefs filed by CMPC, NFO, Kraft, NCI, TAPP and FUMMC,
Anderson-Erickson (A-E), and AMPI North Central Region, the computation
of the protein price as proposed by CMPC was supported. The reasons
given in testimony for using a lower protein price than that proposed
by NAJ were reiterated in briefs. In addition, A-E, Kraft and AMPI
North Central Region argued that the difference between the barrel
cheese price and the block cheese price is due to the cost of packaging
and other nonmilk factors, and therefore the barrel cheese price should
be used for determining the protein price.
In pure economic terms the price of a product represents the supply
and demand for that product as affected by place, form, and time. The
problem with determining a price for protein contained in milk is that
the protein is not marketed as a separate unique product, but is
marketed as an integral part of both fluid and manufactured dairy
products. Therefore, in determining an appropriate protein price, the
value of protein in dairy products is determined by using the value of
a product whose yield is a function of the protein content of the milk.
At this point in time no attempt is made to reflect the protein content
of milk in the value of milk used for fluid use. For this reason, the
component pricing plan recommended in this decision does not apply to
milk used for Class I purposes.
The level of protein in milk does have a measurable affect on the
value of milk used for manufacturing. This value varies among the
diverse manufactured products because of differences in the market
values of manufactured dairy products and in the contribution made by
protein to various finished products. For instance, testimony at the
hearing showed that for a one-pound change in protein in the
manufacture of cheddar cheese there is a 1.32 pound change in the
quantity of cheese produced, whereas in the production of milk powder a
one-pound change in the level of protein would change the amount of
powder produced by approximately one pound. Since the vast majority of
milk in the five orders included in this hearing is used to manufacture
cheese, the protein price will be based on the contribution made by
protein in the manufacture of cheese.
The 1.32 factor used in both methods proposed for the computation
of the protein price for these five orders is derived from a modified
Van Slyke cheese yield formula, where the casein is assumed to be 75
percent of the protein and the moisture content of the cheese is 38
percent. Assuming the butterfat is constant, a change of protein by one
pound in this formula will change cheese yield by 1.32 pounds.
Therefore, the 1.32 factor is appropriate for determining the order
protein price.
In determining the level of the protein price, the question of
whether to use the average block price versus the average barrel price
is a lesser issue than the question of whether or not whey protein
should be included in the computation of the protein price, as proposed
by NAJ. The average difference between the Green Bay Cheese Exchange
average block price and average barrel price during 1992 and 1993 was
$.0388 per pound. Multiplying this difference by the 1.32 factor
results in an average difference of $.05 per pound of protein between
the protein prices derived from the barrel and the block cheese prices.
Over the same 2 years the inclusion of whey protein in the computation
of the protein price would have increased the protein price by an
average of $.4265.
The principal issues that must be addressed in determining the
computation of the protein price are the factors that must be included
to arrive at a price that most accurately reflects the value of protein
in milk. In addition, the effect of the level of the protein price on
the other nonfat solids price must be considered. Since the other
nonfat solids price is computed as a residual of the Minnesota-
Wisconsin price, the other nonfat solids price is inversely related to
the protein price. In determining an appropriate protein price and
other nonfat solids price, the effects of both prices on payments to
producers and margins to handlers buying milk must be determined.
Inclusion of a protein price and an other solids price in
determining payments to producers gives producers an incentive to
increase their production of nonfat solids, especially protein. There
was no evidence in the hearing record to indicate the cost to producers
of increasing the protein content of milk. It is therefore difficult to
determine what the absolute level of the protein price, or its relative
level to the butterfat and other solids prices, must be to encourage
producers to increase the protein content of milk.
On average for the 21 months of data available in the record the
protein price recommended for adoption in this decision, at $1.6851 per
pound of protein, is twice both the $.6379 per pound average other
solids price and the $.8374 per pound average butterfat price.
Certainly, pricing protein at double the price of the other components
in milk gives producers a clear message that protein is the component
most desired in the marketplace without over-valuing that component.
The significant difference in prices between protein and the other
nonfat solids and butterfat components should give producers an
incentive to increase protein output.
Testimony by several proponents of component pricing explained that
component pricing would be more equitable to handlers than the current
skim-butterfat pricing system. The proponents explained that the
increased equity would be due to handlers paying for milk based more
closely on its economic value to them. This increased equity is
reflected in a narrower spread in margins between handlers making
cheese from low protein-low solids milk versus handlers making cheese
from high protein-high solids milk. Several exhibits showed that
handlers using ``average'' milk would experience little if any change
in their net margins. However, handlers using low-testing milk would
experience a higher net margin than under the present pricing plan,
while handlers using high-testing milk would experience a lower net
margin. This result, the narrowing of handlers' net margins when
compared to the skim-butterfat pricing system, would occur no matter
which of the proposed pricing plans is used to price the components.
Analysis of data presented at the hearing, using price computations
based on each of the proposals and averaged over the 21 months of data
included in exhibits, shows a range of net manufacturing margins for
cheese using the recommended pricing system of $1.57 per hundredweight
compared with the $3.34 range in cheese manufacturing margins per
hundredweight of milk purchased attributable to the current skim-
butterfat pricing system. The three component pricing plans discussed
at the hearing would result in ranges in net cheese manufacturing
margins of $1.16 per hundredweight for the NAJ proposal, $1.62 per
hundredweight for the CMPC proposal, and $1.70 per hundredweight for
the NCI proposal.
Even though the NAJ proposal yielded the smallest spread in net
margins, further analysis of the NAJ results shows that the net margins
increase and then start to decline. The decline in margins occurs when
there is not enough butterfat in the milk to fully utilize the protein
available, thus reducing the increase in cheese yield as protein
content continues to increase. Accordingly, if the price of protein is
greater than the increased return from cheese, the net return will
start to decline.
The decline in net returns under the NAJ proposal indicates that
the NAJ proposal would overprice protein, at least when there is not
enough butterfat to fully utilize the protein. The result is that the
marginal return using the NAJ proposal peaks within the protein and
butterfat range of average milk while the marginal return using the
protein and other solids price as recommended in this decision
continues to increase, although at a decreasing rate. A mandated
pricing system should not set prices at levels that result in a
declining marginal return, particularly when the decline occurs at or
near average market component levels. Therefore, the whey protein
factor should not be included in the computation of the protein price.
The monthly average price for 40-pound block cheddar cheese on the
National Cheese Exchange in Green Bay, Wisconsin, is the appropriate
price to use for determining the protein price. Use of the block price
results in producers receiving a higher price for protein than if the
barrel price were used without handlers incurring any significantly
higher cost for milk. In addition, although the record showed that more
cars of barrel cheese were sold on the Exchange than block cheese, the
predominant cheese form in which American cheese is manufactured in the
five-market region is in 40-pound or 640-pound blocks.
The price difference between block and barrel cheese may be due to
packaging and other nonmilk factors. However, the protein price must be
established at a level that best meets the needs of all concerned. The
block cheese price should be more effective than the barrel price in
establishing a sufficiently high protein price to accomplish the goal
of encouraging producers to produce protein without having a
detrimental impact on handlers, and does result in a narrower range of
manufacturing margins for cheese.
Over the period January 1992 through September 1993, a protein
price computed by multiplying the block price by 1.32 would have
resulted in an average protein price of $1.6851 per pound. The CMPC and
NCI proposals, using the barrel cheese price, would have resulted in an
average protein price of $1.6337 per pound of protein over the same
time period. A comparison of the net margins resulting from the
recommended protein price versus the CMPC and NCI proposals shows that
the slightly higher protein price and correspondingly lower other
solids price recommended herein have a negligible affect on net
margins. In fact, the spread between the highest and lowest cheese
manufacturing margin declines slightly while the margin per pound of
cheese remains virtually unchanged. At the same time, the producer is
paid a higher protein price and thereby has a greater incentive to
increase protein production.
B. Other Nonfat Solids
The balance of the M-W price, after the values of protein and
butterfat are removed, should be priced on the basis of ``other nonfat
solids.'' The other nonfat solids price per pound will be computed by
subtracting from the Class III price the sum of the butterfat price
times 3.5 and the protein price times the test of the Minnesota-
Wisconsin price survey milk. The result will be divided by the other
nonfat solids test of the Minnesota-Wisconsin price survey milk.
Because the computation of the other solids price is based on a
residual value, the other solids price could be negative without
further adjustments. Therefore, if computation of the other solids
price results in a negative price, the protein price will be adjusted
(downward) to result in a zero value for the other solids price.
As a residual, a NAJ witness stated, the other nonfat solids price
would represent the value of lactose and ash, which are the primary
constituents of the other nonfat solids, and the difference in value
between a competitively set price for milk, the Minnesota-Wisconsin
price, and the value of that milk based strictly on product prices.
An expert witness for NAJ testified that a higher price for other
solids than would be computed by using a protein price lower than that
proposed by NAJ was not justified because a higher other nonfat solids
price would defeat the purpose of multiple component pricing: To give
producers an economic incentive to increase the protein content of
their milk. The witness also explained that since the ``other nonfat
solids'' consist primarily of lactose, for which there is a limited
market and cheaper substitutes, there is no reason to have a high other
nonfat solids price.
A witness for CMPC explained that the CMPC proposal would result in
a higher price for other nonfat solids than the NAJ proposal. The
witness testified that reduced emphasis on the protein price and
increased emphasis on the other solids price would reduce the impact of
multiple component pricing on handlers and producers. The witness
observed that the average difference in handlers' cost of milk between
the current skim-butterfat pricing system and the CMPC proposal was
less than one cent per hundredweight, while the NAJ proposal would
result in a difference of slightly over three cents per hundredweight.
The CMPC witness pointed out that the same relationship was
applicable to returns to producers. In fact, the witness stated, when
comparing the effect of the current skim-butterfat pricing system on
handlers' obligations with both the NAJ proposal and the CMPC proposal,
there is a narrower spread from the highest difference to the lowest
difference and a smaller standard deviation with the CMPC proposal than
the equivalent comparisons with the NAJ proposal.
An alternative residual price was proposed by NCI and supported by
Kraft. A witness for NCI testified that instead of placing the residual
value on the other nonfat solids, the residual value should be placed
on the remaining pounds of fluid milk. The witness explained that this
residual fluid price would be calculated by subtracting the value of
3.5 pounds of butterfat and the value of the protein based on the
protein test of the milk in the Minnesota-Wisconsin price survey from
the Minnesota-Wisconsin price. The resulting value would be divided by
100 minus 3.5 minus the protein test of the milk in the Minnesota-
Wisconsin price survey.
The NCI witness testified that placing the residual value on other
nonfat solids would yield an ``other nonfat solids'' price that could
not be recovered in the marketplace. In addition, he stated, although
the butterfat price is based on the butter market and the protein price
would be based on the return to cheese manufacture, the other nonfat
solids price would have no relationship to any particular established
market or component. The witness also testified that since an other
nonfat solids test would not be needed for the NCI proposal,
administration of the pricing plan would be easier and less expensive
than the other pricing proposals.
The proposal by NCI to place the residual value on a ``fluid
carrier'' component has some merit in that it does not try to apply the
residual value to a component such as other solids, on which the market
may not place a value. The major drawback to the NCI proposal is that
it ignores one of the components of milk, other nonfat solids, which is
composed of lactose and ash.
Although the other nonfat solids do not have as much market value
as either butterfat or protein, they are an important component of
milk. If a multiple component pricing system is to be effective it
should price as many of the components in milk as possible, preferably
based on the value of those components in the marketplace. There is,
however, no readily available measure of the market value of the other
nonfat solids. Since there was no testimony or any justification in the
record for departing from the Minnesota-Wisconsin price as a basic
price for milk, at least one of the components in the payment plan must
represent the difference between a competitively-set pay price (the M-
W) and the product-derived component prices. This residual value
therefore represents not only the value of the lactose and ash, but
also equates the component values, some of which are determined by
their market value, with a competitively set producer pay price.
The prospect of lactose being added to milk by producers for the
purpose of benefitting from the other solids price was discussed by
several hearing participants. The incentive to adulterate milk with
added lactose should be no more of a problem than the current incentive
to adulterate milk with water. Testing to determine whether lactose has
been added should, in fact, be easier than testing for water since it
would be part of the testing necessary to determine producers'
payments. In addition, added lactose can be detected during normal
testing procedures currently conducted on milk.
NCI's concern that testing for total solids would increase
handlers' costs and difficulty of testing was not established in the
hearing record. In fact, testimony indicated that many handlers are
already testing for total solids. Hearing testimony also showed that
the testing for total solids is as accurate or more accurate than
testing for butterfat or protein. In addition, the infrared machines
that are used by most laboratories will test for total solids at the
same time the butterfat and protein tests are done. Therefore, there
should be no significant increase in testing cost or testing difficulty
with the implementation of the component pricing plan incorporated in
this decision.
C. Butterfat
The value of butterfat in the amended orders will be the same as
under the current orders. There was no proposal or testimony to change
the way butterfat currently is valued. One expert witness testified
that the current system of basing the value of butterfat on the value
of butter is proper.
This decision continues the historical relationship of the values
of butterfat and butter. The difference between the pricing of
butterfat in the amended order and the current order is due to the way
that value is expressed. Currently the value of butterfat is expressed
as a differential; that is, the difference in value between 0.1 pound
of butterfat and 0.1 pound of skim milk. The amended order will express
the value of butterfat on the basis of a price per pound. Whichever
method is used, the total value of butterfat in milk is the same.
However, by expressing the value on a per pound basis instead of a
differential, the objective of demonstrating clearly to producers where
the value is in milk is easily achieved.
As proposed, the butterfat price per pound in the amended order
will be determined by multiplying the butterfat differential by 965 and
adding the Class III price. The resulting price per hundredweight would
then be divided by 100 to give a price per pound of butterfat.
D. Miscellaneous
The three component prices: butterfat, protein, and the other
solids, will be expressed on a per pound basis with four places to the
right of the decimal. Analysis has shown that by expressing these
prices to the nearest one-hundredth of a cent, the accuracy of the
prices is significantly enhanced over expressing the prices to the
nearest cent. Additionally, the difference between what is paid into
the producer settlement fund and what is drawn from the producer
settlement fund is much closer to zero than when prices are rounded to
the nearest full cent.
In contrast to other orders that have multiple component pricing
provisions, this decision incorporates only one protein price as well
as one other nonfat solids price. The pooling of the components to
include the Class I skim portion is incorporated within the computation
of the producer price differential. This feature of the pricing plan
allows for the elimination of separate handler and producer protein
prices and separate handler and producer other solids prices, and
resulting confusion over which price, handler or producer, should be
used when. In addition, a handler's per pound price for protein or
other solids is the same whether the handler is buying milk from
producers or from other handlers.
The producer price differential, which represents the additional
value of Class I and Class II milk in the pool and any positive or
negative effect of Class III-A, will be determined by computing for
each handler, and then accumulating for all handlers, the differential
value (from Class III) of the Class I, Class II, and Class III-A
product pounds. The differential value is adjusted, when appropriate,
for shrinkage and overage, inventory reclassification, receipts of
other source milk allocated as Class I, receipts from unregulated
supply plants, location adjustments, and, in the Chicago Regional
order, transportation and assembly credits.
For the purpose of eliminating differences between handler and
producer component values, the value of the Class I skim milk and the
values of the protein and other solids contained in the skim milk
allocated to Class II and Class III will be added to, and the values of
the protein and other solids contained in all producer milk subtracted
from, the differential pool. The accumulated total for all handlers is
then adjusted by total producer location adjustments and one-half the
unobligated balance in the producer settlement fund. The resulting
value is then divided by the total pounds of producer milk in the pool,
and an amount not less than four cents nor more than five cents is
deducted. The result is the producer price differential to be paid to
producers on a per hundredweight basis.
It is possible for the producer price differential to be negative.
A negative producer price differential can result for two reasons. Any
of the Class I, II, or III-A differential prices may be negative and/or
the minus adjustments may be large enough to offset any positive
contribution from the differential price. A negative producer price
differential would be equivalent to a uniform price less than the Class
III price.
An issue that was not directly addressed in this proceeding
concerned testing for protein. The five orders included in this hearing
currently base protein testing on the standard Kjeldahl method, which
tests for nitrogen and then converts the nitrogen result to protein.
Since there is a certain amount of free nitrogen in milk this test
somewhat overstates the protein content of milk. Recent developments in
testing allow for testing for true protein which is a more accurate
reflection of protein content. In no way does this decision mandate a
specific testing procedure. However, when (or if) the industry does
move to testing for true protein, this decision should not be viewed as
a hindrance to that conversion. At the time a change to testing for
true protein may occur, a change in the 1.32 factor may be necessary.
4. Somatic Cell Adjustment
The producer price differential paid to each producer should be
adjusted on the basis of the somatic cell content of the producer's
milk no matter how the milk is used by a handler. The value adjustment
per hundredweight for each 1,000 somatic cells would be determined by
multiplying .0005 times the monthly average National Cheese Exchange
40-pound block cheese price. Each producer's monthly average somatic
cell count (SCC), in thousands, would be subtracted from 350 and
multiplied by the value adjustment per 1,000 SCCs. Somatic cell
adjustments will not be included in the computation of the producer
price differential.
A wide range of somatic cell or quality plans were included in the
notice of hearing and at the hearing itself. In general, all parties
agreed that high-quality milk is important to all segments of the dairy
industry. The major differences between the parties arose over the
questions of how and whether quality and/or somatic cell adjustments
should be included in the Federal order program.
A witness expert in the field of milk testing and quality testified
about the influence somatic cells have on milk and the resulting affect
on products made from milk. The witness explained that in normal
healthy cows the somatic cell count is around 50,000. When an infection
occurs in the udder of the cow white blood cells enter to fight the
bacterial infection. The SCC thus increases with the increasing number
of white blood cells. In fact, white blood cells and somatic cells are
synonymous in this context. The witness continued by explaining that
white blood cells contain enzymes that are designed to break down the
cell walls of the bacteria that are infecting the udder, but do not
distinguish between milk protein and bacteria. As a result, milk
protein is also degraded. The witness also stated that the enzyme
causes some deterioration in milkfat. The witness continued by
explaining that these white blood cells also cause to be activated a
proteolytic enzyme that is present in all milk.
The expert witness went on to explain that casein, which is the
functionally important protein in milk, is broken down into smaller
protein chains that cannot perform the same functions as the casein. In
fact, the witness explained, the destruction of the casein affects all
dairy products that rely on casein for structure or function. These
products include cheeses, whipped cream, yogurt, ice cream, and
condensed and dry products used in the manufacture of other products in
which casein is a functional necessity. The witness also explained that
higher SCC milks have a tendency to have a faster increase in ``acid
degree value'', which is a measure of rancidity and off flavors, than
milks with low SCCs. The witness testified that most of the damage
occurs in the udder of the cow, where conditions are ideal for the
various enzymes to work. Once the milk is removed from the udder and
cooled and stored properly, further deterioration does not stop but is
slowed down significantly, and further damage is minimized.
The expert witness discussed the effect that somatic cell counts
have on the manufacture of various dairy products, specifically cheese.
He explained that high SCC milk results in lower cheese yields as well
as problems with moisture control and the activity of the starter
culture. The increased somatic cells result in less casein in
relationship to the total protein so that less cheese is produced than
would be indicated by the amount of protein present. The degraded
protein ends up in the whey with the rest of the whey proteins. The
witness explained that in studies using individual cow's milk cheese
yield would drop dramatically as the somatic cell count went above
100,000, with the yield staying fairly constant as the somatic cell
count climbed to 1,000,000.
The witness pointed out that the cheese yield effect of somatic
cells differs when bulk tank milk is used instead of an individual
cow's milk. He explained that in the case of bulk tank milk the
relationship between cheese yield and somatic cell counts would be
linear, with cheese yields declining as SCCs increase. The witness
stated that the linear relationship is caused by the weighting of the
SCCs in the bulk tank. Bulk tank tests are weighted averages rather
than simple averages. For example, if 100 pounds of milk with a somatic
cell count of 50,000 and 400 pounds of milk with a somatic cell count
of 250,000 are added to the bulk tank the somatic cell count would be a
weighted average of 210,000 and not the simple average of 150,000.
The witness also testified that the effect of somatic cell levels
on fluid milk products is reflected in higher acid degree values that
indicate rancidity and off flavors, resulting in shorter shelf life.
The expert witness testified that routine testing for somatic cells
is conducted using a Foss-O-Matic infrared analyzer. The reference
method for testing is the direct microscope somatic cell count in which
the sample is stained and the somatic cells are counted using a
microscope. The witness explained that if the electronic instruments
are calibrated to the same reference samples the resulting test values
and standard deviations should be in close agreement. The witness
concluded that on a relative basis the results should be close to what
would be obtained using other analytical tests.
The notice of hearing contained a proposal by CMPC to include an
adjustment for somatic cells. However at the hearing, a witness for
CMPC explained that CMPC had decided neither to support nor oppose the
inclusion of a somatic cell adjuster in the amended orders. The CMPC
witness testified that the individual members of CMPC were free to
support or oppose any of the somatic cell proposals as they saw fit.
As originally proposed by CMPC, the somatic cell adjustment would
be computed by multiplying the National Cheese Exchange barrel price
times .0005. The resulting quantity would be multiplied by 500 minus
the somatic cell count of the milk, in thousands. The resulting value
would be applied on a per hundredweight basis. As explained by a
witness for CMPC, the proposed somatic cell adjuster would apply to all
producer milk, including that purchased by Class I handlers. The
witness went on to explain that the effect of somatic cells on the
value of producer milk and milk used in Class II and Class III would be
included in the computation of the producer price differential. A
somatic cell adjustment on Class I milk would not be included in the
pool, and therefore would not affect Class I handlers' cost of milk.
A witness for WCMA quoted extensively from the MCP recommended
decisions for the Indiana, Ohio Valley, and Eastern Ohio-Western
Pennsylvania milk marketing orders, and for the Michigan milk order,
supporting the inclusion of an adjustment for somatic cells in Federal
orders. The witness supported the CMPC proposal, but suggested that the
somatic cell adjustment be applied to all milk; that is, Class I milk
would not be exempted from a somatic cell adjustment. In addition, he
proposed that the somatic cell adjustment be applied to the protein
price rather than on a hundredweight basis.
A witness for TAPP and FUMMC expressed support for including a
somatic cell adjustment in the amended orders. The TAPP-FUMMC brief
also supported such a provision. The witness stated that a somatic cell
adjustment would benefit producers, handlers, and consumers by
increasing the volume of milk marketed, improving yield, and supplying
consumers with more nutritious, better quality dairy products. The
TAPP/FUMMC witness explained that their proposal would have a neutral
range of 301,000 to 400,000 somatic cells with a one-cent positive
adjustment for each 50,000 somatic cell count below the neutral range
up to a maximum of a six cents as the somatic cell count declined, and
a one cent negative adjustment for each 50,000 somatic cell count above
the neutral range up to a maximum of ten cents as the somatic cell
count increased. The TAPP/FUMMC witness testified that under their
proposal the somatic cell adjustment would apply to all producer milk,
milk used in Class III, and, if the plan is to be revenue neutral, also
to milk used in Class II.
A witness for Swiss Valley Farms Company (Swiss Valley) testified
in support of including additions and subtractions for somatic cells in
the amended order. The Swiss Valley witness explained that somatic
cells add proteolytic and lipolytic enzymes to the milk, as well as a
plasmin enzyme that is extremely heat stable, such that it is not
deactivated during pasteurization. Therefore, the enzyme continues to
degrade the milk during storage. The witness added that low SCC milk is
important to the Swiss Valley bottling operations because it results in
fluid milk products of improved flavor, and to their cheese-making
operations because of the resulting higher casein and lower whey
protein content of the milk, which increases manufacturing returns.
The Swiss Valley witness proposed that the somatic cell adjustment
begin at 400,000, with a positive adjustment as the SCC declines, and a
negative adjustment as the SCC increases, from that level. The
adjustment would be five percent of the National Cheese Exchange block
price per 100,000 somatic cells. The Swiss Valley witness explained
that the adjustment for somatic cells should apply to all producer milk
and that Swiss Valley would support a somatic cell adjustment on Class
II and Class III milk for the handler.
In its post-hearing brief, Swiss Valley reiterated the testimony of
its witness in favor of including an adjustment for somatic cells in
the amended order. Besides supporting the position of the Swiss Valley
witness, Swiss Valley expressed general support for a somatic cell
adjustment.
Testimony by a fluid processor witness indicated that the handler
pays a quality premium when buying milk from producers and specifies
minimum quality standards on purchased tanker milk.
A witness for Mid-America Dairymen, Inc. (Mid-Am), testified that
Mid-Am favored the inclusion of an adjustment for somatic cells in the
amended order. The witness quoted from the Final Decision of the
Indiana, Ohio Valley, and Eastern Ohio-Western Pennsylvania proceeding
to support the position of Mid-Am that an adjustment for somatic cells
should be included based on the effect somatic cells have on all milk.
The witness explained that quantifying the adjustment on an incremental
basis was difficult, and since not all milk is used in the manufacture
of cheese a moderate adjustment rate should be used. The witness
explained that the Mid-Am proposal would apply the somatic cell
adjustment to all producer milk, on a hundredweight basis, with a
positive adjustment for a somatic cell count below 400,000 and a
negative adjustment for SCCs above 400,000.
The witness explained that under the Mid-Am proposal, the somatic
cell adjustment would be computed by subtracting the monthly average
somatic cell count (in thousands) of the producer from 400 and then
multiplying the result by the National Cheese Exchange monthly average
barrel cheese price multiplied by .0005. He stated that since the
somatic cell adjustment would be included in the computation of the
producer price differential, on the producer side only, the total size
of the pool would not change but individual producers would receive
more or less, depending on whether their milk had a somatic cell count
above or below the average SCC of the market. The Mid-Am witness
continued by explaining that the Mid-Am proposal would be a
redistribution of money from high somatic cell testing producer milk to
the lower somatic cell testing milk, since there would be no additional
money in the pool from the somatic cell adjustments.
Instead of supporting the inclusion of somatic cell adjustment
provisions in the five Federal orders, witnesses testifying on behalf
of Land of Lakes, Inc., and NCI supported those organizations'
proposals to allow each handler to submit a somatic cell or quality
adjustment plan for payments to its own producers to the market
administrator.
A witness for LOL testified that with the LOL proposal a handler
could reduce a producer's payment by up to ten percent from that
required by the order if other producers of the handler received
positive adjustments to their payments, as long as the total payments
were equal to at least the minimum total order payment requirements.
The witness explained that LOL's proposal does not contain specific
criteria for quality and/or volume adjustments. Each handler would
submit an individual quality and/or volume adjustment plan to the
market administrator which the handler would be required to adhere to
until a new plan would be submitted. The witness testified that there
is general agreement among handlers for the need to adjust payments for
milk based on quality and volume. The witness continued by arguing that
since the industry has not yet reached a consensus on how to adjust for
quality and volume, it would be appropriate to allow each handler to
develop its own quality and volume plan with the approval of the market
administrator.
A witness for NCI testified that even though somatic cells affect
the quality of milk, particularly in the manufacture of cheese, it is
difficult to place a value on their effect. The witness explained that
the variability in somatic cell levels from day to day and producer to
producer makes determining an appropriate payment adjustment imprecise.
In addition, the witness pointed out that other factors affect milk
quality, and that placing a precise value on their effect is even more
difficult than in the case of somatic cells. The NCI witness explained
that the NCI proposal would allow each handler to establish and apply
its own somatic cell adjustment schedule, with the approval of the
market administrator, as long as the total payments to producers met or
exceeded the Federal order minimum value. The witness explained that
each handler could change its payment plan as conditions warranted.
A witness for Kraft emphasized the earlier testimony on the effect
of somatic cells on milk quality and cheese yields. The witness listed
several studies supporting the results testified to by the NAJ expert
witness. The Kraft witness testified that Kraft has, since the early
1980's, employed a quality payment program as part of its producer
payroll. The witness went on to state that the plethora of somatic cell
payment programs in use in the industry is strong evidence of the
industry's recognition that somatic cells play a major role in milk
quality. The Kraft witness explained that, in order of preference,
Kraft supports the proposal submitted by NCI, followed by LOL's
proposal and the TAPP/FUMMC proposal.
Kraft, in its post-hearing brief, reiterated its support for a
somatic cell adjustment to be included in the amended order. Kraft's
brief did not support a particular adjustment plan but preferred the
LOL-NCI concept. If that plan were not adopted, Kraft expressed support
for the proposal by Mid-Am or the original CMPC proposal. A brief filed
largely reiterative of NCI testimony was filed on behalf of NCI with
the Dairy Division rather than the Hearing Clerk, and was received more
than 3 weeks after the extended due date for filing briefs. The brief
is not considered in this decision.
In the Anderson-Erickson Dairy Company (A-E) post-hearing brief, A-
E opposed the application of an adjustment for somatic cells to Class I
milk. They contended that the Class I handler is unable to recover the
added cost of lower somatic cell count milk from the retail market.
This position was supported in the post-hearing brief filed by Lamers
Dairy and Hansen Dairy (Lamers). Lamers pointed to testimony that
indicated that the monetary effect of somatic cells on Class I milk
could not be quantified as it could be with the manufacture of cheese.
NFO, in its post-hearing brief, opposed the inclusion of any
somatic cell adjuster in the recommended order. NFO expressed the
opinion that support for a somatic cell adjuster was rather weak, with
none of the positions presented having strong support. As an example,
the NFO brief pointed to the neutral position taken by CMPC at the
hearing after including a somatic cell adjuster in the original CMPC
proposal. The NFO brief continued by explaining that testimony at the
hearing indicated that the relationship between somatic cell levels and
economic return is not a clear and definite relationship. The NFO brief
went on to point out that there was no consensus at the hearing on how
to apply a somatic cell adjuster.
There is ample testimony and evidence to support the inclusion of a
somatic cell adjuster in these amended orders. The somatic cell
adjuster per hundredweight per 1,000 somatic cells will be calculated
by multiplying .0005 times the monthly average National Cheese Exchange
40-pound block cheese price. To determine the value for an individual
producer, the producers monthly average somatic cell count (in
thousands) will be subtracted from 350 and multiplied by the somatic
cell adjuster. The value of the somatic cell adjustment will be applied
on a per hundredweight basis in the handlers' payment to producers.
Somatic cells will not be included in the computation of the producer
price differential.
The application of the somatic cell adjustment contained herein
will promote orderly marketing. As pointed out by several witnesses
testifying at the hearing, producers in these markets are faced with a
wide array of quality premium programs. These programs have no standard
basis or standard value that is applied between handlers. Therefore a
producer is faced with trying to decide which premium program will give
the producer the greatest return without a standard with which to
compare. Inconsistent premium programs also result in producers with
identical milk receiving different prices for that milk depending on
which handler is procuring the milk. The inclusion of this recommended
somatic cell adjustment will tend to effectuate the declared policy of
the Act by encouraging orderly marketing through the standardization of
the basis for payment on the level of somatic cells in the milk and the
standardization and checking of the testing and test procedures used
for determining the somatic cell counts.
As was stated earlier, all parties agreed that high quality milk is
important to all segments of the dairy industry. In fact, there was
little opposition to the inclusion of an adjustment for quality in the
amended orders. Even though testimony indicated that there are other
quality factors that are important in overall milk quality, there was
no determination of their effect on milk quality or any attempt to
compute a relevant associated value. Therefore, somatic cell count will
be used as the quality adjustment factor in this decision.
There are two basic reasons to apply the somatic cell adjustment
rate on a hundredweight basis rather than to adjust the protein price.
First, the somatic cell adjustment reflects the quality of milk in all
uses rather than just cheese, and second, application of the somatic
cell adjustment on a hundredweight basis makes it very clear to
producers and to handlers that quality affects milk used in all
products. Although testimony clearly showed that somatic cells affect
the quality of milk in all uses, a value determined on the basis of the
effect of somatic cells on cheese reflects the most prevalent use of
milk in these markets and is the easiest way to determine a value for
payment to producers.
A lack of agreement among hearing participants occurred in trying
to determine the application of a somatic cell adjustment. There was a
general consensus that an adjustment should be made in the producer pay
price for quality and/or somatic cells. The rate at which such
adjustment should be made varied by proposal, but was tied to the
reduction in cheese yield that occurs as somatic cell counts increase.
Several witnesses testified that the somatic cell adjustment rate
should be set at a moderate level. Testimony indicated that most of the
decline in cheese yield occurs as the SCC increases from below 100,000
to above 100,000, with a much slower decline in yield as the somatic
cell count increases to one million. However, testimony also showed
that declines in yield are much more linear when somatic cell tests and
cheese yield studies are done with bulk tank milk than with the milk of
individual cows. Several proposals suggested using a factor of .0005
times the cheese price in determining the value of the somatic cell
adjustment per 1,000 somatic cells. This factor is derived from the
approximately four percent decline in cheese yield as the somatic cell
count increases from 100,000 to one million. This is the same
adjustment that is used in other Federal orders in which a somatic cell
adjuster is included.
The formula used to determine the somatic cell adjuster reflects
the changes in the yield of cheese as the levels of somatic cells
change. The formula also ties the adjustment to the value of the milk
by using the block cheese price to determine the value per 1,000
somatic cells. However, since record evidence clearly shows that the
affect of somatic cells on Class I and Class II products is related
more to the quality of the finished product than to the yield of the
product, the formula should reflect less than the full value of the
affect of somatic cells on cheese yield. Using the recommended formula,
the somatic cell adjustment for the average producer under the Chicago
Regional order would be three cents per hundredweight, far below the 25
cents per hundredweight average quality premium that is shown in
hearing exhibits as being paid currently.
The corresponding somatic cell adjustments for average producers
under the four orders in addition to Chicago are: Upper Midwest, zero
cents; Iowa, minus one cent; Nebraska-Western Iowa, minus six cents;
and Eastern South Dakota, minus three cents. The formula results in an
estimated range of forty-eight cents per hundredweight from a somatic
cell count of 1,000 to a somatic cell count of 750,000, or a positive
twenty-two cents to a minus twenty-six cents, although there is no
limit on the deduction that may be made since there is no limit on the
maximum SCC in this decision.
The use of a neutral point was supported by various proponents of a
somatic cell adjuster. Several others suggested a neutral range. The
record contains numerous references to a neutral range or point around
a somatic cell count of 400,000. One witness expressed the opinion that
the base level for the somatic cell adjustment should be near the
average for the five markets. Another witness explained that their
proposal used 400,000 SCC because that is where their present quality
program begins. Based on data included in the hearing record, the
average SCC for producers whose milk is pooled under the five orders is
367,000. Therefore, a neutral point of 350,000 is appropriate. It is
close to the average for the markets, and not substantially different
from the values that witnesses found appropriate. Also, by using the
formula included herein, proponents of both a neutral point or a
neutral range are accommodated because the formula yields no value
adjustment for approximately plus or minus 7,000 SCC around 350,000.
The formula will give producers an incentive to reduce their SCCs
while minimizing the effect of the somatic cell adjuster on those
products in which somatic cells have a quality effect rather than a
yield effect. The argument that a somatic cell adjuster will negate the
forward pricing of Class I and Class II milk is also minimized by the
proposed formula. Analysis shows that the month-to-month variation in
the somatic cell adjustment at a particular somatic cell level is no
more than one cent per hundredweight, with an approximate change of 1
cent for every increment of 15,000 somatic cells. This small variation
from month to month should allow handlers to determine accurately the
cost of milk for forward pricing. In fact, the variation in the somatic
cell adjustment is significantly less than the month-to-month variation
in the current butterfat differential, which is not known until after
the end of the month.
Since this decision applies an adjustment for somatic cells to all
milk, there is no need to include the somatic cell adjustment in the
computation of the producer price differential. There are only two
reasons to include somatic cells in the producer price differential
computation: (1) To exclude a particular class or classes of milk from
being affected by a somatic cell adjustment, or (2) to redistribute the
somatic cell adjustment money among all of the producers in the market.
Since this decision applies the somatic cell adjustment to all milk the
first reason is not relevant.
There may be some merit for redistributing money from high somatic
cell producers to low somatic cell producers marketwide. However, if
such a provision were adopted, the producer price differential would
also be affected with changes in the market average SCC. In fact, as
the market average SCC decreased, the producer price differential would
decline below the level of the producer price differential in the
absence of a somatic cell count adjustment, decreasing the incentive
for producers to reduce the somatic cell counts of their milk and
defeating the objective of a somatic cell count adjustment. Therefore
the somatic cell adjustment will be applied to all producer milk
without being included in the pool or producer price differential
computation.
Neither the quality proposal by LOL nor the somatic cell proposal
by NCI, in which each handler would be allowed to submit an individual
quality or somatic cell payment plan to the market administrator, is
included in this decision. Although the Agricultural Marketing
Agreement Act in 7 U.S.C. 608c(5) does allow for adjustments to minimum
pay prices on the basis of quality, such adjustments should be at a
uniform rate for all producers in the market. Allowing each handler to
have its own payment schedule would defeat the concept of uniform
pricing to producers, eliminate the purpose of allowing quality
adjustments under the order, and lead to disorderly marketing.
Producers with identical milk shipping to different handlers within the
same market could, and probably would, have different minimum order pay
prices if each handler had its own quality or somatic cell payment
plan.
A number of witnesses testified that the profusion of payment plans
currently in effect in the market today are causing disorderly
marketing, and that one of the benefits of incorporating multiple
component pricing with a somatic cell adjustment in the five orders
would be to reduce or at least standardize the vast array of producer
payment plans currently in effect in the region. In view of such
testimony, adoption of the LOL or NCI quality adjustment proposals
would serve no purpose.
5. Conforming Changes
To accommodate multiple component pricing a number of changes need
to be made in the current order provisions of the five orders in this
decision. To compute a handler's obligation and the producer price
differential, several prices need to be defined. The Class I
differential price should be defined as the difference between the
current month's Class I price and the current month's Class III price.
The Class II differential price should be defined as the difference
between the current month's Class II price and the current month's
Class III price. These differential prices should not be confused with
the fixed value that is added to the Minnesota-Wisconsin price for the
second preceding month to arrive at the Class I price for the current
month, or the computed value that is used in the computation of the
Class II price. It should also be pointed out that these differential
prices may be negative, which currently happens when the Minnesota-
Wisconsin price is greater than the Class I or Class II price. The skim
milk price will be calculated by subtracting from the Class III price
the value determined by multiplying the butterfat differential by 35.
The skim milk price will be expressed on a per hundredweight basis with
four places to the right of the decimal.
Since producer location adjustments are not changed in this
decision, the application of such adjustments to the producer price
differential remains unchanged. In some of the orders the uniform price
is ``snubbed'' at the Class III price when producer location
adjustments are applied. In these orders, the producer price
differential will be adjusted for location until the producer price
differential is zero if the producer price differential at the zero
zone is zero or greater. However, if the producer price differential is
negative, no minus producer location adjustment will be applied. Plus
adjustments to a negative producer price differential would be made. In
those orders in which the uniform price is not ``snubbed'' to the Class
III price, producer location adjustments will be applied as they are
currently.
For the Market Administrator to compute the producer price
differential handlers will need to supply additional information on
their monthly reports of receipts and utilization. In addition to the
product pounds and butterfat currently reported, handlers will be
required to report pounds of protein and pounds of other solids. This
information will be required from each handler for all producer
receipts, including milk diverted by the handler, receipts from
cooperatives as 9(c) handlers, and receipts of bulk milk received by
transfer or diversion.
For the Upper Midwest Order only, the due date for handlers to
submit reports of receipts and utilization should be changed, from the
10th of the month to the 8th of the month. Currently, the Upper Midwest
Order requires handlers to submit reports by the 10th of the month, and
the Uniform Price to be announced by the 11th of the month, allowing
only one day for the pooling process. The other four orders involved in
this decision allow a longer period of time for the processing of data
and the announcement of the Uniform Price. In the Chicago Regional
Order, handler reports are due on the 10th, and the Uniform Price is
announced on the 14th, a period of 4 days. In the Iowa Order, handler
reports are due on the 8th, and the Uniform Price is announced on the
12th, a period of 4 days. In the Nebraska-Western Iowa Order, handler
reports are due on the 7th, and the Uniform Price is announced on the
12th, a period of 5 days. In the Eastern South Dakota Order, handler
reports are due on the 8th, and the Uniform Price is announced on the
12th, a period of 4 days.
The order changes recommended in this decision will require the
market administrator of each order to carry out a more comprehensive
review and analysis of the data than is required currently. As noted at
the hearing, the pooling process will become somewhat more complicated
because data submitted will involve not only skim and butterfat pounds,
but also pounds of protein and other solids. Thus, it is appropriate to
allow the market administrator for the Upper Midwest Order a period of
3 days to compute and announce the producer price differential and the
statistical uniform price. By changing the due date for handler reports
from the 10th to the 8th, but retaining the 11th as the day the
producer price differential and statistical uniform price are to be
announced, the pooling process will be better accommodated.
For purposes of allocation of producer receipts the assumption will
be made that the protein and other solids cannot easily be separated
from skim milk. The protein and other solids will therefore be
allocated proportionately with the skim milk based on the percentage of
protein and other solids in the skim milk received from producers.
The implementation of this multiple component pricing decision will
require several changes in the way handlers pay for milk. Partial
payment at the Class III price for the previous month for milk
deliveries during the first 15 days of a month was proposed by both NAJ
and CMPC. Although no objections to the proposal were expressed, there
was no testimony supporting or opposing the proposal. Therefore, there
is no basis in the record of the proceeding to make substantive changes
in the payment provisions of the orders that provide for partial
payments at a significantly different level.
Currently, the Nebraska-Western Iowa order, the Upper Midwest
order, and the Iowa order require partial payments to be based on the
prior month's uniform price. Since this component pricing plan does not
contain a uniform price, these three orders will be changed to require
the partial payments to be made at the ``statistical uniform price'',
announced by the market administrator on or before the 14th day of the
month for which partial payment is to be made.
The Chicago Regional order will also be changed from the current
requirement that the partial payment be based on the lowest class price
for the prior month to a partial payment based on the prior month's
Class III price. The Eastern South Dakota order does not need to be
changed.
Final payment to producers will be determined by the total
hundredweight of milk times the producer price differential adjusted by
the applicable location adjustment, plus or minus the total
hundredweight of milk times the adjustment for somatic cells, plus the
pounds of protein times the protein price, plus the pounds of other
solids times the other solids price, plus the pounds of butterfat times
the butterfat price, minus any authorized deductions currently allowed.
Handlers purchasing milk from cooperative pool plants will pay for
Class I milk at the Class I differential price plus the pounds of skim
milk in Class I at the skim milk price plus the pounds of butterfat at
the butterfat price; for Class II milk at the Class II differential
price plus the pounds of protein at the protein price, plus the pounds
of other solids at the other solids price, plus the pounds of butterfat
at the butterfat price; and for Class III milk at the protein pounds
times the protein price, plus the pounds of other solids at the other
solids price, plus the pounds of butterfat at the butterfat price. All
milk purchased will be adjusted by the appropriate somatic cell
adjustment. Payment for 9(c) milk will be based on the producer price
differential adjusted for location at the plant of receipt and somatic
cells, plus the value of protein, other solids, and butterfat contained
in the milk.
Since producers will be receiving payments based on the component
levels of their milk, the payroll reports that handlers supply to
producers must reflect the basis for such payment. Therefore the
handler will be required to supply the producer not only with the
information currently supplied, but also: (a) The pounds of butterfat,
the pounds of protein, and the pounds of other solids contained in the
producer's milk, as well as the producer's average somatic cell count,
and (b) the minimum rate that is required for payment for each
component and, if a different rate is paid, the effective rate also.
The handler's value of milk will be determined by combining: (a)
The pounds of producer milk in Class I times the Class I differential
price, (b) the pounds of producer milk in Class II times the Class II
differential price, (c) the value of overage, (d) the value of
inventory reclassification, (e) the value, at the Class I minus Class
III price difference, of other source receipts and receipts from
unregulated supply plants allocated to Class I, (g) the value of
handler location adjustments, (h) Class III-A credits, (i) the pounds
of skim milk in Class I times the skim milk price, (j) the pounds of
protein in Class II and Class III times the protein price, and (k) the
pounds of other solids in Class II and Class III times the other solids
price.
The pounds of protein and other solids in Class II and Class III
will be determined by multiplying the percent protein or percent other
solids in the skim milk of the total producer milk received by the
handler times the pounds of skim milk allocated to Class II and Class
III.
Handler's obligations to the producer settlement fund will be
determined by subtracting from the handler's value of milk the
following: (a) The total pounds of each handler's producer milk times
the producer price differential adjusted for location, (b) the total
pounds of protein contained in the producer milk times the protein
price, (c) the total pounds of other solids contained in the producer
milk times the other solids price, and (d) the value of other source
milk at the producer price differential with any applicable location
adjustment at the plant from which the milk was shipped deducted from
the handler's value of milk.
The amendments to order language accompanying this recommended
decision are based on the current language of the five orders. There
are two national amendatory proceedings in process (the M-W replacement
and Class II pricing) that may result in changes to some of the
provisions that will also be changed by this proceeding. No attempt has
been made in drafting the order language amendments accompanying this
decision to accommodate any of the changes that may result from the
other two proceedings. Any adjustments needed will be made on the basis
of the order language in effect at the time a final decision is issued.
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 the aforementioned 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) The tentative 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 marketing areas, and the minimum
prices specified in the tentative 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 tentative 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.
Recommended Marketing Agreements and Order Amending the Orders
The recommended marketing agreements are not included in this
decision because the regulatory provisions thereof would be the same as
those contained in the orders, as hereby proposed to be amended. The
following order amending the orders, as amended, regulating the
handling of milk in the aforementioned marketing areas is recommended
as the detailed and appropriate means by which the foregoing
conclusions may be carried out.
List of Subjects in 7 CFR Parts 1030, 1065, 1068, 1076 and 1079
Milk marketing orders.
For the reasons set forth in the preamble, 7 CFR Parts 1030, 1065,
1068, 1076 and 1079 are proposed to be amended as follows:
1. The authority citation for 7 CFR Parts 1030, 1065, 1068, 1076
and 1079 continues to read as follows:
Authority: Secs. 1-19, 48 Stat. 31, as amended; 7 U.S.C. 601-
674.
PART 1030--MILK IN THE CHICAGO REGIONAL MARKETING AREA
1. Section 1030.30 is amended by revising paragraphs (a) and (c)
and removing paragraph (d), to read as follows:
Sec. 1030.30 Reports of receipts and utilization.
* * * * *
(a) Each handler described in Sec. 1030.9(a) shall report for each
plant of the handler (except if a handler requests and the request is
approved by the market administrator, a handler may file a consolidated
report for supply plants and a consolidated report for distributing
plants); and each handler described in Sec. 1030.9 (b) and (c) shall
report the following information:
(1) Product pounds, pounds of butterfat, pounds of protein, and
pounds of solids-not-fat other than protein (other solids) contained in
or represented by:
(i) Receipts of producer milk, including producer milk diverted by
the handler from the pool plant to other plants;
(ii) Receipts of milk from handlers described in Sec. 1030.9(c);
and
(iii) Receipts by transfer or diversion of bulk fluid milk products
from pool plants, including a separate statement of the net receipts
from each supply plant computed pursuant to Sec. 1030.7(b)(4);
(2) Product pounds and pounds of butterfat contained in:
(i) Receipts of fluid milk products not included in paragraph
(a)(1) of this section and bulk fluid cream products from any source;
(ii) Receipts of other source milk; and
(iii) Inventories at the beginning and end of the month of fluid
milk products and products specified in Sec. 1030.40(b)(1); and
(3) The utilization or disposition of all milk, filled milk, and
milk products required to be reported pursuant to this paragraph.
* * * * *
(c) Each handler not specified in paragraphs (a) and (b) of this
section shall report with respect to its receipts and utilization of
milk, filled milk, and milk products in such manner as the market
administrator may prescribe.
2. Section 1030.31 is amended by revising paragraph (a) to read as
follows:
Sec. 1030.31 Payroll reports.
(a) On or before the 25th day after the end of each month, each
handler described in Sec. 1030.9 (a), (b), and (c) shall report to the
market administrator its producer payroll for such month, in the detail
prescribed by the market administrator, showing for each producer the
information specified in Sec. 1030.73(e).
* * * * *
3. Section 1030.50 is amended by revising the section heading,
introductory text and paragraph (a), and adding paragraphs (e) through
(k) to read as follows:
Sec. 1030.50 Class and component prices.
Subject to the provisions of Sec. 1030.52, the class prices per
hundredweight of milk containing 3.5 percent butterfat and the
component prices for the month shall be as follows:
(a) Class I price. The Class I price for the month per
hundredweight of milk containing 3.5 percent butterfat shall be the
basic formula price for the second preceding month plus $1.40.
* * * * *
(e) Class I differential price. The Class I differential price
shall be the difference between the current month's Class I and Class
III prices (this price may be negative).
(f) Class II differential price. The Class II differential price
shall be the difference between the current month's Class II and Class
III prices (this price may be negative).
(g) Skim milk price. The skim milk price per hundredweight, rounded
to the nearest cent, shall be the Class III price less an amount
computed by multiplying the butterfat differential by 35.
(h) Butterfat price. The butterfat price per pound, rounded to the
nearest one-hundredth cent, shall be the Class III price plus an amount
computed by multiplying the butterfat differential by 965 and dividing
the resulting amount by one hundred.
(i) Protein price. The protein price per pound, rounded to the
nearest one-hundredth cent, shall be 1.32 times the average monthly
price per pound for 40-pound block Cheddar cheese on the National
Cheese Exchange as reported by the Department.
(j) Other solids price. Other solids are herein defined as solids-
not-fat other than protein. The other solids price per pound, rounded
to the nearest one-hundredth cent, shall be the skim milk price times
.965, less the average protein test of the basic formula price as
reported by the Department for the month times the protein price, and
dividing the resulting amount by the average other solids test of the
basic formula price as reported by the Department. If the resulting
price is less than zero, then the protein price will be reduced so that
the other solids price equals zero.
(k) Somatic cell adjustment. The somatic cell adjustment per
hundredweight shall be computed by subtracting the monthly average
somatic cell count, in thousands, of the producer's milk from 350 and
multiplying the remaining quantity by .0005 times the monthly cheddar
cheese price as defined in paragraph (i) of this section.
4. Section 1030.53 is revised to read as follows:
Sec. 1030.53 Announcement of class and component prices.
(a) On or before the 5th day of the month, the market administrator
shall announce the following prices:
(1) The Class I price for the following month;
(2) The Class III price for the preceding month;
(3) The Class III-A price for the preceding month;
(4) The skim milk price for the preceding month;
(5) The butterfat price for the preceding month;
(6) The protein price for the preceding month;
(7) The other solids price for the preceding month; and
(8) The butterfat differential for the preceding month.
(b) On or before the 15th day of the month, the market
administrator shall announce the Class II price for the following month
computed pursuant to Sec. 1030.50(b).
5. The section heading in Sec. 1030.60 and the undesignated
centerheading preceding it, the introductory text, and paragraphs (a)
and (f) are revised to read as follows:
Producer Price Differential
Sec. 1030.60 Handler's value of milk.
For the purpose of computing a handler's obligation for producer
milk, the market administrator shall determine for each month the value
of milk of each handler described in Sec. 1030.9 (a), (b), and (c), as
follows:
(a) Calculate the following values:
(1) Multiply the total hundredweight of producer milk in Class I as
determined pursuant to Sec. 1030.44(c) by the Class I differential
price for the month;
(2) Add an amount obtained by multiplying the total hundredweight
of producer milk in Class II as determined pursuant to Sec. 1030.44(c)
by the Class II differential price for the month;
(3) Add an amount obtained by multiplying the hundredweight of skim
milk in Class I as determined pursuant to Sec. 1030.44(a) by the skim
milk price;
(4) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1030.44(a) by
the average protein content of producer skim milk received by the
handler, and multiplying the resulting pounds of protein by the protein
price; and
(5) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1030.44(a) by
the average other solids content of producer skim milk received by the
handler, and multiplying the resulting pounds of other solids by the
other solids price;
* * * * *
(f) Add the amount obtained from multiplying the Class I
differential price 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 Sec. 1030.43(d) and
Sec. 1030.44(a)(7)(i) and the pounds of skim milk and butterfat
subtracted from Class I pursuant to Sec. 1030.44(a)(11) and the
corresponding steps of Sec. 1030.44(b), excluding such skim milk and
butterfat in receipts of bulk 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;
* * * * *
6. Section 1030.61 is amended by revising the section heading,
introductory text, and paragraph (a) to read as follows:
Sec. 1030.61 Producer price differential.
For each month the market administrator shall compute a producer
price differential per hundredweight for Zone 1. If the unreserved cash
balance in the producer settlement fund to be included in the
computation is less than 2 cents per hundredweight of producer milk on
all reports, the report of any handler who has not made the payments
required pursuant to Sec. 1030.71 for the preceding month shall not be
included in the computation of the producer price differential. The
report of such handler shall not be included in the computation for
succeeding months until he has made full payment of outstanding monthly
obligations. Subject to the aforementioned conditions, the market
administrator shall compute the producer price differential in the
following manner:
(a) Combine into one total for all handlers:
(1) The values computed pursuant to Sec. 1030.60 (a)(1), (a)(2) and
(b) through (k) for all handlers;
(2) Add values computed pursuant to Sec. 1030.60 (a)(3), (a)(4),
and (a)(5) and subtract the values obtained by multiplying the
handlers' total pounds of protein and total pounds of other solids
contained in such milk by their respective prices; and
(3) Subtract the value obtained by multiplying the difference
between the Class III price and the Class III-A price times the pounds
of product determined pursuant to Sec. 1030.43(e);
* * * * *
7. Section 1030.62 is revised to read as follows:
Sec. 1030.62 Announcement of producer prices.
On or before the 14th day after the end of each month, the market
administrator shall announce the following prices and information:
(a) The producer price differential;
(b) The protein price;
(c) The other solids price;
(d) The butterfat price;
(e) The average protein test and other solids test of producer
milk; and
(f) The statistical uniform price for milk containing 3.5 percent
butterfat, computed by combining the Class III price and the producer
price differential.
8. Section 1030.71 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1030.71 Payments to the producer-settlement fund.
(a) * * *
(2) The sum of:
(i) An amount obtained by multiplying the total hundredweight of
producer milk as determined pursuant to Sec. 1030.44(c) by the producer
price differential as adjusted pursuant to Sec. 1030.75;
(ii) An amount obtained by multiplying the total pounds of protein
contained in producer milk by the protein price;
(iii) An amount obtained by multiplying the total pounds of other
solids contained in producer milk by the other solids price; and
(iv) An amount obtained by multiplying the pounds of skim milk and
butterfat for which a value was computed pursuant to Sec. 1030.60(f) by
the producer price differential as adjusted pursuant to Sec. 1030.52.
* * * * *
9. Section 1030.73 is amended by revising paragraphs (a), (c), and
(d) and adding paragraph (e), to read as follows:
Sec. 1030.73 Payments to producers and to cooperative associations.
(a) Each handler shall pay each producer for producer milk received
from such producer and for which payment is not made to a cooperative
association pursuant to paragraph (b) or (c) of this section as
follows:
(1) On or before the 3rd day after the end of each month, to each
producer who has not discontinued shipping milk to such handler before
the end of the month, for producer milk received during the first 15
days of the month at a rate per hundredweight not less than the Class
III price for milk of 3.5 percent butterfat for the preceding month,
less proper deductions authorized in writing by such producer; and
(2) On or before the 18th day after the end of the month, payment
for producer milk received during such month shall not be less than the
sum of:
(i) The hundredweight of producer milk received times the producer
price differential as adjusted pursuant to Secs. 1030.75 and 1030.86;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of butterfat received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month;
(vi) Less any payment made pursuant to paragraph (a) of this
section;
(vii) Less proper deductions authorized in writing by such producer
and plus or minus adjustments for errors in previous payments made to
such producer; and
(3) If by such date the handler has not received full payment from
the market administrator pursuant to Sec. 1030.72 for such month, it
may reduce pro rata its payment to producers by not more than the
amount of such underpayment. Payment to producers shall be completed
thereafter not later than the date for making payments pursuant to this
paragraph next following receipt of the balance due from the market
administrator.
* * * * *
(c) Each handler shall pay a cooperative association for milk
received by the handler from pool plant(s) operated by a cooperative
association as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the 1st day
after the end of the month during which the milk was received at a rate
per hundredweight not less than the Class III price for milk of 3.5
percent butterfat for the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 16th day after the end of the
month during which the milk was received as follows:
(i) The hundredweight of Class I milk received times the Class I
differential price for the month plus the pounds of Class I skim milk
times the skim milk price for the month;
(ii) The hundredweight of Class II milk received times the Class II
differential price for the month;
(iii) The pounds of butterfat received times the butterfat price
for the month;
(iv) The pounds of protein received in Class II and Class III times
the protein price for the month;
(v) The pounds of other solids received in Class II and Class III
times the other solids price for the month;
(vi) The hundredweight of milk received times the somatic cell
adjustment; and
(vii) Less any payment made pursuant to paragraph (c)(1) of this
section.
(d) Each handler shall pay a cooperative association for milk
received by the handler from a cooperative association acting as a
handler described under Sec. 1030.9(c) as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the 1st day
after the end of the month during which the milk was received at a rate
per hundredweight not less than the Class III price for milk of 3.5
percent butterfat for the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 16th day after the end of the
month during which the milk was received as follows:
(i) The hundredweight of milk received times the producer price
differential as adjusted pursuant to Sec. 1030.75;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month;
(vi) Less any payment made pursuant to paragraph (a) of this
section;
(vii) Less proper authorized deductions.
(e) In making payments for producer milk pursuant to paragraph
(a)(2) or (b)(2) of this section, each handler shall furnish each
producer or cooperative association to whom such payment is made a
supporting statement in such form that it may be retained by the
recipient which shall show:
(1) The month and the identity of the producer;
(2) The daily and total pounds for each producer;
(3) The total pounds of butterfat contained in the producer's milk;
(4) The total pounds of protein contained in the producer's milk;
(5) The total pounds of other solids contained in the producer's
milk;
(6) The somatic cell count of the producer's milk;
(7) The minimum rate or rates at which payment to the producer is
required pursuant to this order;
(8) The rate that is used in making payment if such rate is other
than the applicable minimum rate;
(9) The amount, or the rate per hundredweight, or rate per pound of
component, and the nature of each deduction claimed by the handler; and
(10) The net amount of payment to such producer or cooperative.
10. Sections 1030.74 and 1030.75 are revised to read as follows:
Sec. 1030.74 Butterfat differential.
The butterfat differential, rounded to the nearest one-tenth cent,
shall be 0.138 times the butter price less 0.0028 times the average
price per hundredweight, at test, for manufacturing grade milk, f.o.b.
plants in Minnesota and Wisconsin, as reported by the Department for
the month. The butter price means the simple average for the month of
the daily prices per pound of Grade A (92 score) butter. The prices
used shall be those of the Chicago Mercantile Exchange as reported and
published weekly by the Dairy Division, Agricultural Marketing Service.
The average shall be computed by the Director of the Dairy Division
using the price reported each week as the daily price for that day and
for each following day until the next price is reported.
Sec. 1030.75 Plant location adjustments for producers and on nonpool
milk.
(a) The producer price differential for producer milk received at a
plant shall be adjusted according to the location of the plant at the
rates set forth in Sec. 1030.52(a).
(b) The producer price differential applicable to other source milk
shall be reduced at the rates set forth in Sec. 1030.52(a).
11. Section 1030.76 is amended by revising paragraph (a)(4) and the
third sentence of paragraph (b)(1)(ii), to read as follows:
Sec. 1030.76 Payments by handler operating a partially regulated
distributing plant.
* * * * *
(a) * * *
(4) Multiply the remaining pounds by the amount by which the Class
I differential price exceeds the producer price differential, both
prices to be applicable at the location of the partially regulated
distributing plant; and
* * * * *
(b) * * *
(1) * * *
(ii) * * * Any such transfers remaining after the above allocation
which are classified in Class I and for which a value is computed for
the handler operating the partially regulated distributing plant
pursuant to Sec. 1030.60 shall be priced at the statistical uniform
price (or at the weighted average price if such is provided) of the
respective order regulating the handling of milk at the transferee
plant, with such statistical uniform price adjusted to the location of
the nonpool plant (but not to be less than the lowest class price of
the respective order), except that transfers of reconstituted skim milk
in filled milk shall be priced at the lowest class price of the
respective order; and
* * * * *
PART 1065--MILK IN THE NEBRASKA-WESTERN IOWA MARKETING AREA
1. Section 1065.30 is amended by revising paragraphs (a) and (c)
and removing paragraph (d), to read as follows:
Sec. 1065.30 Reports of receipts and utilization.
* * * * *
(a) Each handler described in Sec. 1065.9 (a), (b), and (c) shall
report for each of its operations the following information:
(1) Product pounds, pounds of butterfat, pounds of protein, and
pounds of solids-not-fat other than protein (other solids) contained in
or represented by:
(i) Receipts of producer milk, including producer milk diverted by
the handler;
(ii) Receipts of milk from handlers described in Sec. 1065.9(c);
and
(iii) Receipts by transfer or diversion of bulk fluid milk products
from pool plants;
(2) Product pounds and pounds of butterfat contained in:
(i) Receipts of fluid milk products not included in paragraph
(a)(1) of this section and bulk fluid cream products from any source;
(ii) Receipts of other source milk;
(iii) Inventories at the beginning and end of the month of fluid
milk products and products specified in Sec. 1065.40(b)(1); and
(3) The utilization or disposition of all milk, filled milk, and
milk products required to be reported pursuant to this paragraph.
* * * * *
(c) Each handler not specified in paragraphs (a) and (b) of this
section shall report with respect to its receipts and utilization of
milk, filled milk, and milk products in such manner as the market
administrator may prescribe.
2. Section 1065.31 is amended by revising paragraph (a) to read as
follows:
Sec. 1065.31 Payroll reports.
(a) On or before the 20th day after the end of each month, each
handler described in Sec. 1065.9 (a), (b), and (c) shall report to the
market administrator its producer payroll for such month, in the detail
prescribed by the market administrator, showing for each producer the
information described in Sec. 1065.73(e).
* * * * *
3. Section 1065.50 is amended by revising the section heading,
introductory text and paragraph (a), and adding paragraphs (e) through
(k), to read as follows:
Sec. 1065.50 Class and component prices.
Subject to the provisions of Sec. 1065.52, the class prices per
hundredweight of milk containing 3.5 percent butterfat and the
component prices for the month shall be as follows:
(a) Class I price. The Class I price for the month per
hundredweight of milk containing 3.5 percent butterfat shall be the
basic formula price for the second preceding month plus $1.75.
* * * * *
(e) Class I differential price. The Class I differential price
shall be the difference between the current month Class I and Class III
prices (this price may be negative).
(f) Class II differential price. The Class II differential price
shall be the difference between the current month Class II and Class
III prices (this price may be negative).
(g) Skim milk price. The skim milk price per hundredweight, rounded
to the nearest cent, shall be the Class III price less an amount
computed by multiplying the butterfat differential by 35.
(h) Butterfat price. The butterfat price per pound, rounded to the
nearest one-hundredth cent, shall be the Class III price plus an amount
computed by multiplying the butterfat differential by 965 and dividing
the resulting amount by one hundred.
(i) Protein price. The protein price per pound, rounded to the
nearest one-hundredth cent, shall be 1.32 times the average monthly
price per pound for 40-pound block Cheddar cheese on the National
Cheese Exchange as reported by the Department.
(j) Other solids price. Other solids are herein defined as solids
not fat other than protein. The other solids price per pound, rounded
to the nearest one-hundredth cent, shall be the skim milk price times
.965, less the average protein test of the basic formula price as
reported by the Department for the month times the protein price, and
dividing the resulting amount by the average other solids test of the
basic formula price as reported by the Department. If the resulting
price is less than zero, then the protein price will be reduced so that
the other solids price equals zero.
(k) Somatic cell adjustment. The somatic cell adjustment per
hundredweight shall be computed by subtracting the monthly average
somatic cell count, in thousands, of the producer's milk from 350 and
multiplying the remaining quantity by .0005 times the monthly cheddar
cheese price as defined in paragraph (i) of this section.
4. Section 1065.53 is revised to read as follows:
Sec. 1065.53 Announcement of class and component prices.
(a) On or before the 5th day of the month, the market administrator
shall announce the following prices:
(1) The Class I price for the following month;
(2) The Class III price for the preceding month;
(3) The Class III-A price for the preceding month;
(4) The skim milk price for the preceding month;
(5) The butterfat price for the preceding month;
(6) The protein price for the preceding month;
(7) The other solids price for the preceding month; and
(8) The butterfat differential for the preceding month.
(b) On or before the 15th day of the month, the market
administrator shall announce the Class II price for the following month
computed pursuant to Sec. 1065.50(b).
5. The section heading in Sec. 1065.60 and the undesignated
centerheading preceding it, the introductory text, and paragraphs (a)
and (f) are revised to read as follows:
Producer Price Differential
Sec. 1065.60 Handler's value of milk.
For the purpose of computing a handler's obligation for milk the
market administrator shall determine for each month the value of milk
of each handler described in Sec. 1065.9(a) with respect to each of its
pool plants and each handler described in Sec. 1065.9(b) and (c).
(a) The handler's obligation for producer milk shall be computed as
follows:
(1) Multiply the total hundredweight of milk in Class I as
determined pursuant to Sec. 1065.44(c) by the Class I differential
price for the month;
(2) Add an amount obtained by multiplying the total hundredweight
of milk in Class II as determined pursuant to Sec. 1065.44(c) by the
Class II differential price for the month;
(3) Add an amount obtained by multiplying the hundredweight of skim
milk in Class I as determined pursuant to Sec. 1065.44(a) by the skim
milk price;
(4) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1065.44(a) by
the average protein content of producer skim milk received by the
handler, and multiplying the resulting pounds of protein by the protein
price; and
(5) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1065.44(a) by
the average other solids content of producer skim milk received by the
handler, and multiplying the resulting pounds of other solids by the
other solids price;
* * * * *
(f) Add the amount obtained from multiplying the Class I
differential price 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 Sec. 1065.43(d) and
Sec. 1065.44(a)(7)(i) and the pounds of skim milk and butterfat
subtracted from Class I pursuant to Sec. 1065.44(a)(11) and the
corresponding steps of Sec. 1065.44(b), excluding such skim milk and
butterfat in receipts of bulk 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;
* * * * *
6. Section 1065.61 is amended by revising the section heading,
introductory text, and paragraphs (a) and (f), to read as follows:
Sec. 1065.61 Producer price differential.
For each month the market administrator shall compute a producer
price differential per hundredweight of milk received from producers,
as follows:
(a) Combine into one total for all handlers:
(1) The values computed pursuant to Sec. 1065.60(a)(1), (a)(2), and
(b) through (i) for all handlers;
(2) Add values computed pursuant to Sec. 1065.60(a)(3), (a)(4), and
(a)(5) and subtract the values obtained by multiplying the handlers'
total pounds of protein and total pounds of other solids contained in
such milk by their respective prices; and
(3) Subtract the value obtained by multiplying the difference
between the Class III price and the Class III-A price times the pounds
of product determined pursuant to Sec. 1065.43(e);
* * * * *
(f) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (e) of this section. The result
shall be the ``producer price differential.''
7. Section 1065.62 is revised to read as follows:
Sec. 1065.62 Announcement of producer prices.
On or before the 12th day after the end of each month, the market
administrator shall announce the following prices and information:
(a) The producer price differential;
(b) The protein price;
(c) The other solids price;
(d) The butterfat price;
(e) The average protein and other solids content of producer milk;
and
(f) The statistical uniform price for milk containing 3.5 percent
butterfat, computed by combining the Class III price and the producer
price differential.
8. Section 1065.71 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1065.71 Payments to the producer-settlement fund.
(a) * * *
(2) The sum of:
(i) An amount obtained by multiplying the total hundredweight of
producer milk determined pursuant to Sec. 1065.44(c) by the producer
price differential as adjusted pursuant to Sec. 1065.75;
(ii) An amount obtained by multiplying the total pounds of protein
contained in producer milk by the protein price;
(iii) An amount obtained by multiplying the total pounds of other
solids contained in producer milk by the other solids price; and
(iv) An amount obtained by multiplying the pounds of skim milk and
butterfat for which a value was computed pursuant to Sec. 1065.60(f) by
the producer price differential as adjusted pursuant to Sec. 1065.52.
* * * * *
9. Section 1065.73 is amended by revising paragraphs (a), (c), (d)
and (e) to read as follows:
Sec. 1065.73 Payments to producers and to cooperative associations.
(a) Each handler shall pay for milk received from producers for
which payment is not made to a cooperative association pursuant to
paragraph (b) or (c) of this section as follows:
(1) On or before the 27th day of the month, to each producer who
has not discontinued shipping milk to such handler before the end of
the month, for producer milk received during the first 15 days of the
month at a rate per hundredweight not less than the statistical uniform
price computed pursuant to Sec. 1065.62(f) for the preceding month,
less proper deductions authorized in writing by such producer; and
(2) On or before the 18th day after the end of the month, payment
for producer milk received during such month shall not be less than the
sum of:
(i) The hundredweight of producer milk received times the producer
price differential as adjusted pursuant to Sec. 1065.75;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month;
(vi) Less any payment made pursuant to paragraph (a)(1) of this
section;
(vii) Less proper deductions authorized in writing by such producer
and plus or minus adjustments for errors in previous payments made to
such producer;
(viii) Less deductions for marketing services pursuant to 1065.86
and for advertising and promotion pursuant to Sec. 1065.107; and
(ix) If by such date the handler has not received full payment from
the market administrator pursuant to Sec. 1065.72 for such month, it
may reduce pro rata its payment to producers by not more than the
amount of such underpayment. Payment to producers shall be completed
thereafter not later than the date for making payments pursuant to this
paragraph next following receipt of the balance due from the market
administrator.
* * * * *
(c) Each handler shall pay a cooperative association for milk
received by the handler from a cooperative association acting as a
handler described in Sec. 1065.9(c) as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the 26th day
of the month during which the milk was received at a rate per
hundredweight not less than the statistical uniform price computed
pursuant to Sec. 1065.62(f) for the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 17th day after the end of the
month during which the milk was received as follows:
(i) The hundredweight of milk received times the producer price
differential applicable at the location of the receiving handler's
plant;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month; and
(vi) Less any payment made pursuant to paragraph (c)(1) of this
section.
(d) Each handler shall pay a cooperative association for fluid milk
products received by transfer or diversion from a pool plant operated
by the cooperative association as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the 26th day
of the month during which the milk was received at a rate per
hundredweight not less than the Class III price for the preceding
month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 17th day after the end of the
month during which the milk was received as follows:
(i) The hundredweight of Class I milk received times the Class I
differential price for the month applicable at the transferee plant,
plus the pounds of Class I skim milk times the skim milk price for the
month;
(ii) The hundredweight of Class II milk received times the Class II
differential price for the month;
(iii) The pounds of butterfat received times the butterfat price
for the month;
(iv) The pounds of protein received in Class II and Class III times
the protein price for the month;
(v) The pounds of other solids received in Class II and Class III
times the other solids price for the month;
(vi) The hundredweight of milk received times the somatic cell
adjustment; and
(vii) Less any payment made pursuant to paragraph (d)(1) of this
section.
(e) In making payments for producer milk pursuant to paragraph
(a)(2) or (b)(2) of this section, each handler shall furnish each
producer or cooperative association to whom such payment is made a
supporting statement in such form that it may be retained by the
recipient which shall show:
(1) The month and the identity of the producer;
(2) The daily and total pounds for each producer;
(3) The total pounds of butterfat contained in the producer's milk;
(4) The total pounds of protein contained in the producer's milk;
(5) The total pounds of other solids contained in the producer's
milk;
(6) The somatic cell count of the producer's milk;
(7) The minimum rate or rates which payment to the producer is
required pursuant to this order;
(8) The rate that is used in making payment if such rate is other
than the applicable minimum rate;
(9) The amount, or the rate per hundredweight, or rate per pound of
component, and the nature of each deduction claimed by the handler; and
(10) The net amount of payment to such producer or cooperative.
* * * * *
10. Sections 1065.74 and 1065.75 are revised to read as follows:
Sec. 1065.74 Butterfat differential.
The butterfat differential, rounded to the nearest one-tenth cent,
shall be 0.138 times the butter price less 0.0028 times the average
price per hundredweight, at test, for manufacturing grade milk, f.o.b.
plants in Minnesota and Wisconsin, as reported by the Department for
the month. The butter price means the simple average for the month of
the daily prices per pound of Grade A (92 score) butter. The prices
used shall be those of the Chicago Mercantile Exchange as reported and
published weekly by the Dairy Division, Agricultural Marketing Service.
The average shall be computed by the Director of the Dairy Division
using the price reported each week as the daily price for that day and
for each following day until the next price is reported.
Sec. 1065.75 Plant location adjustments for producers and on nonpool
milk.
(a) The producer price differential for producer milk shall be
adjusted according to the location of the plant of actual receipt at
the rates set forth in Sec. 1065.52.
(b) For purposes of computations pursuant to Secs. 1065.71 and
1065.72, the producer price differential shall be adjusted at the rates
set forth in Sec. 1065.52 applicable at the location of the nonpool
plant from which the milk was received, except that the adjusted
producer price differential shall not be less than zero.
11. Section 1065.76 is amended by revising paragraph (a)(4) and the
third sentence of paragraph (b)(1)(ii), to read as follows:
Sec. 1065.76 Payments by handler operating a partially regulated
distributing plant.
* * * * *
(a) * * *
(4) Multiply the remaining pounds by the amount by which the Class
I differential price exceeds the producer price differential, both
prices to be applicable at the location of the partially regulated
distributing plant, with the difference to be not less than zero; and
* * * * *
(b) * * *
(1) * * *
(ii) * * * Any such transfers remaining after the above allocation
which are classified in Class I and for which a value is computed for
the handler operating the partially regulated distributing plant
pursuant to Sec. 1065.60 shall be priced at the statistical uniform
price (or at the weighted average price if such is provided) of the
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of
the nonpool plant (but not to be less than the lowest class price of
the respective order), except that transfers of reconstituted skim milk
in filled milk shall be priced at the lowest class price of the
respective order; and
* * * * *
PART 1068--MILK IN THE UPPER MIDWEST MARKETING AREA
1. Section 1068.30 is amended by revising the introductory text and
paragraphs (a) and (c) and removing paragraph (d), to read as follows:
Sec. 1068.30 Reports of receipts and utilization.
On or before the 8th day after the end of each month, each handler
shall report for such month to the market administrator, in the detail
and on the forms prescribed by the market administrator, as follows:
(a) Each handler described in Sec. 1068.9 (a), (b), and (c) shall
report for each of its operations the following information:
(1) Product pounds, pounds of butterfat, pounds of protein, and
pounds of solids-not-fat other than protein (other solids) contained in
or represented by:
(i) Receipts of producer milk, including producer milk diverted by
the handler;
(ii) Receipts of milk from handlers described in Sec. 1068.9(c);
and
(iii) Receipts by transfer or diversion of bulk fluid milk products
from pool plants;
(2) Product pounds and pounds of butterfat contained in:
(i) Receipts of fluid milk products not included in paragraph
(a)(1) of this section and bulk fluid cream products from any source;
(ii) Receipts of other source milk;
(iii) Inventories at the beginning and end of the month of fluid
milk products and products specified in Sec. 1068.40(b)(1); and
(3) The utilization or disposition of all milk, filled milk, and
milk products required to be reported pursuant to this paragraph.
* * * * *
(c) Each handler not specified in paragraphs (a) and (b) of this
section shall report with respect to its receipts and utilization of
milk, filled milk, and milk products in such manner as the market
administrator may prescribe.
2. Section 1068.31 is amended by revising paragraph (a) to read as
follows:
Sec. 1068.31 Payroll reports.
(a) On or before the 22nd day of each month, each handler described
in Sec. 1068.9 (a), (b), and (c) shall report to the market
administrator its producer payroll for such month, in the detail
prescribed by the market administrator, showing for each producer the
information described in Sec. 1068.73(f).
* * * * *
3. Section 1068.50 is amended by revising the section heading,
introductory text and paragraph (a), and adding paragraphs (e) through
(k) to read as follows:
Sec. 1068.50 Class and component prices.
Subject to the provisions of Sec. 1068.52, the class prices per
hundredweight of milk containing 3.5 percent butterfat and the
component prices for the month shall be as follows:
(a) Class I price. The Class I price shall be the basic formula
price for the second preceding month plus $1.20.
* * * * *
(e) Class I differential price. The Class I differential price
shall be the difference between the current month's Class I and Class
III prices (this price may be negative).
(f) Class II differential price. The Class II differential price
shall be the difference between the current month's Class II and Class
III prices (this price may be negative).
(g) Skim milk price. The skim milk price per hundredweight,
rounded to the nearest cent, shall be the Class III price less an
amount computed by multiplying the butterfat differential by 35.
(h) Butterfat price. The butterfat price per pound, rounded to the
nearest one-hundredth cent, shall be the Class III price plus an amount
computed by multiplying the butterfat differential by 965 and dividing
the resulting amount by one hundred.
(i) Protein price. The protein price per pound, rounded to the
nearest one-hundredth cent, shall be 1.32 times the average monthly
price per pound for 40-pound block Cheddar cheese on the National
Cheese Exchange as reported by the Department.
(j) Other solids price. Other solids are herein defined as solids-
not-fat other than protein. The other solids price per pound, rounded
to the nearest one-hundredth cent, shall be the skim milk price times
.965, less the average protein test of the basic formula price as
reported by the Department for the month times the protein price, and
dividing the resulting amount by the average other solids test of the
basic formula price as reported by the Department. If the resulting
price is less than zero, then the protein price will be reduced so that
the other solids price equals zero.
(k) Somatic cell adjustment. The somatic cell adjustment per
hundredweight shall be computed by subtracting the monthly average
somatic cell count, in thousands, of the producer's milk from 350 and
multiplying the remaining quantity by .0005 times the monthly cheddar
cheese price as defined in paragraph (i) of this section.
4. Section 1068.53 is revised to read as follows:
Sec. 1068.53 Announcement of class and component prices.
(a) On or before the 5th day of the month, the market administrator
shall announce the following prices:
(1) The Class I price for the following month;
(2) The Class III price for the preceding month;
(3) The Class III-A price for the preceding month;
(4) The skim milk price for the preceding month;
(5) The butterfat price for the preceding month;
(6) The protein price for the preceding month;
(7) The other solids price for the preceding month; and
(8) The butterfat differential for the preceding month.
(b) On or before the 15th day of the month, the market
administrator shall announce the Class II price for the following month
computed pursuant to Sec. 1068.50(b).
5. The section heading in Sec. 1068.60 and the undesignated
centerheading preceding it, the introductory text and paragraphs (a),
(f), and (g), are revised to read as follows:
Producer Price Differential
Sec. 1068.60 Handler's value of milk.
For the purpose of computing a handler's obligation for producer
milk, the market administrator shall determine for each month the value
of milk of each handler described in Sec. 1068.9 (a), (b), and (c).
(a) The handler's obligation for producer milk shall be computed as
follows:
(1) Multiply the total hundredweight of producer milk in Class I as
determined pursuant to Sec. 1068.44(c) by the Class I differential
price for the month;
(2) Add an amount obtained by multiplying the total hundredweight
of producer milk in Class II as determined pursuant to Sec. 1068.44(c)
by the Class II differential price for the month;
(3) Add an amount obtained by multiplying the hundredweight of skim
milk in Class I as determined pursuant to Sec. 1068.44(a) by the skim
milk price;
(4) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1068.44(a) by
the average protein content of producer skim milk received by the
handler, and multiplying the resulting pounds of protein by the protein
price; and
(5) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1068.44(a) by
the average other solids content of producer skim milk received by the
handler, and multiplying the resulting pounds of other solids by the
other solids price;
* * * * *
(f) Add the amount obtained from multiplying the Class I
differential price 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 Sec. 1068.43(e) and
Sec. 1068.44(a)(7)(i) and the pounds of skim milk and butterfat
subtracted from Class I pursuant to Sec. 1068.44(a)(11) and the
corresponding steps of Sec. 1068.44(b), excluding such skim milk and
butterfat in receipts of bulk 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;
(g) Subtract, for a handler described in Sec. 1068.9(c), the amount
charged the preceding month for the skim milk and butterfat contained
in inventory at the beginning of the month that was delivered to a pool
plant during the month;
* * * * *
6. Section 1068.61 is amended by revising the section heading,
introductory text, and paragraphs (a) and (e), to read as follows:
Sec. 1068.61 Producer price differential.
For each month the market administrator shall compute a producer
price differential per hundredweight of milk as follows:
(a) Combine into one total for all handlers:
(1) The estimated values computed pursuant to Sec. 1068.60 (a)(1),
(a)(2) and (b) through (j) for all handlers;
(2) Add the estimated values computed pursuant to Sec. 1068.60
(a)(3), (a)(4), and (a)(5) and subtract the values obtained by
multiplying the handlers' total pounds of protein and total pounds of
other solids contained in such milk by their respective prices; and
(3) Subtract the estimated value obtained by multiplying the
difference between the Class III price and the Class III-A price times
the pounds of product determined pursuant to Sec. 1068.43(f);
* * * * *
(e) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (d) of this section. The result
shall be the ``producer price differential'' for milk received from
producers.
7. Section 1068.62 is revised to read as follows:
Sec. 1068.62 Announcement of producer prices.
On or before the 11th day after the end of each month, the market
administrator shall announce the following prices and information:
(a) The producer price differential;
(b) The protein price;
(c) The other solids price;
(d) The butterfat price;
(e) The average protein and other solids content of producer milk;
and
(f) The statistical uniform price for milk containing 3.5 percent
butterfat, computed by combining the Class III price and the producer
price differential.
8. Section 1068.71 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1068.71 Payments to the producer-settlement fund.
(a) * * *
(2) The sum of:
(i) The value of such handler's receipts of producer milk and milk
received from a handler described in Sec. 1068.9(c). In the case of a
handler described in Sec. 1068.9(c), less the amount due from other
handlers pursuant to Sec. 1068.73(d). The value of producer milk shall
be computed as follows:
(A) An amount obtained by multiplying the total hundredweight of
producer milk by the producer price differential as adjusted pursuant
to Sec. 1068.75;
(B) An amount obtained by multiplying the total pounds of protein
contained in producer milk by the protein price;
(C) An amount obtained by multiplying the total pounds of other
solids contained in producer milk by the other solids price; and
(ii) An amount obtained by multiplying the pounds of skim milk and
butterfat for which a value was computed pursuant to Sec. 1068.60(f) by
the producer price differential as adjusted pursuant to Sec. 1068.52.
* * * * *
9. Sections 1068.73, 1068.74, and 1068.75 are revised to read as
follows:
Sec. 1068.73 Payments to producers and to cooperative associations.
Each handler shall pay for milk received from producers or
cooperative associations as follows:
(a) On or before the 25th day of the month, each handler shall pay
for skim milk and butterfat received during the first 15 days of the
month from a cooperative association:
(1) That is a handler pursuant to Sec. 1068.9(a), at not less than
the Class I price for the month at the location of the transferee or
transferor plant, whichever is higher, adjusted by the butterfat
differential for the preceding month;
(2) That is a handler pursuant to Sec. 1068.9(c), at not less than
the statistical uniform price at its plant location for the preceding
month, adjusted by the butterfat differential for the preceding month;
and
(3) That is not a handler but which is authorized to collect
payment on behalf of its member producers and has requested that
payment be made to it in aggregate, at not less than the statistical
uniform price at its plant location for the preceding month, adjusted
by the butterfat differential for the preceding month.
(b) On or before the 4th day after the end of the month, each
handler shall pay for skim milk and butterfat received during the first
15 days of the month from a producer for whom payment is not being made
pursuant to paragraph (a) of this section and who has not discontinued
shipping to such handler, at not less than the statistical uniform
price at its plant location for the preceding month, adjusted by the
butterfat differential for the preceding month.
(c) On or before the 11th day after the end of the month, each
handler shall pay for milk received during the month from a cooperative
association which is a handler pursuant to Sec. 1068.9(a) adjusted at
the location of the transferee or transferor plant, whichever is
higher, payment shall be determined as follows:
(1) The hundredweight of Class I milk received times the Class I
differential price for the month plus the pounds of Class I skim milk
times the skim milk price for the month;
(2) The hundredweight of Class II milk received times the Class II
differential price for the month;
(3) The pounds of butterfat received times the butterfat price for
the month;
(4) The pounds of protein received in Class II and Class III times
the protein price for the month;
(5) The pounds of other solids received in Class II and Class III
times the other solids price for the month;
(6) The hundredweight of milk received times the somatic cell
adjustment; and
(7) Less any payment made pursuant to paragraph (a)(1) of this
section.
(d) On or before the 18th day after the end of the month:
(1) Each handler shall make payment as described in this paragraph
to:
(i) A cooperative association that is a handler pursuant to
Sec. 1068.9(c);
(ii) A cooperative association that is not a handler but which is
authorized to collect payment on behalf of its member producers and has
requested that payment be made to it in aggregate;
(iii) A producer for whom payment is not being made pursuant to
paragraphs (d)(1)(i) and (ii) of this section.
(2) Payment shall be determined by:
(i) The hundredweight of producer milk received times the producer
price differential as adjusted pursuant to Sec. 1068.75;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month; and
(vi) Less any payment made pursuant to paragraph (a) or (b) of this
section.
(e) In making payments pursuant to paragraphs (a) (2) and (3), (b)
and (d) of this section, deductions may be made for marketing services
pursuant to Sec. 1068.86 and for any proper deductions authorized by
the producer. In the event a handler has not received full payment from
the market administrator pursuant to Sec. 1068.72 by the 18th day of
the month, he may reduce pro rata his payments to producers pursuant to
paragraph (d) of this section by not more than the amount of such
underpayment. Following receipt of the balance due from the market
administrator, the handler shall complete payments to producers not
later than the next payment date provided under this section.
(f) In making payment to individual producers as required by this
section, each handler shall furnish each producer from whom it received
milk a supporting statement, in such form that it may be retained by
the producer, which shall show:
(1) The month and the identity of the handler and producer;
(2) The total pounds of milk received from the producer;
(3) The total pounds of butterfat contained in the producer's milk;
(4) The total pounds of protein contained in the producer's milk;
(5) The total pounds of other solids contained in the producer's
milk;
(6) The somatic cell count of the producer's milk;
(7) The minimum rate or rates at which payment to the producer is
required pursuant to this section;
(8) The rate that is used in making payment if such rate is other
than the applicable minimum;
(9) The amount, or the rate per hundredweight, or rate per pound of
component, of each deduction claimed by the handler, including any
deduction claimed under Sec. 1068.86, together with a description of
the respective deductions; and
(10) The net amount of the payment to the producer.
Sec. 1068.74 Butterfat differential.
The butterfat differential, rounded to the nearest one-tenth cent,
shall be 0.138 times the butter price less 0.0028 times the average
price per hundredweight, at test, for manufacturing grade milk, f.o.b.
plants in Minnesota and Wisconsin, as reported by the Department for
the month. The butter price means the simple average for the month of
the daily prices per pound of Grade A (92 score) butter. The prices
used shall be those of the Chicago Mercantile Exchange as reported and
published weekly by the Dairy Division, Agricultural Marketing Service.
The average shall be computed by the Director of the Dairy Division
using the price reported each week as the daily price for that day and
for each following day until the next price is reported.
Sec. 1068.75 Plant location adjustments for producers and on nonpool
milk.
(a) The producer price differential for producer milk received at a
pool plant or delivered to a nonpool plant shall be adjusted according
to the location of the plant of actual receipt at the rates set forth
in Sec. 1068.52.
(b) The producer price differential applicable to other source milk
shall be reduced at the rates set forth in Sec. 1068.52, except that
the adjusted producer price differential shall not be less than zero.
10. Section 1068.76 is amended by revising paragraph (a)(4) and the
third sentence of paragraph (b)(1)(ii) to read as follows:
Sec. 1068.76 Payments by handler operating a partially regulated
distributing plant.
* * * * *
(a) * * *
(4) Multiply the remaining pounds by the amount by which the Class
I differential price exceeds the producer price differential, both
prices to be applicable at the location of the partially regulated
distributing plant, with the difference to be not less than zero; and
* * * * *
(b) * * *
(1) * * *
(ii) * * * Any such transfers remaining after the above allocation
which are classified in Class I and for which a value is computed for
the handler operating the partially regulated distributing plant
pursuant to Sec. 1068.60 shall be priced at the statistical uniform
price (or at the weighted average price if such is provided) of the
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of
the nonpool plant (but not to be less than the lowest class price of
the respective order), except that transfers of reconstituted skim milk
in filled milk shall be priced at the lowest class price of the
respective order; and
* * * * *
PART 1076--MILK IN EASTERN SOUTH DAKOTA MARKETING AREA
1. Section 1076.30 is amended by revising paragraphs (a) and (c)
and removing paragraph (d) to read as follows:
Sec. 1076.30 Reports of receipts and utilization.
* * * * *
(a) Each handler described in Sec. 1076.9 (a), (b), and (c) shall
report for each of its operations the following information:
(1) Product pounds, pounds of butterfat, pounds of protein, and
pounds of solids-not-fat other than protein (other solids) contained in
or represented by:
(i) Receipts of producer milk, including producer milk diverted by
the handler;
(ii) Receipts of milk from handlers described in Sec. 1076.9(c);
and
(iii) Receipts by transfer or diversion of bulk fluid milk products
from pool plants;
(2) Product pounds and pounds of butterfat contained in:
(i) Receipts of fluid milk products not included in paragraph
(a)(1) of this section and bulk fluid cream products from any source;
(ii) Receipts of other source milk;
(iii) Inventories at the beginning and end of the month of fluid
milk products and products specified in Sec. 1076.40(b)(1); and
(3) The utilization or disposition of all milk, filled milk, and
milk products required to be reported pursuant to this paragraph.
* * * * *
(c) Each handler not specified in paragraphs (a) and (b) of this
section shall report with respect to its receipts and utilization of
milk, filled milk, and milk products in such manner as the market
administrator may prescribe.
2. Section 1076.31 is amended by revising paragraph (a) to read as
follows:
Sec. 1076.31 Payroll reports.
(a) On or before the 20th day after the end of each month, each
handler described in Sec. 1076.9 (a), (b), and (c) shall report to the
market administrator its producer payroll for such month, in the detail
prescribed by the market administrator, showing for each producer the
information described in Sec. 1076.73(e).
* * * * *
3. Section 1076.50 is amended by revising the section heading,
introductory text and paragraph (a), adding and reserving paragraph
(d), and adding paragraphs (e), (f), (g) ,(h), (i), (j), and (k) to
read as follows:
Sec. 1076.50 Class and component prices.
Subject to the provisions of Sec. 1076.52, the class prices per
hundredweight of milk containing 3.5 percent butterfat and the
component prices for the month shall be as follows:
(a) Class I price. The Class I price for the month per
hundredweight of milk containing 3.5 percent butterfat shall be the
basic formula price for the second preceding month plus $1.50.
* * * * *
(d) [Reserved]
(e) Class I differential price. The Class I differential price
shall be the difference between the current month Class I and Class III
prices (this price may be negative).
(f) Class II differential price. The Class II differential price
shall be the difference between the current month Class II and Class
III prices (this price may be negative).
(g) Skim milk price. The skim milk price per hundredweight, rounded
to the nearest cent, shall be the Class III price less an amount
computed by multiplying the butterfat differential by 35.
(h) Butterfat price. The butterfat price per pound, rounded to the
nearest one-hundredth cent, shall be the Class III price plus an amount
computed by multiplying the butterfat differential by 965 and dividing
the resulting amount by one hundred.
(i) Protein price. The protein price per pound, rounded to the
nearest one-hundredth cent, shall be 1.32 times the average monthly
price per pound for 40-pound block Cheddar cheese on the National
Cheese Exchange as reported by the Department.
(j) Other solids price. Other solids are herein defined as solids
not fat other than protein. The other solids price per pound, rounded
to the nearest one-hundredth cent, shall be the skim milk price times
.965 less the average protein test of the basic formula price as
reported by the Department for the month times the protein price, and
dividing the resulting amount by the average other solids test of the
basic formula price as reported by the Department. If the resulting
price is less than zero, then the protein price will be reduced so that
the other solids price equals zero.
(k) Somatic cell adjustment. The somatic cell adjustment per
hundredweight shall be computed by subtracting the monthly average
somatic cell count, in thousands, of the producer's milk from 350 and
multiplying the remaining quantity by .0005 times the monthly cheddar
cheese price as defined in paragraph (i) of this section.
4. Section 1076.53 is revised to read as follows:
Sec. 1076.53 Announcement of class and component prices.
(a) On or before the 5th day of the month, the market administrator
shall announce the following prices:
(1) The Class I price for the following month;
(2) The Class III price for the preceding month;
(3) [Reserved]
(4) The skim milk price for the preceding month;
(5) The butterfat price for the preceding month;
(6) The protein price for the preceding month;
(7) The other solids price for the preceding month; and
(8) The butterfat differential for the preceding month.
(b) On or before the 15th day of the month, the market
administrator shall announce the Class II price for the following month
computed pursuant to Sec. 1076.50(b).
5. The section heading in Sec. 1076.60 and the undesignated
centerheading preceding it, the introductory text, and paragraphs (a)
and (f) are revised to read as follows:
Producer Price Differential
Sec. 1076.60 Handler's value of milk.
For the purpose of computing a handler's obligation for milk the
market administrator shall determine for each month the value of milk
of each handler described in Sec. 1076.9(a) with respect to each of its
pool plants and each handler described in Sec. 1076.9 (b) and (c).
(a) The handler's obligation for producer milk and milk received
from handler described in Sec. 1076.9(c) shall be computed as follows:
(1) Multiply the total hundredweight of milk in Class I as
determined pursuant to Sec. 1076.43(a) and Sec. 1076.44(c) by the Class
I differential price for the month;
(2) Add an amount obtained by multiplying the total hundredweight
of milk in Class II as determined pursuant to Sec. 1076.43(a) and
Sec. 1076.44(c) by the Class II differential price for the month;
(3) Add an amount obtained by multiplying the hundredweight of skim
milk in Class I as determined pursuant to Sec. 1076.44(a) by the skim
milk price;
(4) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1076.44(a) by
the average protein content of the skim milk received by the handler,
and multiplying the resulting pounds of protein by the protein price;
and
(5) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1076.44(a) by
the average other solids content of the skim milk received by the
handler, and multiplying the resulting pounds of other solids by the
other solids price;
* * * * *
(f) Add the amount obtained from multiplying the Class I
differential price 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 Sec. 1076.43(d) and
Sec. 1076.44(a)(7)(i) and the pounds of skim milk and butterfat
subtracted from Class I pursuant to Sec. 1076.44(a)(11) and the
corresponding steps of Sec. 1076.44(b), excluding such skim milk and
butterfat in receipts of bulk 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;
* * * * *
6. Section 1076.61 is amended by revising the section heading,
introductory text, and paragraphs (a) and (e), to read as follows:
Sec. 1076.61 Producer price differential.
For each month the market administrator shall compute a producer
price differential per hundredweight of milk received from producers as
follows:
(a) Combine into one total for all handlers:
(1) The values computed pursuant to Sec. 1076.60 (a)(1), (a)(2),
and (b) through (i) for all handlers;
(2) Add values computed pursuant to Sec. 1076.60 (a)(3), (a)(4),
and (a)(5) and subtract the values obtained by multiplying the
handlers' total pounds of protein and total pounds of other solids
contained in such milk by their respective prices;
* * * * *
(e) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (d) of this section. The result
shall be the ``producer price differential.''
7. Section 1076.62 is revised to read as follows:
Sec. 1076.62 Announcement of producer prices.
On or before the 12th day after the end of each month, the market
administrator shall announce the following prices and information:
(a) The producer price differential;
(b) The protein price;
(c) The other solids price;
(d) The butterfat price;
(e) The average protein and other solids content of producer milk;
and
(f) The statistical uniform price for milk containing 3.5 percent
butterfat, computed by combining the Class III price and the producer
price differential.
8. Section 1076.71 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1076.71 Payments to the producer-settlement fund.
(a)* * *
(2) The sum of:
(i) An amount obtained by multiplying the total hundredweight of
producer milk and milk received from a handler described in
Sec. 1076.9(c) by the producer price differential as adjusted pursuant
to Sec. 1076.75;
(ii) An amount obtained by multiplying the total pounds of protein
contained in producer milk and milk received from a handler described
in Sec. 1076.9(c) by the protein price;
(iii) An amount obtained by multiplying the total pounds of other
solids contained in producer milk and milk received from a handler
described in Sec. 1076.9(c) by the other solids price; and
(iv) An amount obtained by multiplying the pounds of skim milk and
butterfat for which a value was computed pursuant to Sec. 1076.60(f) by
the producer price differential as adjusted pursuant to Sec. 1076.52.
* * * * *
Sec. 1076.72 [Amended]
9. Section 1076.72 is amended by removing the last sentence.
10. Section 1076.73 is amended by revising paragraphs (a), (c), (d)
and (e) to read as follows:
Sec. 1076.73 Payments to producers and to cooperative associations.
(a) Each handler shall pay each producer for milk received from
producers for which payment is not made to a cooperative association
pursuant to paragraph (b) or (c) of this section as follows:
(1) On or before the last day of each month, for producer milk
received during the first 15 days of the month at a rate per
hundredweight not less than the Class III price for the preceding
month; and
(2) On or before the 18th day after the end of the month, payment
for producer milk received during such month shall not be less than the
sum of:
(i) The hundredweight of producer milk received times the producer
price differential as adjusted pursuant to Sec. 1076.75;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month;
(vi) Less any payment made pursuant to paragraph (a)(1) of this
section;
(vii) Less proper deductions authorized in writing by such producer
and plus or minus adjustments for errors in previous payments made to
such producer;
(viii) Less deductions for marketing services pursuant to
Sec. 1076.86; and
(ix) If by such date the handler has not received full payment from
the market administrator pursuant to Sec. 1076.72 for such month, it
may reduce pro rata its payment to producers by not more than the
amount of such underpayment. Payment to producers shall be completed
thereafter not later than the date for making payments pursuant to this
paragraph next following receipt of the balance due from the market
administrator.
* * * * *
(c) Each handler shall pay a cooperative association for milk
received by the handler from a cooperative association acting as a
handler described in Sec. 1076.9(c) as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the 28th day
of the month during which the milk was received at a rate per
hundredweight not less than the statistical uniform price computed
pursuant to Sec. 1076.62(f) for the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 15th day after the end of the
month during which the milk was received as follows:
(i) The hundredweight of milk received times the producer price
differential applicable at the location of the receiving handler's
plant;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month; and
(vi) Less any payment made pursuant to paragraph (c)(1) of this
section.
(d) Each handler shall pay a cooperative association for fluid milk
products received by transfer from pool plant(s) operated by the
cooperative association as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the 28th day
of the month during which the milk was received at a rate per
hundredweight not less than the statistical uniform price computed
pursuant to Sec. 1076.62(f) for the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 15th day after the end of the
month during which the milk was received, as follows:
(i) The hundredweight of Class I milk received times the Class I
differential price for the month applicable at the transferee plant,
plus the pounds of Class I skim milk times the skim milk price for the
month;
(ii) The hundredweight of Class II milk received times the Class II
differential price for the month,
(iii) The pounds of butterfat received times the butterfat price
for the month;
(iv) The pounds of protein received in Class II and Class III times
the protein price for the month;
(v) The pounds of other solids received in Class II and Class III
times the other solids price for the month;
(vi) The hundredweight of milk received times the somatic cell
adjustment; and
(vii) Less any payment made pursuant to paragraph (d)(1) of this
section.
(e) In making payments for producer milk pursuant to paragraph
(a)(2) or (b)(2) of this section, each handler shall furnish each
producer or cooperative association to whom such payment is made a
supporting statement in such form that it may be retained by the
recipient which shall show:
(1) The month and the identity of the producer;
(2) The daily and total pounds for each producer;
(3) The total pounds of butterfat contained in the producer's milk;
(4) The total pounds of protein contained in the producer's milk;
(5) The total pounds of other solids contained in the producer's
milk;
(6) The somatic cell count of the producer's milk;
(7) The minimum rate or rates which payment to the producer is
required pursuant to this order;
(8) The rate that is used in making payment if such rate is other
than the applicable minimum rate;
(9) The amount, or the rate per hundredweight, or rate per pound of
component, and the nature of each deduction claimed by the handler; and
(10) The net amount of payment to such producer or cooperative.
11. Sections 1076.74 and 1076.75 are revised to read as follows:
Sec. 1076.74 Butterfat differential.
The butterfat differential, rounded to the nearest one-tenth cent,
shall be 0.138 times the butter price less 0.0028 times the average
price per hundredweight, at test, for manufacturing grade milk, f.o.b.
plants in Minnesota and Wisconsin, as reported by the Department for
the month. The butter price means the simple average for the month of
the daily prices per pound of Grade A (92 score) butter. The prices
used shall be those of the Chicago Mercantile Exchange as reported and
published weekly by the Dairy Division, Agricultural Marketing Service.
The average shall be computed by the Director of the Dairy Division
using the price reported each week as the daily price for that day and
for each following day until the next price is reported.
Sec. 1076.75 Plant location adjustments for producers and on nonpool
milk.
(a) The producer price differential for producer milk shall be
adjusted according to the location of the plant of actual receipt at
the rates set forth in Sec. 1076.52; and
(b) For the purpose of computations pursuant to Secs. 1076.71 and
1076.72 the producer price differential shall be adjusted at the rates
set forth in Sec. 1076.52 applicable at the location of the nonpool
plant from which the milk was received, except that the adjusted
producer price differential shall not be less than zero.
12. Section 1076.76 is amended by revising paragraphs (a)(4) and
the last sentence of (b)(1)(ii) to read as follows:
Sec. 1076.76 Payments by handler operating a partially regulated
distributing plant.
* * * * *
(a)* * *
(4) Multiply the remaining pounds by the amount by which the Class
I differential price exceeds the producer price differential, both
price to be applicable at the location of the partially regulated
distributing plant, with the difference to be not less than zero; and
* * * * *
(b)* * *
(1)* * *
(ii)* * * Any such transfers remaining after the above allocation
which are classified in Class I and for which a value is computed for
the handler operating the partially regulated distributing plant
pursuant to Sec. 1076.60 shall be priced at the statistical uniform
price (or at the weighted average price if such is provided) of the
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of
the nonpool plant (but not to be less than the lowest class price of
the respective order), except that transfers of reconstituted skim milk
in filled milk shall be priced at the lowest class price of the
respective order; and
* * * * *
PART 1079--MILK IN THE IOWA MARKETING AREA
1. Section 1079.30 is amended by revising paragraphs (a) and (c)
and removing paragraph (d), to read as follows:
Sec. 1079.30 Reports of receipts and utilization.
* * * * *
(a) Each handler described in Sec. 1079.9(a), (b), and (c) shall
report for each of its operations the following information:
(1) Product pounds, pounds of butterfat, pounds of protein, and
pounds of solids-not-fat other than protein (other solids) contained in
or represented by:
(i) Receipts of producer milk, including producer milk diverted by
the handler;
(ii) Receipts of milk from handlers described in Sec. 1079.9(c);
and
(iii) Receipts by transfer or diversion of bulk fluid milk products
from pool plants;
(2) Product pounds and pounds of butterfat contained in:
(i) Receipts of fluid milk products not included in paragraph
(a)(1) of this section and bulk fluid cream products from any source;
(ii) Receipts of other source milk;
(iii) Inventories at the beginning and end of the month of fluid
milk products and products specified in Sec. 1079.40(b)(1); and
(3) The utilization or disposition of all milk, filled milk, and
milk products required to be reported pursuant to this paragraph.
* * * * *
(c) Each handler not specified in paragraphs (a) and (b) of this
section shall report with respect to its receipts and utilization of
milk, filled milk, and milk products in such manner as the market
administrator may prescribe.
2. Section 1079.31 is amended by revising paragraph (a) to read as
follows:
Sec. 1079.31 Payroll reports.
(a) On or before the 22nd day after the end of each month, each
handler described in Sec. 1079.9(a), (b), or (c) shall report to the
market administrator its producer payroll for such month in the detail
prescribed by the market administrator, showing for each producer the
information described in Sec. 1079.73(e).
* * * * *
3. Section 1079.50 is amended by revising the section heading,
introductory text and paragraph (a), and adding paragraphs (e) through
(k) to read as follows:
Sec. 1079.50 Class and component prices.
Subject to the provisions of Sec. 1079.52, the class prices per
hundredweight of milk containing 3.5 percent butterfat and the
component prices for the month shall be as follows:
(a) Class I price. The Class I price for the month per
hundredweight of milk containing 3.5 percent butterfat shall be the
basic formula price for the second preceding month plus $1.55.
* * * * *
(e) Class I differential price. The Class I differential price
shall be the difference between the current month Class I and Class III
prices (this price may be negative).
(f) Class II differential price. The Class II differential price
shall be the difference between the current month Class II and Class
III prices (this price may be negative).
(g) Skim milk price. The skim milk price per hundredweight, rounded
to the nearest cent, shall be the Class III price less an amount
computed by multiplying the butterfat differential by 35.
(h) Butterfat price. The butterfat price per pound, rounded to the
nearest one-hundredth cent, shall be the Class III price plus an amount
computed by multiplying the butterfat differential by 965 and dividing
the resulting amount by one hundred.
(i) Protein price. The protein price per pound, rounded to the
nearest one-hundredth cent, shall be 1.32 times the average monthly
price per pound for 40-pound block Cheddar cheese on the National
Cheese Exchange as reported by the Department.
(j) Other solids price. Other solids are herein defined as solids
not fat other than protein. The other solids price per pound, rounded
to the nearest one-hundredth cent, shall be the skim milk price times
.965, less the average protein test of the basic formula price as
reported by the Department for the month times the protein price, and
dividing the resulting amount by the average other solids test of the
basic formula price as reported by the Department. If the resulting
price is less than zero, then the protein price will be reduced so that
the other solids price equals zero.
(k) Somatic cell adjustment. The somatic cell adjustment per
hundredweight shall be computed by subtracting the monthly average
somatic cell count, in thousands, of the producer's milk from 350 and
multiplying the remaining quantity by .0005 times the monthly cheddar
cheese price as defined in paragraph (i) of this section.
4. Section 1079.53 is revised to read as follows:
Sec. 1079.53 Announcement of class and component prices.
(a) On or before the 5th day of the month, the market administrator
shall announce the following prices:
(1) The Class I price for the following month;
(2) The Class III price for the preceding month;
(3) The Class III-A price for the preceding month;
(4) The skim milk price for the preceding month;
(5) The butterfat price for the preceding month;
(6) The protein price for the preceding month;
(7) The other solids price for the preceding month; and
(8) The butterfat differential for the preceding month.
(b) On or before the 15th day of the month, the market
administrator shall announce the Class II price for the following month
computed pursuant to Sec. 1079.50(b).
5. The section heading in Sec. 1079.60 and the undesignated
centerheading preceding it, the introductory text, and paragraphs (a),
(f), and (g), are revised to read as follows:
Producer Price Differential
Sec. 1079.60 Handler's value of milk.
For the purpose of computing a handler's obligation for milk the
market administrator shall determine for each month the value of milk
of each handler described in Sec. 1079.9(a) with respect to each of its
pool plants, and each handler described in Sec. 1079.9 (b) and (c).
(a) The handler's obligation for producer milk and milk received
from a handler described in Sec. 1079.9(c) shall be computed as
follows:
(1) Multiply the total hundredweight of milk in Class I as
determined pursuant to Sec. 1079.43(a) and Sec. 1079.44(c) by the Class
I differential price for the month;
(2) Add an amount obtained by multiplying the total hundredweight
of milk in Class II as determined pursuant to Sec. 1079.43(a) and
Sec. 1079.44(c) by the Class II differential price for the month;
(3) Add an amount obtained by multiplying the hundredweight of skim
milk in Class I as determined pursuant to Sec. 1079.44(a) by the skim
milk price;
(4) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1079.44(a) by
the average protein content of the skim milk received by the handler,
and multiplying the resulting pounds of protein by the protein price;
and
(5) Add an amount obtained by multiplying the pounds of skim milk
in Class II and Class III as determined pursuant to Sec. 1079.44(a) by
the average other solids content of the skim milk received by the
handler, and multiplying the resulting pounds of other solids by the
other solids price;
* * * * *
(f) Add the amount obtained from multiplying the Class I
differential price 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 Sec. 1079.43(d) and
Sec. 1079.44(a)(7)(i) and the pounds of skim milk and butterfat
subtracted from Class I pursuant to Sec. 1079.44(a)(11) and the
corresponding steps of Sec. 1079.44(b), excluding such skim milk and
butterfat in receipts of bulk 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;
(g) Subtract for a handler described in Sec. 1079.9(c) the amount
charged the preceding month for the skim milk and butterfat contained
in inventory at the beginning of the month that was delivered to a pool
plant during the month;
* * * * *
6. Section 1079.61 is amended by revising the heading, introductory
text, and paragraphs (a) and (e) to read as follows:
Sec. 1079.61 Producer price differential.
For each month the market administrator shall compute a producer
price differential per hundredweight for Zone 1. If the unreserved cash
balance in the producer settlement fund to be included in the
computation is less than 2 cents per hundredweight of producer milk on
all reports, the report of any handler who has not made the payments
required pursuant to Sec. 1079.71 for the preceding month shall not be
included in the computation of the producer price differential. The
report of such handler shall not be included in the computation for
succeeding months until he has made full payment of outstanding monthly
obligations. Subject to the aforementioned conditions, the market
administrator shall compute the producer price differential in the
following manner:
(a) Combine into one total for all handlers:
(1) The values computed pursuant to Sec. 1079.60 (a)(1), (a)(2),
and (b) through (j) for all handlers;
(2) Add values computed pursuant to Sec. 1079.60 (a)(3), (a)(4),
and (a)(5) and subtract the values obtained by multiplying the
handlers' total pounds of protein and total pounds of other solids
contained in such milk by their respective prices; and
(3) Subtract the value obtained by multiplying the difference
between the Class III price and the Class III-A price times the pounds
of product determined pursuant to Sec. 1079.43(e);
* * * * *
(e) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (d) of this section. The result
shall be known as the ``producer price differential.''
7. Section 1079.62 is revised to read as follows:
Sec. 1079.62 Announcement of producer prices.
On or before the 12th day after the end of each month, the market
administrator shall announce the following prices and information:
(a) The producer price differential;
(b) The protein price;
(c) The other solids price;
(d) The butterfat price;
(e) The average protein and other solids content of producer milk;
and
(f) The statistical uniform price for milk containing 3.5 percent
butterfat, computed by combining the Class III price and the producer
price differential.
8. Section 1079.71 is amended by revising paragraph (a)(2) and
adding and reserving paragraph (b), to read as follows:
Sec. 1079.71 Payments to the producer-settlement fund.
(a) * * *
(2) The sum of:
(i) An amount obtained by multiplying the total hundredweight of
producer milk and milk received from a handler described in
Sec. 1079.9(c) by the producer price differential as adjusted by
Sec. 1079.75. In the case of a handler described in Sec. 1079.9(c),
less the amount due from handlers pursuant to Sec. 1079.73;
(ii) An amount obtained by multiplying the total pounds of protein
contained in producer milk and milk received from a handler described
in Sec. 1079.9(c) by the protein price;
(iii) An amount obtained by multiplying the total pounds of other
solids contained in producer milk and milk received from a handler
described in Sec. 1079.9(c) by the other solids price; and
(iv) An amount obtained by multiplying the pounds of skim milk and
butterfat for which a value was computed pursuant to Sec. 1079.60(f) by
the producer price differential as adjusted pursuant to Sec. 1079.52.
(b) [Reserved]
9. Sections 1079.73, 1079.74 and 1079.75 are revised to read as
follows:
Sec. 1079.73 Payments to producers and to cooperative associations.
(a) Each handler shall pay for milk received from producers for
which payment is not made to a cooperative association pursuant to
paragraph (b) or (c) of this section as follows:
(1) On or before the last day of each month, to each producer who
has not discontinued shipping milk to such handler before the end of
the month, for producer milk received during the first 15 days of the
month at a rate per hundredweight not less than the statistical uniform
price computed pursuant to Sec. 1079.62(f) for the preceding month and
adjusted pursuant to Sec. 1079.75, less proper deductions authorized in
writing by such producer; and
(2) On or before the 18th day after the end of the month, payment
for producer milk received during such month shall not be less than the
sum of:
(i) The hundredweight of producer milk received times the producer
price differential adjusted pursuant to Sec. 1079.75;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month;
(vi) Less any payment made pursuant to paragraph (a)(1) of this
section;
(vii) Less proper authorized deductions authorized in writing by
such producer and plus or minus adjustments for errors in previous
payments made to such producer;
(viii) Less deductions for marketing services pursuant to
Sec. 1079.86; and
(ix) If by such date the handler has not received full payment from
the market administrator pursuant to Sec. 1079.72 for such month, it
may reduce pro rata its payment to producers by not more than the
amount of such underpayment. Payment to producers shall be completed
thereafter not later than the date for making payments pursuant to this
paragraph next following receipt of the balance due from the market
administrator.
(b) Each handler shall pay a cooperative association as follows for
milk received from producers if the cooperative association has filed a
written request for payment with the handler and if the market
administrator has determined that such cooperative association is
authorized to collect payment:
(1) On or before the last day of the month, an amount not less than
the sum of the individual payments otherwise payable to producers
pursuant to paragraph (a)(1) of this section, less any deductions
authorized in writing by such cooperative association; and
(2) On or before the 18th day after the end of each month an amount
not less than the sum of the individual payments otherwise payable to
producers pursuant to paragraph (a)(2) of this section, less proper
deductions authorized in writing by such cooperative association.
(c) Each handler shall pay a cooperative association for milk
received by the handler from a cooperative association acting as a
handler described in Sec. 1079.9(c) as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the last day
of the month during which the milk was received at a rate per
hundredweight not less than the statistical uniform price computed
pursuant to Sec. 1079.62(f), applicable at the location of the
receiving handler's plant, for the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 18th day after the end of the
month during which the milk was received as follows:
(i) The hundredweight of milk received times the producer price
differential applicable at the location of the receiving handler's
plant;
(ii) The pounds of butterfat received times the butterfat price for
the month;
(iii) The pounds of protein received times the protein price for
the month;
(iv) The pounds of other solids received times the other solids
price for the month;
(v) The hundredweight of milk received times the somatic cell
adjustment for the month; and
(vi) Less any payment made pursuant to paragraph (c)(1) of this
section.
(d) Each handler shall pay a cooperative association for fluid milk
products received by transfer from pool plant(s) operated by a
cooperative association as follows:
(1) For milk received during the first 15 days of the month, the
handler shall pay the cooperative association on or before the last day
of the month during which the milk was received at a rate per
hundredweight not less than the statistical uniform price computed
pursuant to Sec. 1079.62(f), applicable at the transferee plant, for
the preceding month; and
(2) For milk received during the month the handler shall pay the
cooperative association on or before the 18th day after the end of the
month during which the milk was received, as follows:
(i) The hundredweight of Class I milk received times the Class I
differential price for the month applicable at the transferee plant,
plus the pounds of Class I skim milk times the skim milk price for the
month;
(ii) The hundredweight of Class II milk received times the Class II
differential price for the month;
(iii) The pounds of butterfat received times the butterfat price
for the month;
(iv) The pounds of protein received in Class II and Class III times
the protein price for the month;
(v) The pounds of other solids received in Class II and Class III
times the other solids price for the month;
(vi) The hundredweight of milk received times the somatic cell
adjustment; and
(vii) Less any payment made pursuant to paragraph (d)(1) of this
section.
(e) In making payments for producer milk pursuant to paragraph
(a)(2) or (b)(2) of this section, each handler shall furnish each
producer or cooperative association to whom such payment is made a
supporting statement in such form that it may be retained by the
recipient which shall show:
(1) The month and the identity of the producer;
(2) The daily and total pounds for each producer;
(3) The total pounds of butterfat contained in the producer's milk;
(4) The total pounds of protein contained in the producer's milk;
(5) The total pounds of other solids contained in the producer's
milk;
(6) The somatic cell count of the producer's milk;
(7) The minimum rate or rates at which payment to the producer is
required pursuant to this order;
(8) The rate that is used in making payment if such rate is other
than the applicable minimum rate;
(9) The amount, rate per hundredweight, or rate per pound of
component, and the nature of each deduction claimed by the handler; and
(10) The net amount of payment to such producer or cooperative.
Sec. 1079.74 Butterfat differential.
The butterfat differential, rounded to the nearest one-tenth cent,
shall be 0.138 times the butter price less 0.0028 times the average
price per hundredweight, at test, for manufacturing grade milk, f.o.b.
plants in Minnesota and Wisconsin, as reported by the Department for
the month. The butter price means the simple average for the month of
the daily prices per pound of Grade A (92 score) butter. The prices
used shall be those of the Chicago Mercantile Exchange as reported and
published weekly by the Dairy Division, Agricultural Marketing Service.
The average shall be computed by the Director of the Dairy Division
using the price reported each week as the daily price for that day and
for each following day until the next price is reported.
Sec. 1079.75 Plant location adjustments for producers and on nonpool
milk.
(a) The producer price differential for producer milk pursuant to
Sec. 1079.61 received at a pool plant or diverted from a pool plant
shall be reduced according to the location of the plant of actual
receipt at the rates set forth in Sec. 1079.52.
(b) For purposes of computations pursuant to Secs. 1079.71 and
1079.72 the producer price differential shall be adjusted at the rates
set forth in Sec. 1079.52 applicable at the location of the nonpool
plant from which the milk was received, except that the adjusted
producer price differential shall not be less than zero.
10. Section 1079.76 is amended by revising paragraph (a)(4) and the
last sentence of paragraph (b)(1)(ii) to read as follows:
Sec. 1079.76 Payments by handler operating a partially regulated
distributing plant.
* * * * *
(a) * * *
(4) Multiply the remaining pounds by the amount by which the Class
I differential price exceeds the producer price differential, both
prices to be applicable at the location of the partially regulated
distributing plant, with the difference to be not less than zero; and
* * * * *
(b) * * *
(1) * * *
(ii) * * * Any such transfers remaining after the above allocation
which are classified in Class I and for which a value is computed for
the handler operating the partially regulated distributing plant
pursuant to Sec. 1079.60 shall be priced at the statistical uniform
price (or at the weighted average price if such is provided) of the
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of
the nonpool plant (but not to be less than the lowest class price of
the respective order), except that transfers of reconstituted skim milk
in filled milk shall be priced at the lowest class price of the
respective order; and
* * * * *
Dated: October 25, 1994.
Lon Hatamiya,
Administrator.
[FR Doc. 94-26906 Filed 11-1-94; 8:45 am]
BILLING CODE 3410-02-P
