[Federal Register Volume 59, Number 36 (Wednesday, February 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3502]


[[Page Unknown]]

[Federal Register: February 23, 1994]


                                                    VOL. 59, NO. 36

                                       Wednesday, February 23, 1994
=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1124 and 1135

[Docket Nos. AO-368-A21, AO-380-A11; DA-92-07]

 

Milk in the Pacific Northwest and Southwestern Idaho-Eastern 
Oregon Marketing Area; Decision on Proposed Amendments to Tentative 
Marketing Agreements and to Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This decision adopts a proposal for pricing milk on the basis 
of nonfat solids and protein, in addition to butterfat, for the Pacific 
Northwest and Southwestern Idaho-Eastern Oregon marketing orders, 
respectively. In addition, it reduces the supply plant shipping 
percentage for the Pacific Northwest order and modifies the producer-
handler regulation to permit a State institution with outside 
distribution to purchase an average of 1,000 pounds of milk per day 
from pool plants. The decision denies a proposal to change location 
adjustments in Yakima County, Washington.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist, 
USDA/AMS/Dairy Division, Order Formulation Branch, Room 2968, South 
Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932.

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 action 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.
    These proposed amendments have been reviewed under Executive Order 
12278, Civil Justice Reform. This action is not intended to have 
retroactive effect, nor will it preempt any state or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with the rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674) (the Act), provides that administrative proceedings 
must be exhausted before parties may file suit in court. Under section 
8c(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 entry of the ruling.

Prior Documents in This Proceeding

    Notice of Hearing: Issued July 31, 1992; published August 6, 1992 
(57 FR 34694).
    Recommended Decision: Issued October 7, 1993; published October 15, 
1993 [58 FR 53439].

Preliminary Statement

    A public hearing was held to consider proposed amendments to the 
marketing agreements and the orders regulating the handling of milk in 
the Pacific Northwest (Order 1124) and Southwestern Idaho-Eastern 
Oregon (Order 1135) marketing areas. The hearing was held pursuant to 
the provisions of the Act and the applicable rules of practice and 
procedure governing the formulation of marketing agreements and 
marketing orders (7 CFR part 900) in Portland, Oregon, on September 9 
and 10, 1992.
    Upon the basis of the evidence introduced at the hearing and the 
record thereof, the Acting Administrator, on October 7, 1993, issued a 
recommended decision containing notice of the opportunity to file 
written exceptions thereto.
    The material issues, findings and conclusions, rulings, and general 
findings of the recommended decision are hereby approved and adopted 
and are set forth in full herein, subject to the following 
modifications:
    1. One paragraph is added at the conclusion of the discussion of 
Issue No. 1, and paragraphs 41-42 are modified.
    2. One paragraph is added at the conclusion of the discussion of 
Issue No. 2.
    3. One paragraph is added at the conclusion of the discussion of 
Issue No. 3.
    4. Under Issue No. 4, the sixth-to-last, third-to-last, and last 
paragraphs are revised, the second-to-last paragraph is deleted, and a 
new paragraph is added at the conclusion of the discussion.
    The material issues on the record of the hearing relate to:
    1. Multiple component pricing of milk under both orders.
    2. Performance standards for supply plants under the Pacific 
Northwest order.
    3. Status of a milk plant operated by a state institution under the 
Pacific Northwest order.
    4. Plant location adjustments for Yakima County, Washington, under 
the Pacific Northwest order.

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. Multiple component pricing of milk under the Pacific Northwest 
and Southwestern Idaho-Eastern Oregon orders.
    The Pacific Northwest and Southwestern Idaho-Eastern Oregon orders 
should be amended to provide for multiple component pricing of Class II 
and Class III (including Class III-A) milk to handlers and for 
establishing minimum pay prices to producers. Under the Pacific 
Northwest order, the components to be priced will be nonfat milk solids 
and butterfat. Under the Southwestern Idaho-Eastern Oregon order, the 
components to be priced will be protein and butterfat.
    Multiple component pricing for both orders was proposed by Darigold 
Farms, and Western Dairymen Cooperative, Inc., joined as a co-proponent 
for the Southwestern Idaho-Eastern Oregon proposal. The basic thrust of 
the proposal was that it was time to change the way milk is priced 
under both orders such that the pricing system would send a clear 
economic signal to producers as to which milk components are in the 
greatest demand and which ones have the greatest economic value in the 
marketplace.
    Two witnesses testified on behalf of Darigold. One witness 
testified extensively on the general concept of multiple component 
pricing. He stated that the current pricing system, which is based on 
the value of butterfat and skim milk, does not reflect changes that 
have occurred over time in the value of certain milk components. In his 
view, the current system is based on market conditions that prevailed 
more than 50 years ago.
    The current system, in his opinion, simply encourages producers to 
increase the volume of skim milk produced without regard to the content 
of such milk.
    The Darigold witness indicated that under the current pricing 
system, given the current levels of milk prices and fat differentials, 
one pound of protein, lactose, other solids, or even milk water is now 
valued at somewhere between nine and ten cents per pound. Thus, the 
price of one pound of butterfat is about equal to the value attributed 
to one gallon of milk water. He also indicated that one pound of 
butterfat is said to be worth seven to eight times as much as one pound 
of milk protein, even though that appears to be unreasonable. He 
maintained that these unrealistic price comparisons are nonetheless 
actual measurements of the incentives that dairymen are expected to 
respond to under present regulations when they plan their breeding and 
production activities. He further indicated his strong belief that the 
present system stands in the way of achieving optimum efficiency. Thus, 
he urged the adoption of multiple component pricing wherein the 
marketplace values of various milk components will be reflected in 
pricing milk to handlers and to producers. In this way, consumers' 
demands and preferences for milk and other dairy products can be 
translated into real signals that indicate to producers the milk 
components consumers want and are willing to pay for.
    A second witness spoke on behalf of Darigold Farms, Western 
Dairymen Cooperative, Inc., Farmers Cooperative Creamery, Northwest 
Independent Milk Producers Association, Tillamook County Creamery 
Association, and Magic Valley Quality Milk Producers, Inc. He indicated 
that in July 1991 these cooperatives represented 88 percent of the 
producers for the Pacific Northwest market (Order 124) and 84 percent 
of producers for the Southwestern Idaho-Eastern Oregon market (Order 
135). This witness discussed how the proposed multiple component 
pricing (MCP) system would work, why it should be adopted, and the form 
it should take for these two markets. He stated that in order for a MCP 
program to work well it needed to be mandatory under the Federal order. 
Currently, just over 90 percent of the producers for Order 124 and just 
over 88 percent of the producers for Order 135 are eligible to receive 
some component pricing premium. He further stated that the premium 
programs result from inadequacies inherent in the current butterfat and 
skim pricing programs.
    The witness indicated that another reason why MCP is needed is 
because of increasing interest by consumers in their diet, especially 
noting concerns about cholesterol and fat levels in dairy products. He 
said that consumers now prefer milk products with lower fat content. He 
went on to say that over the years there has been a general emphasis on 
the value of fat, but that so far there has been only a general offset 
of this as values of the nonfat fluid portion of milk, which is largely 
water, have increased. He stated that the values of specific nonfat 
components should be recognized and increased so that consumer 
preferences could be more directly translated into indicating the milk 
components that dairy farmers should be producing for the market. MCP 
would achieve this and at the same time promote more orderly marketing 
for both producers and handlers, according to Darigold's spokesman.
    Darigold's witness stated that MCP would contribute to orderly 
marketing by providing more equity among plants making Class II and 
Class III products because their raw milk costs would be more uniform. 
Also, marketing organizations would have more options in marketing 
individual loads of milk. He explained that plants would be less 
reluctant to receive a low-testing load of milk because they would pay 
only for the components received rather than for water that must be 
removed from the milk. He said that, in turn, producers in effect will 
have more options in choosing marketing organizations or plants to take 
their milk.
    The witness also pointed to the changing relationship over time 
between the values of the butterfat and skim portions of milk. For 
example, he noted that during the 1960's butterfat accounted for about 
75 percent of the total value of milk, while the skim value was only 
about 25 percent. Currently, over 70 percent of the total value of milk 
is associated with the skim component because over time the value of 
butterfat has declined and the Commodity Credit Corporation has changed 
the support prices of butter and nonfat dry milk. He expected that the 
trend to lower fat values will continue.
    The proposed MCP program was modeled after the one now in effect in 
the Great Basin Federal milk order. It was chosen because it would 
maintain the current Class I price structure, while applying MCP to 
Class II and Class III uses of milk where there is a direct 
relationship between the component content of raw milk and its yield of 
manufactured milk products.
    Because the principal product manufactured from milk not needed for 
Class I or Class II uses in the Order 124 market is nonfat dry milk, 
the proponents proposed that the MCP program for that market should be 
based on butterfat and nonfat milk solids. On the other hand, in the 
Order 135 market the principal use for surplus milk is in hard cheeses. 
For that reason, the proponents proposed that the MCP program for that 
order should be based on butterfat and protein.
    As proposed, MCP would not apply to Class I milk, which would 
continue to be priced to handlers as it now is. Handlers would account 
for the components (butterfat and nonfat milk solids or protein) used 
in Class II and Class III at prices per pound as specified in the 
order. Each producer would be paid a weighted average of the Class I 
and Class II differentials, plus the value per pound for the components 
in the producer's milk.
    Butterfat would be priced on a per-pound basis. The butterfat 
price, as proposed, would be the sum of the skim milk value (based on 
the basic formula price) divided by 100 plus the butterfat differential 
for the month multiplied by 10.
    The prices per pound for nonfat solids or protein, as the case may 
be, would be determined by subtracting from the basic formula price the 
value of the butterfat, and dividing the remainder by the market 
average test for nonfat milk solids or protein in producer milk for the 
current month.
    There were three proposed modifications for determining the value 
of the components other than butterfat. One, advocated by a spokesman 
for Kraft General Foods, would use the average component values (tests) 
of the milk included in the survey of pay prices that make up the 
Minnesota-Wisconsin (M-W) estimated price for manufacturing grade milk. 
The M-W price is the basic formula price for the orders. According to 
the Kraft witness, use of the M-W milk component tests would provide 
uniformity of component prices among orders, whereas using market 
average tests could result in component prices that were not uniform 
among orders. Darigold's witness indicated that Darigold would accept 
this approach.
    A second modification was advanced by the witness for Northwest 
Independent Milk Producers (NWI). As proposed, the Class III milk price 
would be a formula price based on the prices for 40-pound blocks of 
cheddar cheese, plus a value for whey cream, minus the make allowance 
used by the Commodity Credit Corporation. The proponent claimed that 
the current Class III price (the M-W price) may be reflective of cheese 
production and manufacturing in Minnesota and Wisconsin, but is totally 
out of sync. with the real market situation in the Pacific Northwest 
region. The proposed Class III price is needed to improve the 
competitive relationship between cheesemakers in the Northwest and 
those in California, according to the proponent.
    NWI also proposed that the basic formula price provision should be 
amended by adding the words ``or $12.10 per hundredweight, whichever is 
higher for the month.'' In the view of NWI's witness, this proposal 
would decouple Class I prices from the radical price fluctuations that 
have occurred.
    A witness for Swiss Village Cheese, a proprietary bulk tank handler 
under Order 135, supported MCP for that market. The witness stated that 
the failure to recognize varying protein tests for raw milk produces a 
great inequity in the Federal milk order pricing system and sends the 
wrong economic message to producers. He noted that the August 1992 M-W 
price of $12.54 per hundredweight yields a skim milk price of $10.09 
with a seven cents butterfat differential. The $10.09 figure is the 
same, regardless of the protein content of the milk.
    This being the case, he said, the value of a pound of protein thus 
varies as the test varies. If milk tests 4 percent protein, dividing 
the $10.09 by 4 yields a value per pound of $2.52. However, if the test 
is only 3 percent, the per-pound value is $3.36, or a difference of 84 
cents. Thus, when a cheese plant wants the lowest-priced protein, it 
would want to attract the highest testing milk. In order to attract 
high-testing milk, cheese plant operators pay producers protein 
premiums or base their price on a cheese yield formula. He stressed 
that plants can pay a premium over the Federal order price, but cannot 
lower the price to a producer below the minimum Federal order price 
based on butterfat content. In his view, this causes handlers or cheese 
plants to play a price averaging game, which results in producers of 
low-testing milk getting paid more than their milk is worth, while 
producers of high-testing milk are paid less than their milk is worth. 
Adoption of multiple component pricing would correct this situation and 
provide a basis for making economically correct decisions at both the 
dairy farm and the plant, he concluded.
    The Swiss Village Cheese representative presented what he believes 
are important factors regarding the future of the dairy industry in 
Idaho, and in the West in general. He indicated that: (1) Herd size 
will be large; (2) production per cow will be high; (3) total milk 
production increases will exceed population increases; (4) nearly all 
of the increased production will be used to make cheese; and (5) most 
of this ``new'' cheese will be sold to consumers in the East. In view 
of these factors, the witness proposed modifications to the MCP plan 
proposed for Order 135.
    The first proposed modification would use the protein test for milk 
that is included in estimating the M-W price. The second modification 
proposes adjusting the M-W price for a transportation differential 
(minus 10 cents) prior to determining the protein price. This proposal 
is based on the belief that the market for additional quantities of 
cheese produced in Idaho will be population centers in the eastern 
United States. Therefore, a price adjustment is warranted, in the view 
of this witness, because the cheese produced in Idaho will have to be 
moved long distances to find customers, and a lower price would help 
Idaho cheese plants be more competitive with California cheese plants.
    A third proposed modification by the Swiss Village Cheese witness 
called for giving milk buyers the right to reduce a producer's payment 
if the producer's milk had a high somatic cell count. He testified that 
cheese yields and cheese quality both suffer when raw milk has somatic 
cell counts above 300,000 per milliliter.The money deducted from 
payments for milk with a high somatic cell count would be returned to 
other producers in the pool whose milk had lower somatic cell counts.
    A witness for Avonmore West, a handler under Order 135, testified 
in support of MCP and urged also that if MCP is adopted, the pricing 
must recognize the relationship of somatic cells to the true value of 
protein in the milk. The witness cited the Recommended Decision (57 FR 
36536) to adopt MCP in the Ohio Valley, Eastern Ohio-Western 
Pennsylvania, and Indiana orders. The Recommended Decision in that 
proceeding adopted MCP for the three orders and included adjustments 
for somatic cells both in prices paid to producers and in prices paid 
by handlers. He urged USDA to follow its own lead and adopt adjustments 
for somatic cells based on the evidence presented at this hearing and 
the Recommended Decision for the three orders noted above. He contended 
that if MCP is adopted for Orders 124 and 135 without adjustments for 
somatic cells, producers with a low somatic cell count in their milk 
will be subsidizing producers with high somatic cell counts in their 
milk.
    The only brief filed on this issue was filed jointly by Darigold, 
Farmers Cooperative Creamery, and Northwest Independent Milk Producers 
Association. The brief supported adoption of MCP for both orders and 
recapped the alternative proposals made at the hearing. The brief 
concluded that the preferred basis of determining component values 
(other than butterfat) would be as proposed by NWI, i.e., the Class III 
price would be based on the Green Bay National Cheese Exchange price. 
This approach was preferred but the brief also indicated that either 
the original proposal or the proposal to use the average M-W component 
tests as the divisor of the skim value to get the per-pound prices for 
protein or solids nonfat would be acceptable. However, the brief 
expresses the view that a somatic cell adjustor for paying producers 
should not be adopted on the basis of the record in this proceeding.
    The orders should be amended to provide Class II and Class III milk 
prices to handlers and payments to producers based on multiple 
component values. This concept is widely supported and is justified by 
evidence contained in the hearing record.
    MCP should be adopted as a step towards improving the way the 
Federal order translates market values for dairy products into milk 
prices that indicate to producers how these products are valued in the 
marketplace.
    As the record indicates, the current pricing system has, over time, 
placed a greater share of milk value on the skim portion of milk, and a 
lesser value on the butterfat portion. Nevertheless, a further 
recognition of market value as it relates to the value of milk 
components can be achieved by converting the skim milk value into 
components, either protein or solids nonfat, on a per-pound basis. As 
the testimony indicates, it is not sound pricing practice to consider 
that all skim milk has the same value, regardless of its level of 
protein or solids nonfat content. The varying values for the components 
in skim milk can be more properly reflected in handler prices for Class 
II and Class III milk, and prices to individual producers, if MCP is 
incorporated into the order. Moreover, incorporating MCP into the 
orders will tend to insure at least a minimum value of the components 
for all handlers and producers. This element may be lacking where there 
are varying premium plans in use in the market, and where perhaps not 
all producers are involved. Also, providing for MCP in the Federal 
orders will allow handlers to pay lower prices to producers whose milk 
tests low for the component other than butterfat. Thus, pricing equity 
among producers and handlers should be enhanced by adoption of MCP.
    Another reason for adopting MCP is that, as a pricing system, MCP 
will improve how well the pricing system in the orders translates 
consumer preferences into economic signals that indicate to dairy 
farmers exactly what consumers want. Data presented at the hearing show 
clearly that, over time, consumers prefer milk products with less fat. 
Adopting MCP for Orders 124 and 135 will facilitate sending clear 
signals to producers that consumers want less fat and more protein or 
solids nonfat in their dairy products.
    Clearly, the vast majority of the milk pooled in these two markets 
is used for Class II and Class III uses. In the Pacific Northwest 
market, almost two-thirds of the milk pooled annually in 1989, 1990, 
and 1991 was classified in Classes II and III combined; and the 
percentage is increasing, going from 62.51 for 1989 to 64.47 percent 
for 1991. In the Southwestern Idaho-Eastern Oregon market, over 80 
percent of the total milk pooled in the years 1989 through 1991 was 
used in Class II and Class III products.
    As proposed, MCP for Order 124 will utilize a solids nonfat 
component and MCP for Order 135 will utilize a protein component. Not 
only will such pricing plans recognize that these markets utilize most 
of their milk in Class II and Class III uses, they also will recognize 
the particular principal dominant product manufactured from surplus 
milk supplied in each market. Moreover, the use of protein as the 
second component in Order 135 will make the provisions of that order 
more compatible with provisions of the neighboring Great Basin Order.
    The proponents indicated that at the time of the hearing 59 percent 
of the Class II and Class III milk pooled under the Pacific Northwest 
order was being made into nonfat dry milk and 26 percent into cheese. 
Thus, the use of solids nonfat is appropriate since the majority of 
manufactured milk is oriented more toward the products and uses in 
which all the solids nonfat are consumed together.
    On the other hand, in the Southwestern Idaho-Eastern Oregon market, 
nearly 80 percent of the milk is made into cheese, in which protein is 
an important component. Thus, the use of butterfat and protein for MCP 
is appropriate for Order 135.
    Under the plan adopted herein, the price for a pound of butterfat 
will be the same for both orders, i.e., the sum of the skim milk price 
divided by 100 and the butterfat differential multiplied by 10. Since 
each producer will receive payment for the milkfat on a price-per-pound 
basis, there will no longer be a need for a producer butterfat 
differential in either order. Thus, the proposed order language does 
not contain a provision for a ``producer butterfat differential.''
    The prices per pound for solids nonfat and protein should be based 
on the basic formula price (i.e., the M-W price). For each component, 
the skim milk value will be determined by subtracting from the M-W 
price the butterfat price multiplied by 3.5, and dividing the result by 
the average percent of solids nonfat or protein (as appropriate) for 
the month in the milk upon which the M-W price is based, as announced 
by the Dairy Division. Use of the average tests for the components 
(other than butterfat) in the M-W milk will be consistent with such a 
provision recently adopted for the Great Basin, Ohio Valley, Eastern 
Ohio-Western Pennsylvania, and Indiana markets. This approach was 
suggested by several people and was supported in briefs. No one 
specifically opposed it.
    There are two related issues that also should be addressed in 
connection with determining component prices. First, we should point 
out that the solids nonfat content of producer milk in the Pacific 
Northwest market may be higher than the solids nonfat content of the 
milk that is the basis for the M-W price, based on limited information 
in the record. For example, Exhibit Number 7, Table 1, shows that 
Darigold Farms' solids nonfat tests averaged 8.69 percent for the 
months of January through July 1992. On a monthly basis, the Darigold 
tests were from .04 to .19 higher than the M-W milk solids nonfat 
content for the same period. Also, page two of Exhibit 10-B shows that 
NWI's solids nonfat tests averaged 9.10 percent during January through 
July 1992. Each of the monthly tests of NWI's milk was more than .5 
above the nonfat solids content of the M-W milk. The average percent 
solids nonfat tests of producer milk included in the M-W ``Base Month'' 
Price Series during January through July 1992 were: January, 8.55; 
February, 8.52; March, 8.55; April, 8.57; May, 8.56; June, 8.56; and 
July 8.53. Official notice is taken of page 2 of Dairy Market News, 
Volume 59, Report 46, dated November 13, 1992, issued by the Department 
of Agriculture, Agricultural Marketing Service, Dairy Division, P.O. 
Box 8911, Madison, Wisconsin 53708-8911.
    The record does not contain data showing the average solids nonfat 
content of all producer milk for the Pacific Northwest market. Thus, 
the comparisons made above are not conclusive. However, if the 
comparison reflects the actual market situation, the price for a pound 
of solids nonfat would be higher if the M-W test is used as a divisor 
in the proposed formula for calculating the price than if the market 
average test is used. As a result, the value of Class II and Class III 
milk in the pool would increase from current levels.
    A second related issue that must be kept in mind is that USDA has 
already conducted a hearing to consider proposed alternatives to the M-
W price as the basic formula price for all the orders. If the Secretary 
decides to replace the M-W price with some other factor or factors to 
establish the basic formula price, a question may arise as to what 
tests for solids nonfat or protein should then be used. Absent any 
knowledge at this time as to the outcome of that proceeding, it would 
seem appropriate to continue to use the tests prescribed in this 
decision. Later, it may be necessary to consider amending the orders in 
this regard.
    NWI's proposal to put a $12.10 per hundredweight floor under the 
basic formula price is not adopted. The principal purpose of this 
proposal relates to Class I milk prices. However, Class I milk prices 
are not an issue in this proceeding.
    Several other proposed modifications to the initial proposal on 
component prices were offered at the hearing. However, none of these 
modifications should be adopted.
    One of the modifications would provide a location adjustment to the 
basic formula price for Order 135 because additional milk supplies 
likely would be made into cheese that would have to be transported 
elsewhere to be sold. Another reason advanced is because a lower price 
would improve competition with cheese made from milk priced under the 
California State milk order, which has a lower price.
    This proposed modification should not be adopted. The purpose of 
the basic formula is to move prices for milk in most uses in all 
Federal order markets. It should not be modified for the purpose of 
accommodating expected sales competition for one product under one 
order.
    Similarly, the Class III cheese formula price modification advanced 
by NWI and endorsed by Darigold in its brief also must be denied. With 
the exception of consideration of a lower price for milk used to make 
nonfat dry milk (Class III-A), it has long been the policy of USDA that 
the lowest-priced class of use under the Federal order program is based 
on the concept of a national market for products (butter, powder, and 
cheese) made from milk not needed for Class I use. Those products made 
from Grade A milk marketed under Federal orders compete with products 
made from non-grade A milk. Since these products compete in a national 
market, there has been a common surplus class price in almost all 
Federal orders for many years. It should be noted, of course, that the 
policy of uniformly pricing surplus milk was modified with the adoption 
of a Class III-A pricing formula that was implemented in 27 Federal 
orders, including the Pacific Northwest order, on December 1, 1993. 
Despite this change, however, the policy of uniformly pricing all 
surplus milk, except skim milk used in the production of nonfat dry 
milk, should be continued, at least for the present.
    There are other considerations as well. As noted earlier, a hearing 
has already been held on a replacement or an alternative to the M-W 
price for the basic formula price under the orders. Also, as noted 
above, there is now a separate Class III-A price for skim milk used to 
produce nonfat dry milk in the Pacific Northwest order. There appears 
to be a question about whether a separate Class III-A price could be 
justified if the proposed price to be derived from the cheese exchange 
prices were adopted as a basic formula price. The record in this 
proceeding is not adequate to deal with this question.
    Also, there appears to be a dilemma in the difference between 
handler prices for milk to make cheese prescribed under the Federal 
orders and those provided under the California milk pricing program. 
However, we do not feel the proper approach to this problem is to lower 
the surplus milk price to handlers under one particular order.
    Another reason not to adopt the NWI proposal is that it is a 
product formula price based on cheese, yet the principal use of surplus 
milk in the Pacific Northwest order is nonfat dry milk. The record 
simply contains no explanation as to why a proposal for multiple 
component pricing in this market situation should have the component 
values based on a price derived from the cheese market only.
    Finally, on the basis of the record in this proceeding there should 
be no adjustments to prices under Order 135 based on the level of 
somatic cells present in the market's raw milk supply. While the record 
evidence indicates that somatic cell levels are important, the record 
lacks sufficient evidence to develop appropriate provisions to 
implement a price adjustment based on somatic cell levels.
    In should also be noted that the brief filed on behalf of Darigold, 
NWI, and Farmers Cooperative Creamery also concluded that ``there is 
insufficient evidence to warrant adopting an `SCC Adjuster' in either 
Order 124 or Order 135.'' Finally, we would point out that some 
proponents expressed a desire to keep the MCP provisions in Order 135 
compatible with those in the Great Basin order. Since the Great Basin 
MCP provisions do not include a somatic cell adjustor, it would be 
contrary to compatibility to include such an adjustor in Order 135.
    Incorporation of component pricing in Orders 124 and 135 will 
necessitate amending provisions of the orders dealing with handler 
reports, class (and component) prices, the computation of handler's 
obligations and payments to the producer-settlement fund, and the 
determination of payments to producers.
    For purposes of allocating nonfat milk solids and protein, it is 
assumed that both components remain evenly distributed within the skim 
milk portion of milk receipts. This assumption will allow the proration 
of nonfat solids and protein to skim milk for purposes of determining 
shrinkage and allocating receipts to utilization.
    In addition to the information that is already reported each month 
to the Market Administrator, each handler under Order 124 will be 
required to report the average nonfat solids content of milk received 
from each producer during the month, the amount of nonfat solids in the 
handler's other receipts, except receipts of other source milk, and the 
nonfat solids contained in bulk transfers of milk and cream to other 
handlers. Partially regulated distributing plant operators will not be 
required to report information regarding the nonfat solids of their 
milk receipts unless they elect to have their obligations calculated 
under the provision that would determine obligations on the same basis 
as those of fully regulated handlers. Handlers under Order 135 will 
have to report the protein content of their milk receipts in a similar 
fashion as that described above.
    The amended orders will contain definitions for a skim milk price, 
a butterfat price, a nonfat dry milk price for Order 124, a milk 
protein price for Order 135, and the usual class and producer prices. 
The ``skim milk price'' will be used to determine the value of the skim 
milk portion of producer milk that is allocated to Class I. Value 
adjustments for determining payments by handlers for milk used in Class 
II and Class III, and to producers, will be made by prices per pound 
for the butterfat and nonfat dry milk (for Order 124) or protein (for 
Order 135) contained in the milk. The skim milk price, the butterfat 
price, the nonfat milk solids price, and the milk protein price will be 
derived from the Class III price and the butterfat differential.
    Payments to producers for deliveries of milk will be determined 
through the operation of two marketwide pools for each order. Both 
orders will contain a ``differential pool'' which will be used to 
determine producers' share of the Class I and II market. A second 
pool--the ``skim milk nonfat milk solids pool'' in the case of Order 
124 and the ``skim milk protein pool'' for Order 135--will be used to 
determine the price to be paid producers for the nonfat solids or 
protein in their milk.
    Each handler's net obligation to the pool (i.e., the handler's 
payment to the producer-settlement fund) will be determined by 
subtracting the differential and nonfat solids (or protein) values due 
to the handler's producers from the differential and nonfat solids (or 
protein) values of the producers' milk used by the handler. The value 
of butterfat in each producer's milk will not be pooled, but will be 
paid directly to the producer.
    The differential value of each handler's receipts of producer milk 
assigned to Class I and Class II will be calculated by multiplying the 
hundredweights of producer milk allocated to these classes by the 
difference between the respective class prices applicable at the 
location of the plant and the Class III price. In addition, the 
adjustments to the class values of producer milk that currently are 
included in determining a handler's obligation would be included in the 
differential value. The adjustments include the values of overage, 
beginning Class III inventory allocated to a higher class, other source 
and filled milk receipts allocated to Class I, certain receipts from 
unregulated supply plants that are allocated to Class I, and receipts 
of bulk concentrated fluid milk and nonfluid milk products that are 
reconstituted for fluid use. Each handler's differential value will be 
combined and then divided by the hundredweight of producer milk in the 
differential pool to determine the ``weighted average differential 
price.'' An ``estimated uniform price'' can be derived by adding the 
weighted average differential price to the basic formula price for the 
month. Although the uniform price would not be applicable to producers 
under the component pricing plan, it is of value for price comparison 
purposes with other Federal orders.
    Each handler's skim milk-nonfat milk solids value for Order 124 and 
skim milk-protein value for Order 135 will be determined by combining 
the skim milk value of the handler's producer milk in Class I with the 
nonfat solids value (or milk protein value) of the handler's milk in 
Class II and III. The skim milk value will be determined by multiplying 
the skim milk in producer milk assigned to Class I by the skim milk 
price. The nonfat milk solids (or protein) value will be determined by 
multiplying the nonfat milk solids (or protein) in producer milk 
assigned to Class II and III by the nonfat milk solids price (or the 
milk protein price). The amount of nonfat solids or protein in each 
class will be determined by multiplying the skim milk portion of 
producer milk allocated to each class by the nonfat solids (or protein) 
content of all of the handler's producer milk. The price to be paid to 
producers for the nonfat solids (or protein) in their milk will be 
determined by combining the individual handler values of skim milk in 
Class I milk and nonfat solids (or protein) in Class II and III milk, 
and dividing the resulting total by the pounds of nonfat solids (or 
protein) in all producer milk. The resulting price will be the 
``producer nonfat milk solids price'' (or the ``producer milk protein 
price'').
    As a result of the order amendments described, payments to 
producers will be based on three factors: (1) The weighted average 
differential price for all of their milk; (2) the nonfat milk solids or 
protein contained in their milk multiplied by the respective producer 
nonfat milk solids price or producer protein price; and (3) the 
butterfat in their milk multiplied by the butterfat price.
    Adoption of multiple component pricing plans requires amending 
provisions of the orders dealing with handler reports, shrinkage, 
computation of class and component prices, the computation of a 
handler's obligation to the pool, computation of a weighted average 
differential price, and the computation of a producer nonfat milk 
solids price for Order 124 and a producer protein price for Order 135. 
These changes have already been discussed.
    Several conforming changes must be made in the order language of 
both orders to implement component pricing. Other minor changes, though 
not strictly of a conforming nature, have been made to clarify and 
improve order language.
    Other sections of the orders, however, have been changed to 
accommodate reference changes, date changes, and minor terminology 
changes resulting from component pricing. These changes require some 
explanation here.
    Section 19 (``product prices'') of both orders has been modified to 
accommodate reference changes, eliminate unnecessary language, and to 
include the butterfat differential that previously was described in 
section 74 of both orders. The latter change was made because the 
description of the butterfat differential fits better with the product 
prices which are used to compute the butterfat differential and because 
of the diminished importance of the butterfat differential under a 
component pricing system. This change also eliminates redundant 
language that was included in both sections. As a result of making this 
change, several sections following section 74 (i.e., Sec. Sec. 1124.75-
1124.78 and Sec. Sec. 1135.75-1135.79) had to be redesignated to close 
the gap created and several reference changes had to be made as a 
result.
    Sections 30 and 31 of both orders were modified to accommodate the 
reporting of nonfat milk solids in Order 124 and protein content in 
Order 135. In addition, under Order 135 the date for filing reports of 
receipts and utilization was changed from the 7th day to the 9th day 
after the end of the month, and the date for filing payroll reports was 
changed from the 20th to the 22nd day after the end of each month. In 
support of these changes, the spokesman for Darigold Farms testified 
that the present reporting date for the report of receipts and 
utilization leaves no time to review the report, investigate apparent 
errors, or make corrections. He also stated that the modified reporting 
dates will correspond to those of the Pacific Northwest order. There 
was no opposition to these proposals.
    The ``other reports'' section of Order 124 was modified to improve 
the language of that section. There was no intention to substantively 
change the meaning of this section.
    The present Secs. 1124.51a and 1135.51a have been eliminated, but 
the contents of those sections have been incorporated in Secs. 1124.51 
and 1135.51, respectively. These changes, which are also of a non-
substantive nature, were made in conformance with Federal Register 
guidelines.
    Comments on the component pricing portion of the recommended 
decision were filed on behalf of Darigold Farms, Farmers Cooperative 
Creamery, Magic Valley Quality Milk Producers Association, Tillamook 
Cooperative Creamery Association, and Western Dairy Cooperative, Inc. 
The commentors stated that they endorsed all aspects of the Recommended 
Decision which pertain to MCP and urged its prompt implementation.
    2. Performance standards for supply plants under the Pacific 
Northwest order.
    The Pacific Northwest order should be amended to provide that the 
delivery requirements for qualification as a supply plant be not less 
than 20 percent of the total quantity of milk that is (1) physically 
received at the plant from dairy farmers eligible to be producers or 
(2) is diverted as producer milk to another plant.
    To qualify as a pool plant, the order currently requires a supply 
plant to ship ``not less than 30 percent'' of the total quantity of 
milk that is physically received at the plant from producers or that is 
diverted as producer milk to another plant.
    Tillamook County Creamery Association (TCCA) proposed a decrease in 
the shipping percentage from 30 percent to 20 percent. TCCA requested, 
and was granted, a temporary reduction in the delivery requirements in 
1990, 1991, and 1992.
    A TCCA spokesman testified that the request to reduce the supply 
plant shipping percentage was made by TCCA as a result of continuing 
changes in the industry. He pointed out that the present 30 percent 
shipping percentage was adopted when the Federal order was adopted 
February 1, 1989. The witness noted that at the time of order 
implementation (early 1989), Class I utilization was 155 million 
pounds, which represented in excess of 39 percent of total producer 
milk in the Pacific Northwest market. By February 1992, however, Class 
I utilization was 164 million pounds in the Pacific Northwest market, 
and the Class I pool utilization had dropped to 35 percent. By May of 
1992, the percent Class I utilization decreased even further to 30.8 
percent.
    Two other witnesses, one representing Darigold Farms and the other 
Northwest Independent Milk Producers, testified in favor of TCCA's 
proposal. No one testified in opposition to it.
    The proposal to amend the delivery requirements for qualification 
as a supply plant should be adopted due to the changing conditions in 
the market. As a result of increases in milk production, pool supply 
plants are utilized less by pool distributing plants as a source of 
milk for bottling. Consequently, they may be unable to meet the order's 
present shipping requirements and maintain the producer status of dairy 
farmers that have been historically associated with this market.
    Currently, three options are open to the operators of pool supply 
plants who find that their milk is not needed at pool distributing 
plants. First, despite the fact that the milk is not needed, they can 
move milk from the production area to pool plants in the metropolitan 
area, unload it, and pick up an equal amount of milk from the pool 
plant and return it to the pool supply plant location where the milk 
can then be processed into Class III products. This adversely affects 
the milk quality without even considering the costs of transportation, 
yield reduction, and milk volume loss. When milk is handled, abuse 
occurs to some extent. When milk is pumped into a plant, through 
equipment, and then reloaded and hauled back or hauled to another 
plant, this process affects the quality of the product. That can affect 
the milk's use for fluid products, depending on the amount of handling 
involved. It can also affect the quality of cheese that can be made 
from milk.
    The second alternative is to find another pool plant that has 
adequate pool sales and combine the two marketing reports. If the 
combined delivery percentage reaches 30 percent of the total production 
of the combined supply plants, then both plants qualify to participate 
in the pool. This option depends entirely on the pool supply plant's 
ability to find another supplier with adequate sales to cover the 
deficit and one who is willing to cooperate by allowing its volume to 
be used.
    The third option available to the supply plant operator is to 
request a temporary reduction in the delivery requirements. Paragraph 
1124.7 3(c) allows the director of the Dairy Division to reduce or 
increase the delivery percentage by 10 percent upon request.
    After carefully reviewing the testimony on this issue, it is 
concluded that the delivery requirements for qualification as a supply 
plant should be decreased from not less than 30 percent to not less 
than 20 percent. In view of the increases in milk production and the 
lower Class I utilization percentage, it is much more appropriate to 
permanently change the delivery requirements of the order than to rely 
on temporary revisions in shipping percentages.
    The evidence shows that TCCA is committed to meet the needs of the 
fluid market. For example, on several occasions it has reduced its 
cheese production to supply loads of fluid milk to the Portland market.
    TCCA is the largest Oregon-based dairy cooperative, handling 
approximately one-third of the milk produced in the State each day. Of 
the one and a half million pounds of milk handled daily, roughly 1.1 
million pounds are used to produce cheese for the retail market and 
400,000 pounds are shipped to the Portland market for sale to Class I 
milk handlers.
    The lower shipping percentage for pool supply plants will not 
jeopardize the needs of the fluid market, particularly with the 
provision now in the order that permits the Director of the Dairy 
Division to increase the percentage on short notice should additional 
shipments become necessary. The lower percentage will, however, permit 
milk that has been historically associated with this market to continue 
to participate in the marketwide pool and, for this reason, it should 
be adopted.
    One comment letter was received with respect to this part of the 
recommended decision. Darigold Farms stated that it was pleased with 
the adoption of this proposal and urged that it be implemented.
    3. Status of a milk plant operated by a State institution under the 
Pacific Northwest order.
    The Pacific Northwest order should be amended to provide that a 
milk plant operated by a State institution, but which is not exempt 
from the provisions applicable to a producer-handler, may receive up to 
an average of 1,000 pounds per day of Class I milk from fully regulated 
handlers.
    The order currently provides that ``any State institution shall be 
a producer-handler exempt from the provisions of this Section and 
Secs. 1124.30 and 1124.32 with respect to milk of its own production 
and receipts from pool plants processed or received for consumption in 
State institutions and with respect to movements of milk to or from a 
pool plant.'' Thus, a State institution plant may buy bulk milk or 
packaged milk products as Class I milk without limits from pool plants 
for use in State institutions. If such a plant has sales to outlets 
other than State institutions, a limit on such purchases of 100 pounds 
per day average is applicable, and the plant must file reports, the 
same as any other producer-handler.
    The Washington State Department of Corrections proposed amending 
the producer-handler and nonpool plant provisions to provide total 
exemption from all provisions of the order for ``a plant owned and 
operated by a State institution or establishment which processes or 
packages fluid milk products.''
    The witness for the proponent testified that because the Department 
of Corrections buys milk products from pool plants, there is a 
continuing conflict between the State law under which the prison dairy 
is operated, and the Federal order's definition of a producer-handler. 
He explained that under Chapter 72, Correction Reform Act of 1981, 
Revised Code of Washington, the Washington State Reformatory Dairy 
(WSRD) is mandated to ``(1) provide a work training program for 
inmates, (2) imitate private industry as much as possible and thereby 
be self-supporting, and (3) provide quality products to government and 
nonprofit agencies at or below market prices.'' Thus, the WSRD is 
allowed, under the State law, to buy whatever milk products it needs in 
order to serve its clients. Such purchases have, on occasion, exceeded 
the quantity that a producer-handler is allowed to acquire under the 
Pacific Northwest order, according to the testimony.
    The only other witness that testified in favor of the proposal 
represented the Oregon Department of Corrections. Under cross 
examination, he indicated that there are no Oregon statutes that apply 
to the Department of Corrections' dairy facility. On the other hand, he 
also indicated that the Dairy is prohibited from selling to the private 
sector.
    The proposal to exempt State institutions was opposed by one 
proprietary handler and by three cooperative associations. The 
principal thrust of the opposition testimony was that adoption of the 
proposal would open the door for State institutions to compete against 
fully regulated handlers for Class I and Class II sales, and that the 
State institutions would have a competitive advantage by being exempted 
from the Federal order pricing and pooling regulations.
    The proposal to totally exempt a plant operated by a State 
institution should not be adopted because it would make it possible for 
the operations to compete for commercial sales against fully regulated 
handlers. On the other hand, there appears to be a need to provide some 
relief from the very limited amount of Class I fluid milk products that 
such a plant may receive from pool plants under the producer-handler 
provisions of the order.
    After reviewing the testimony on this issue, it is concluded that a 
State institution that is not exempt from the producer-handler limits 
on receipts of milk from pool plants should be able to receive more 
fluid milk products from pool sources than the amount allowed for other 
producer-handlers.
    The evidence shows that the WSRD has had problems in conducting its 
operation in accord with its operating mandate while, at the same time, 
staying within the limits that the order places on receipts by a 
producer-handler.
    The current limit on receipts of fluid milk products from pool 
plants by a producer-handler has been in effect for many years 
(Official Notice is taken of the Order Amending The Order Regulating 
The Handling Of Milk In The Puget Sound, Washington, Marketing Area, 
effective September 1, 1959, as published in the Federal Register on 
July 29, 1959, beginning at page 6027).
    While this proceeding does not deal with producer-handlers as such, 
it is clear that the 100 pounds per day limit as applied to a State 
institution is unreasonably low. This is clearly demonstrated in the 
testimony that in the last five years the number of inmates in the 
Washington State Department of Corrections institutions has increased 
from 6,000 to 10,000 inmates, and that growth to 12,000 is expected in 
the next three years. Since the Department of Corrections is authorized 
to purchase products that it does not process or manufacture, the need 
for greater supplemental purchases is clear. Accordingly, a State 
institution milk plant should be permitted to receive an average of 
1,000 pounds per day of Class I fluid milk products from pool plants 
during the month. However, no change in the limit should be provided 
for producer-handlers that are not State institutions.
    In commenting on the Department's handling of Issue No. 3, Darigold 
Farms, the only party commenting on this issue, indicated that it 
supported the position reached in the recommended decision.
    4. Plant location adjustments for Yakima County, Washington, under 
the Pacific Northwest order.
    The proposal to change the location adjustment (No. 3 in the Notice 
of Hearing) on all producer milk received at plants in Yakima County in 
Federal Milk Order 124 is denied.
    The order defines zones for the purpose of determining location 
adjustments. The order currently states that Yakima County, Washington, 
is in Zone 4, which has a 15 cents per hundredweight location 
adjustment.
    Darigold Farms proposed a decrease in the location adjustment from 
15 cents per hundredweight to 6 cents per hundredweight, a change of 9 
cents. Accordingly, Yakima County would move from Zone 4 to Zone 2.
    The witness for the proponent testified that the theory behind a 
location adjustment is to be able to attract producer milk from 
outlying areas to market centers or alternatively to attract packaged 
milk from a pool plant located in outlying areas. The Pacific Northwest 
order has four market centers: Portland, Oregon; Eugene, Oregon; 
Seattle, Washington; and Spokane, Washington. Yakima County is roughly 
in the center of the triangle formed by Portland, Seattle, and Spokane.
    The witness noted that the Pacific Northwest Order has relatively 
low Class I utilization, about 35 percent. There is more than an 
adequate supply of bulk milk to serve both fluid and manufacturing 
markets. He also pointed out that in a low utilization market such as 
Pacific Northwest, location adjustments are seldom needed. There has 
been no history of handlers in the Pacific Northwest market not being 
able to obtain bulk milk.
    The witness testified that Darigold was not proposing the 
elimination of location adjustments, but rather to maintain the status 
quo for all the other fluid milk handlers in the market. The only fluid 
plant that would be affected is the Darigold plant in Yakima County, 
which would pay an added nine cents per hundredweight.
    The witness' testimony drew a parallel between Yakima County, 
Washington, and Whatcom County. The two counties are very similar, he 
noted, in that there's a large concentration of milk in a small area. 
Moreover, both plants are located outside major market centers, and 
both counties have small fluid operations which serve the county area 
but not the market centers.
    The witness for the proponent testified that the proposal was being 
made because of the opening of the Darigold plant in Sunnyside in 
December of 1991. The plant was needed to help balance the increased 
production in the Pacific Northwest and the increase of milk in Yakima 
County. Comparing December of 1980 to December of 1990, Yakima County 
dairymen increased their deliveries of producer milk from 18.9 million 
pounds to 49.7 million pounds per month. The Yakima County producers 
currently account for 13.5 percent of the milk marketed in the Pacific 
Northwest order.
    The witness noted that, prior to the opening of the Darigold/
Sunnyside plant, the milk from Yakima County was sent to plants in 
Seattle and Chehalis, Washington, which have no location adjustment. No 
location adjustment was needed since milk production increases in 
western Washington are expected to keep all plants full.
    The witness testified that the 15-cent-per-hundredweight location 
adjustment at Sunnyside, in effect, constitutes a ``penalty'' to the 
Darigold producers who financed the Sunnyside plant, which was needed 
by all producers to ensure outlets for all milk produced in the 
marketing area. Had the plant not been built, disorderly market 
operations surely would have developed, he said. The witness argued 
that this ``penalty'' is unnecessary because hauling costs will move 
the milk to market centers without location adjustments. He pointed 
out, for example, that Darigold's hauling costs from Sunnyside to 
Spokane, the closest market center, is 76 cents per hundredweight for a 
distance of 120 miles, or .6 cents per mile. In comparison, the 
proposed decrease from 15 cents to 6 cents would move the milk only 
about 15 miles at the .6-cent-per-hundredweight cost.
    The witness testified that for any producer farm located closer to 
Spokane than to Sunnyside, it is cheaper to move milk to Spokane than 
to Sunnyside even with no location adjustment. Reducing the location 
adjustment to six cents merely moves the geographic break-even point 15 
miles closer to Sunnyside and enlarges by the same 15 miles the area 
from which Spokane pool plants can readily attract milk.
    The witness testified that within the original area, without the 
15-mile adjustment, there already is enough milk to satisfy the needs 
of Spokane pool plants, so there is no need to provide a further 
incentive to move milk that is located in that 15-mile area closer to 
Sunnyside. The Sunnyside milk also can and does supply Seattle pool 
plants and could service plants in Portland and Spokane. A similar 
analysis shows that there is far more milk in the areas closer to 
Seattle and Portland than needed by pool plants in those areas. 
Therefore, the 15-mile incentive which the 6-cent location adjustment 
represents is not really needed as an incentive to move milk to those 
market centers. The witness noted that the combination of some Yakima 
Valley milk that is surplus to the Sunnyside plant's capacity, plus the 
western Washington milk, is adequately supplying the needs of all the 
plants in western Washington.
    Three other witnesses testified on Proposal No. 3. The witnesses 
for Portland Independent Milk Producers Association and Olympia Cheese 
Company were opposed to Proposal No. 3, and the witness from Inland 
Northwest Dairies, Inc., also expressed reservations. Two briefs 
discussing Proposal No. 3 were filed, one by Darigold Farms in favor of 
the proposal, and one by Portland Independent Milk Producers 
Association opposed to the proposal.
    Portland Independent Milk Producers Association opposed Proposal 
No. 3 to change the zone classification for plants in Yakima County 
from Zone 4 to Zone 2 to reflect the same location adjustment that 
Whatcom County currently enjoys. The witness testified that the theory 
behind a location adjustment is to be able to attract producer milk 
from outlying areas to market centers. He pointed out that the proposed 
zone change in the proposal appears to have the opposite effect in that 
it would increase the return to producers delivering milk to plants 
located in Yakima County.
    The witness noted that increased returns could send two signals. 
One signal is that there is actually an additional demand for fluid 
milk to be delivered to Yakima County, which is not believed to be the 
case. There appears to be more than an adequate supply of milk for the 
Yakima County fluid operations. The second signal sent to producers 
when there is a situation of increasing returns is to increase 
production. The witness did not feel that either of these signals is 
appropriate in light of the theory behind a functioning location 
adjustment program or the already increasing supplies of milk surplus 
to fluid market needs in these areas.
    The witness also expressed concern that there is an increasing 
imbalance between freight costs of milk produced in the Yakima Valley 
area and delivered to local plants and that milk which moves up to 200 
miles to the market center. He argued that acceptance of Proposal No. 3 
further accentuates the potential imbalance. The witness stated that it 
was their understanding that Yakima County is the type of market 
situation that a location differential program is designed to protect.
    In comparing Whatcom County to Yakima County in this proposal, the 
witness extended that comparison by quoting from the 1988 final 
decision (53 FR 49165) which merged the Oregon-Washington and Puget 
Sound-Inland Federal milk orders into the Pacific Northwest order and 
established the current location adjustment program under the merged 
order.

    Proponents' arguments for reducing the present six cent location 
adjustment at locations in Whatcom County, Washington, are less 
persuasive. The location adjustment should not be reduced. One 
reason given for such a reduction was that the nearby manufacturing 
plant in Lynden provides an outlet for milk surplus to the market's 
fluid needs while location adjustments are still needed at locations 
in southern and central Oregon and central Washington precisely 
because no nearby manufacturing plant exists to provide an outlet 
for surplus milk produced in these areas. In fact, the situation 
thus described by the Darigold witness should result in a greater 
location adjustment for Whatcom County, for instance, than Jackson 
County, Oregon. The receipt of milk at a manufacturing plant located 
in an area of heavy milk production at some distance from the 
market's center is the classic situation to which location 
adjustments were designed to apply. Prices paid for such milk are 
adjusted downward for location to compensate for the fact that the 
milk has not been hauled to distant bottling plants but instead has 
been shipped a relatively short distance at a significantly lower 
hauling cost.

    The witness quoted another passage from that decision where it 
states,

these markets, with manufacturing plants located in heavy production 
areas distant from most distributing plant locations, are more 
comparable to the situation of Whatcom County. Such increases, that 
update location adjustments to correspond to the significant 
increases in hauling costs that have been experienced since most 
location adjustment provisions were written, are actually the only 
means of ``modernizing'' location adjustments. It is very possible 
that it would be appropriate to modernize or increase the location 
adjustment at Whatcom County as urged by Northwest Independent Milk 
Producers Association and Carnation Company. However, there is 
inadequate data and testimony in the record of this proceeding to 
determine an appropriate change in the level of location adjustment 
for Whatcom County.

    The witness pointed out that the same theory underlying the 1988 
decision relative to Whatcom County is applicable to Proposal No. 3, 
and expressed the view that based on the current harmonious 
relationships within the marketplace, the 15-cent location adjustment 
should be maintained if location adjustments are going to continue to 
be recognized within this Federal order.
    Olympia Cheese Company opposed Proposal No. 3 relative to changing 
the zone classification for plants in Yakima County from Zone 4 to Zone 
2 to reflect the same location adjustment as Whatcom County. The 
witness testified that Olympia Cheese Company currently procures a 
substantial portion of its milk supply in Yakima County. That milk has 
to be shipped over the mountains in order to get to western Washington 
where its plant is located. The company subsidizes part of those 
hauling costs. The witness maintains that the proposed reduction in the 
location adjustment in Yakima County will further add to milk costs 
because in order to keep the milk supply from that county, hauling 
costs will have to be subsidized further by the same amount as the 
reduction in the location adjustment in order to stay competitive in 
milk procurement in that region.
    The witness testified that Olympia Cheese Company's suppliers are 
going to be competing precisely against those suppliers in the Yakima 
County area, forcing them to come up with the same amount, even though 
its suppliers go across the mountains to western Washington. The 
witness contends that if its suppliers were breaking even before with 
respect to hauling cost, with the adoption of Proposal No. 3 they would 
be nine cents worse off.
    The Olympia Cheese Company's witness stated that a location 
adjustment's traditional role is to reduce the payment to individual 
farmers for any milk that stays in the county--i.e., that milk which is 
not shipped to a heavily populated area. This provides a disincentive 
and promotes the shipment of milk from high production/low population 
areas to high population areas. The witness stated that in the case of 
Proposal No. 3, it appears the location adjustment is doing the 
opposite of intended, in the sense that all of a sudden the incentive 
is reduced, therefore increasing the incentive for the milk to stay in 
Yakima County. The witness pointed out that location adjustments are 
there precisely to promote shipment of milk to populated areas, and 
that they were used as a mechanism by USDA for this purpose.
    Inland Northwest Dairies, Inc., also expressed concerns over the 
adoption of Proposal No. 3. The witness emphasized that there has been 
a very harmonious relationship in the marketplace. The witness stated 
that, with the adoption of Proposal No. 3, the company might be in a 
much tougher position in the future to recruit milk from producers in 
the Yakima Valley, from where 80 percent of its milk supply comes. He 
contended that because of competitive conditions, Darigold's producers 
may not have to pay as much in the future to get their milk to the 
Sunnyside plant as what others would have to pay to bring milk from the 
Yakima region to Spokane, Washington.
    The witness was further concerned with adjusting the location 
allowance because of the situation that also exists in Moses Lake, 
where Safeway 85, Inc., a pool plant, has a 15-cent location 
adjustment. He stated that reducing the location adjustment in Yakima 
County could create some disparity in the marketplace because Safeway 
is definitely competition. The witness emphasized that the majority of 
its milk comes from the Yakima and Benton County region and that in the 
long-term there may be some inequities should the amount charged 
Darigold producers in the future be adjusted by the location adjustment 
in Proposal No. 3.
    The purpose and intention of location adjustments is to provide the 
incentive to move milk from one area to another for fluid uses only. 
Generally speaking, this means moving milk from outlying production 
areas to the more heavily populated market centers. It is not the 
purpose of location adjustments to facilitate the movement of milk to a 
distant location for manufacturing uses.
    The witness for the proponent testified that the proposal was being 
made because of the opening of the Darigold plant in Sunnyside in 
December of 1991 to help balance the increased production in the 
Pacific Northwest and the increase of milk in Yakima County. Prior to 
the opening of the Darigold/Sunnyside plant, milk from Yakima County 
was sent to plants in Seattle and Chehalis, Washington, which have no 
location adjustment. The witness testified that the 15-cent-per-
hundredweight location adjustment at Sunnyside in effect constitutes a 
``penalty'' to the Darigold producers who financed the Sunnyside plant. 
In light of this, however, Darigold producers now have access to the 
local Sunnyside plant without having to incur the costs of hauling milk 
to Seattle and Chehalis, Washington.
    Current conditions indicate harmonious relationships within the 
marketplace. The location adjustment change proposed is not needed to 
prevent disorderly marketing conditions in Yakima County or anywhere 
within the marketplace. Fluid milk needs are being more than adequately 
met, and there appears to be no need to encourage production of milk in 
the Pacific Northwest market by increasing the level of returns to 
producers.
    In conclusion, we find no compelling reason to reduce the location 
adjustment in Yakima County based on this record. Yakima County should 
remain in Zone 4 with a 15-cent-per-hundredweight location adjustment.
    While no exception was taken to this conclusion, two cooperative 
associations did comment on it. Portland Independent Milk Producers 
Association (PIMPA) stated that the department was correct in denying 
the proposal, while Darigold Farms wrote that it was ``puzzled'' by the 
department's rationale in denying the proposal and would like to 
revisit the issue of location adjustments at a future hearing.
    It was stated in the recommended decision that the record evidence 
indicated there was no need to move milk for fluid use from Yakima 
County to any of the population centers in this market: i.e., Seattle, 
Portland, Eugene or Spokane. However, PIMPA points out in their 
exception that a significant amount of their Yakima County milk does, 
in fact, move to a number of handlers in one or more of these 
population centers, and this point is supported by record evidence. 
Consequently, it cannot be concluded on the basis of this record that 
location adjustments are no longer necessary in this market.

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 Orders 124 and 135 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 respective 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.

Rulings on Exceptions

    In arriving at the findings and conclusions, and the regulatory 
provisions of this decision, each of the exceptions received was 
carefully and fully considered in conjunction with the record evidence. 
To the extent that the findings and conclusions and the regulatory 
provisions of this decision are at variance with any of the exceptions, 
such exceptions are hereby overruled for the reasons previously stated 
in this decision.

Marketing Agreements and Order Amending the Orders

    Annexed hereto and made a part hereof are two documents, a 
Marketing Agreement regulating the handling of milk, and an Order 
amending the orders regulating the handling of milk, in the Pacific 
Northwest and Southwestern Idaho-Eastern Oregon marketing areas, which 
have been decided upon as the detailed and appropriate means of 
effectuating the foregoing conclusions. It is hereby ordered that this 
entire decision and the two documents annexed hereto be published in 
the Federal Register.

Referendum Order To Determine Producer Approval for the Southwestern 
Idaho-Eastern Oregon Order; Determination of Representative Period; and 
Designation of Referendum Agents

    It is hereby directed that a referendum be conducted and completed 
on or before the 30th day after the date this decision is issued, in 
accordance with the procedure for the conduct of referenda (7 CFR 
900.300-311), to determine whether the issuance of the order as amended 
and as hereby proposed to be amended, regulating the handling of milk 
in the Southwestern Idaho-Eastern Oregon marketing area is approved or 
favored by producers, as defined under the terms of each of the 
orders--as amended and as hereby proposed to be amended--who during the 
representative period were engaged in the production of milk for sale 
within the Southwestern Idaho-Eastern Oregon marketing area.
    The representative period for the conduct of such referendum is 
hereby determined to be September 1993. The agent of the Secretary to 
conduct the referendum is James R. Daugherty, market administrator of 
the Southwestern Idaho-Eastern Oregon order.

Determination of Producer Approval and Representative for the Pacific 
Northwest Order

    September 1993 is hereby determined to be the representative period 
for the purpose of ascertaining whether the issuance of the order, as 
amended and as hereby proposed to be amended, regulating the handling 
of milk in the Pacific Northwest marketing area is approved or favored 
by producers as defined under the terms of the order (as amended and as 
hereby proposed to be amended) who during the representative period 
were engaged in the production of milk for sale within the Pacific 
Northwest marketing area.

List of Subjects in 7 CFR Parts 1124 and 1135

    Milk marketing orders.

    Dated: February 9, 1994.
Patricia Jensen,
Acting Assistant Secretary, Marketing and Inspection Services.

Order Amending the Orders Regulating the Handling of Milk in the 
Pacific Northwest and Southwestern Idaho-Eastern Oregon Marketing Areas

    This order shall not become effective unless and until the 
requirements of Sec. 900.14 of the rules of practice and procedure 
governing proceedings to formulate marketing agreements and marketing 
orders have been met.

Findings and Determinations

    The findings and determinations hereinafter set forth supplement 
those that were made when the orders were first issued and when they 
were amended. The previous findings and determinations are hereby 
ratified and confirmed, except where they may conflict with those set 
forth herein.
    (a) Findings. A public hearing was held upon certain proposed 
amendments to the tentative marketing agreements and to the orders 
regulating the handling of milk in the Pacific Northwest and 
Southwestern Idaho-Eastern Oregon marketing areas. The hearing was held 
pursuant to the provisions of the Agricultural Marketing Agreement Act 
of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of 
practice and procedure (7 CFR part 900).
    Upon the basis of the evidence introduced at such hearing and the 
record thereof, it is found that:
    (1) The said orders as hereby amended, and all of the terms and 
conditions thereof, will tend to effectuate the declared policy of the 
Act;
    (2) The parity prices of milk, as determined pursuant to section 2 
of the Act, are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the said marketing areas; and the minimum 
prices specified in the orders as hereby amended are such prices as 
will reflect the aforesaid factors, insure a sufficient quantity of 
pure and wholesome milk, and be in the public interest; and
    (3) The said orders as hereby amended regulate the handling of milk 
in the same manner as, and are applicable only to persons in the 
respective classes of industrial or commercial activity specified in, 
marketing agreements upon which a hearing has been held.

Order Relative to Handling

    It is therefore ordered that on and after the effective date 
hereof, the handling of milk in the Pacific Northwest and Southwestern 
Idaho-Eastern Oregon marketing areas shall be in conformity to and in 
compliance with the terms and conditions of the orders, as amended, and 
as hereby amended, as follows:
    The provisions of the proposed marketing agreements and order 
amending the orders contained in the recommended decision issued by the 
Acting Administrator, Agricultural Marketing Service, on October 7, 
1993, and published in the Federal Register on October 15, 1993 [58 FR 
53439], shall be and are the terms and provisions of this order, 
amending the orders, and are set forth in full herein.
    For the reasons set forth in the preamble, title 7, parts 1124 and 
1135, are amended to read as follows:

PART 1124--MILK IN THE PACIFIC NORTHWEST MARKETING AREA

    1. The authority citation for part 1124 continues to read as 
follows:

    Authority: Secs. 1-19, 48 Stat. 31, as amended (7 U.S.C. 601-
674).


Sec. 1124.7  [Amended]

    2. In the introductory text of Sec. 1124.7(b), the number ``30'' is 
changed to ``20''.


Sec. 1124.9  [Amended]

    3. In Sec. 1124.9(c), the words ``and nonfat milk solids'' are 
added following the word ``butterfat''.
    4. In Sec. 1124.10, paragraph (c)(2) is revised to read as follows:


Sec. 1124.10  Producer-handler.

* * * * *
    (c) * * *
    (2) The producer-handler handles fluid milk products from sources 
other than the milk production facilities and resources specified in 
paragraph (b) of this section, except as specified as follows:
    (i) A producer-handler, other than a State institution, may receive 
fluid milk products from pool plants if such receipts do not exceed a 
daily average of 100 pounds during the month; and
    (ii) A State institution that otherwise qualifies as a producer-
handler, but which processes or receives milk for consumption outside 
of a State institution, may receive fluid milk products from pool 
plants if such receipts do not exceed a daily average of 1,000 pounds 
per day during the month.
* * * * *
    5. Section 1124.19 is revised to read as follows:


Sec. 1124.19  Product prices and butterfat differential.

    The prices specified in this section, which are computed by the 
Director of the Dairy Division, Agricultural Marketing Service, shall 
be used, where specified, in calculating the basic formula prices 
pursuant to Sec. 1124.51. The term workday as used in this section 
shall mean each Monday through Friday that is not a national holiday.
    (a) Butter price means the simple average, for the first 15 days of 
the month, of the daily prices per pound of Grade A (92-score) butter 
on the Chicago Mercantile Exchange, using the price reported each week 
as the price for the day of the report, and for each following workday 
until the next price is reported.
    (b) Cheddar cheese price means the simple average, for the first 15 
days of the month, of the daily prices per pound of cheddar cheese in 
40-pound blocks. The prices used shall be those of the National Cheese 
Exchange (Green Bay, WI), using the price reported each week as the 
price for the day of the report and for each following workday until 
the next price is reported.
    (c) Nonfat dry milk price means the simple average of the prices 
per pound of nonfat dry milk for the first 15 days of the month 
computed as follows:
    (1) The prices used shall be the prices (using the midpoint of any 
price range as one price) of high heat, low heat, and Grade A nonfat 
dry milk, respectively, for the Central States production area;
    (2) For each week, determine the simple average of the prices 
reported for the three types of nonfat dry milk. Such average shall be 
the daily price for the day that such prices are reported and for each 
preceding workday until the day such prices were previously reported; 
and
    (3) Add the prices determined in paragraph (c)(2) of this section 
for the first 15 days of the month and divide by the number of days for 
which there is a daily price.
    (d) Edible whey price means the simple average, for the first 15 
days of the month, of the daily prices per pound of edible whey powder 
(nonhygroscopic). The prices used shall be the prices (using the 
midpoint of any price range as one price) of edible whey powder for the 
Central States production area. The average shall be computed using the 
price reported each week as the daily price for that day and for each 
preceding workday until the day such price was previously reported.
    (e) The butterfat differential is the number that results from 
subtracting the computation in paragraph (e)(2) of this section from 
the computation in paragraph (e)(1) of this section and rounding to the 
nearest one-tenth cent:
    (1) Multiply 0.138 times the monthly average Chicago Mercantile 
Exchange Grade A (92-score) butter price as reported and published by 
the Dairy Division;
    (2) Multiply 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.
    6. In Sec. 1124.30, paragraphs (a)(1)(i), (ii), and (c)(1), (2) and 
(3) are revised to read as follows:


Sec. 1124.30  Reports of receipts and utilization.

* * * * *
    (a) * * *
    (1) * * *
    (i) Milk received directly from producers (including such handler's 
own production) and the pounds of nonfat milk solids contained therein;
    (ii) Milk received from a cooperative association pursuant to 
Sec. 1124.9(c) and the pounds of nonfat milk solids contained therein;
* * * * *
    (c) * * *
    (1) The pounds of skim milk, butterfat, and nonfat milk solids 
received from producers;
    (2) The utilization of skim milk, butterfat, and nonfat milk solids 
for which it is the handler pursuant to Sec. 1124.9(b); and
    (3) The quantities of skim milk, butterfat, and nonfat milk solids 
delivered to each pool plant pursuant to Sec. 1124.9(c).
* * * * *
    7. In Sec. 1124.31, paragraphs (a)(1), (b) introductory text, and 
(b)(1) are revised to read as follows:


Sec. 1124.31  Payroll reports.

* * * * *
    (a) * * *
    (1) The total pounds of milk received from each producer, the 
pounds of butterfat and nonfat milk solids contained in such milk, and 
the number of days on which milk was delivered by the producer during 
the month;
* * * * *
    (b) Each handler operating a partially regulated distributing plant 
who wishes computations pursuant to Sec. 1124.75(a) to be considered in 
the computation of its obligation pursuant to Sec. 1124.75 shall submit 
its payroll for deliveries of Grade A milk by dairy farmers which shall 
show:
    (1) The total pounds of milk received from each producer and the 
pounds of butterfat and nonfat milk solids contained in such milk;
* * * * *
    8. Section 1124.32 is revised to read as follows:


Sec. 1124.32  Other reports.

    In addition to the reports required pursuant to Secs. 1124.30 and 
1124.31, each handler shall report such other information as the market 
administrator deems necessary to verify or establish such handler's 
obligations under the order.
    9. Section 1124.41 is amended by revising the second sentence of 
paragraph (c) to read as follows:


Sec. 1124.41  Shrinkage.

* * * * *
    (c) * * * If the operator of a plant or a commercial food 
processing establishment pursuant to Sec. 1124.20 purchases such milk 
on the basis of weights determined from its measurement at the farm, 
and butterfat tests and nonfat milk solids determined from farm bulk 
tank samples, the applicable percentage under this paragraph for the 
cooperative association shall be zero.
    10. The center heading preceding Sec. 1124.50 is revised to read 
``Class and Component Prices''.
    11. Section 1124.50 is revised to read as follows:


Sec. 1124.50  Class and component prices.

    The class and component prices for the month, per hundredweight or 
per pound, shall be as follows:
    (a) The Class I price, subject to the provisions of Sec. 1124.52, 
shall be the basic formula price defined in Sec. 1124.51 for the second 
preceding month plus $1.90.
    (b) The Class II price shall be computed by the Director of the 
Dairy Division and transmitted to the market administrator on or before 
the 15th day of the preceding month. The Class II price shall be the 
basic Class II formula price computed pursuant to Sec. 1124.51(b) for 
the month plus the amount that the value computed pursuant to paragraph 
(b)(1) of this section exceeds the value computed pursuant to paragraph 
(b)(2) of this section, plus any amount by which the basic Class II 
formula price for the second preceding month, adjusted pursuant to 
paragraphs (b)(1) and (b)(2) of this section, was less than the Class 
III price for the second preceding month:
    (1) Determine for the most recent 12-month period the simple 
average (rounded to the nearest cent) of the basic formula prices 
computed pursuant to Sec. 1124.51(a) and add 25 cents; and
    (2) Determine for the same 12-month period as specified in 
paragraph (b)(1) of this section the simple average (rounded to the 
nearest cent) of the basic Class II formula prices computed pursuant to 
Sec. 1124.51(b).
    (c) The Class III price shall be the basic formula price for the 
month.
    (d) The Class III-A price for the month shall be the average 
Western States nonfat dry milk price for the month, as reported by the 
Department, less 12.5 cents, times an amount computed by subtracting 
from 9 an amount calculated by dividing .4 by such nonfat dry milk 
price, plus the butterfat differential times 35 and rounded to the 
nearest cent.
    (e) The skim milk price per hundredweight shall be the basic 
formula price for the month pursuant to Sec. 1124.51(a) less an amount 
computed by multiplying the butterfat differential computed pursuant to 
Sec. 1124.19(e) by 35.
    (f) The butterfat price per pound shall be the total of:
    (1) The skim price computed in paragraph (e) of this section 
divided by 100; and
    (2) The butterfat differential computed pursuant to Sec. 1124.19(e) 
multiplied by 10.
    (g) The nonfat milk solids price per pound shall be computed by 
subtracting the butterfat price, multiplied by 3.5, from the basic 
formula price and dividing the result by the average percentage of 
nonfat milk solids in the milk on which the basic formula price is 
based, as announced by the Dairy Division. The resulting price shall be 
rounded to the nearest whole cent.
    12. Section 1124.51 is revised to read as follows:


Sec. 1124.51  Basic formula prices.

    (a) The basic formula price shall be the average price per 
hundredweight for manufacturing grade milk, f.o.b. plants in Minnesota 
and Wisconsin, as reported by the Department for the month, adjusted to 
a 3.5 percent butterfat basis and rounded to the nearest cent using the 
butterfat differential computed pursuant to Sec. 1124.19(e).
    (b) The basic Class II formula price for the month shall be the 
basic formula price determined pursuant to Sec. 1124.51(a) for the 
second preceding month plus or minus the amount computed pursuant to 
paragraphs (b)(1) through (4) of this section:
    (1) The gross values per hundredweight of milk used to manufacture 
cheddar cheese and butter-nonfat dry milk shall be computed, using 
price data determined pursuant to Sec. 1124.19 and yield factors in 
effect under the Dairy Price Support Program authorized by the 
Agricultural Act of 1949, as amended, for the first 15 days of the 
preceding month and, separately, for the first 15 days of the second 
preceding month as follows:
    (i) The gross value of milk used to manufacture cheddar cheese 
shall be the sum of the following computations:
    (A) Multiply the cheddar cheese price by the yield factor used 
under the Price Support Program for cheddar cheese;
    (B) Multiply the butter price by the yield factor used under the 
Price Support Program for determining the butterfat component of the 
whey value in the cheese price computation; and
    (C) Subtract from the edible whey price the processing cost used 
under the Price Support Program for edible whey and multiply any 
positive difference by the yield factor used under the Price Support 
Program for edible whey.
    (ii) The gross value of milk used to manufacture butter-nonfat dry 
milk shall be the sum of the following computations:
    (A) Multiply the butter price by the yield factor used under the 
Price Support Program for butter; and
    (B) Multiply the nonfat dry milk price by the yield factor used 
under the Price Support Program for nonfat dry milk.
    (2) Determine the amounts by which the gross value per 
hundredweight of milk used to manufacture cheddar cheese and the gross 
value per hundredweight of milk used to manufacture butter-nonfat dry 
milk for the first 15 days of the preceding month exceed or are less 
than the respective gross values for the first 15 days of the second 
preceding month.
    (3) Compute weighting factors to be applied to the changes in gross 
values determined pursuant to paragraph (b)(2) of this section by 
determining the relative proportion that the data included in each of 
the following paragraphs is of the total of the data represented in 
paragraphs (b)(3)(i) and (ii) of this section:
    (i) Combine the total American cheese production for the States of 
Minnesota and Wisconsin, as reported by the Statistical Reporting 
Service of the Department for the most recent preceding period, and 
divide by the yield factor used under the Price Support Program for 
cheddar cheese to determine the quantity of milk used in the production 
of American cheddar cheese; and
    (ii) Combine the total nonfat dry milk production for the States of 
Minnesota and Wisconsin, as reported by the Statistical Reporting 
Service of the Department for the most recent preceding period, and 
divide by the yield factor used under the Price Support Program for 
nonfat dry milk to determine the quantity of milk used in the 
production of butter-nonfat dry milk.
    (4) Compute a weighted average of the changes in gross values per 
hundredweight of milk determined pursuant to paragraph (b)(2) of this 
section in accordance with the relative proportions of milk determined 
pursuant to paragraph (b)(3) of this section.


Sec. 1124.51a  [Removed]

    13. Section 1124.51a is removed.
    14. Section 1124.53 is revised to read as follows:


Sec. 1124.53  Announcement of class and component prices.

    The market administrator shall announce publicly:
    (a) On or before the 5th day of each month, the Class I price for 
the following month and the Class III and Class III-A prices for the 
preceding month;
    (b) On or before the 15th day of each month, the Class II price for 
the following month; and
    (c) On or before the 5th day after the end of each month, the basic 
formula price, the prices for skim milk and butterfat, and the nonfat 
milk solids price.
    15. The center heading preceding Sec. 1124.60 is revised to read 
``Differential Pool and Handler Obligations''.
    16. Section 1124.60 is revised to read as follows:


Sec. 1124.60  Computation of handlers' obligations to pool.

    The market administrator shall compute each month for each handler 
defined in Sec. 1124.9(a) with respect to each of the handler's pool 
plants, and for each handler described in Sec. 1124.9 (b) and (c), an 
obligation to the pool by combining the amounts computed as follows:
    (a) Multiply the pounds of producer milk in Class I pursuant to 
Sec. 1124.44 by the difference between the Class I price, adjusted 
pursuant to Sec. 1124.52, and the Class III price;
    (b) Multiply the pounds of producer milk in Class II pursuant to 
Sec. 1124.44 by the difference between the Class II price and Class III 
price;
    (c) Add or subtract, as appropriate, the amount that results from 
multiplying the pounds of producer milk in Class III-A by the amount 
that the Class III-A price is more or less, respectively, than the 
Class III price;
    (d) Multiply the pounds of skim milk in Class I producer milk 
pursuant to Sec. 1124.44 by the skim milk price for the month;
    (e) Multiply the nonfat milk solids price for the month by the 
pounds of nonfat milk solids associated with the pounds of producer 
skim milk in Class II and Class III during the month. The pounds of 
nonfat milk solids shall be computed by multiplying the producer skim 
milk pounds so assigned by the percentage of nonfat milk solids in the 
handler's receipts of producer skim milk during the month for each 
report filed separately;
    (f) With respect to skim milk and butterfat overages assigned 
pursuant to Sec. 1124.44(a)(15), (b), and paragraph (f)(6) of this 
section:
    (1) Multiply the total pounds of butterfat by the butterfat price;
    (2) Multiply the skim milk pounds assigned to Class I by the skim 
milk price;
    (3) Multiply the pounds of nonfat milk solids associated with the 
skim milk pounds assigned to Class II and III by the nonfat milk solids 
price;
    (4) Multiply the combined skim milk and butterfat pounds assigned 
to Class I by the difference between the Class I price, adjusted for 
location, and the Class III price;
    (5) Multiply the combined skim milk and butterfat pounds assigned 
to Class II by the difference between the Class II price and the Class 
III price; and
    (6) Overage at a nonpool plant that is located on the same premises 
as a pool plant shall be prorated between the quantity of skim and 
butterfat received by transfer from the pool plant and other source 
milk received at the nonpool plant. The pool plant operator's 
obligation to the pool with respect to such overage will be computed by 
adding the prorated pounds of skim milk and butterfat to the amounts 
assigned pursuant to Sec. 1124.44(a)(15) and (b);
    (g) With respect to skim milk and butterfat assigned to shrinkage 
pursuant to Sec. 1124.44(a)(10) and (b):
    (1) Multiply the total pounds of butterfat by the butterfat price;
    (2) Multiply the skim milk pounds assigned to Class I by the skim 
milk price;
    (3) Multiply the pounds of nonfat milk solids associated with the 
skim milk pounds assigned to Class II and III by the nonfat milk solids 
price;
    (4) Multiply the combined skim milk and butterfat pounds assigned 
to Class I by the difference between the Class I price, adjusted for 
location, and the Class III price;
    (5) Multiply the combined skim milk and butterfat pounds assigned 
to Class II by the difference between the Class II price and the Class 
III price; and
    (6) Subtract the Class III value of the milk at the previous 
month's nonfat milk solids and butterfat prices;
    (h) Multiply the difference between the Class I price, adjusted for 
the location of the pool plant, and the Class III price by the combined 
pounds of skim milk and butterfat assigned to Class I pursuant to 
Sec. 1124.43(f) and subtracted from Class I pursuant to 
Sec. 1124.44(a)(8) (i) through (iv), (vii), and Sec. 1124.44(b), 
excluding:
    (1) Receipts of bulk fluid cream products from an other order 
plant;
    (2) Receipts of bulk concentrated fluid milk products from pool 
plants, other order plants, and unregulated supply plants; and
    (3) Receipts of nonfluid milk products that are distributed as 
labeled reconstituted milk for which payments are made to the producer-
settlement fund of another order under Sec. 1124.75 (b)(4) or (c);
    (i) Multiply the combined pounds of skim milk and butterfat 
subtracted from Class I pursuant to Sec. 1124.44(a)(8) (v) and (vi) and 
Sec. 1124.44(b) by the difference between the Class I price at the 
transferor plant and the Class III price;
    (j) Multiply the difference between the Class I and Class III 
prices, applicable at the location of the nearest nonpool plant(s) from 
which an equivalent volume was received, with respect to skim milk and 
butterfat in receipts of concentrated fluid milk products assigned to 
Class I pursuant to Sec. 1124.43(f) and Sec. 1124.44(a)(8)(v) and the 
combined pounds of skim milk and butterfat in receipts from an 
unregulated supply plant assigned pursuant to Sec. 1124.44 (a)(12) and 
(b), excluding such skim milk or butterfat in receipts of bulk fluid 
milk products from an unregulated supply plant to the extent that an 
equivalent quantity disposed of to such plant by handlers fully 
regulated by any Federal order is classified and priced as Class I milk 
and is not used as an offset for any other payment obligation under any 
order;
    (k) Subtract, for reconstituted milk made from receipts of nonfluid 
milk products, an amount computed by multiplying $1.00 (but not more 
than the difference between the Class I price applicable at the 
location of the pool plant and the Class III price) by the combined 
pounds of skim milk and butterfat contained in receipts of nonfluid 
milk products that are allocated to Class I use pursuant to 
Sec. 1124.43(f);
    (l) Add or subtract, as appropriate, the amount necessary to 
correct errors disclosed by the verification of the handler's receipts 
and utilization of skim milk and butterfat as reported for previous 
months; and
    (m) For pool plants that transfer bulk concentrated fluid milk 
products to other pool plants and other order plants, add or subtract 
the amount per hundredweight of any class price change from the 
previous month that results from any inventory reclassification of bulk 
concentrated fluid milk products that occurs at the transferee plant. 
Any applicable class price change shall be applied to the plant that 
used the concentrated milk in the event that the concentrated fluid 
milk products were made from bulk unconcentrated fluid milk products 
received at the plant during the prior month.
    17. Section 1124.61 is revised to read as follows:


Sec. 1124.61  Computation of weighted average differential price.

    A weighted average differential price for each month shall be 
computed by the market administrator as follows:
    (a) Combine into one total the value computed pursuant to 
Sec. 1124.60 (a) through (c) and (f) through (m) for all handlers who 
filed the reports prescribed by Sec. 1124.30 for the month and who made 
the payments pursuant to Sec. 1124.71 for the preceding month;
    (b) Add an amount equal to the total value of the location 
adjustments computed pursuant to Sec. 1124.74;
    (c) Add an amount equal to not less than one-half of the 
unobligated balance in the producer settlement fund;
    (d) Divide the resulting amount by the sum, for all handlers, of 
the total hundredweight of producer milk and the total hundredweight 
for which a value is computed pursuant to Sec. 1124.60(j); and
    (e) Subtract not less than 4 cents per hundredweight nor more than 
5 cents per hundredweight. The result shall be the weighted average 
differential price.
    18. Section 1124.62 is redesignated as Sec. 1124.63 and revised to 
read as follows:


Sec. 1124.63  Announcement of the weighted average differential price, 
the producer nonfat milk solids price, and an estimated uniform price.

    The market administrator shall announce on or before the 14th day 
after the end of each month, the following prices for such month:
    (a) The weighted average differential price;
    (b) The producer nonfat milk solids price; and
    (c) An estimated uniform price per hundredweight of milk which is 
computed by adding the weighted average differential price to the basic 
formula price.
    19. A new Sec. 1124.62 is added to read as follows:


Sec. 1124.62  Computation of producer nonfat milk solids price.

    The producer nonfat milk solids price shall be computed by the 
market administrator each month as follows:
    (a) Combine into one total the values computed pursuant to 
Sec. 1124.60 (d) and (e) for all handlers who filed reports pursuant to 
Sec. 1124.30 and who made payments pursuant to Sec. 1124.71 for the 
preceding month;
    (b) Divide the resulting amount by the total pounds of nonfat milk 
solids in producer milk; and
    (c) Round to the nearest whole cent.
    20. Section 1124.70 is revised to read as follows:


Sec. 1124.70  Producer-settlement fund.

    The market administrator shall establish and maintain a separate 
fund known as the ``producer-settlement'' fund into which shall be 
deposited all payments made by handlers pursuant to Secs. 1124.71 and 
1124.75 and out of which shall be made all payments to handlers 
pursuant to Sec. 1124.72. Payments due a handler from the fund shall be 
offset against payments due from such handler.
    21. Section 1124.71 is revised to read as follows:


Sec. 1124.71  Payments to the producer-settlement fund.

    On or before the 16th day after the end of the month, each handler 
shall pay to the market administrator the amount, if any, which results 
from subtracting the sum computed pursuant to paragraph (a) of this 
section from the sum computed pursuant to paragraph (b) of this 
section:
    (a) The sum of:
    (1) The total obligation of the handler for such month as 
determined pursuant to Sec. 1124.60; and
    (2) For a cooperative association handler, the amount due from 
other handlers pursuant to Sec. 1124.73(d);
    (b) The sum of:
    (1) The value of milk received by the handler from producers at the 
applicable prices pursuant to Sec. 1124.73(a)(2) (i), (ii), and (iii);
    (2) The amount to be paid by the handler to cooperative 
associations pursuant to Sec. 1124.73(d); and
    (3) The value at the weighted average differential price adjusted 
for the location of the plant(s) at which received (not to be less than 
zero) with respect to the total hundredweight of skim milk and 
butterfat in other source milk for which a value was computed for such 
handler pursuant to Sec. 1124.60(j); and
    (c) On or before the 25th day after the end of the month, each 
handler operating a plant specified in Sec. 1124.7(d) (2) and (3), if 
such plant is subject to the classification and pricing provisions of 
another order which provides for individual handler pooling, shall pay 
to the market administrator for the producer-settlement fund an amount 
computed as follows:
    (1) Determine the quantity of reconstituted skim milk in filled 
milk disposed of as route disposition in the marketing area which was 
allocated to Class I at such other order plant. If reconstituted skim 
milk in filled milk is disposed of from such plant as route disposition 
in the marketing areas regulated by two or more market pool orders, the 
reconstituted skim milk assigned to Class I shall be prorated according 
to such disposition in each area.
    (2) Compute the value of the quantity assigned in paragraph (c)(1) 
of this section to Class I disposition in this area, at the Class I 
price under this part applicable at the location of the other order 
plant (but not to be less than the Class III price) and subtract its 
value at the Class III price.
    22. Section 1124.72 is revised to read as follows:


Sec. 1124.72  Payments from the producer-settlement fund.

    On or before the 18th day after the end of the month, the market 
administrator shall pay to each handler the amount, if any, by which 
the amount computed pursuant to Sec. 1124.71(b) exceeds the amount 
computed pursuant to Sec. 1124.71(a), less any unpaid obligations of 
such handler to the market administrator pursuant to Secs. 1124.71, 
1124.75, 1124.85, and 1124.86. However, if the balance in the producer-
settlement fund is insufficient to make all payments pursuant to this 
section, the market administrator shall reduce uniformly such payments 
and shall complete such payments as soon as the necessary funds are 
available.
    23. Section 1124.73 is revised to read as follows:


Sec. 1124.73  Payments to producers and to cooperative associations.

    (a) Each handler shall make payment pursuant to this paragraph or 
paragraph (b) of this section to each producer from whom milk is 
received during the month:
    (1) On or before the last day of the month, to each producer who 
did not discontinue shipping milk to such handler before the 18th day 
of the month at not less than the Class III price for the preceding 
month per hundredweight of milk received from the producer during the 
first 15 days of the month, subject to adjustment for proper deductions 
authorized in writing by the producer;
    (2) On or before the 19th day after the end of each month, an 
amount computed as follows:
    (i) Multiply the butterfat price for the month by the total pounds 
of butterfat in milk received from the producer;
    (ii) Add the amount that results from multiplying the producer 
nonfat milk solids price for the month by the total pounds of nonfat 
milk solids in the milk received from the producer;
    (iii) Add the amount that results from multiplying the total 
hundredweight of milk received from the producer by the weighted 
average differential price for the month as adjusted pursuant to 
Sec. 1124.74(a);
    (iv) Subtract payments made to the producer pursuant to paragraph 
(a)(1) of this section;
    (v) Subtract proper deductions authorized in writing by the 
producer; and
    (vi) Subtract any deduction required pursuant to statute; and
    (3) If by the 19th day after the end of the month, a handler has 
not received full payment from the market administrator pursuant to 
Sec. 1124.72, the payments to producers required pursuant to paragraph 
(a)(2) of this section may be reduced uniformly as a percentage of the 
amount due each producer by a total sum not in excess of the remainder 
due from the market administrator. The handler shall pay the balance 
due producers on or before the date for making payments pursuant to 
such paragraph next following receipt of the full payment from the 
market administrator.
    (b) The payments required in paragraph (a) of this section shall, 
upon the request of a cooperative association qualified under 
Sec. 1124.18, be made to the association or its duly authorized agent 
for milk received from each producer who has given such association 
authorization by contract or other written instrument to collect the 
proceeds from the sale of the producer's milk. All payments required 
pursuant to this paragraph shall be made on or before the second day 
prior to the dates specified for such payment in paragraph (a)(2) of 
this section.
    (c) Each handler shall pay to each cooperative association which 
operates a pool plant, or the cooperative's duly authorized agent, for 
butterfat and nonfat milk solids received from such plant in the form 
of fluid milk products as follows:
    (1) On or before the second day prior to the date specified in 
paragraph (a)(1) of this section, for butterfat and nonfat milk solids 
received during the first 15 days of the month at not less than the 
butterfat and nonfat milk solids prices, respectively, for the 
preceding month; and
    (2) On or before the 15th day after the end of the month, an amount 
of money determined in accordance with computations made on the same 
basis as those specified in paragraph (a)(2) (i) through (iii) of this 
section, minus any payment made pursuant to paragraph (c)(1) of this 
section.
    (d) Each handler pursuant to Sec. 1124.9(a) that received milk from 
a cooperative association that was a handler pursuant to Sec. 1124.9(c) 
shall pay the cooperative association for such milk as follows:
    (1) On or before the second day prior to the date specified in 
paragraph (a)(1) of this section, for milk received during the first 15 
days of the month at not less than the Class III price for the 
preceding month; and
    (2) On or before the 17th day after the end of each month, for milk 
received during the month an amount of money determined in accordance 
with the computations specified in paragraphs (a)(2) (i) through (iii) 
of this section, minus any payment made pursuant to paragraph (d)(1) of 
this section.
    (e) None of the provisions of this section shall be construed to 
restrict any cooperative association qualified under section 8c(5)(F) 
of the Act from making payment for milk to its producers in accordance 
with such provision of the Act.
    (f) In making payments to producers pursuant to this section, each 
handler shall provide each producer, on or before the 19th day of each 
month, with a supporting statement for milk received from the producer 
during the previous month in such form that it may be retained by the 
producer, which shall show:
    (1) The identity of the handler and the producer;
    (2) The total pounds of milk delivered by the producer, the pounds 
of butterfat and nonfat milk solids contained therein, and, unless 
previously provided, the pounds of milk in each delivery;
    (3) The minimum rates at which payment to the producer is required 
under the provisions of this section;
    (4) The rate and amount of any premiums or of payments made in 
excess of the minimums required under this order;
    (5) The amount or rate of each deduction claimed by the handler, 
together with an explanation of each such deduction; and
    (6) The net amount of payment to the producer.
    (g) In making payments to a cooperative association in aggregate 
pursuant to this section, each handler shall, upon request, provide the 
cooperative association, with respect to each producer for whom such 
payment is made, any or all of the information specified in paragraph 
(f) of this section.


Sec. 1124.74  [Removed]

    24. Section 1124.74 is removed.


Sec. 1124.75  [Redesignated as Sec. 1124.74]

    25. Section 1124.75 is redesignated as Sec. 1124.74, and paragraph 
(c) is revised to read as follows:


Sec. 1124.74  Plant location adjustments for producers and on nonpool 
milk.

* * * * *
    (c) For purposes of the computations pursuant to 
Sec. Sec. 1124.71(a) and 1124.72, the weighted average differential 
price for all milk shall be adjusted at the rates set forth in 
Sec. 1124.52 for Class I milk applicable at the location of the nonpool 
plant from which the milk or filled milk was received, except that the 
adjusted weighted average differential price shall not be less than 
zero.


Sec. 1124.76  [Redesignated as Sec. 1124.75 and Amended]

    26. Section 1124.76 is redesignated as Sec. 1124.75. In the newly 
designated Sec. 1124.75(a)(1)(i), in the second sentence the words ``or 
estimated uniform price'' are inserted after the words ``uniform 
price''; and in the last sentence the reference ``Sec. 1124.60(f)'' is 
changed to read ``Sec. 1124.60(j)'' and the reference 
``Sec. 1124.71(a)(2)(iii)'' is changed to read ``Sec. 1124.71(b)(3)''. 
In Sec. 1124.75(a)(2)(i), the reference ``Sec. 1124.74'' is changed to 
read ``Sec. 1124.19(e)''. In Sec. 1124.75(b)(4), the word ``estimated'' 
is inserted before the words ``uniform price''.


Sec. 1124.77  [Redesignated as Sec. 1124.76]

    27. Section 1124.77 is redesignated as Sec. 1124.76.


Sec. 1124.78  [Redesignated as Sec. 1124.77 and Amended]

    28. Section 1124.78 is redesignated as Sec. 1124.77, and the 
reference in paragraph (a) introductory text to ``Sec. 1124.77'' is 
changed to read ``Sec. 1124.75''.


Sec. 1124.85  [Amended]

    29. In Sec. 1124.85(b), the reference ``Sec. 1124.60(f)'' is 
changed to read ``Sec. 1124.60(h) and (j)'' and in Sec. 1124.85(c)(2), 
the reference ``Sec. 1124.76(b)(2)(ii)'' is changed to read 
``Sec. 1124.75(b)(2)(ii)''.

PART 1135--MILK IN THE SOUTHWESTERN IDAHO-EASTERN OREGON MARKETING 
AREA

    1. The authority citation for part 1135 continues to read as 
follows:

    Authority: Secs. 1-19, 48 Stat. 31, as amended; 7 U.S.C. 601-
674.


Sec. 1135.9  [Amended]

    1a. In Sec. 1135.9(c), the words ``and protein tests'' are added 
following the word ``butterfat''.
    2. Section 1135.19 is revised to read as follows:


Sec. 1135.19  Product prices and butterfat differential.

    The prices specified in this section, which are computed by the 
Director of the Dairy Division, Agricultural Marketing Service, shall 
be used, where specified, in calculating the basic formula prices 
pursuant to Sec. 1135.51. The term ``workday'' as used in this section 
shall mean each Monday through Friday that is not a national holiday.
    (a) Butter price means the simple average, for the first 15 days of 
the month, of the daily prices per pound of Grade A (92-score) butter 
on the Chicago Mercantile Exchange, using the price reported each week 
as the price for the day of the report, and for each following workday 
until the next price is reported.
    (b) Cheddar cheese price means the simple average, for the first 15 
days of the month, of the daily prices per pound of cheddar cheese in 
40-pound blocks. The prices used shall be those of the National Cheese 
Exchange (Green Bay, WI), using the price reported each week as the 
price for the day of the report and for each following workday until 
the next price is reported.
    (c) Nonfat dry milk price means the simple average of the prices 
per pound of nonfat dry milk for the first 15 days of the month 
computed as follows:
    (1) The prices used shall be the prices (using the midpoint of any 
price range as one price) of high heat, low heat, and Grade A nonfat 
dry milk, respectively, for the Central States production area;
    (2) For each week, determine the simple average of the prices 
reported for the three types of nonfat dry milk. Such average shall be 
the daily price for the day that such prices are reported and for each 
preceding workday until the day such prices were previously reported; 
and
    (3) Add the prices determined in paragraph (c)(2) of this section 
for the first 15 days of the month and divide by the number of days for 
which there is a daily price.
    (d) Edible whey price means the simple average, for the first 15 
days of the month, of the daily prices per pound of edible whey powder 
(nonhygroscopic). The prices used shall be the prices (using the 
midpoint of any price range as one price) of edible whey powder for the 
Central States production area. The average shall be computed using the 
price reported each week as the daily price for that day and for each 
preceding workday until the day such price was previously reported.
    (e) The butterfat differential is the number that results from 
subtracting the computation in paragraph (e)(2) of this section from 
the computation in paragraph (e)(1) of this section and rounding to the 
nearest one-tenth cent:
    (1) Multiply 0.138 times the monthly average Chicago Mercantile 
Exchange Grade A (92-score) butter price, as reported and published by 
the Dairy Division;
    (2) Multiply 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.
    3. In Sec. 1135.30, paragraphs (b) and (d) are redesignated as 
paragraphs (d) and (e), respectively, and the introductory text of the 
section and paragraphs (a) and (c) are revised and a new paragraph (b) 
is added to read as follows:


Sec. 1135.30  Reports of receipts and utilization.

    On or before the 9th day after the end of the month, each handler 
shall report to the market administrator, in the detail and on forms 
prescribed by the market administrator, the following information for 
such month:
    (a) Each handler qualified pursuant to Sec. 1135.9(a) shall report 
for each pool plant operated by the handler the quantities of skim milk 
and butterfat contained in or represented by:
    (1) Producer milk received at such plants or diverted by the 
handler to other plants, and the protein content of such milk;
    (2) Producer milk received at such plants from handlers qualified 
pursuant to Sec. 1135.9 (c) and (d), and the protein content of such 
milk; and
    (3) Fluid milk products and bulk fluid cream products from other 
pool plants and other source milk received at such plants.
    (b) Each handler qualified pursuant to Sec. 1135.9 (b), (c), or (d) 
shall report the quantities of producer milk received and the butterfat 
and protein contained therein.
    (c) Each handler submitting reports pursuant to paragraphs (a) and 
(b) of this section shall report the utilization or disposition of all 
milk, filled milk, and milk products required to be reported, and 
inventories on hand at the beginning and end of each month in the form 
of fluid milk products and products specified in Sec. 1135.40(b)(1).
* * * * *
    4. In Sec. 1135.31(a), the word ``20th'' is changed to ``22nd'', 
the semicolon at the end of paragraph (a) introductory text is changed 
to a colon, and paragraph (a)(4) is revised to read as follows:


Sec. 1135.31  Payroll reports.

    (a) * * *
    (4) The average butterfat and protein content of his/her milk;
* * * * *
    5. In Sec. 1135.41, the colon at the end of paragraph (b)(3) is 
changed to a semicolon and paragraph (c) is revised to read as follows:


Sec. 1135.41  Shrinkage.

* * * * *
    (c) The quantity of skim milk and butterfat, respectively, in 
shrinkage of milk from producers for which a cooperative association is 
the handler pursuant to Sec. 1135.9 (b) or (c) or a proprietary bulk 
tank handler is the handler pursuant to Sec. 1135.9(d), but not in 
excess of 0.5 percent of the skim milk and butterfat, respectively, in 
such milk. If the operator of the plant to which the milk is delivered 
purchases such milk on the basis of weights determined from its 
measurement at the farm and protein and butterfat tests determined from 
farm bulk tank samples, the applicable percentage for the cooperative 
association or the proprietary bulk tank handler shall be zero.
    6. The center heading preceding Sec. 1135.50 is revised to read 
``Class and Component Prices''.
    7. In Sec. 1135.50, in paragraph (b) introductory text the 
reference ``Sec. 1135.51a'' is revised to read ``Sec. 1135.51(b)''; in 
paragraph (b)(1), the reference ``Sec. 1135.51'' is revised to read 
``Sec. 1135.51(a)''; in paragraph (b)(2), the reference 
``Sec. 1135.51a'' is revised to read ``Sec. 1135.51(b)''; the section 
heading and paragraph (a) are revised; and new paragraphs (e), (f), and 
(g) are added to read as follows:


Sec. 1135.50  Class and component prices.

* * * * *
    (a) The Class I price shall be the basic formula price pursuant to 
Sec. 1135.51(a) for the second preceding month plus $1.50.
* * * * *
    (e) The skim milk price per hundredweight shall be the basic 
formula price for the month pursuant to Sec. 1135.51(a) less an amount 
computed by multiplying the butterfat differential computed pursuant to 
Sec. 1135.19(e) by 35.
    (f) The butterfat price per pound shall be the total of:
    (1) The skim price computed in paragraph (e) of this section 
divided by 100; and
    (2) The butterfat differential computed pursuant to Sec. 1135.19(e) 
multiplied by 10.
    (g) The milk protein price per pound shall be computed by 
subtracting the butterfat price, multiplied by 3.5, from the basic 
formula price and dividing the result by the percentage of protein in 
the milk on which the basic formula price is based, as announced by the 
Dairy Division. The resulting price shall be rounded to the nearest 
whole cent.
    8. Section 1135.51 is revised to read as follows:


Sec. 1135.51  Basic formula prices.

    (a) The basic formula price shall be the average price per 
hundredweight for manufacturing grade milk, f.o.b. plants in Minnesota 
and Wisconsin, as reported by the Department for the month, adjusted to 
a 3.5 percent butterfat basis and rounded to the nearest cent using the 
butterfat differential computed pursuant to Sec. 1135.19(e).
    (b) The basic Class II formula price for the month shall be the 
basic formula price determined pursuant to Sec. 1135.51(a) for the 
second preceding month plus or minus the amount computed pursuant to 
paragraphs (b)(1) through (4) of this section:
    (1) The gross values per hundredweight of milk used to manufacture 
cheddar cheese and butter-nonfat dry milk shall be computed, using 
price data determined pursuant to Sec. 1135.19 and yield factors in 
effect under the Dairy Price Support Program authorized by the 
Agricultural Act of 1949, as amended, for the first 15 days of the 
preceding month and, separately, for the first 15 days of the second 
preceding month as follows:
    (i) The gross value of milk used to manufacture cheddar cheese 
shall be the sum of the following computations:
    (A) Multiply the cheddar cheese price by the yield factor used 
under the Price Support Program for cheddar cheese;
    (B) Multiply the butter price by the yield factor used under the 
Price Support Program for determining the butterfat component of the 
whey value in the cheese price computation; and
    (C) Subtract from the edible whey price the processing cost used 
under the Price Support Program for edible whey and multiply any 
positive difference by the yield factor used under the Price Support 
Program for edible whey.
    (ii) The gross value of milk used to manufacture butter-nonfat dry 
milk shall be the sum of the following computations:
    (A) Multiply the butter price by the yield factor used under the 
Price Support Program for butter; and
    (B) Multiply the nonfat dry milk price by the yield factor used 
under the Price Support Program for nonfat dry milk.
    (2) Determine the amounts by which the gross value per 
hundredweight of milk used to manufacture cheddar cheese and the gross 
value per hundredweight of milk used to manufacture butter-nonfat dry 
milk for the first 15 days of the preceding month exceed or are less 
than the respective gross values for the first 15 days of the second 
preceding month.
    (3) Compute weighting factors to be applied to the changes in gross 
values determined pursuant to paragraph (b)(2) of this section by 
determining the relative proportion that the data included in each of 
the following paragraphs is of the total of the data represented in 
paragraphs (b)(3) (i) and (ii) of this section:
    (i) Combine the total American cheese production for the States of 
Minnesota and Wisconsin, as reported by the Statistical Reporting 
Service of the Department for the most recent preceding period, and 
divide by the yield factor used under the Price Support Program for 
cheddar cheese to determine the quantity of milk used in the production 
of American cheddar cheese; and
    (ii) Combine the total nonfat dry milk production for the States of 
Minnesota and Wisconsin, as reported by the Statistical Reporting 
Service of the Department for the most recent preceding period, and 
divide by the yield factor used under the Price Support Program for 
nonfat dry milk to determine the quantity of milk used in the 
production of butter-nonfat dry milk.
    (4) Compute a weighted average of the changes in gross values per 
hundredweight of milk determined pursuant to paragraph (b)(2) of this 
section in accordance with the relative proportions of milk determined 
pursuant to paragraph (b)(3) of this section.


Sec. 1135.51a  [Removed]

    9. Section 1135.51a is removed.
    10. Section 1135.53 is revised to read as follows:


Sec. 1135.53  Announcement of class and component prices.

    The market administrator shall announce publicly:
    (a) On or before the 5th day of each month, the Class I price for 
the following month and the Class III and Class III-A prices for the 
preceding month;
    (b) On or before the 15th day of each month, the Class II price for 
the following month; and
    (c) On or before the 5th day after the end of each month, the basic 
formula price, the prices for skim milk and butterfat, and the milk 
protein price.
    11. A center heading preceding Sec. 1135.60 is added to read 
``Differential Pool and Handler Obligations''.
    12. Section 1135.60 is revised to read as follows:


Sec. 1135.60  Computation of handlers' obligations to pool.

    The market administrator shall compute each month for each handler 
described in Sec. 1135.9(a) with respect to each of the handler's pool 
plants and for each handler qualified pursuant to Sec. 1135.9 (b), (c), 
or (d) an obligation to the pool by combining the amounts computed as 
follows:
    (a) Multiply the hundredweight of producer milk assigned to Class I 
milk pursuant to Sec. 1135.44(c) by the difference between the Class I 
price and the Class III price;
    (b) Multiply the hundredweight of producer milk assigned to Class 
II milk pursuant to Sec. 1135.44(c) by the difference between the Class 
II price and the Class III price;
    (c) Add or subtract, as appropriate, the amount that results from 
multiplying the pounds of producer milk in Class III-A by the amount 
that the Class III-A price is more or less, respectively, than the 
Class III price;
    (d) Multiply the skim milk price by the hundredweight of producer 
skim milk assigned to Class I milk pursuant to Sec. 1135.44(a);
    (e) Multiply the milk protein price by the pounds of protein in 
producer skim milk assigned to Class II and Class III pursuant to 
Sec. 1135.44(a). The pounds of protein shall be computed by multiplying 
the hundredweight of skim milk so assigned by the average percentage of 
protein in all producer skim milk received by the handler during the 
month;
    (f) With respect to skim milk and butterfat overages assigned 
pursuant to Sec. 1135.44(a)(14) and (b):
    (1) Multiply the total pounds of butterfat by the butterfat price;
    (2) Multiply the skim milk pounds assigned to Class I by the skim 
milk price;
    (3) Multiply the protein pounds associated with the skim milk 
pounds assigned to Class II and III by the milk protein price;
    (4) Multiply the combined skim milk and butterfat pounds assigned 
to Class I by the difference between the Class I price and the Class 
III price; and
    (5) Multiply the combined skim milk and butterfat pounds assigned 
to Class II by the difference between the Class II price and the Class 
III price;
    (g) With respect to skim milk and butterfat assigned to shrinkage 
pursuant to Sec. 1135.44(a)(9) and (b):
    (1) Multiply the total pounds of butterfat by the butterfat price;
    (2) Multiply the skim milk pounds assigned to Class I by the skim 
milk price;
    (3) Multiply the protein pounds associated with the skim milk 
pounds assigned to Class II and III by the milk protein price;
    (4) Multiply the combined skim milk and butterfat pounds assigned 
to Class I by the difference between the Class I price and the Class 
III price;
    (5) Multiply the combined skim milk and butterfat pounds assigned 
to Class II by the difference between the Class II price and the Class 
III price; and
    (6) Subtract the Class III value of the milk at the previous 
month's protein and butterfat prices;
    (h) Multiply the difference between the Class I price and the Class 
III price by the combined pounds of skim milk and butterfat assigned to 
Class I pursuant to Sec. 1135.43(d) and subtracted from Class I 
pursuant to Sec. 1135.44(a)(7)(i) through (iv) and (b), excluding:
    (1) Receipts of bulk fluid cream products from an other order 
plant;
    (2) Receipts of bulk concentrated fluid milk products from pool 
plants, other order plants, and unregulated supply plants; and
    (3) Receipts of nonfluid milk products that are distributed as 
labeled reconstituted milk for which payments are made to the producer-
settlement fund of another order under Sec. 1135.76(a)(5) or (c);
    (i) Multiply the difference between the Class I price and the Class 
III price by the combined pounds of skim milk and butterfat subtracted 
from Class I pursuant to Sec. 1135.44(a)(7)(v) and (vi) and 
Sec. 1135.44(b);
    (j) Multiply the difference between the Class I price and the Class 
III price by the combined pounds of skim milk and butterfat in receipts 
of concentrated fluid milk products assigned to Class I pursuant to 
Sec. 1135.43(d) and Sec. 1135.44(a)(7)(i) and by the pounds of skim and 
butterfat subtracted from Class I pursuant to Sec. 1135.44(a)(11) and 
(b), excluding the skim milk and butterfat in receipts of bulk fluid 
milk products from unregulated supply plants to the extent an 
equivalent quantity of skim milk and butterfat disposed of to any 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;
    (k) Subtract, for reconstituted milk made from receipts of nonfluid 
milk products, an amount computed by multiplying $1.00 (but not more 
than the difference between the Class I price and the Class III price) 
by the combined pounds of skim milk and butterfat contained in receipts 
of nonfluid milk products that are allocated to Class I use pursuant to 
Sec. 1135.43(d); and
    (l) For pool plants that transfer bulk concentrated fluid milk 
products to other pool plants and other order plants, add or subtract 
the amount per hundredweight of any class price change from the 
previous month that results from any inventory reclassification of bulk 
concentrated fluid milk products that occurs at the transferee plant. 
Any applicable class price change shall be applied to the plant that 
used the concentrated milk in the event that the concentrated fluid 
milk products were made from bulk unconcentrated fluid milk products 
received at the plant during the prior month.
    13. Section 1135.61 is revised to read as follows:


Sec. 1135.61  Computation of weighted average differential price.

    A weighted average differential price for all milk received from 
producers shall be computed by the market administrator as follows:
    (a) Combine into one total the values computed pursuant to 
Sec. 1135.60 (a) through (c) and (f) through (l) for all handlers who 
filed reports pursuant to Sec. 1135.30 for the month, and who made the 
payments pursuant to Sec. 1135.71 for the preceding month;
    (b) Add an amount equal to not less than one-half of the 
unobligated balance in the producer-settlement fund;
    (c) Divide the resulting amount by the sum, for all handlers, of 
the total hundredweight of producer milk and the total hundredweight 
for which values were computed pursuant to Sec. 1135.60(j); and
    (d) Subtract not less than 4 cents nor more than 5 cents per 
hundredweight of milk included under paragraph (c) of this section. The 
result shall be the weighted average differential price.


Sec. 1135.62  [Redesignated as Sec. 1135.63]

    14. Section 1135.62 is redesignated as Sec. 1135.63 and revised to 
read as follows:


Sec. 1135.63  Announcement of the weighted average differential price, 
the producer protein price, and an estimated uniform price.

    The market administrator shall announce on or before the 14th day 
after the end of each month the following prices for such month:
    (a) The weighted average differential price;
    (b) The producer protein price; and
    (c) An estimated uniform price per hundredweight of milk computed 
by adding the weighted average differential price to the basic formula 
price.
    15. A new Sec. 1135.62 is added to read as follows:


Sec. 1135.62  Computation of producer protein price.

    A producer protein price shall be computed by the market 
administrator each month as follows:
    (a) Combine into one total the values computed pursuant to 
Sec. 1135.60(d) and (e) for all handlers who filed reports pursuant to 
Sec. 1135.30 and who made payments pursuant to Sec. 1135.71 for the 
preceding month;
    (b) Divide the resulting amount by the total pounds or protein 
contained in producer milk; and
    (c) Round to the nearest whole cent. The result shall be the 
producer protein price.
    16. Section 1135.70 is revised to read as follows:


Sec. 1135.70  Producer-settlement fund.

    The market administrator shall establish and maintain a separate 
fund known as the ``producer-settlement fund'' into which he shall 
deposit the appropriate payments made by handlers pursuant to 
Secs. 1135.71, 1135.74, 1135.75, and 1135.76 and out of which he shall 
make all payments due handlers pursuant to Secs. 1135.72, and 1135.75.
    17. Section 1135.71 is revised to read as follows:


Sec. 1135.71  Payments to the producer-settlement fund.

    On or before the 16th day after the end of the month, each handler 
shall pay to the market administrator the amount, if any, by which the 
amount as specified in paragraph (a) of this section exceeds the amount 
specified in paragraph (b) of this section:
    (a) The total obligation of the handler for such month as 
determined pursuant to Sec. 1135.60.
    (b) The sum of:
    (1) The value computed by multiplying the weighted average 
differential price by the hundredweight of producer milk received from 
handlers qualified pursuant to Sec. 1135.9(c) and from producers during 
the month;
    (2) The value computed for the protein contained in the producer 
milk included under paragraph (b)(1) of this section at the producer 
protein price; and
    (3) The value at the weighted average differential price of the 
hundredweight of skim milk and butterfat for which a value is computed 
pursuant to Sec. 1135.60(j).
    18. Section 1135.72 is revised to read as follows:


Sec. 1135.72  Payments from the producer-settlement fund.

    On or before the 18th day after the end of the month, the market 
administrator shall pay to each handler the amount, if any, by which 
the amount computed for such handler pursuant to Sec. 1135.71(b) 
exceeds the amount computed pursuant to Sec. 1135.71(a). If at such 
time the balance in the producer-settlement fund is insufficient to 
make all of the payments pursuant to this section, the market 
administrator shall reduce uniformly such payment and shall complete 
such payment as soon as the necessary funds become available.
    19. In 1135.73, paragraphs (b), (d), and (e) (2) through (6) are 
revised to read as follows:


Sec. 1135.73  Payments to producers and to cooperative associations.

* * * * *
    (b) On or before the 19th day after the end of each month, each 
handler shall pay to each producer from whom milk was received during 
the month, a sum computed as follows:
    (1) Multiply the butterfat price for the month by the total pounds 
of butterfat in milk received from the producer;
    (2) Multiply the producer protein price for the month by the total 
pounds of protein in such milk;
    (3) Multiply the weighted average differential price for the month 
multiplied by the hundredweight of such milk;
    (4) Subtract payments made to the producer pursuant to paragraph 
(a) of this section;
    (5) Subtract deductions for marketing services pursuant to 
Sec. 1135.86; and
    (6) Subtract proper deductions authorized in writing by such 
producer.
* * * * *
    (d) In the event a handler has not received full payment from the 
market administrator pursuant to Sec. 1135.72 by the 19th day of the 
month, the handler may reduce pro rata the payments to producers 
pursuant to paragraphs (b) and (c) 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 
paragraph.
    (e) * * *
    (2) The total pounds of milk received from the producer and the 
pounds of butterfat and protein contained therein;
    (3) The minimum rates at which payment is required pursuant to this 
section;
    (4) The rates used in making payment, if such rates are other than 
the required applicable minimums;
    (5) The amount (or rate per hundredweight) of each deduction 
claimed by the handler, including any deduction claimed under 
Sec. 1135.86, together with an explanation of each deduction; and
    (6) The net amount of the payment to the producer.


Sec. 1135.74  [Removed]

    20. Section 1135.74 is removed.


Sec. 1135.75  [Removed]

    21. Section 1135.75 is removed.


Sec. 1135.76  [Redesignated as Sec. 1135.74 and Amended]

    22. Section 1135.76 is redesignated as Sec. 1135.74 and the 
following changes are made in that section:
    a. In newly designated Sec. 1135.74(a)(4), the word ``estimated'' 
is inserted before the words ``uniform price'';
    b. In Sec. 1135.74(b)(1)(ii), the words ``or estimated uniform 
price'' are added following the words ``uniform price'' everywhere it 
appears;
    c. In Sec. 1135.74 (b)(1)(iii) introductory text, the reference 
``Sec. 1135.60(f)'' is changed to read ``Sec. 1135.60(j)'', the 
reference ``Sec. 1135.71(a)(2)(ii)'' is changed to read 
``Sec. 1135.71(b)(2)''.
    d. In Sec. 1135.74, paragraphs (b)(1)(iii) (a) through (c) are 
redesignated as (b)(1)(iii) (A) through (C); and
    e. In Sec. 1135.74(b)(2) (i) and (ii), the reference 
``Sec. 1135.74'' is changed to read ``Sec. 1135.19(e)''.


Sec. 1135.77  [Redesignated as Sec. 1135.75]

    23. Section 1135.77 is redesignated as Sec. 1135.75.


Sec. 1135.78  [Redesignated as Sec. 1135.76 and Amended]

    24. Section 1135.78 is redesignated as Sec. 1135.76, and the 
references ``1135.76, 1135.77, 1135.78'' are changed to read ``1135.74, 
1135.75, 1135.76'', respectively.


Sec. 1135.85  [Amended]

    25. In Sec. 1135.85(b), the reference ``Sec. 1135.60 (d) and (f)'' 
is changed to read ``Sec. 1135.60 (h) and (j)''; and in 
Sec. 1135.85(c), the reference ``Sec. 1135.76(a)(2)'' is changed to 
read ``Sec. 1135.74(a)(2)''.

Marketing Agreement Regulating the Handling of Milk in the Pacific 
Northwest (or Southwestern Idaho-Eastern Oregon) Marketing Areas

    The parties hereto, in order to effectuate the declared policy 
of the Act, and in accordance with the rules of practice and 
procedure effective thereunder (7 CFR Part 900), desire to enter 
into this marketing agreement and do hereby agree that the 
provisions referred to in paragraph I hereof, as augmented by the 
provisions specified in paragraph II hereof, shall be and are the 
provisions of this marketing agreement as if set out in full herein.
    I. The findings and determinations, order relative to handling, 
and the provisions of Sec. Sec. 1124.1 to 1124.86 (or 
Sec. Sec. 1135.1 to 1135.86, respectively), all inclusive, of the 
order regulating the handling of milk in the Pacific Northwest or 
Southwestern Idaho-Eastern Oregon marketing areas (7 CFR PARTS 1124 
or 1135, as applicable), which is annexed hereto; and
    II. The following provisions:
    Sec. 1124.87 (or Sec. 1135.87, as the case may be). Record of 
milk handled and authorization to correct typographical errors.
    (a) Record of milk handled. The undersigned certifies that he or 
she handled during the month of September 1993 ______ hundredweight 
of milk covered by this marketing agreement.
    (b) Authorization to correct typographical errors. The 
undersigned hereby authorizes the Director, or Acting Director, 
Dairy Division, Agricultural Marketing Service, to correct any 
typographical errors which may have been made in this marketing 
agreement.
    Sec. 1124.88 (or Sec. 1135.88, as the case may be). Effective 
date.
    This marketing agreement shall become effective upon the 
execution of a counterpart hereof by the Secretary in accordance 
with Section 900.14(a) of the aforesaid rules of practice and 
procedure.
    In Witness Whereof, The contracting handlers, acting under the 
provisions of the Act, for the purposes and subject to the 
limitations herein contained and not otherwise, have hereunto set 
their respective hands and seals.
(Signature)------------------------------------------------------------

(Seal)

By (Name)--------------------------------------------------------------

(Title)----------------------------------------------------------------

(Address)--------------------------------------------------------------

Attest

[FR Doc. 94-3502 Filed 2-22-94; 8:45 am]
BILLING CODE 3410-02-P