[Federal Register Volume 60, Number 156 (Monday, August 14, 1995)]
[Proposed Rules]
[Pages 41833-41868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19677]



 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 60, No. 156 / Monday, August 14, 1995 / 
Proposed Rules  


[[Page 41833]]


DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1030, 1065, 1068, 1076 and 1079

[Docket Nos. AO-361-A31, etc.; DA-92-27]


Milk in the Chicago Regional and Other Marketing Areas; Decision 
on Proposed Amendments to Marketing Agreements and to Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

------------------------------------------------------------------------
  7 CFR                                                                 
  Part                   Marketing area                      AO Nos.    
------------------------------------------------------------------------
1030....  Chicago Regional............................  AO-361-A31      
1065....  Nebraska-Western Iowa.......................  AO-86-A50       
1068....  Upper Midwest...............................  AO-178-A48      
1076....  Eastern South Dakota........................  AO-260-A32      
1079....  Iowa........................................  AO-295-A44      
------------------------------------------------------------------------

SUMMARY: This final decision adopts changes in the Federal milk 
marketing orders for five north central marketing areas based on 
industry proposals considered at a public hearing. The decision adopts 
a plan for pricing milk on the basis of its protein and other nonfat 
solids, as well as butterfat, components. The proposed plan includes 
adjustments per hundredweight based on the somatic cell count of 
producer milk used in Class II and Class III, and on payments to 
producers of all pooled milk.

FOR FURTHER INFORMATION CONTACT: Constance M. Brenner, Marketing 
Specialist, USDA/AMS/Dairy Division, Order Formulation Branch, Room 
2968, South Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 
720-2357.

SUPPLEMENTARY INFORMATION: This administrative action is governed by 
the provisions of sections 556 and 557 of Title 5 of the United States 
Code and therefore is excluded from the requirements of Executive Order 
12866.
    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the 
Agency to examine the impact of a proposed rule on small entities. 
Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural 
Marketing Service has certified that this rule will not have a 
significant economic impact on a substantial number of small entities. 
The amended orders will promote more orderly marketing of milk by 
producers and regulated handlers.
    These proposed amendments have been reviewed under Executive Order 
12778, Civil Justice Reform. This rule is not intended to have a 
retroactive effect. If adopted, this proposed rule will not preempt any 
state or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may file with 
the Secretary a petition stating that the order, any provision of the 
order, or any obligation imposed in connection with the order is not in 
accordance with the law and requesting a modification of an order or to 
be exempted from the order. A handler is afforded the opportunity for a 
hearing on the petition. After a hearing, the Secretary would rule on 
the petition. The Act provides that the district court of the United 
States in any district in which the handler is an inhabitant, or has 
its principal place of business, has jurisdiction in equity to review 
the Secretary's ruling on the petition, provided a bill in equity is 
filed not later than 20 days after the date of the entry of the ruling.
    Prior documents in this proceeding;
    Notice of Hearing: Issued December 22, 1993; published January 4, 
1994 (59 FR 260).
    Extension of Time for Filing Briefs: Issued April 22, 1994; 
published April 29, 1994 (59 FR 22138).
    Recommended Decision: Issued October 25, 1994; published November 
2, 1994 (59 FR 54952).
    Extension of Time for Filing Exceptions: December 2, 1994; 
published December 9, 1994 (59 FR 63733).

Preliminary Statement

    A public hearing was held upon proposed amendments to the marketing 
agreements and the orders regulating the handling of milk in the 
Chicago Regional and certain other 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 (7 CFR Part 900), at Bloomington, 
Minnesota, on January 25-27, 1994. Notice of such hearing was issued on 
December 22, 1993, and published January 4, 1994 (59 FR 260).
    Upon the basis of the evidence introduced at the hearing and the 
record thereof, the Administrator, on October 25, 1994, 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. Under Issue 1, the last sentence in paragraph 1 is revised, the 
second sentence in paragraph 23 is revised, a paragraph is added after 
paragraph 34, and two paragraphs are added after paragraph 40.
    2. Two paragraphs are added at the end of Issue 2.
    3. Under Issue 3, one paragraph is added after paragraph 5, the 
first sentence of paragraph 8 is revised, and a paragraph is added at 
the end of Issue 3.
    4. Under Issue 3a, a phrase is modified in paragraph 5, four 
paragraphs are added after paragraph 25, and two paragraphs are added 
at the end of Issue 3a.
    5. Under Issue 3b, paragraph 1 is modified, one paragraph is added 
after paragraph 7, one paragraph is added after paragraph 8, and one 
paragraph is added at the end of Issue 3b.
    6. Under Issue 3c, a sentence is added at the end of paragraph 3.
    7. Under Issue 4, paragraph 1 is modified, paragraph 26 is modified 
and expanded into three paragraphs, the last four sentences of 
paragraph 34 and all of paragraphs 35 and 36 are deleted, and 34 
paragraphs are added at the end of Issue 4. 

[[Page 41834]]

    8. Under Issue 5, paragraphs 1 and 4 are revised, paragraph 5 is 
replaced by two new paragraphs, two paragraphs are added after 
paragraph 12, paragraph 16 is revised, and two paragraphs are added at 
the end of Issue 5.
    The material issues on the record of the hearing relate to:
    1. Adoption of multiple component pricing.
    2. Orders to be included.
    3. Components and component prices.
     a. Protein.
     b. Other nonfat solids.
    c. Butterfat.
     d. Miscellaneous issues.
    4. Somatic cell adjustment.
    5. Conforming changes.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on evidence presented at the hearing and the record thereof:
    1. Adoption of multiple component pricing. Proposals to incorporate 
multiple component pricing in the Chicago Regional (Order 30), 
Nebraska-Western Iowa (Order 65), Upper Midwest (Order 68), Eastern 
South Dakota (Order 76) and Iowa (Order 79) Federal milk marketing 
orders (the five orders) should be adopted, with some modifications. 
The pricing plan generally would be patterned after the multiple 
component pricing plan proposed by National All-Jersey, Inc. and other 
dairy organizations. Producers would be paid on the basis of the pounds 
of butterfat, protein and other nonfat solids (solids-not-fat other 
than protein) in their milk, and would share in the value of the pool's 
Class I and Class II uses on a per hundredweight basis. Regulated 
handlers would pay for the milk they receive on the basis of total 
butterfat, the protein and other nonfat solids used in Classes II and 
III, skim milk used in Class I, and the hundredweight of total product 
used in Classes I and II. In a modification from the recommended 
decision, a somatic cell adjustment, per hundredweight, would apply to 
the value of milk used in Classes II and III, but not in Class I, and 
to the value of all producer milk. The change was necessary since the 
record evidence as discussed later did not support including Class I.
    At the present time, milk received by handlers under the five 
orders is priced according to the pounds of producer milk allocated to 
each class of use multiplied by the prices per hundredweight of milk 
testing 3.5 percent butterfat, as determined under the orders for each 
class of use. Adjustments for such items as overage, reclassified 
inventory, location and other source milk allocated to Class I are 
added to or subtracted from the classified use value of the milk. The 
resulting amount is divided by the total producer milk in the pool to 
calculate a price per hundredweight of milk testing 3.5 percent 
butterfat to be paid to producers for the milk they have delivered to 
handlers. The price paid to each producer is then adjusted according to 
the specific butterfat test of the producer's milk by means of a 
butterfat differential. The butterfat differential is computed by 
multiplying the wholesale selling price of Grade A (92-score) bulk 
butter per pound on the Chicago Mercantile Exchange, as reported for 
the month by the U.S. Department of Agriculture, by 0.138 and 
subtracting the Minnesota-Wisconsin price (the M-W price) at test, also 
as reported by the U.S. Department of Agriculture, multiplied by .0028.
    The multiple component pricing (MCP) plan was originally proposed 
for Orders 30, 68 and 79 by National All-Jersey, Inc. (NAJ), and other 
dairy organizations. In addition, Land O'Lakes, Inc., proposed that the 
multiple component plan be considered for Orders 65 and 76. Most other 
proposals considered at the hearing were modifications of the NAJ 
proposal and are discussed below.
    The first NAJ witness stated that the current milk pricing system 
used in the five orders does not meet current marketing needs and 
should be replaced with a multiple component pricing system. Much of 
the general NAJ testimony in favor of multiple component pricing was 
later reiterated by witnesses expert in the field of economics and 
dairy chemistry testifying for NAJ, and a representative for Land 
O'Lakes. Also testifying in favor of the NAJ proposal were two dairy 
farmer members of the cooperative association Swiss Valley Farms 
Company, a representative of the Brown Swiss Cattle Breeders 
Association of U.S.A., Inc., and a representative of Tri-State Milk 
Cooperative. It was indicated in testimony that Alto Dairy Cooperative 
also supported the NAJ proposal.
    The representative for the proponents said the intent of their 
proposal was to:
     1. Use the M-W price as the base;
     2. Pay all producers on four factors--pounds of butterfat, pounds 
of protein, pounds of other solids, and each producer's share of the 
fluid differential on a per hundredweight basis;
    3. Leave Class I handler obligations on a skim-butterfat basis;
    4. Determine Class II and III handlers' obligations on the basis of 
pounds of butterfat, protein, and other solids; and
    5. Change only the order provisions needed to implement the NAJ 
proposal.
    The NAJ witness said that there were five reasons for replacing the 
current milk pricing system with a multiple component pricing system. 
The first reason, according to the NAJ witness, is that the current 
skim-butterfat pricing system does not give dairy farmers economic 
incentives to produce milk high in nonfat solids, especially protein. 
He stated that under the current pricing system a pound of water 
receives the same price as a pound of protein or other solids, yet it 
is these solids that give milk its functional and nutritional value.
    The second reason given by the NAJ witness for adopting MCP was 
that over a period of years much of the value of milk has shifted from 
butterfat to the skim portion of milk. The proponent's witness said 
that in 1960, butterfat represented 77% of the value of the M-W price, 
and skim represented 23%. By 1993, he testified, these values were 
reversed, with butterfat representing only 23% of the value of the M-W, 
while the skim portion of the milk represented 77%.
    According to the NAJ witness, the shift in value from butterfat to 
skim was partially caused by the USDA decision to decrease the support 
price for butter and increase the support price for nonfat dry milk. 
The support price for butter declined from $1.53 per pound in 1981 to 
65 cents per pound in 1993, with most of the decrease occurring since 
1989. Nonfat dry milk purchase prices under the support program 
increased from 72.75 cents per pound in 1988 to $1.034 per pound in 
1993. In addition, the witness said, the butterfat differential under 
Federal orders has been dropping since the mid-1980s because of a 
decline in the market price for butter. This drop was accelerated by a 
change in the method of computing the butterfat differential, 
implemented in 1990, that had the impact of reducing the butterfat 
differential even more.
    The third reason the witness gave for implementing multiple 
component pricing was the shift in types of dairy products consumers 
are purchasing. According to the witness, some of the decline in 
butterfat value relative to skim value has been caused by a shift in 
consumption from whole milk to lowfat and skim fluid milk products. The 
witness presented data to show that from 1970 to 1991, national fluid 
milk sales of lowfat and skim milk increased 232%, while sales of whole 
milk declined 50%. In addition, he stated, consumption of lowfat 
manufactured products is growing faster than 

[[Page 41835]]
consumption of relatively high-fat manufactured products.
    The NAJ witness discussed equity in Federal orders as the fourth 
reason for implementing multiple component pricing. He said that the 
current skim-butterfat pricing system is equitable for neither 
producers nor handlers since it does not properly recognize the value 
of protein, especially in manufactured products such as cheese. The 
witness provided examples to show how a producer with high protein milk 
may currently receive the same Federal order minimum price as a 
producer with low protein milk. Similarly, a cheese maker who purchases 
high protein milk could have a cost advantage at minimum order prices 
over a cheese maker who purchases low protein milk.
    The fifth reason presented by the NAJ witness was the existence of 
a number of voluntary multiple component pricing plans in the areas 
covered by the five orders. Data were presented to show that nearly all 
producers in the five orders currently are eligible to be paid under 
one of these voluntary multiple component pricing plans. The witness 
stated that many of the plans have inadequacies which contribute to 
disorderly marketing. According to the witness, these inadequacies 
would be addressed by adopting the NAJ proposal.
    A witness from Land O'Lakes, Inc. (LOL), testified in support of 
the adoption of MCP in the five orders in general, and the NAJ proposal 
specifically. He discussed how the NAJ multiple component pricing 
proposal would better reflect the market value of nutrients in the milk 
to the farmer. He stated that the proposed system, compared with the 
current system, would essentially eliminate the value of milk used in 
manufacturing that is currently associated with water which, he said, 
has very little market value in dairy products. The witness said that 
MCP would affect the cost of milk to LOL as a handler in that it will 
come closer to equalizing the cost of milk relative to the value of the 
products derived from the milk.
    The LOL witness also described four major weaknesses in the 
existing voluntary MCP plans. The first weakness, he said, was that the 
current plans emphasize component test instead of component yield. He 
said that the price paid to each producer should be tied more directly 
to the value of the products that can be produced from the producer's 
milk.
    The second weakness described by the LOL witness is that many 
existing plans do not provide for deductions for milk with low 
component levels. This, he said, indicates that the plans recognize the 
higher value of milk with more pounds of components, but do not 
recognize that milk with fewer pounds of components is worth less. He 
said that competitive, rather than economic, factors are the reason 
deductions for low component levels generally do not exist, as many 
producers do not like to see deductions on their milk checks.
    According to the LOL witness, an inequitable feature of the 
voluntary MCP plans is that they generally pay no component premiums 
when the somatic cell count of the milk is above a fixed level, 
resulting in high test producers losing their component premium because 
of high somatic cells, while low test producers with high somatic cell 
counts lose nothing.
    The fourth weakness described by the witness is that some existing 
MCP plans pay premiums for protein, while others pay premiums for 
solids-not-fat. He said that most producers in Wisconsin receive 
premiums based on protein, while most producers in Minnesota, Iowa, 
Nebraska and South Dakota receive premiums based on solids-not-fat. The 
witness claimed that the variety of payment plans currently in 
existence do a poor job of transmitting market signals to the 
producers, are not economically consistent, and lead to confusion among 
farmers. He said that the NAJ proposal would address the deficiencies 
in the current situation.
    Most participants at the hearing advocated the introduction of MCP 
for payments to producers and for milk delivered to handlers for Class 
II and Class III use in the five orders. There was no support for 
pricing Class I milk on other than the current butterfat and skim 
basis.
    In addition to NAJ and LOL, adoption of some form of multiple 
component pricing in the five orders was supported by Central Milk 
Producers Cooperative (CMPC), the Trade Association of Proprietary 
Plants (TAPP), Farmers Union Milk Marketing Cooperative (FUMMC), 
National Farmers Organization (NFO), Kraft General Foods (Kraft), 
Associated Milk Producers, Inc., North Central Region (AMPI-North 
Central), Wisconsin Cheese Makers Association (WCMA), Dean Foods, and 
National Cheese Institute (NCI).
    The CMPC witnesses strongly supported the need for implementing 
multiple component pricing in the five orders and proposed a plan very 
similar to that of NAJ. The fundamental difference between the two 
plans is that the CMPC proposal would result in lower protein prices 
than the NAJ proposal. The appropriate level of the protein price is 
discussed under Issue 3a below.
    The CMPC proposal was supported in testimony and in a post-hearing 
brief by NFO. A witness for WCMA testified in support of the CMPC 
proposal for multiple component pricing. A witness for Dean Foods 
testified in support of the concept of MCP, and in response to a 
question about which proposal he favored, he expressed support for the 
CMPC proposal. AMPI North Central Region submitted a brief in support 
of the CMPC proposal for multiple component pricing.
    A witness for NCI testified in support of the CMPC multiple 
component pricing proposal with one primary modification. The NCI 
proposal would calculate a ``residual fluid price'' instead of another 
solids price. This proposal is discussed further under Issue 3b below 
in this decision. Kraft testified and submitted a brief in support of 
the NCI proposal for multiple component pricing.
    A witness for the Trade Association of Proprietary Plants (TAPP) 
and Farmers Union Milk Marketing Cooperative (FUMMC) testified in 
support of the TAPP proposal, a variation of the CMPC proposal that 
would price both butterfat and protein on a differential basis, rather 
than on a per-pound basis.
    The five north central Federal milk orders included in this 
proceeding should be amended to include multiple component pricing. On 
the basis of the record of this proceeding, multiple component pricing 
would entail pricing milk on the basis of the pounds of butterfat, 
protein and other nonfat solids contained in the milk, with a somatic 
cell adjustment to the hundredweight of milk used in Classes II and III 
and to the producer price differential paid to producers. The record 
indicates that a large percentage of the producers pooled under these 
orders are already eligible for or receive some form of multiple 
component pricing and that many of these component pricing plans use 
protein as a pricing component.
    The record also shows that the diverse component pricing programs 
that currently exist promote disorderly and inefficient marketing 
conditions in the procurement of milk supplies by competing handlers. 
The different programs establish non-uniform bases of payments to 
producers. The adoption of multiple component pricing will allow the 
Orders to recognize the additional value of milk with a higher-than-
average solids content.
    In the five orders included in this proceeding, the vast majority 
of the milk pooled is utilized in manufactured products. The total 
solids in the milk 

[[Page 41836]]
used for manufacturing are the primary determinants of product yield. 
In addition, it is the solids in fluid milk that give it its 
nutritional value and taste. In both types of products, the current 
pricing system used in the five orders does not properly recognize the 
value of nonfat milk solids or encourage producers to increase the 
quantity of nonfat milk solids in the milk they produce.
    As a result of the shift in value in recent years from the 
butterfat portion of milk to the skim portion, most of the value of 
milk is determined on a volume basis without any consideration of the 
value of the skim components. Adoption of the multiple component 
pricing plan recommended in this decision will enable the market to 
reflect the value of the skim components in milk to producers.
    In addition to butterfat, protein is clearly the most appropriate 
component of milk on which payment should be based. Most of the milk 
pooled under these five orders is used for manufacturing, and 86% of 
the milk used in manufacturing is used to produce cheese. Because 
protein is a main determinant of cheese yield, and it is cheese that 
determines the profitability for most of the dairy industry in the 5-
market area, the milk pricing system should recognize the value of the 
protein component of milk as it is used in the manufacture of cheese.
    Record evidence clearly shows that protein has a higher demand than 
other components of milk because of its functional, nutritional and 
economic value in the marketplace. The functional characteristics of 
protein allow it to form the matrix in the production of cheese and 
yogurt. Protein is also important to the air formation in the 
manufacture of certain products and provides some required nutrients in 
the human diet. Milk containing a higher percentage of protein will 
result in greater yields of most manufactured products than milk with a 
lower protein test. Additionally, handlers receiving milk that results 
in greater volumes of finished products such as cheese and cottage 
cheese than an equivalent volume of milk testing lower in protein 
should be required to pay more for the higher-testing milk. At the same 
time, the dairy farmer producing milk that yields greater amounts of 
finished products deserves to be paid more for it than a dairy farmer 
producing the same volume of milk that results in less product yield. 
Thus, sending an economic signal to dairy farmers will encourage them 
to maximize the production of those components which have the greatest 
demand in the marketplace.
    According to analysis of the record, proponents are correct that 
attribution of all of the skim value of the M-W price to protein would 
result in an overstatement of the value of protein used in cheese and 
most other uses. In order to maintain fairly uniform prices between 
orders for milk used in manufactured products, it is necessary to 
assign the residual value of the M-W price minus the butterfat and 
protein values to either other nonfat solids or a fluid carrier price. 
The discussion of this residual component may be found in Issue 3b 
below.
    A witness for the Galloway Company testified in support of TAPP and 
Galloway's own proposals to exclude sweetened condensed milk, ice cream 
and ice cream mix from pricing under a multiple component pricing 
system. The witness stated that such products should continue to be 
priced under the current pricing system.
    The Galloway witness said that some Class II manufactured products, 
together with other products such as sour cream, whipping cream, half 
and half, eggnog, yogurt, nonfat dry milk and butter, are not affected 
in yield by the protein content of the milk from which the products are 
manufactured. Instead, according to the witness, it is total skim 
solids that affect the yield of these products. Accordingly, the 
witness stated, it would not be equitable to price such products under 
a multiple component pricing system which prices protein at a level 
higher than the remaining skim solids in the milk. The witness argued 
that these products should be left out of any MCP plan adopted.
    The Galloway witness testified, and post-hearing briefs filed on 
behalf of Anderson-Erickson (A-E) and Galloway asserted, that yields 
are affected by the level of total skim solids rather than protein, 
making the pricing of protein irrelevant for Class II pricing. The 
Galloway witness testified that there have been months in which the 
monthly average protein level and other nonfat solids level of milk 
moved in opposite directions. In addition, the A-E and Galloway briefs 
asserted that MCP would significantly increase the cost of Class II 
milk, which would put them at an even greater disadvantage than 
currently with respect to products made from nonfat dry milk priced at 
the Class III-A price.
    The Galloway witness stated that the primary product manufactured 
by the Galloway Company is sweetened condensed milk. According to the 
witness, this product competes on a national basis with other 
manufacturers who do not have to procure their milk under Federal 
orders with MCP provisions. The witness stated that it would be unfair 
to force his organization to procure milk under a set of regulations 
that differ from those regulating his competitors.
    A portion of the TAPP proposal would require a classification 
change for sweetened condensed milk from Class II to Class III. 
Although the Galloway witness expressed strong concern over the impact 
of multiple component pricing on his company, the effect of the 
classification of sweetened condensed milk on the Galloway company is 
not part of the MCP issue. Reclassification of this product is a 
separate issue that was discussed thoroughly at a previous hearing, and 
in the decision issued as a result of that hearing (58 FR 27774). No 
new evidence was presented at this hearing that would justify 
reclassifying sweetened condensed milk.
    Comments filed in response to the recommended decision on behalf of 
A-E excepted to the application of component pricing to certain Class 
II products. A-E's opposition was based on two points: (1) The value of 
the protein in certain Class II products cannot be recovered in the 
marketplace, and (2) there was no evidence at the hearing to justify an 
increase in the Class II price. Dean Foods' comments expressed concern 
that MCP might jeopardize Class II product standing in the marketplace, 
but didn't oppose or support inclusion of MCP for Class II.
    Milk used to produce sweetened condensed milk, or any other Class 
II product, should not be exempted from multiple component pricing. The 
MCP plan recommended for adoption will cover all Class II and Class III 
products.
    Testimony at the hearing indicated that there are essentially two 
groups of Class II products that differ with respect to the impact of 
multiple component pricing on the handlers that make these products. 
The first group of Class II products are those in which there generally 
seemed to be agreement in the hearing record that yields are greatly 
affected by the level of protein in the milk. These products include 
the various cottage cheeses and other similar soft, high-moisture 
cheeses. The handlers that make these products benefit directly from 
higher levels of protein in milk and should be accountable to the pool 
for this added benefit.
    The second group of Class II products are those where there was 
some disagreement in the record about the effect of protein on the 
yield. These products include ice cream and frozen 

[[Page 41837]]
desserts and mixes, fluid creams, sour creams, yogurt, sweetened 
condensed milk and others. Considerable debate took place on whether it 
was appropriate to include these products in a multiple component 
pricing system.
    Occurrences of average protein level and other nonfat solids level 
of milk moving in opposite directions appear to be exceptions rather 
than the rule. Evidence presented in ``Analysis of Component Levels and 
Somatic Cell Counts in Individual Herd Milk at the Farm Level, 1992, 
Upper Midwest Marketing Area'' indicates that about 60% of the 
variation in solids-not-fat is caused by variation in protein, and that 
higher protein levels are positively correlated with higher solids-not-
fat levels. Data presented in this and other documents show that the 
level of other solids in milk tends to be relatively constant with, 
generally, small month-to-month variation. Thus, when a handler 
purchases milk with higher than average protein levels, he will also, 
generally, be purchasing milk with higher than average levels of 
solids-not-fat.
    In addition, the sum of the value of the protein and other solids 
under this recommended pricing plan equals the value of the total 
nonfat solids. The value of total nonfat solids, therefore, is a 
weighted average of the quantity and price of the protein and the 
quantity and price of the other nonfat solids contained in the milk. 
Analysis based on the average tests of the five markets shows that 
under the recommended pricing plan, the value of total nonfat solids 
would range from approximately $.002 per pound below the current value 
to approximately $.008 per pound above the current value.
    This estimated price difference is certainly not the significant 
increase that is claimed in the briefs. In hearing testimony, the 
Galloway witness stated that an analysis of the effect of the CMPC 
proposal on the Galloway Company showed a nine-cent increase per 
hundredweight in the cost of Galloway's milk only when the CMPC somatic 
cell adjustment was included. Without the somatic cell adjustment, the 
analysis showed that the cost of milk to Galloway would be reduced 
under the CMPC multiple component pricing plan.
    As explained above, protein is not the only component in skim milk. 
Skim milk consists of protein and other solids which are combined in 
this pricing plan to determine the value of skim milk. As was described 
earlier, the total value of the nonfat solids under MCP ranges from 
approximately $.002 per pound below to $.008 per pound above the 
current value of nonfat solids in the skim portion of milk.
    Contrary to claims in the A-E exception, the Class II price does 
not change under the MCP pricing plan. The value of milk used in Class 
II may change, depending on the level of solids contained in the milk. 
However, the MCP value could be lower or higher than the current skim 
value, not just higher as assumed by A-E.
    It is appropriate to include all Class II products in the multiple 
component pricing system being proposed here. All Class II products 
derive benefit from butterfat, protein and/or other solids in the milk. 
The benefit may be in enhanced yield, such as protein for cottage 
cheese, or a combination of protein and other solids (i.e. the solids-
not-fat in the milk) in many of the other Class II products. Or, the 
benefit may be in some other area. For example, the NAJ dairy chemist 
witness testified about the importance of protein in the functionality 
of many of these products, such as in ice cream, whipping cream, and 
yogurt. Some testimony even went so far as to discuss the importance of 
protein in fluid milk, in terms of the nutrient content and the mineral 
carrying content of the milk. However, since there was no substantial 
support for including Class I milk in the multiple component pricing 
system being proposed here, only Class II and Class III products will 
be priced on multiple components.
    2. Orders to be included. A proposal to incorporate the multiple 
component pricing plan adopted in this proceeding in the Nebraska-
Western Iowa and Eastern South Dakota Federal milk orders as well as in 
the Chicago Regional, Iowa, and Upper Midwest orders should be adopted.
    The witness for Land O'Lakes (LOL), proponent of the proposal, 
listed a number of reasons for including the multiple component pricing 
plan in the Nebraska-Western Iowa and Eastern South Dakota orders as 
well as in the orders proposed by NAJ. The witness explained that all 
five orders are similar in that their predominant use of milk is for 
manufacturing Class III products. He testified that the primary 
organizations that supply the Nebraska-Western Iowa and Eastern South 
Dakota markets also are major participants in one or more of the 
Chicago Regional, Iowa, and Upper Midwest order marketing areas. The 
witness stated that inclusion of the Nebraska-Western Iowa and Eastern 
South Dakota orders in the multiple component pricing plan would allow 
those organizations that have producers and market milk in multiple 
orders to standardize their payrolls and billings, thus maintaining 
uniformity and reducing confusion among producers and handlers.
    The decision to include additional orders in this decision should 
not be made entirely on the basis of convenience to the parties 
marketing milk on the various orders. The decision is based on whether 
inclusion of the two orders would tend to effectuate the policy of the 
Agricultural Marketing Agreement Act. Certainly, including the 
Nebraska-Western Iowa and Eastern South Dakota orders in this decision 
will contribute to orderly marketing.
    The data supplied by the market administrators' offices describing 
the milksheds of the various orders shows a considerable overlap of 
milksheds. For example, many South Dakota counties have milk pooled on 
three of the five orders during the same month. In the absence of 
uniform pricing provisions between the five orders, disorderly 
marketing could occur, particularly when orders have overlapping 
milksheds, if one order were pricing milk on a skim and butterfat basis 
while another order was pricing milk on the basis of its components. If 
a producer's milk tests high for nonfat components but is pooled under 
an order that prices milk on a skim-butterfat basis, the producer would 
attempt to maximize returns by changing the market under which his milk 
is pooled to benefit from his high component levels. The opposite 
situation would occur if the milk of a producer testing below average 
for nonfat components is pooled under an order with MCP provisions. 
Such a producer would maximize returns by changing the order under 
which his milk is pooled to one with skim-butterfat pricing. This 
shuffling of producers in the same geographic area because of 
nonuniform pricing provisions would not constitute orderly marketing.
    Since the inclusion of the Nebraska-Western Iowa and Eastern South 
Dakota orders in the multiple component pricing decision would tend to 
reduce disorderly marketing in the region, benefit handlers by allowing 
a standardized payroll, and there was no opposition to their inclusion, 
multiple component pricing should be adopted for these two orders as 
well as the other three.
    In response to the recommended decision, NCI and TAPP filed 
comments advocating a uniform national MCP plan. NCI stated that a 
uniform MCP plan should be considered for all markets with a 
significant quantity of manufacturing milk and production of a 
significant quantity of cheese. TAPP's comments argued that emphasizing 
the 

[[Page 41838]]
value of protein in cheese is inappropriate if a national uniform 
multiple component pricing plan is contemplated.
    The multiple component pricing plans considered thus far for 
inclusion in Federal milk orders have been developed and proposed by 
the industry participants in the affected marketing areas. The plans 
have tended to be modified from one proceeding to the next, with ideas 
about the most appropriate provisions evolving as time goes on, and to 
reflect individual marketing conditions. The evidence in the record of 
this proceeding supports the pricing plan adopted in this decision for 
these 5 markets. Implementation of a multiple component pricing plan 
for these 5 markets should not be delayed because of the desire of some 
market participants for a national plan.
    3. Components and component prices. Unlike the multiple component 
pricing plans adopted previously in other Federal milk marketing 
orders, this decision recommends the adoption of a pricing plan for 
milk based on three components rather than two. Under the five orders 
involved in this decision, milk should be priced on the basis of its 
protein, other nonfat solids, and butterfat components.
    The protein price contained in this decision is based on the value 
of protein in the manufacture of cheese, as determined by cheese market 
prices, and is not a residual of the Minnesota-Wisconsin (M-W) price 
minus butterfat value as is the case in other MCP plans. The butterfat 
price would be based on the butter market, as it is in other multiple 
component pricing systems. ``Other nonfat solids'' will be priced as a 
residual of the M-W price minus protein value and butterfat value. The 
butterfat, protein, and other nonfat solids prices shall be expressed 
in dollars per pound carried to the fourth decimal place. In addition, 
payments to each producer should reflect the value of participation in 
the marketwide pools on a hundredweight basis.
    As in other orders for which multiple component pricing has been 
adopted, this decision maintains the relationship of the value of 
producer milk to the M-W price. If the sum of the butterfat value and 
the protein value is greater than the M-W price, a situation which 
would result in a negative other nonfat solids price, the protein price 
will be adjusted such that the other nonfat solids price will be zero.
    In testimony and brief a witness for the Trade Association of 
Proprietary Plants (TAPP) and Farmers Union Milk Marketing Cooperative 
(FUMMC) presented a plan that would pay producers for protein above a 
neutral zone of 3.00% to 3.29%, and provide deductions for protein 
levels below the neutral zone. The level of adjustment would be tied to 
the price of barrel cheddar cheese on the National Cheese Exchange, and 
would be used to adjust pay prices to producers in a manner similar to 
the current butterfat differential.
    The witness said that milk traditionally has been purchased on a 
per hundredweight basis, with differential adjustments for levels of 
components. According to the witness, not only are producers usually 
paid on a per hundredweight basis, but milk is measured on a per 
hundredweight basis for purposes of plant accounting, payments between 
plants and to haulers, and by breed associations and DHIA with 
adjustments for percentages of components where necessary. The witness 
also claimed that using differential pricing would be revenue neutral.
    Comments filed by TAPP in response to the recommended decision 
argued that the recommended pricing provisions would result in 
excessive price deviations between current and projected producer 
returns, and that a wide neutral zone of no adjustments for protein 
content should be included. TAPP's comments, and those of the North 
Dakota Milk Producers Association, reiterated the arguments for 
continuing to price milk on a hundredweight basis, with differentials 
for adjusting its value for protein and butterfat content. TAPP further 
predicted that pricing components on a per-pound basis would lead to 
discontinued use of the M-W price, as handlers of Grade B milk also 
would shift their payments to producers to a component basis.
    The TAPP/FUMMC testimony and comments are correct that switching 
payments to producers from a per hundredweight system to one of pounds 
of components, as adopted in this decision, is not a minor change. Some 
expense will be incurred by handlers and producers in adapting to the 
new system. However, the benefits to the industry in the affected areas 
of adopting a uniform multiple component pricing system outweigh the 
one-time costs of its adoption. The implication that everyone connected 
with the dairy industry must adopt this system is not correct. Pounds 
of milk must still be accounted for under the multiple component 
pricing system. For example, nothing in this decision would prevent a 
handler from continuing to pay haulers on a hundredweight basis. No 
testimony at the hearing from witnesses that have producers pooled 
under Federal orders that have already adopted multiple component 
pricing indicated that moving to a pricing system that prices milk 
components by the pound was an onerous burden. The transcript does 
reveal disagreement with the level of the protein price under some 
Federal orders with multiple component pricing, but little 
dissatisfaction with the system itself, nor complaints about the 
difficulty of switching to a component pricing system.
    As to the argument that pricing protein and butterfat on the basis 
of price differentials would be revenue neutral, the multiple component 
pricing system recommended for adoption is designed neither to enhance 
nor reduce total producer returns. The only changes in the total pool 
value that may occur because of the recommended changes would result 
from differences in the protein and other nonfat solids content between 
milk pooled under the orders included in this proceeding and the milk 
included in the Minnesota-Wisconsin survey. In addition, some 
redistribution of the dollars involved in each pool can be expected 
between producers, and between handlers.
    The proposal by TAPP and FUMMC, and the exceptions filed by TAPP 
and the North Dakota Milk Producers Association, to leave butterfat on 
a differential pricing basis and to price protein on a differential 
basis with a neutral range are not included in this decision. To 
continue to pay producers for butterfat and to add payment for protein 
on the ``traditional'' differential system would confuse and frustrate 
producers in the understanding of their milk checks. Continued use of 
differentials would perpetuate the volume-based pricing system with a 
high value on water, and would fail to give producers a true price 
signal of what the marketplace wants.
    If, as predicted by TAPP's comments, pricing components on a per-
pound basis leads to discontinued use of the M-W price, such a shift 
ought to be gradual enough to allow time for a new pricing structure to 
be developed for milk used in manufactured products. As noted in the 
recent M-W replacement decision, the recently-amended procedure for 
determining the M-W price is not considered to be a long-term solution.
    The use of differentials in pricing milk components is not widely 
understood. There is no valid reason to continue an outmoded and 
confusing pricing system in valuing milk components. Pricing components 
on a 

[[Page 41839]]
per-pound basis will allow producers to see clearly what components 
have the most value, a result which plainly fits the goal of 
encouraging producers to produce those components which have the 
highest value in the marketplace. Per-pound pricing also makes clear to 
producers that it is the pounds of components that result in payment, 
rather than the percentages of those components in milk. Producers 
would be better able to look at the cost of producing pounds of 
components, and compare those costs with possible returns. Application 
of a neutral zone would discourage producers from increasing protein 
production marginally unless such an increase would raise the protein 
level above the neutral range.
    North Dakota Milk Producers Association objected that the 
reliability of testing and questions about the variance of components 
on a day-to-day basis would make the recommended pricing plan 
inaccurate. There is nothing in the record of this proceeding that 
provides a basis for concern about the ability of the market 
administrators and handlers in these marketing areas to test milk for 
the components that will be priced under this decision. In fact, the 
record indicates that producers currently are being paid on the basis 
of the component content of their milk.
    a. Protein. The protein price for milk pooled under the five north 
central Federal milk orders should be calculated by multiplying the 
monthly average of 40-pound block cheese prices on the Green Bay Cheese 
Exchange by 1.32, without including a value for whey protein.
    No opposition was expressed at the hearing to pricing protein on 
the basis of its value in the manufacture of cheese. The differences 
between participants came in determining the appropriate level of the 
protein price.
    A proposal submitted and supported by National All-Jersey, Inc. 
(NAJ), and supported by a number of cooperative associations and other 
dairy organizations, would calculate the protein price in two parts: 
(1) Multiply the National Cheese Exchange monthly average 40-pound 
block cheese price by 1.32, and (2) add the monthly average whey 
protein concentrate price multiplied by .735. The sum of these two 
values would equal the protein price.
    The NAJ proponent witness explained that one of the objectives of 
the NAJ proposal was to establish a protein price that was high enough 
to give producers an incentive to produce protein. He added that a 
second objective was to determine the protein price from market forces 
rather than as a residual value, as is used in other Federal orders. 
The witness explained that the 1.32 factor used in the NAJ proposal 
comes from the modified Van Slyke cheese yield formula that is commonly 
used by the industry. The 1.32 factor represents the pounds of 38-
percent moisture Cheddar cheese obtained from one pound of protein with 
75 percent of the protein going into the cheese.
    The witness gave four reasons for using the National Cheese 
Exchange 40-pound cheddar block price (block price): (1) The majority 
of the cheese in the five Federal orders is priced using the block 
price as the base price, (2) the block price is used in determining the 
somatic cell adjustment in the Eastern Ohio-Western Pennsylvania, 
Indiana, and Ohio Valley orders, as well as being used in the 
determination of the Class 4b price in California, (3) since there is 
over twice as much American cheese manufactured in blocks as is made in 
barrels, and the Wisconsin assembly point barrel cheese price is within 
one cent of the block price, the block price represents a minimum 
cheese price, and (4) the protein price determined pursuant to this 
proposal gives a greater incentive to producers to produce protein and 
is more equitable to handlers and producers than the (lower) protein 
price contained in the other proposals.
    The NAJ witness continued by explaining that the proposal included 
the value of whey protein in the protein price so that all of the 
protein in the milk would be accounted for. As explained by the 
proponent witness, the .735 factor was determined by dividing 25 
percent, which is the protein left in whey after making cheese, by 34 
percent, which is the percent of protein in whey protein concentrate. 
The resulting value, .735, is multiplied by the monthly average 34% 
whey protein concentrate price to yield the whey contribution to the 
protein price. The witness stated that the whey protein concentrate 
price was selected because it is a better indicator of the value of the 
protein contained in whey than is dry whey or animal feed whey.
    An economist supporting the NAJ proposal testified that even though 
the butterfat price is determined at its marginal value, that is, the 
value of butterfat in butter, the protein price should be determined by 
the value of protein in the most common use of protein in the five 
markets included in this proceeding. The witness pointed out that the 
most common use of protein is in the manufacture of cheese, with 85.9 
percent of the milk marketed in 1992 in Wisconsin being used in the 
manufacture of cheese. The witness testified that the appropriate 
cheese price to be used in computing the protein price was the block 
price because it is a ``conservative estimate of the price actually 
received for block cheddar cheese.'' The witness went on to explain 
that the reported block price is closer to what manufacturing plants 
receive for barrel cheese than is the reported barrel price because 
when the customary premiums are added to the reported barrel cheese 
price the result is approximately equal to the block price.
    The academic NAJ witness reiterated the NAJ position that the value 
of whey protein should be included in the protein price because the 
total value of the protein in producer milk would thus be reflected in 
the protein price, giving producers an incentive to produce more 
protein.
    A witness for Central Milk Producers Cooperative (CMPC) explained 
that the CMPC proposal would use the monthly average Green Bay Cheese 
Exchange barrel price (barrel price) instead of the block price, and 
would not include the value of whey protein. The witness for CMPC 
testified that the barrel price better represents the value of cheese 
than the block price because there is a greater volume of trading in 
barrel cheese than in block cheese. The resulting protein price would 
be lower than the protein price computed under the NAJ proposal. A 
witness for CMPC explained that their proposed protein price was based 
on the understanding that Federal order prices are minimum prices, and 
that the CMPC proposal, using the barrel cheese price and not including 
a value for whey protein, would result in a minimum price for protein.
    The CMPC protein price proposal was supported at the hearing by 
other hearing participants, including National Farmers Organization 
(NFO), Kraft, Inc., Galloway Co., Wisconsin Cheese Makers Association 
(WCMA), National Cheese Institute (NCI), Farmers Union Milk Marketing 
Cooperative (FUMMC), and the Trade Association of Proprietary Plants 
(TAPP). A witness for NCI explained that if the protein price is set at 
too high a level, cheese manufacturers would experience a declining 
gross margin as the price for protein increases above the return the 
plant can obtain from additional protein. He explained that this would 
be the case with the protein price as proposed by NAJ, but not with the 
NCI and CMPC proposed protein price.
    Other witnesses supporting a lower protein price than that proposed 
by NAJ explained that protein should not be priced at a high level 
because the higher 

[[Page 41840]]
price may disadvantage handlers who do not manufacture cheese. They 
testified that the higher protein price would not be recoverable in 
certain products such as nonfat dry milk, condensed milk, or certain 
Class II products, and that even though the lower protein price still 
may not be recoverable, it offers the best alternative.
    The Galloway witness stated that if a multiple component pricing 
plan that derives a protein price from a cheese market value were 
adopted, the protein price should represent a minimum value, should be 
based on the barrel cheese market, and should not include a value for 
whey protein concentrate. He argued that such a price would have the 
impact of minimizing the difference between the protein and other 
solids prices.
    The TAPP/FUMMC witness testified that protein should be priced at a 
level somewhat below its full value in cheddar cheese and whey for 
several reasons. He said that too high a protein price could invite the 
use of non-dairy protein, whey solids, and casein, and thereby cause an 
increase in the production of imitation cheese. He also said that since 
some Class II and III products do not recoup as much value from high 
protein milk as cheese and cottage cheese, the protein price should be 
set at a level less than its full value for cheese. The witness 
expressed concern that too high a protein price could result in a zero 
value for the residual component, or other solids. According to the 
witness, a zero value for the residual would fail to reflect a 
realistic value, and would not cover a make allowance.
    In the post-hearing brief filed by NAJ, the position of using a 
``justifiably high'' protein price to send a signal to producers that 
protein is the most valuable component in milk was reiterated. In post 
hearing briefs filed by CMPC, NFO, Kraft, NCI, TAPP and FUMMC, 
Anderson-Erickson (A-E), and AMPI North Central Region, the computation 
of the protein price as proposed by CMPC was supported. The reasons 
given in testimony for using a lower protein price than that proposed 
by NAJ were reiterated in briefs. In addition, A-E, Kraft and AMPI 
North Central Region argued that the difference between the barrel 
cheese price and the block cheese price is due to the cost of packaging 
and other nonmilk factors, and therefore the barrel cheese price should 
be used for determining the protein price.
    In pure economic terms the price of a product represents the supply 
and demand for that product as affected by place, form, and time. The 
problem with determining a price for protein contained in milk is that 
the protein is not marketed as a separate unique product, but is 
marketed as an integral part of both fluid and manufactured dairy 
products. Therefore, in determining an appropriate protein price, the 
value of protein in dairy products is determined by using the value of 
a product whose yield is a function of the protein content of the milk. 
At this point in time no attempt is made to reflect the protein content 
of milk in the value of milk used for fluid use. For this reason, the 
component pricing plan recommended in this decision does not apply to 
milk used for Class I purposes.
    The level of protein in milk does have a measurable affect on the 
value of milk used for manufacturing. This value varies among the 
diverse manufactured products because of differences in the market 
values of manufactured dairy products and in the contribution made by 
protein to various finished products. For instance, testimony at the 
hearing showed that for a one-pound change in protein in the 
manufacture of cheddar cheese there is a 1.32 pound change in the 
quantity of cheese produced, whereas in the production of milk powder a 
one-pound change in the level of protein would change the amount of 
powder produced by approximately one pound. Since the vast majority of 
milk in the five orders included in this hearing is used to manufacture 
cheese, the protein price will be based on the contribution made by 
protein in the manufacture of cheese.
    The 1.32 factor used in both methods proposed for the computation 
of the protein price for these five orders is derived from a modified 
Van Slyke cheese yield formula, where the casein is assumed to be 75 
percent of the protein and the moisture content of the cheese is 38 
percent. Assuming the butterfat is constant, a change of protein by one 
pound in this formula will change cheese yield by 1.32 pounds. 
Therefore, the 1.32 factor is appropriate for determining the order 
protein price.
    In determining the level of the protein price, the question of 
whether to use the average block price versus the average barrel price 
is a lesser issue than the question of whether or not whey protein 
should be included in the computation of the protein price, as proposed 
by NAJ. The average difference between the Green Bay Cheese Exchange 
average block price and average barrel price during 1992 and 1993 was 
$.0388 per pound. Multiplying this difference by the 1.32 factor 
results in an average difference of $.05 per pound of protein between 
the protein prices derived from the barrel and the block cheese prices. 
Over the same 2 years the inclusion of whey protein in the computation 
of the protein price would have increased the protein price by an 
average of $.4265.
    The principal issues that must be addressed in determining the 
computation of the protein price are the factors that must be included 
to arrive at a price that most accurately reflects the value of protein 
in milk. In addition, the effect of the level of the protein price on 
the other nonfat solids price must be considered. Since the other 
nonfat solids price is computed as a residual of the Minnesota-
Wisconsin price, the other nonfat solids price is inversely related to 
the protein price. In determining an appropriate protein price and 
other nonfat solids price, the effects of both prices on payments to 
producers and margins to handlers buying milk must be determined.
    Inclusion of a protein price and an other solids price in 
determining payments to producers gives producers an incentive to 
increase their production of nonfat solids, especially protein. There 
was no evidence in the hearing record to indicate the cost to producers 
of increasing the protein content of milk. It is therefore difficult to 
determine what the absolute level of the protein price, or its relative 
level to the butterfat and other solids prices, must be to encourage 
producers to increase the protein content of milk.
    On average for the 21 months of data available in the record the 
protein price recommended for adoption in this decision, at $1.6851 per 
pound of protein, is twice both the $.6379 per pound average other 
solids price and the $.8374 per pound average butterfat price. 
Certainly, pricing protein at double the price of the other components 
in milk gives producers a clear message that protein is the component 
most desired in the marketplace without over-valuing that component. 
The significant difference in prices between protein and the other 
nonfat solids and butterfat components should give producers an 
incentive to increase protein output.
    Testimony by several proponents of component pricing explained that 
component pricing would be more equitable to handlers than the current 
skim-butterfat pricing system. The proponents explained that the 
increased equity would be due to handlers paying for milk based more 
closely on its economic value to them. This increased equity is 
reflected in a narrower spread in margins between handlers making 
cheese from low protein-low solids milk versus handlers making cheese 
from high protein-high solids milk. Several 

[[Page 41841]]
exhibits showed that handlers using ``average'' milk would experience 
little if any change in their net margins. However, handlers using low-
testing milk would experience a higher net margin than under the 
present pricing plan, while handlers using high-testing milk would 
experience a lower net margin. This result, the narrowing of handlers' 
net margins when compared to the skim-butterfat pricing system, would 
occur no matter which of the proposed pricing plans is used to price 
the components.
    Analysis of data presented at the hearing, using price computations 
based on each of the proposals and averaged over the 21 months of data 
included in exhibits, shows a range of net manufacturing margins for 
cheese using the recommended pricing system of $1.57 per hundredweight 
compared with the $3.34 range in cheese manufacturing margins per 
hundredweight of milk purchased attributable to the current skim-
butterfat pricing system. The three component pricing plans discussed 
at the hearing would result in ranges in net cheese manufacturing 
margins of $1.16 per hundredweight for the NAJ proposal, $1.62 per 
hundredweight for the CMPC proposal, and $1.70 per hundredweight for 
the NCI proposal.
    Even though the NAJ proposal yielded the smallest spread in net 
margins, further analysis of the NAJ results shows that the net margins 
increase and then start to decline. The decline in margins occurs when 
there is not enough butterfat in the milk to fully utilize the protein 
available, thus reducing the increase in cheese yield as protein 
content continues to increase. Accordingly, if the price of protein is 
greater than the increased return from cheese, the net return will 
start to decline.
    The decline in net returns under the NAJ proposal indicates that 
the NAJ proposal would overprice protein, at least when there is not 
enough butterfat to fully utilize the protein. The result is that the 
marginal return using the NAJ proposal peaks within the protein and 
butterfat range of average milk while the marginal return using the 
protein and other solids price as recommended in this decision 
continues to increase, although at a decreasing rate. A mandated 
pricing system should not set prices at levels that result in a 
declining marginal return, particularly when the decline occurs at or 
near average market component levels. Therefore, the whey protein 
factor should not be included in the computation of the protein price.
    Exceptions to the recommended protein price reflected the positions 
that the respective parties expressed at the hearing and in post-
hearing briefs. NAJ and Swiss Valley reiterated their position that the 
protein price should be computed by multiplying the block cheese price 
by 1.32 and adding the result of multiplying the whey protein 
concentrate price by .735. They stated that the higher protein price 
that would result from this computation is appropriate since protein is 
the highest-valued component in milk. They suggested that even though 
the recommended decision was theoretically correct in its analysis, the 
analysis was flawed because of the assumption that butterfat could be a 
limiting factor in the yield-determining role of protein. They also 
pointed out that by using a higher protein price the resulting other 
solids price would be closer to the market value of lactose, the main 
component in the other solids.
    Although a manufacturer could purchase additional sources of 
butterfat under the NAJ/Swiss Valley scenario, the cost would not be 
the same as the original source of butterfat and would therefore have 
to be included in the analysis of the manufacturer's returns. Since no 
data was included in the hearing record to undertake this analysis, the 
effect of the purchase of additional butterfat on net margins was not 
computed. However, since the decline in net margins under the NAJ 
proposal begins in the range of average testing milk, it is appropriate 
to adopt a protein price that does not include the value of whey 
protein.
    CMPC, Mid-Am, WCMA, Dean Foods, Kraft, NFO, Independent Milk 
Producers Cooperative, and Lakeshore Federated Dairy Cooperative also 
opposed the recommended protein price computation in comments filed in 
response to the recommended decision. They specifically opposed the use 
of the block cheese price for computing the protein price. Their main 
objection was that a protein price computed on the basis of the block 
cheese price is not the lowest possible protein price that could be 
adopted based on the proposals included in the notice of hearing. Their 
exceptions reiterated their position that Federal order prices should 
be minimum prices. Their comments also suggested that use of a lower 
protein price and a correspondingly higher other solids price would 
result in smaller changes in payments to producers.
    Kraft, A-E and TAPP argued in exceptions that since the only 
difference between the block and barrel cheese prices is packaging, the 
higher protein price resulting from the use of the block cheese price 
in the protein price computation is not warranted.
    The monthly average price for 40-pound block cheddar cheese on the 
National Cheese Exchange in Green Bay, Wisconsin, is the appropriate 
price to use for determining the protein price. Use of the block price 
results in producers receiving a higher price for protein than if the 
barrel price were used without handlers incurring any significantly 
higher cost for milk. In addition, although the record showed that more 
cars of barrel cheese were sold on the Exchange than block cheese, the 
predominant cheese form in which American cheese is manufactured in the 
five-market region is in 40-pound or 640-pound blocks.
    The price difference between block and barrel cheese may be due to 
packaging and other nonmilk factors. However, the protein price must be 
established at a level that best meets the needs of all concerned. The 
block cheese price should be more effective than the barrel price in 
establishing a sufficiently high protein price to accomplish the goal 
of encouraging producers to produce protein without having a 
detrimental impact on handlers, and does result in a narrower range of 
manufacturing margins for cheese.
    Over the period January 1992 through September 1993, a protein 
price computed by multiplying the block price by 1.32 would have 
resulted in an average protein price of $1.6851 per pound. The CMPC and 
NCI proposals, using the barrel cheese price, would have resulted in an 
average protein price of $1.6337 per pound of protein over the same 
time period. A comparison of the net margins resulting from the 
recommended protein price versus the CMPC and NCI proposals shows that 
the slightly higher protein price and correspondingly lower other 
solids price adopted herein have a negligible affect on net margins. In 
fact, the spread between the highest and lowest cheese manufacturing 
margin declines slightly while the margin per pound of cheese remains 
virtually unchanged. At the same time, the producer is paid a higher 
protein price and thereby has a greater incentive to increase protein 
production.
    The question to be addressed should be the level of protein price 
that will best accomplish the goals of component pricing rather than 
the magnitude of the protein price. Analysis of the data in this 
decision shows that using the block cheese price results in a protein 
price that accomplishes three goals: (1) Components will be priced at 
levels that reflect their value in the marketplace, 

[[Page 41842]]
(2) components will be priced at levels that inform producers about 
which component has the greatest value and that make it worthwhile to 
produce that component, and (3) components will be priced at a level 
that will return a positive result to the manufacturing industry. All 
three of these goals are constrained by the requirement that the total 
value of the component prices must be equal to the Minnesota-Wisconsin 
price. Further, a protein price slightly higher than one based on the 
barrel cheese price will result in an other nonfat solids price that is 
closer to the market price for lactose.
    Since the protein price contained in this decision will be only 5 
cents greater than the price that would be computed using the barrel 
cheese price, rather than the 43-cent difference proposed by NAJ (using 
the whey protein price), the impact on producers should be very similar 
to the results shown in the exhibits presented by CMPC.
    b. Other nonfat solids. The balance of the M-W price, after the 
values of protein and butterfat are removed, should be priced on the 
basis of ``other nonfat solids.'' The other nonfat solids price per 
pound will be computed by subtracting from the M-W price, at test, the 
butterfat price times the butterfat test of the milk in the M-W price 
survey and the protein price times the protein test of the milk in the 
M-W price survey. Because the computation of the other solids price is 
based on a residual value, the other solids price could be negative 
without further adjustments. Therefore, if computation of the other 
solids price results in a negative price, the protein price will be 
adjusted (downward) to result in a zero value for the other solids 
price.
    As a residual, a NAJ witness stated, the other nonfat solids price 
would represent the value of lactose and ash, which are the primary 
constituents of the other nonfat solids, and the difference in value 
between a competitively set price for milk, the Minnesota-Wisconsin 
price, and the value of that milk based strictly on product prices.
    An expert witness for NAJ testified that a higher price for other 
solids than would be computed by using a protein price lower than that 
proposed by NAJ was not justified because a higher other nonfat solids 
price would defeat the purpose of multiple component pricing: to give 
producers an economic incentive to increase the protein content of 
their milk. The witness also explained that since the ``other nonfat 
solids'' consist primarily of lactose, for which there is a limited 
market and cheaper substitutes, there is no reason to have a high other 
nonfat solids price.
    A witness for CMPC explained that the CMPC proposal would result in 
a higher price for other nonfat solids than the NAJ proposal. The 
witness testified that reduced emphasis on the protein price and 
increased emphasis on the other solids price would reduce the impact of 
multiple component pricing on handlers and producers. The witness 
observed that the average difference in handlers' cost of milk between 
the current skim-butterfat pricing system and the CMPC proposal was 
less than one cent per hundredweight, while the NAJ proposal would 
result in a difference of slightly over three cents per hundredweight.
    The CMPC witness pointed out that the same relationship was 
applicable to returns to producers. In fact, the witness stated, when 
comparing the effect of the current skim-butterfat pricing system on 
handlers' obligations with both the NAJ proposal and the CMPC proposal, 
there is a narrower spread from the highest difference to the lowest 
difference and a smaller standard deviation with the CMPC proposal than 
the equivalent comparisons with the NAJ proposal.
    An alternative residual price was proposed by NCI and supported by 
Kraft. A witness for NCI testified that instead of placing the residual 
value on the other nonfat solids, the residual value should be placed 
on the remaining pounds of fluid milk. The witness explained that this 
residual fluid price would be calculated by subtracting the value of 
3.5 pounds of butterfat and the value of the protein based on the 
protein test of the milk in the Minnesota-Wisconsin price survey from 
the Minnesota-Wisconsin price. The resulting value would be divided by 
100 minus 3.5 minus the protein test of the milk in the Minnesota-
Wisconsin price survey.
    The NCI witness testified that placing the residual value on other 
nonfat solids would yield an ``other nonfat solids'' price that could 
not be recovered in the marketplace. In addition, he stated, although 
the butterfat price is based on the butter market and the protein price 
would be based on the return to cheese manufacture, the other nonfat 
solids price would have no relationship to any particular established 
market or component. The witness also testified that since another 
nonfat solids test would not be needed for the NCI proposal, 
administration of the pricing plan would be easier and less expensive 
than the other pricing proposals.
    NCI, Kraft and A-E excepted to the use of other nonfat solids as 
the pricing factor to represent the residual value of the M-W price. 
NCI suggested that the same argument used in the Southern Michigan 
revised recommended decision (59 FR 64464) for the use of a fluid 
carrier component to represent the residual value of the M-W price be 
used in this final decision. Kraft and A-E also supported the use of a 
fluid carrier component. In its exceptions, Kraft stated that use of a 
fluid carrier would moderate pricing extremes between producers, and 
that use of other solids to price the residual value of the Minnesota-
Wisconsin price overprices lactose and fails to recognize the value of 
the fluid portion of milk.
    The proposal by NCI to place the residual value on a ``fluid 
carrier'' component has some merit in that it does not try to apply the 
residual value to a component such as other solids, on which the market 
may not place a value. The major drawback to the NCI proposal is that 
it ignores one of the components of milk, other nonfat solids, which is 
composed of lactose and ash.
    Until a component pricing plan is developed that does not tie the 
total value of the components to the M-W price, there will be a need to 
adjust the price of at least one of the components from a product-based 
value. As explained in this decision, and in the comments and 
exceptions filed by various parties, the M-W price consists not only of 
the base value of milk, but also various premiums, different pricing 
systems, and probably most importantly, competition for milk supplies 
in Minnesota and Wisconsin. Even though good arguments can be made for 
using a fluid carrier to represent this residual value, the record of 
this proceeding supports the use of other nonfat solids to represent 
the residual value.
    Although the other nonfat solids do not have as much market value 
as either butterfat or protein, they are an important component of 
milk. If a multiple component pricing system is to be effective it 
should price as many of the components in milk as possible, preferably 
based on the value of those components in the marketplace. There is, 
however, no readily available measure of the market value of the other 
nonfat solids. Since there was no testimony or any justification in the 
record for departing from the Minnesota-Wisconsin price as a basic 
price for milk, at least one of the components in the payment plan must 
represent the difference between a competitively-set pay price (the M-
W) and the product-derived component prices. This residual value 
therefore represents not only the value of the lactose and ash, but 
also equates the 

[[Page 41843]]
component values, some of which are determined by their market value, 
with a competitively set producer pay price.
    The prospect of lactose being added to milk by producers for the 
purpose of benefitting from the other solids price was discussed by 
several hearing participants. The incentive to adulterate milk with 
added lactose should be no more of a problem than the current incentive 
to adulterate milk with water. Testing to determine whether lactose has 
been added should, in fact, be easier than testing for water since it 
would be part of the testing necessary to determine producers' 
payments. In addition, added lactose can be detected during normal 
testing procedures currently conducted on milk.
    NCI's concern that testing for total solids would increase 
handlers' costs and difficulty of testing was not established in the 
hearing record. In fact, testimony indicated that many handlers are 
already testing for total solids. Hearing testimony also showed that 
the testing for total solids is as accurate or more accurate than 
testing for butterfat or protein. In addition, the infrared machines 
that are used by most laboratories will test for total solids at the 
same time the butterfat and protein tests are done. Therefore, there 
should be no significant increase in testing cost or testing difficulty 
with the implementation of the component pricing plan incorporated in 
this decision.
    LOL, in its comments on the recommended decision, pointed out a 
``flaw'' in the formula used to compute the other solids price. LOL 
noted that the M-W price is adjusted to a 3.5 percent butterfat test, 
but that the skim component tests are left ``at test.'' What this means 
is that the protein and other solids tests do not reflect the quantity 
of protein or solids in milk of 3.5 percent butterfat, but rather the 
quantity of protein and solids in the milk at test. Therefore, the 
value of the protein that is deducted to arrive at the residual value 
for computing the other solids price may be incorrect, thus resulting 
in an incorrect other solids price. The problem could be magnified 
because the other solids test does not reflect the correct quantity of 
other solids in the remaining skim milk. The effect of this ``flaw'' is 
relatively small; however, this decision adjusts the computation of the 
other solids price to eliminate the shortcoming observed by LOL.
    c. Butterfat. The value of butterfat in the amended orders will be 
the same as under the current orders. There was no proposal or 
testimony to change the way butterfat currently is valued. One expert 
witness testified that the current system of basing the value of 
butterfat on the value of butter is proper.
    This decision continues the historical relationship of the values 
of butterfat and butter. The difference between the pricing of 
butterfat in the amended order and the current order is due to the way 
that value is expressed. Currently the value of butterfat is expressed 
as a differential; that is, the difference in value between 0.1 pound 
of butterfat and 0.1 pound of skim milk. The amended order will express 
the value of butterfat on the basis of a price per pound. Whichever 
method is used, the total value of butterfat in milk is the same. 
However, by expressing the value on a per-pound basis instead of a 
differential, the objective of demonstrating clearly to producers where 
the value is in milk is easily achieved.
    As proposed, the butterfat price per pound in the amended order 
will be determined by multiplying the butterfat differential by 965 and 
adding the Class III price. The resulting price per hundredweight would 
then be divided by 100 to give a price per pound of butterfat. For 
example, if the result of the computation is $0.73085, the announced 
butterfat price would be $0.7309 per pound of butterfat.
    d. Miscellaneous. The three component prices: butterfat, protein, 
and the other solids, will be expressed on a per-pound basis with four 
places to the right of the decimal. Analysis has shown that by 
expressing these prices to the nearest one-hundredth of a cent, the 
accuracy of the prices is significantly enhanced over expressing the 
prices to the nearest cent. Additionally, the difference between what 
is paid into the producer settlement fund and what is drawn from the 
producer settlement fund is much closer to zero than when prices are 
rounded to the nearest full cent.
    In contrast to other orders that have multiple component pricing 
provisions, this decision incorporates only one protein price as well 
as one other nonfat solids price. The pooling of the components to 
include the Class I skim portion is incorporated within the computation 
of the producer price differential. This feature of the pricing plan 
allows for the elimination of separate handler and producer protein 
prices and separate handler and producer other solids prices, and 
resulting confusion over which price, handler or producer, should be 
used when. In addition, a handler's per-pound price for protein or 
other solids is the same whether the handler is buying milk from 
producers or from other handlers.
    The producer price differential, which represents the additional 
value of Class I and Class II milk in the pool and any positive or 
negative effect of Class III-A, will be determined by computing for 
each handler, and then accumulating for all handlers, the differential 
value (from Class III) of the Class I, Class II, and Class III-A 
product pounds. The differential value is adjusted, when appropriate, 
for shrinkage and overage, inventory reclassification, receipts of 
other source milk allocated as Class I, receipts from unregulated 
supply plants, location adjustments, and, in the Chicago Regional 
order, transportation and assembly credits.
    For the purpose of eliminating differences between handler and 
producer component values, the value of the Class I skim milk and the 
values of the protein and other solids contained in the skim milk 
allocated to Class II and Class III (and somatic cell adjustments) will 
be added to, and the values of the protein and other solids contained 
in all producer milk (and somatic cell adjustments to producer milk) 
subtracted from, the differential pool. The accumulated total for all 
handlers is then adjusted by total producer location adjustments and 
one-half the unobligated balance in the producer settlement fund. The 
resulting value is then divided by the total pounds of producer milk in 
the pool, and an amount not less than four cents nor more than five 
cents is deducted. The result is the producer price differential to be 
paid to producers on a per hundredweight basis.
    It is possible for the producer price differential to be negative. 
A negative producer price differential can result for two reasons. Any 
of the Class I, II, or III-A differential prices may be negative and/or 
the minus adjustments may be large enough to offset any positive 
contribution from the differential price. A negative producer price 
differential would be equivalent to a uniform price less than the Class 
III price.
    An issue that was not directly addressed in this proceeding 
concerned testing for protein. The five orders included in this hearing 
currently base protein testing on the standard Kjeldahl method, which 
tests for nitrogen and then converts the nitrogen result to protein. 
Since there is a certain amount of free nitrogen in milk this test 
somewhat overstates the protein content of milk. Recent developments in 
testing allow for testing for true protein which is a more accurate 
reflection of protein content. In no way does this decision mandate a 
specific testing procedure. However, when (or if) the industry does 
move to testing for true protein, this 

[[Page 41844]]
decision should not be viewed as a hindrance to that conversion. At the 
time a change to testing for true protein may occur, a change in the 
1.32 factor may be necessary.
    4. Somatic Cell Adjustment. The producer price differential paid to 
each producer should be adjusted on the basis of the somatic cell 
content of the producer's milk. In a modification from the recommended 
decision, handlers' value of milk used in Class II and Class III, but 
not in Class I, also would be adjusted for somatic cell count (SCC). 
The value adjustment per hundredweight for each 1,000 somatic cells 
would be determined by multiplying .0005 times the monthly average 
National Cheese Exchange 40-pound block cheese price. Each producer's 
monthly average SCC, in thousands, would be subtracted from 350 and 
multiplied by the value adjustment per 1,000 somatic cells. The 
difference between somatic cell adjustments to handler value and to 
producer value will be included in the computation of the producer 
price differential.
    A wide range of somatic cell or quality plans were included in the 
notice of hearing and at the hearing itself. In general, all parties 
agreed that high-quality milk is important to all segments of the dairy 
industry. The major differences between the parties arose over the 
questions of how and whether quality and/or somatic cell adjustments 
should be included in the Federal order program.
    A witness expert in the field of milk testing and quality testified 
about the influence somatic cells have on milk and the resulting affect 
on products made from milk. The witness explained that in normal 
healthy cows the somatic cell count is around 50,000. When an infection 
occurs in the udder of the cow white blood cells enter to fight the 
bacterial infection. The SCC thus increases with the increasing number 
of white blood cells. In fact, white blood cells and somatic cells are 
synonymous in this context. The witness continued by explaining that 
white blood cells contain enzymes that are designed to break down the 
cell walls of the bacteria that are infecting the udder, but do not 
distinguish between milk protein and bacteria. As a result, milk 
protein is also degraded. The witness also stated that the enzyme 
causes some deterioration in milkfat. The witness continued by 
explaining that these white blood cells also cause to be activated a 
proteolytic enzyme that is present in all milk.
    The expert witness went on to explain that casein, which is the 
functionally important protein in milk, is broken down into smaller 
protein chains that cannot perform the same functions as the casein. In 
fact, the witness explained, the destruction of the casein affects all 
dairy products that rely on casein for structure or function. These 
products include cheeses, whipped cream, yogurt, ice cream, and 
condensed and dry products used in the manufacture of other products in 
which casein is a functional necessity. The witness also explained that 
higher SCC milks have a tendency to have a faster increase in ``acid 
degree value'', which is a measure of rancidity and off flavors, than 
milks with low SCCs. The witness testified that most of the damage 
occurs in the udder of the cow, where conditions are ideal for the 
various enzymes to work. Once the milk is removed from the udder and 
cooled and stored properly, further deterioration does not stop but is 
slowed down significantly, and further damage is minimized.
    The expert witness discussed the effect that somatic cell counts 
have on the manufacture of various dairy products, specifically cheese. 
He explained that high SCC milk results in lower cheese yields as well 
as problems with moisture control and the activity of the starter 
culture. The increased somatic cells result in less casein in 
relationship to the total protein so that less cheese is produced than 
would be indicated by the amount of protein present. The degraded 
protein ends up in the whey with the rest of the whey proteins. The 
witness explained that in studies using individual cow's milk cheese 
yield would drop dramatically as the somatic cell count went above 
100,000, with the yield staying fairly constant as the somatic cell 
count climbed to 1,000,000.
    The witness pointed out that the cheese yield effect of somatic 
cells differs when bulk tank milk is used instead of an individual 
cow's milk. He explained that in the case of bulk tank milk the 
relationship between cheese yield and somatic cell counts would be 
linear, with cheese yields declining as SCCs increase. The witness 
stated that the linear relationship is caused by the weighting of the 
SCCs in the bulk tank. Bulk tank tests are weighted averages rather 
than simple averages. For example, if 100 pounds of milk with a somatic 
cell count of 50,000 and 400 pounds of milk with a somatic cell count 
of 250,000 are added to the bulk tank the somatic cell count would be a 
weighted average of 210,000 and not the simple average of 150,000.
    The witness also testified that the effect of somatic cell levels 
on fluid milk products is reflected in higher acid degree values that 
indicate rancidity and off flavors, resulting in shorter shelf life.
    The expert witness testified that routine testing for somatic cells 
is conducted using a Foss-O-Matic infrared analyzer. The reference 
method for testing is the direct microscope somatic cell count in which 
the sample is stained and the somatic cells are counted using a 
microscope. The witness explained that if the electronic instruments 
are calibrated to the same reference samples the resulting test values 
and standard deviations should be in close agreement. The witness 
concluded that on a relative basis the results should be close to what 
would be obtained using other analytical tests.
    The notice of hearing contained a proposal by CMPC to include an 
adjustment for somatic cells. However, at the hearing, a witness for 
CMPC explained that CMPC had decided neither to support nor oppose the 
inclusion of a somatic cell adjuster in the amended orders. The CMPC 
witness testified that the individual members of CMPC were free to 
support or oppose any of the somatic cell proposals as they saw fit.
    As originally proposed by CMPC, the somatic cell adjustment would 
be computed by multiplying the National Cheese Exchange barrel price 
times .0005. The resulting quantity would be multiplied by 500 minus 
the somatic cell count of the milk, in thousands. The resulting value 
would be applied on a per hundredweight basis. As explained by a 
witness for CMPC, the proposed somatic cell adjuster would apply to all 
producer milk, including that purchased by Class I handlers. The 
witness went on to explain that the effect of somatic cells on the 
value of producer milk and milk used in Class II and Class III would be 
included in the computation of the producer price differential. A 
somatic cell adjustment on Class I milk would not be included in the 
pool, and therefore would not affect Class I handlers' cost of milk.
    A witness for WCMA quoted extensively from the MCP recommended 
decisions for the Indiana, Ohio Valley, and Eastern Ohio-Western 
Pennsylvania milk marketing orders, and for the Michigan milk order, 
supporting the inclusion of an adjustment for somatic cells in Federal 
orders. The witness supported the CMPC proposal, but suggested that the 
somatic cell adjustment be applied to all milk; that is, Class I milk 
would not be exempted from a somatic cell adjustment. In addition, he 
proposed that the somatic cell adjustment be 

[[Page 41845]]
applied to the protein price rather than on a hundredweight basis.
    A witness for TAPP and FUMMC expressed support for including a 
somatic cell adjustment in the amended orders. The TAPP-FUMMC brief 
also supported such a provision. The witness stated that a somatic cell 
adjustment would benefit producers, handlers, and consumers by 
increasing the volume of milk marketed, improving yield, and supplying 
consumers with more nutritious, better quality dairy products. The 
TAPP/FUMMC witness explained that their proposal would have a neutral 
range of 301,000 to 400,000 somatic cells with a one-cent positive 
adjustment for each 50,000 somatic cell count below the neutral range 
up to a maximum of a six cents as the somatic cell count declined, and 
a one cent negative adjustment for each 50,000 somatic cell count above 
the neutral range up to a maximum of ten cents as the somatic cell 
count increased. The TAPP/FUMMC witness testified that under their 
proposal the somatic cell adjustment would apply to all producer milk, 
milk used in Class III, and, if the plan is to be revenue neutral, also 
to milk used in Class II.
    A witness for Swiss Valley Farms Company (Swiss Valley) testified 
in support of including additions and subtractions for somatic cells in 
the amended order. The Swiss Valley witness explained that somatic 
cells add proteolytic and lipolytic enzymes to the milk, as well as a 
plasmin enzyme that is extremely heat stable, such that it is not 
deactivated during pasteurization. Therefore, the enzyme continues to 
degrade the milk during storage. The witness added that low SCC milk is 
important to the Swiss Valley bottling operations because it results in 
fluid milk products of improved flavor, and to their cheese-making 
operations because of the resulting higher casein and lower whey 
protein content of the milk, which increases manufacturing returns.
    The Swiss Valley witness proposed that the somatic cell adjustment 
begin at 400,000, with a positive adjustment as the SCC declines, and a 
negative adjustment as the SCC increases, from that level. The 
adjustment would be five percent of the National Cheese Exchange block 
price per 100,000 somatic cells. The Swiss Valley witness explained 
that the adjustment for somatic cells should apply to all producer milk 
and that Swiss Valley would support a somatic cell adjustment on Class 
II and Class III milk for the handler.
    In its post-hearing brief, Swiss Valley reiterated the testimony of 
its witness in favor of including an adjustment for somatic cells in 
the amended order. Besides supporting the position of the Swiss Valley 
witness, Swiss Valley expressed general support for a somatic cell 
adjustment.
    Testimony by a fluid processor witness indicated that the handler 
pays a quality premium when buying milk from producers and specifies 
minimum quality standards on purchased tanker milk.
    A witness for Mid-America Dairymen, Inc. (Mid-Am), testified that 
Mid-Am favored the inclusion of an adjustment for somatic cells in the 
amended order. The witness quoted from the Final Decision of the 
Indiana, Ohio Valley, and Eastern Ohio-Western Pennsylvania proceeding 
to support the position of Mid-Am that an adjustment for somatic cells 
should be included based on the effect somatic cells have on all milk. 
The witness explained that quantifying the adjustment on an incremental 
basis was difficult, and since not all milk is used in the manufacture 
of cheese a moderate adjustment rate should be used. The witness 
explained that the Mid-Am proposal would apply the somatic cell 
adjustment to all producer milk, on a hundredweight basis, with a 
positive adjustment for a somatic cell count below 400,000 and a 
negative adjustment for SCCs above 400,000.
    The witness explained that under the Mid-Am proposal, the somatic 
cell adjustment would be computed by subtracting the monthly average 
somatic cell count (in thousands) of the producer from 400 and then 
multiplying the result by the National Cheese Exchange monthly average 
barrel cheese price multiplied by .0005. He stated that since the 
somatic cell adjustment would be included in the computation of the 
producer price differential, on the producer side only, the total size 
of the pool would not change but individual producers would receive 
more or less, depending on whether their milk had a somatic cell count 
above or below the average SCC of the market. The Mid-Am witness 
continued by explaining that the Mid-Am proposal would be a 
redistribution of money from high somatic cell testing producer milk to 
the lower somatic cell testing milk, since there would be no additional 
money in the pool from the somatic cell adjustments.
    Instead of supporting the inclusion of somatic cell adjustment 
provisions in the five Federal orders, witnesses testifying on behalf 
of Land of Lakes, Inc., and NCI supported those organizations' 
proposals to allow each handler to submit a somatic cell or quality 
adjustment plan for payments to its own producers to the market 
administrator.
    A witness for LOL testified that with the LOL proposal a handler 
could reduce a producer's payment by up to ten percent from that 
required by the order if other producers of the handler received 
positive adjustments to their payments, as long as the total payments 
were equal to at least the minimum total order payment requirements. 
The witness explained that LOL's proposal does not contain specific 
criteria for quality and/or volume adjustments. Each handler would 
submit an individual quality and/or volume adjustment plan to the 
market administrator which the handler would be required to adhere to 
until a new plan would be submitted. The witness testified that there 
is general agreement among handlers for the need to adjust payments for 
milk based on quality and volume. The witness continued by arguing that 
since the industry has not yet reached a consensus on how to adjust for 
quality and volume, it would be appropriate to allow each handler to 
develop its own quality and volume plan with the approval of the market 
administrator.
    A witness for NCI testified that even though somatic cells affect 
the quality of milk, particularly in the manufacture of cheese, it is 
difficult to place a value on their effect. The witness explained that 
the variability in somatic cell levels from day to day and producer to 
producer makes determining an appropriate payment adjustment imprecise. 
In addition, the witness pointed out that other factors affect milk 
quality, and that placing a precise value on their effect is even more 
difficult than in the case of somatic cells. The NCI witness explained 
that the NCI proposal would allow each handler to establish and apply 
its own somatic cell adjustment schedule, with the approval of the 
market administrator, as long as the total payments to producers met or 
exceeded the Federal order minimum value. The witness explained that 
each handler could change its payment plan as conditions warranted.
    A witness for Kraft emphasized the earlier testimony on the effect 
of somatic cells on milk quality and cheese yields. The witness listed 
several studies supporting the results testified to by the NAJ expert 
witness. The Kraft witness testified that Kraft has, since the early 
1980's, employed a quality payment program as part of its producer 
payroll. The witness went on to state that the plethora of somatic cell 
payment programs in use in the industry is strong evidence of the 
industry's recognition that somatic cells 

[[Page 41846]]
play a major role in milk quality. The Kraft witness explained that, in 
order of preference, Kraft supports the proposal submitted by NCI, 
followed by LOL's proposal and the TAPP/FUMMC proposal.
    Kraft, in its post-hearing brief, reiterated its support for a 
somatic cell adjustment to be included in the amended order. Kraft's 
brief did not support a particular adjustment plan but preferred the 
LOL-NCI concept. If that plan were not adopted, Kraft expressed support 
for the proposal by Mid-Am or the original CMPC proposal. A brief 
largely reiterative of NCI testimony was filed on behalf of NCI with 
the Dairy Division rather than the Hearing Clerk, and was received more 
than 3 weeks after the extended due date for filing briefs. The brief 
is not considered in this decision.
    In the Anderson-Erickson Dairy Company (A-E) post-hearing brief, A-
E opposed the application of an adjustment for somatic cells to Class I 
milk. They contended that the Class I handler is unable to recover the 
added cost of lower somatic cell count milk from the retail market. 
This position was supported in the post-hearing brief filed by Lamers 
Dairy and Hansen Dairy (Lamers). Lamers pointed to testimony that 
indicated that the monetary effect of somatic cells on Class I milk 
could not be quantified as it could be with the manufacture of cheese.
    NFO, in its post-hearing brief, opposed the inclusion of any 
somatic cell adjuster in the recommended order. NFO expressed the 
opinion that support for a somatic cell adjuster was rather weak, with 
none of the positions presented having strong support. As an example, 
the NFO brief pointed to the neutral position taken by CMPC at the 
hearing after including a somatic cell adjuster in the original CMPC 
proposal. The NFO brief continued by explaining that testimony at the 
hearing indicated that the relationship between somatic cell levels and 
economic return is not a clear and definite relationship. The NFO brief 
went on to point out that there was no consensus at the hearing on how 
to apply a somatic cell adjuster.
    There is ample testimony and evidence to support the inclusion of a 
somatic cell adjuster in these amended orders. The recommended decision 
proposed that a somatic cell adjustment be applied to all producer 
milk, regardless of the class in which it is used. Such an application 
would have avoided including the difference between the handler and 
producer somatic cell adjustments in the computation of the producer 
price differential; a procedure that, during some months, could result 
in a significant adjustment in the producer price per hundredweight. 
The recommended application also would have assured that all handlers' 
obligations would reflect the quality of the milk they receive.
    The somatic cell adjuster per hundredweight per 1,000 somatic cells 
will be calculated by multiplying .0005 times the monthly average 
National Cheese Exchange 40-pound block cheese price. To determine the 
value for an individual producer, the producer's monthly average 
somatic cell count (in thousands) will be subtracted from 350 and 
multiplied by the somatic cell adjuster. The value of Class II and 
Class III milk will be adjusted by the same formula. However, for the 
purpose of adjusting handlers' values, 350 will be subtracted from the 
best available source of the somatic cell test. This information may 
be, but would not necessarily be limited to, load tests, farm tests, 
and monthly average tests.
    The value of the somatic cell adjustment will be applied on a per 
hundredweight basis in the handlers' payments to producers and in 
payment for Class II and Class III milk. Somatic cell counts will be 
reported with the report of receipts and utilization for all producer 
milk and on Class II and Class III milk.
    The application of the somatic cell adjustment contained herein 
will promote orderly marketing. As pointed out by several witnesses 
testifying at the hearing, producers in these markets are faced with a 
wide array of quality premium programs. These programs have no standard 
basis or standard value that is applied between handlers. Therefore a 
producer is faced with trying to decide which premium program will give 
the producer the greatest return without a standard with which to 
compare. Inconsistent premium programs also result in producers with 
identical milk receiving different prices for that milk depending on 
which handler is procuring the milk. The inclusion of this somatic cell 
adjustment will tend to effectuate the declared policy of the Act by 
encouraging orderly marketing through the standardization of the basis 
for payment on the level of somatic cells in the milk and the 
standardization and checking of the testing and test procedures used 
for determining the somatic cell counts.
    As was stated earlier, all parties agreed that high quality milk is 
important to all segments of the dairy industry. In fact, there was 
little opposition at the hearing to the inclusion of an adjustment for 
quality in the amended orders. Even though testimony indicated that 
there are other quality factors that are important in overall milk 
quality, there was no determination of their effect on milk quality or 
any attempt to compute a relevant associated value. Therefore, somatic 
cell count will be used as the quality adjustment factor in this 
decision.
    There are two basic reasons to apply the somatic cell adjustment 
rate on a hundredweight basis rather than to adjust the protein price. 
First, the somatic cell adjustment reflects the quality of milk in many 
uses rather than just cheese, and second, application of the somatic 
cell adjustment on a hundredweight basis makes it very clear to 
producers and to handlers that quality affects milk used in all 
products. Although testimony clearly showed that somatic cells affect 
the quality of milk in all uses, a value determined on the basis of the 
effect of somatic cells on cheese reflects the most prevalent use of 
milk in these markets and is the easiest way to determine a value for 
payment to producers.
    A lack of agreement among hearing participants occurred in trying 
to determine the application of a somatic cell adjustment. There was a 
general consensus that an adjustment should be made in the producer pay 
price for quality and/or somatic cells. The rate at which such 
adjustment should be made varied by proposal, but was tied to the 
reduction in cheese yield that occurs as somatic cell counts increase. 
Several witnesses testified that the somatic cell adjustment rate 
should be set at a moderate level. Testimony indicated that most of the 
decline in cheese yield occurs as the SCC increases from below 100,000 
to above 100,000, with a much slower decline in yield as the somatic 
cell count increases to one million. However, testimony also showed 
that declines in yield are much more linear when somatic cell tests and 
cheese yield studies are done with bulk tank milk than with the milk of 
individual cows. Several proposals suggested using a factor of .0005 
times the cheese price in determining the value of the somatic cell 
adjustment per 1,000 somatic cells. This factor is derived from the 
approximately four percent decline in cheese yield as the somatic cell 
count increases from 100,000 to one million. This is the same 
adjustment that is used in other Federal orders in which a somatic cell 
adjuster is included.
    The formula used to determine the somatic cell adjuster reflects 
the changes in the yield of cheese as the levels of somatic cells 
change. The formula also ties the adjustment to the 

[[Page 41847]]
value of the milk by using the block cheese price to determine the 
value per 1,000 somatic cells. However, since record evidence clearly 
shows that the effect of somatic cells on Class I and Class II products 
is related more to the quality of the finished product than to the 
yield of the product, the formula should reflect less than the full 
value of the effect of somatic cells on cheese yield. Using the 
recommended formula, the somatic cell adjustment for the average 
producer under the Chicago Regional order would be a plus three cents 
per hundredweight, far below the 25 cents per hundredweight average 
quality premium that is shown in hearing exhibits as being paid 
currently.
    The corresponding somatic cell adjustments for average producers 
under the four orders in addition to Chicago are: Upper Midwest, zero 
cents; Iowa, minus one cent; Nebraska-Western Iowa, minus six cents; 
and Eastern South Dakota, minus three cents. The formula results in an 
estimated range of forty-eight cents per hundredweight from a somatic 
cell count of 1,000 to a somatic cell count of 750,000, or a positive 
twenty-two cents to a minus twenty-six cents, although there is no 
limit on the deduction that may be made since there is no limit on the 
maximum SCC in this decision.
    The use of a neutral point was supported by various proponents of a 
somatic cell adjuster. Several others suggested a neutral range. The 
record contains numerous references to a neutral range or point around 
a somatic cell count of 400,000. One witness expressed the opinion that 
the base level for the somatic cell adjustment should be near the 
average for the five markets. Another witness explained that their 
proposal used 400,000 SCC because that is where their present quality 
program begins. Based on data included in the hearing record, the 
average SCC for producers whose milk is pooled under the five orders is 
367,000. Therefore, a neutral point of 350,000 is appropriate. It is 
close to the average for the markets, and not substantially different 
from the values that witnesses found appropriate. Also, by using the 
formula included herein, proponents of both a neutral point or a 
neutral range are accommodated because the formula yields no value 
adjustment for approximately plus or minus 7,000 SCC around 350,000.
    The formula will give producers an incentive to reduce their SCCs 
while minimizing the effect of the somatic cell adjuster on those 
products in which somatic cells have a quality effect rather than a 
yield effect.
    Neither the quality proposal by LOL nor the somatic cell proposal 
by NCI, in which each handler would be allowed to submit an individual 
quality or somatic cell payment plan to the market administrator, is 
included in this decision. Although the Agricultural Marketing 
Agreement Act in 7 U.S.C. 608c(5) does allow for adjustments to minimum 
pay prices on the basis of quality, such adjustments should be at a 
uniform rate for all producers in the market. Allowing each handler to 
have its own payment schedule would defeat the concept of uniform 
pricing to producers, eliminate the purpose of allowing quality 
adjustments under the order, and lead to disorderly marketing. 
Producers with identical milk shipping to different handlers within the 
same market could, and probably would, have different minimum order pay 
prices if each handler had its own quality or somatic cell payment 
plan.
    A number of witnesses testified that the profusion of payment plans 
currently in effect in the market today are causing disorderly 
marketing, and that one of the benefits of incorporating multiple 
component pricing with a somatic cell adjustment in the five orders 
would be to reduce or at least standardize the vast array of producer 
payment plans currently in effect in the region. In view of such 
testimony, adoption of the LOL or NCI quality adjustment proposals 
would serve no purpose.
    Support for the inclusion of a somatic cell adjuster in the amended 
orders was expressed in comments filed in response to the recommended 
decision by several parties including LOL, Cass-Clay Creamery, Mid-Am, 
Grande Cheese, WCMA, Kraft, AMPI-Morning Glory Farms, TAPP, and Swiss 
Valley.
    Mid-Am, Grande, WCMA, Kraft, and Swiss Valley expressed unequivocal 
support for the inclusion of a somatic cell adjuster. Mid-Am stated 
that higher SCCs decrease cheese yields and also affect fluid products. 
Grande and WCMA expressed the view that the recognition of the 
importance of quality is long overdue, particularly on all classes of 
milk, and that producers should be rewarded for producing quality milk. 
Kraft, in support of the somatic cell adjustment, explained that high 
SCCs have a direct and measurable adverse impact on cheese yields and, 
in fact, on all dairy products. Kraft's comments explained that even 
though the SCC is not the only quality factor, it is a good indicator 
of overall milk quality. Kraft also said that if the somatic cell 
adjustment is not applied to all milk, disorderly marketing could 
occur, with fluid handlers trying to switch supplies to take advantage 
of the economics of procuring a low-SCC milk supply at no additional 
cost.
    Swiss Valley, with two bottling plants in the marketing areas 
covered by this decision, expressed support for the inclusion of a 
somatic cell adjustment. Swiss Valley particularly expressed support 
for the application of a somatic cell adjustment to fluid milk, stating 
that a somatic cell adjuster will help insure quality milk for fluid 
handlers that will result in improved flavor and longer shelf life for 
fluid milk. They explained that the inclusion of a somatic cell 
adjustment under the Federal order program would eliminate the wide 
array of somatic cell programs currently in the marketplace and that 
even though the somatic cell adjustment is not large it is economically 
sound.
    The remainder of the comments favoring a somatic cell adjuster 
included some qualifiers or suggested modifications to the recommended 
decision. LOL and Cass-Clay Creamery suggested that if a somatic cell 
adjuster is included in the final decision, it should not apply to 
movements of milk between handlers but only to payments to producers. 
LOL added that a somatic cell adjustment on milk movements between 
handlers was not included in the notice of hearing.
    In exceptions filed by AMPI-Morning Glory Farms, the cooperative 
supported the somatic cell adjuster on all milk, but suggested that the 
``break point'' be at a somatic cell count of 400,000 versus the 
350,000 contained in the recommended decision. AMPI also stated that 
there should not be a somatic cell adjuster if it is not applied to all 
milk, because a somatic cell adjuster on only Class II and Class III 
milk would cause disorderly marketing.
    TAPP's exception supporting a somatic cell adjuster recommended 
several changes. TAPP's comments expressed the belief that the amount 
of the recommended somatic cell adjustment is too large, causing too 
great a spread in value between the lowest and highest somatic cell 
tests. TAPP also suggested that there be a larger neutral range, and 
that the somatic cell adjustment should remain constant rather than 
changing each month based on the cheese market.
    The Milk Industry Foundation (MIF), along with many fluid handlers 
without plants in the affected marketing areas, filed comments opposing 
the inclusion of a somatic cell adjustment on Class I milk in the final 
decision. They all gave the same six reasons for their opposition: (1) 
There was not enough evidence at the hearing to support a somatic cell 
adjustment on Class I milk, 

[[Page 41848]]
and, in fact, that a Class I handler testifying at the hearing opposed 
a somatic cell adjustment on Class I milk; (2) somatic cells are not 
the only quality factors that should be included; (3) a somatic cell 
adjustment on Class I milk would cause disruptive and inequitable 
marketing conditions for fluid handlers, both between and within 
marketing areas; (4) fluid handlers cannot recover the added cost of 
the somatic cell adjustment from the marketplace; (5) a somatic cell 
adjustment would eliminate advance Class I pricing; and (6) Federal 
orders should not be involved in quality issues.
    Anderson-Erickson (A-E), Dean Foods, and Marigold, who are fluid 
handlers regulated under one or more of the affected orders, opposed 
the inclusion of a somatic cell adjustment on Class I milk. They gave 
the same arguments as MIF, et al., plus several more. A-E comments 
stated that a somatic cell adjustment based on the effect of somatic 
cells on cheese has no bearing on the effect of somatic cells on Class 
I milk, and therefore does not reflect an appropriate value adjustment. 
Marigold explained in its exceptions that there is no evidence that 
specific levels of somatic cells can be discerned in fluid milk by 
consumers, and therefore a value cannot be placed on varying levels of 
somatic cells in Class I milk. Dean's comments expressed the belief 
that value adjustments based on quality should be determined by 
competition rather than by Federal orders.
    Wells Blue Bunny, NCI, and Independent Milk Producers Cooperative 
filed comments opposing the inclusion of any somatic cell adjustment in 
the amended order.
    Lakeshore Federated Cooperative (Lakeshore), consisting of 
Manitowoc Milk Producers, Mid-West Dairymen's Company, and Milwaukee 
Cooperative Milk Producers were joined in their exceptions to the 
recommended decision by FUMMC, Muller Pinehurst Dairy, Prairie Farms, 
Woodstock Progressive Milk Producers, and the Galloway Company in 
opposing any inclusion of a somatic cell adjustment in this decision. 
In addition to the same arguments that were put forth by the fluid 
handlers, Lakeshore's opposition was directed toward the need for an 
additional cost of testing for somatic cells. Lakeshore's comments 
pointed out that the State of Wisconsin requires one test a month for 
somatic cells, which also satisfies the requirements for the PMO 
(Pasteurized Milk Ordinance) and IMS (Interstate Milk Shippers) 
certification. The comments stated that a requirement by the market 
administrators that producer milk be tested for somatic cells four 
times per month for payment purposes, or an additional 40 tests per 
year, would create a burden on cooperative associations that do not do 
so much testing at the present time. Lakeshore went on to argue that 
the recommended decision would conflict with state regulations with 
regard to somatic cells, and asserted that because somatic cell testing 
is adequately monitored by the states there is no need for additional 
monitoring by market administrators.
    Lakeshore claimed that including a somatic cell adjuster would 
cause its members to sustain a financial loss due to the cost of 
testing for somatic cells. Lakeshore claimed that testing for somatic 
cells would increase the costs of labor, computer programming, paper 
work, compliance with bureaucratic regulations, and the cost of 
additional laboratory equipment, which could not be recovered. 
Lakeshore also claimed that a recent increase in the Chicago Regional 
assessment was due to somatic cell testing in the Indiana marketing 
area, but there is no record evidence supporting this claim.
    Lakeshore also stated that because the relationship between cheese 
yields and somatic cell count is not a straight-line relationship, no 
value can be placed on somatic cell counts of differing levels.
    FUMMC and Prairie Farms filed exceptions of their own. FUMMC 
expressed its opposition because its proposal for a wide neutral range 
where there would be no adjustment was not adopted. FUMMC also claimed 
that somatic cell test results are variable and inaccurate, making the 
recommended decision impractical and unworkable.
    Prairie Farms expressed the opinion that a somatic cell adjustment 
would cause disorderly marketing conditions between orders with a 
somatic cell adjuster and those without one. Prairie Farms also 
expressed the belief that sanitary and quality standards are beyond the 
scope of Federal orders.
    NFO filed exceptions opposing the recommended somatic cell 
adjustment in its entirety, for a number of reasons. NFO claimed that 
support for inclusion of a somatic cell adjustment in the Federal 
orders was limited at the hearing and in post-hearing briefs, and 
argued that major changes of the magnitude of a somatic cell adjustment 
have not previously been made with such limited support. NFO asserted 
that the premise that inclusion of a somatic cell adjuster would 
contribute to orderly marketing would not be fulfilled.
    NFO's comments further claimed that the recommended somatic cell 
adjustment would result in less revenue to dairy farmers because the 
350,000 base point for the adjustment is higher than average producer 
milk in four out of five of the affected markets. NFO argued that any 
somatic cell base point (the somatic cell level from which producer 
prices are adjusted up and down) should reflect the somatic cell count 
of the Grade B milk in the Minnesota-Wisconsin price survey. NFO also 
argued that a somatic cell adjuster would reduce over-order premiums 
and thus reduce dairy farmer incomes.
    Finally, NFO argued that the record does not support a linear 
relationship between cheese yields and somatic cell counts, and that 
the decision did not take into account the extra cost of testing.
    Although NFO's comments opposed adoption of a somatic cell 
adjuster, the cooperative did support application of such an adjuster 
to all milk, including Class I, if the somatic cell adjustment is 
included in the final decision.
    Comments filed in response to the recommended decision contained 
significant support for inclusion of the somatic cell adjustment as 
contained in the recommended decision. The comments received also 
reflected substantial opposition from fluid milk handlers to the aspect 
of the somatic cell adjustment that would have applied to all producer 
milk, including Class I.
    On the basis of the exceptions received, this decision has been 
changed from the recommended decision to include an adjustment to the 
value of milk based on the level of somatic cells contained in all 
producer milk and in Class II and Class III milk. As a result, the 
somatic cell adjustment will be included in the pool process, so 
handlers will have to report somatic cell count information with their 
reports of receipts and utilization.
    The decision to exclude handlers' Class I milk from application of 
a somatic cell adjustment is based on several factors. As observed by 
exceptors, the hearing record contained little if any testimony or 
evidence to quantify the economic effect of varying somatic cell levels 
on Class I milk, although there was considerable testimony as to the 
effect somatic cells have on shelf life, off flavors and rancidity in 
fluid milk products. Since no specific data about the value of using 
high-quality milk in fluid products was presented and opposition to the 
application of a somatic cell adjustment on Class I milk was so strong, 
the somatic cell adjustment will not be applied to milk used in Class I 
as a result of this proceeding.
    Monitoring of somatic cell testing, which already clearly affects 
the 

[[Page 41849]]
payments made to most of the producers pooled under these five orders, 
by market administrators will assure as much uniformity and accuracy as 
possible in the testing procedures. Also, since 70-80 percent of the 
milk pooled under these orders is used in Classes II and III, 
application of a somatic cell adjustment to that proportion of the milk 
used by handlers will doubtless result in a favorable effect on the 
general quality of the milk in the marketing areas.
    Kraft and AMP's concerns about the ability of fluid milk handlers 
to procure supplies of milk with low somatic cell counts at no extra 
cost are unlikely to materialize. According to the record, many fluid 
handlers already pay premiums for high-quality milk. There is nothing 
in the provisions of the amended orders that would prevent the 
continuation of the payment of such premiums. In fact, the requirement 
that the value of milk used in Classes II and III be adjusted for its 
somatic cell content will most likely necessitate equivalent payments 
by fluid handlers in order to assure that the supplies of milk they 
receive are of at least average quality.
    LOL may be correct that having to account for somatic cells in 
transfers and diversions could cause additional administrative effort. 
This requirement is included, however, so that the market 
administrators can ensure that proper payment is made for milk 
purchased from producers and cooperatives. There is no difference in 
this requirement other than the accounting for protein, other solids 
and butterfat in transfers and diversions.
    The suggestions by TAPP that the decision contain a larger neutral 
range and a constant somatic cell adjuster will not be included in this 
decision. A larger neutral range, particularly around the mean, would 
provide producers little incentive to reduce herd somatic cell counts 
below the neutral zone. Depending on the size of the neutral zone, this 
could be a reduction of 100,000 or more. The somatic cell adjustment 
provisions adopted in this decision will result in a neutral range of 
approximately a plus and minus 7,000 somatic cell count from 350,000.
    The economic rationale for a somatic cell adjustment is the effect 
that somatic cells have on protein and the resulting cheese yield. 
Therefore, it is logical and appropriate to adjust the somatic cell 
adjustment rate according to changes in the value of cheese. The 
somatic cell adjustment rate in this decision is moderated in that it 
does not reflect the value of the entire change in cheese yield that 
occurs as somatic cell counts in milk change.
    The assertion by some exceptors that there is not a straight-line 
relationship between cheese yield and somatic cell count is not 
supported by the hearing record. A witness who has done research in 
such areas testified that on an individual cow basis the relationship 
is not linear, but that when the milk of multiple cows and farms is 
intermingled in a bulk tank, the relationship becomes a linear, or 
straight-line, relationship.
    Use of a somatic cell count base point of 350,000 is appropriate, 
especially because the somatic cell adjustments on the handler and 
producer sides will be pooled. The 350,000 base point is very close to 
the average somatic cell count for these markets. The smaller the value 
of the somatic cell adjustment, the less effect the pooling of somatic 
cells will have on the producer price differential. Contrary to the 
exceptions filed by NFO, the effect of the somatic cell adjustment on 
the average Chicago Regional milk producers was computed to be a plus 3 
cents per hundredweight rather than a negative 3 cents.
    Concerns were expressed by several of those filing comments that 
inclusion of a somatic cell adjuster under the orders would reduce 
current quality premiums prevalent in the marketplace. This decision in 
no way discourages a handler from paying premiums for quality at 
whatever rate the handler deems appropriate, as long as producers are 
paid the minimum Federal order price. In fact, the rate of adjustment 
for somatic cell count included in the orders is not intended to 
represent the entire value of the somatic cell effect on milk. In 
addition, administration of an SCC adjustment under the orders should 
result in greater handler and producer confidence in the accuracy of 
the somatic cell counts on which such premium payments are based.
    The objection by many of the parties filing exceptions to the 
somatic cell adjustment that the cost of testing and reporting somatic 
cell counts would be an excessive burden on producers and their 
cooperative associations is difficult to understand. According to the 
record, handlers are already testing widely for somatic cells and 
adjusting producers' payments on the basis of those tests.
    Several parties argued that a somatic cell adjustment should not be 
included because the Federal milk orders should not be involved in 
quality issues. However, the Agricultural Marketing Agreement Act in 
section 8c(5) 7 U.S.C. 608c(5) specifically authorizes adjustments to 
prices paid to producers for ``the grade or quality of the milk 
delivered.'' The record of this hearing clearly shows that the presence 
of somatic cells directly affects the economic value of producer milk.
    The somatic cell adjustment provisions adopted herein do not 
establish standards, such as the Grade A standard under the PMO, but 
only serve to reflect some of the value to handlers of the level of 
somatic cells in milk. Although testing for somatic cell counts on a 
once-per-month basis may be sufficient for the purpose of assuring that 
a dairy farm is consistently below the maximum allowed level for Grade 
A status, testing for payment purposes must be done more often. As 
noted by several exceptors, somatic cell counts are more variable than 
other characteristics for which milk is commonly tested. More frequent 
samples and tests are necessary for payment purposes than for the 
purpose of assuring compliance with health standards to assure that the 
most accurate possible picture of each producer's production is 
obtained. The testing monitored by market administrators will cause no 
conflict with state testing programs because it will not be used to 
determine compliance with the Grade A standard.
    There is no disagreement that somatic cell testing is more variable 
than butterfat testing. However, the record shows that most producers 
whose milk is pooled under these orders currently are having 
adjustments made to their milk checks on the basis of such testing. The 
hearing record supports the idea that the reliability and accuracy of 
somatic cell testing are within acceptable tolerances when testing 
instruments are calibrated correctly. It is expected that these aspects 
of somatic cell testing will be improved under the supervision of the 
market administrators for these orders.
    The contention that the inclusion of a somatic cell adjuster in 
these five orders will cause disorderly marketing conditions between 
these and neighboring orders has no basis. There currently is not, nor 
ever has been, perfect coordination of pricing between the orders. Even 
though attempts are made to align prices between orders through 
location adjustments, other variables such as Class I utilization tend 
to result in different uniform prices in overlapping procurement areas. 
The limited magnitude of the somatic cell adjustment will not create 
any more distortion than already may occur in these marketing areas.
     5. Conforming changes. To accommodate multiple component pricing a 
number of changes need to be made in the current order provisions of 
the five orders in this decision. To 

[[Page 41850]]
compute a handler's obligation and the producer price differential, 
several prices need to be defined. The Class I differential price 
should be defined as the difference between the current month's Class I 
price and the current month's Class III price. The Class II 
differential price should be defined as the difference between the 
current month's Class II price and the current month's Class III price. 
These differential prices should not be confused with the fixed values 
that are added to the Minnesota-Wisconsin price for the second 
preceding month to arrive at the Class I and Class II prices for the 
current month. The Class III-A differential price should be defined as 
the difference between the current month's Class III-A price and the 
current month's Class III price. It should also be pointed out that 
these differential prices may be negative, which currently happens when 
the Minnesota-Wisconsin price is greater than any of these prices. The 
skim milk price will be calculated by subtracting from the Class III 
price the value determined by multiplying the butterfat differential by 
35. The skim milk price will be expressed on a per hundredweight basis 
with two places to the right of the decimal.
    Since producer location adjustments are not changed in this 
decision, the application of such adjustments to the producer price 
differential remains unchanged. In some of the orders the uniform price 
is ``snubbed'' at the Class III price when producer location 
adjustments are applied. In these orders, the producer price 
differential will be adjusted for location until the producer price 
differential is zero if the producer price differential at the zero 
zone is zero or greater. However, if the producer price differential is 
negative, no minus producer location adjustment will be applied. Plus 
adjustments to a negative producer price differential would be made. In 
those orders in which the uniform price is not ``snubbed'' to the Class 
III price, producer location adjustments will be applied as they are 
currently.
    For the Market Administrator to compute the producer price 
differential handlers will need to supply additional information on 
their monthly reports of receipts and utilization. In addition to the 
product pounds and butterfat currently reported, handlers will be 
required to report pounds of protein, pounds of other solids, and 
somatic cell information. This data will be required from each handler 
for all producer receipts, including milk diverted by the handler, 
receipts from cooperatives as 9(c) handlers; and, in some cases, 
receipts of bulk milk received by transfer or diversion.
    The recommended decision proposed that for the Upper Midwest order 
only, the due date for handlers to submit reports of receipts and 
utilization be changed from the 10th of the month to the 8th of the 
month to allow a longer period of time for the processing of data and 
the announcement of the producer price differential. A number of Upper 
Midwest handlers filed vehement exceptions to the proposal on the basis 
that they would need all the time they were accustomed to having to 
prepare their handler reports and make evaluations with respect to 
which milk should be pooled or depooled.
    As a result of the comments filed by a number of handlers, the 
reporting date for the Upper Midwest order will remain the 10th. 
However, as suggested in the comments filed by AMPI North Central 
Region and Schroeder Milk Company, Inc., the market administrator will 
be given additional time (1 day, until the 12th) to complete the 
pooling process and announce the uniform price.
    In addition to allowing an additional day for the market 
administrator to compute the producer price differential, the order is 
amended to maintain the amount of time currently allowed handlers to 
make payments into the producer-settlement fund by moving the date by 
which such payments must be made from the 15th to the 16th of the 
month. The date for making payments to the administrative and marketing 
services funds will also be changed from the 15th to the 16th. The date 
by which the market administrator must make payments from the producer-
settlement fund will remain the 17th.
    For purposes of allocation of producer receipts the assumption will 
be made that the protein and other solids cannot easily be separated 
from skim milk. The protein and other solids will therefore be 
allocated proportionately with the skim milk based on the percentage of 
protein and other solids in the skim milk received from producers.
    The implementation of this multiple component pricing decision will 
require several changes in the way handlers pay for milk. Partial 
payment at the Class III price for the previous month for milk 
deliveries during the first 15 days of a month was proposed by both NAJ 
and CMPC. Although no objections to the proposal were expressed, there 
was no testimony supporting or opposing the proposal. Therefore, there 
is no basis in the record of the proceeding to make substantive changes 
in the payment provisions of the orders that provide for partial 
payments at a significantly different level.
    Currently, the Nebraska-Western Iowa order, the Upper Midwest 
order, and the Iowa order require partial payments to be based on the 
prior month's uniform price. Since this component pricing plan does not 
contain a uniform price, these three orders will be changed to require 
the partial payments to be made at the ``statistical uniform price'', 
announced by the market administrator on or before the 12th day of the 
month for which partial payment is to be made.
    The Chicago Regional order will also be changed from the current 
requirement that the partial payment be based on the lowest class price 
for the prior month to a partial payment based on the prior month's 
Class III price. The Eastern South Dakota order does not need to be 
changed.
    Final payment to producers will be determined by the total 
hundredweight of milk times the producer price differential adjusted by 
the applicable location adjustment, plus or minus the total 
hundredweight of milk times the adjustment for somatic cells, plus the 
pounds of protein times the protein price, plus the pounds of other 
solids times the other solids price, plus the pounds of butterfat times 
the butterfat price, minus any authorized deductions currently allowed.
    Handlers purchasing milk from cooperative pool plants will pay for 
Class I milk at the Class I differential price plus the pounds of skim 
milk in Class I at the skim milk price plus the pounds of butterfat at 
the butterfat price; for Class II and Class III-A milk at the Class II 
and Class III-A differential prices, respectively, plus the pounds of 
protein at the protein price, plus the pounds of other solids at the 
other solids price, plus the pounds of butterfat at the butterfat 
price; and for Class III milk at the protein pounds times the protein 
price, plus the pounds of other solids at the other solids price, plus 
the pounds of butterfat at the butterfat price. The value of milk used 
in Class II and Class III will be adjusted by the appropriate somatic 
cell adjustment. Payment for 9(c) milk will be based on the producer 
price differential adjusted for location at the plant of receipt and 
somatic cells, plus the value of protein, other solids, and butterfat 
contained in the milk.
    Since producers will be receiving payments based on the component 
levels of their milk, the payroll reports that handlers supply to 
producers must reflect the basis for such payment. Therefore the 
handler will be required to supply the producer not only with the 
information currently supplied, but 

[[Page 41851]]
also: (a) The pounds of butterfat, the pounds of protein, and the 
pounds of other solids contained in the producer's milk, as well as the 
producer's average somatic cell count, and (b) the minimum rates that 
are required for payment for each pricing factor and, if a different 
rate is paid, the effective rate also.
    Land O'Lakes, AMPI North Central Region, and Cass-Clay Creamery 
filed comments excepting to the requirement that handlers report to 
their producers the pounds and prices of components for which the 
producers are being paid. LOL and Cass-Clay stated that there is not 
enough room on producer checks to report such information. AMPI 
observed that co-ops can reblend returns to producers, and that it 
would be confusing to producers to see both minimum component rates and 
possibly reblended rates on the same pay statement.
    The requirement that payment factors be reported to producers when 
producers are paid currently exists in all of these orders. Addition of 
the component information is purely a conforming change, and should not 
be changed from the recommended decision. Administration of these 
provisions should not change from current practices.
    The handler's value of milk will be determined by combining: (a) 
The pounds of producer milk in Class I times the Class I differential 
price, (b) the pounds of producer milk in Class II times the Class II 
differential price, (c) the value of overage, (d) the value of 
inventory reclassification, (e) the value, at the Class I minus Class 
III price difference, of other source receipts and receipts from 
unregulated supply plants allocated to Class I, (g) the value of 
handler location adjustments, (h) Class III-A credits, (i) the pounds 
of skim milk in Class I times the skim milk price, (j) the pounds of 
protein in Class II and Class III times the protein price, (k) the 
pounds of other solids in Class II and Class III times the other solids 
price, and (l) the somatic cell count of milk used in Classes II and 
III.
    The pounds of protein and other solids in Class II and Class III 
will be determined by multiplying the percent protein or percent other 
solids in the skim milk of the total producer milk received by the 
handler times the pounds of skim milk allocated to Class II and Class 
III.
    Handlers' obligations to the producer settlement fund will be 
determined by subtracting from the handler's value of milk the 
following: (a) The total pounds of each handler's producer milk times 
the producer price differential adjusted for location, (b) the total 
pounds of protein contained in the producer milk times the protein 
price, (c) the total pounds of other solids contained in the producer 
milk times the other solids price, (d) the total value of somatic cell 
adjustments to the handler's producer milk, and (e) the value of other 
source milk at the producer price differential with any applicable 
location adjustment at the plant from which the milk was shipped 
deducted from the handler's value of milk.
    The amendments to order language accompanying this decision are 
based on the current language of the five orders, which include any 
changes to the orders made necessary by the two national amendatory 
proceedings (Class II pricing and the M-W replacement) that were 
completed in March and April 1995.
    A number of the handlers who filed comments on the recommended 
decision expressed a desire for additional time between approval of the 
final decision and the effective date of the amendments to allow the 
industry affected by the order amendments to make a more orderly 
transition to the new payment system and conduct the necessary 
informational meetings. They expressed a need for caution and 
gradualism in effecting the proposed ``revolutionary'' changes in the 
historic method of pricing milk.
    The request for additional time to implement the changes that will 
be necessary in computer programs, administrative systems and 
laboratory arrangements is reasonable, and should be accommodated. 
Accordingly, there will be a longer-than-usual interval between 
approval of the orders as amended and the effective date of the final 
order.

Rulings on Proposed Findings and Conclusions

    Briefs and proposed findings and conclusions were filed on behalf 
of certain interested parties. These briefs, proposed findings and 
conclusions and the evidence in the record were considered in making 
the findings and conclusions set forth above. To the extent that the 
suggested findings and conclusions filed by interested parties are 
inconsistent with the findings and conclusions set forth herein, the 
requests to make such findings or reach such conclusions are denied for 
the reasons previously stated in this decision.

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the Chicago Regional and certain other orders 
were first issued and when they were amended. The previous findings and 
determinations are hereby ratified and confirmed, except where they may 
conflict with those set forth herein.
    (a) The tentative marketing agreements and the orders, as hereby 
proposed to be amended, and all of the terms and conditions thereof, 
will tend to effectuate the declared policy of the Act;
    (b) The parity prices of milk as determined pursuant to section 2 
of the Act are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the marketing area, 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 Agreement and Order

    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 Chicago 
Regional and certain other 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.

[[Page 41852]]


Determination of Producer Approval and Representative Period

    December 1994 is hereby determined to be the representative period 
for the purpose of ascertaining whether the issuance of the orders, as 
amended and as hereby proposed to be amended, regulating the handling 
of milk in the Chicago Regional and certain other marketing areas is 
approved or favored by producers, as defined under the terms of the 
orders (as amended and as hereby proposed to be amended), who during 
such representative period were engaged in the production of milk for 
sale within the aforesaid marketing areas.

List of Subjects in 7 CFR Parts 1030, 1065, 1068, 1076 and 1079

    Milk marketing orders.

    Dated: August 3, 1995.
Patricia Jensen,
Acting Assistant Secretary, Marketing and Regulatory Programs.

Order Amending the Orders Regulating the Handling of Milk in the 
Chicago Regional and Certain Other 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 agreement and to the orders 
regulating the handling of milk in the Chicago Regional and certain 
other marketing areas. The hearing was held pursuant to the provisions 
of the Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674), and the applicable rules of practice and procedure (7 
CFR part 900).
    Upon the basis of the evidence introduced at such hearing and the 
record thereof, it is found that:
    (1) The said orders as hereby amended, and all of the terms and 
conditions thereof, will tend to effectuate the declared policy of the 
Act;
    (2) The parity prices of milk, as determined pursuant to section 2 
of the Act, are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the aforesaid marketing areas. 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 is 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 Chicago Regional and certain other 
marketing areas shall be in conformity to and in compliance with the 
terms and conditions of the order, as amended, and as hereby amended, 
as follows:
    The provisions of the proposed marketing agreement and order 
amending the orders contained in the recommended decision issued by the 
Administrator, Agricultural Marketing Service, on October 25, 1994, and 
published in the Federal Register on November 2, 1994 (59 FR 54952), 
shall be and are the terms and provisions of this order, amending the 
orders, and are set forth in full herein, subject to the following 
modifications:
    a. Changes in the treatment of somatic cell adjustments require 
modifications of reporting requirements in Sec. 1030.30(a)(1) and the 
corresponding sections of the other 4 orders.
    b. Additional changes due to the treatment of the somatic cell 
adjustment have been made in Secs. 1030.50(l), 1030.53(i), 
1030.60(a)(6), 1030.61(a)(2), 1030.62(e), 1030.71(a)(2)(iv), 
1030.73(c)(2)(vi), and the corresponding sections of the other 4 
orders.
    c. Changes in the computation of the Other Solids Price have been 
made in Sec. 1030.50(k), and in the corresponding sections of the other 
4 orders.
    d. Changes for the purpose of more easily accommodating Class III-A 
provisions have been made by adding Secs. 1030.50(g) and 1030.60(a)(7), 
deleting 1030.61(a)(3), and making the same changes in the other 3 
orders that have Class III-A provisions.
    e. Changes for the purpose of conforming with changes to the orders 
resulting from the Class II pricing proceeding have been made in 
Secs. 1030.53(b) and the corresponding sections of the other 4 orders.
    f. Changes for the purpose of conforming with changes to the orders 
resulting from the M-W replacement proceeding have been made in 
Sec. 1030.74 and the corresponding sections of the other 4 orders.
    g. Changes for the purpose of clarifying the amended order have 
been made in Secs. 1030.71(a)(2)(v) and 1030.75(b) and the 
corresponding sections of those orders for which such changes are 
appropriate.
    h. Changes in the Upper Midwest reporting date, the date for 
announcing the producer price differential and the date by which 
payments must be made to the producer-settlement fund have been made in 
Secs. 1068.30, 1068.62, 1068.71(a), 1068.85 and 1068.86.
    Accordingly, this decision proposes 7 CFR chapter X be amended as 
follows:
    1. The authority citation for 7 CFR parts 1030, 1065, 1068, 1076 
and 1079 continues to read as follows:

    Authority: Secs. 1-19, 48 Stat. 31, as amended; 7 U.S.C. 601-
674.
PART 1030--MILK IN THE CHICAGO REGIONAL MARKETING AREA

    1. Section 1030.30 is amended by revising paragraphs (a) and (c) 
and removing paragraph (d), to read as follows:


Sec. 1030.30  Reports of receipts and utilization.

* * * * *
    (a) Each handler described in Sec. 1030.9(a) shall report for each 
plant of the handler (except if a handler requests and the request is 
approved by the market administrator, a handler may file a consolidated 
report for supply plants and a consolidated report for distributing 
plants); and each handler described in Sec. 1030.9(b) and (c) shall 
report the following information:
    (1) Product pounds, pounds of butterfat, pounds of protein, pounds 
of solids-not-fat other than protein (other solids), and the value of 
the somatic cell adjustment contained in or represented by:
    (i) Receipts of producer milk, including producer milk diverted by 
the handler from the pool plant to other plants; and
    (ii) Receipts of milk from handlers described in Sec. 1030.9(c).
    (2) Product pounds and pounds of butterfat contained in:
    (i) Receipts by transfer or diversion of bulk fluid milk products 
from pool plants, including a separate statement of the net receipts 
from each supply plant computed pursuant to Sec. 1030.7(b)(4);
    (ii) Receipts of fluid milk products not included in paragraph 
(a)(1) or (a)(2)(i) 

[[Page 41853]]
of this section and bulk fluid cream products from any source;
    (iii) Receipts of other source milk; and
    (iv) Inventories at the beginning and end of the month of fluid 
milk products and products specified in Sec. 1030.40(b)(1).
    (3) The utilization or disposition of all milk, filled milk, and 
milk products required to be reported pursuant to this paragraph.
    (4) Such other information with respect to the receipts and 
utilization of skim milk, butterfat, milk protein, other nonfat solids, 
and somatic cell information, as the market administrator may 
prescribe.
* * * * *
    (c) Each handler not specified in paragraphs (a) and (b) of this 
section shall report with respect to its receipts and utilization of 
milk, filled milk, and milk products in such manner as the market 
administrator may prescribe.
    2. Section 1030.31 is amended by revising paragraph (a) to read as 
follows:


Sec. 1030.31  Payroll reports.

    (a) On or before the 25th day after the end of each month, each 
handler described in Sec. 1030.9(a), (b), and (c) shall report to the 
market administrator its producer payroll for such month, in the detail 
prescribed by the market administrator, showing for each producer the 
information specified in Sec. 1030.73(e).
* * * * *
    3. Section 1030.50 is amended by revising the section heading, 
introductory text and paragraph (a), and adding paragraphs (e) through 
(l) to read as follows:


Sec. 1030.50  Class and component prices.

    Subject to the provisions of Sec. 1030.52, the class prices per 
hundredweight of milk containing 3.5 percent butterfat and the 
component prices for the month shall be as follows:
    (a) Class I price. The Class I price for the month per 
hundredweight of milk containing 3.5 percent butterfat shall be the 
basic formula price for the second preceding month plus $1.40.
* * * * *
    (e) Class I differential price. The Class I differential price 
shall be the difference between the current month's Class I and Class 
III prices (this price may be negative).
    (f) Class II differential price. The Class II differential price 
shall be the difference between the current month's Class II and Class 
III prices (this price may be negative).
    (g) Class III-A differential price. The Class III-A differential 
price shall be the difference between the current month's Class III and 
Class III-A prices (this price may be negative).
    (h) Skim milk price. The skim milk price per hundredweight, rounded 
to the nearest cent, shall be the Class III price less an amount 
computed by multiplying the butterfat differential by 35.
    (i) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the Class III price plus an amount 
computed by multiplying the butterfat differential by 965 and dividing 
the resulting amount by one hundred.
    (j) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be 1.32 times the average monthly 
price per pound for 40-pound block Cheddar cheese on the National 
Cheese Exchange as reported by the Department.
    (k) Other solids price. Other solids are herein defined as solids-
not-fat other than protein. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the basic formula price at 
test less the average butterfat test of the basic formula price as 
reported by the Department times the butterfat price, less the average 
protein test of the basic formula price as reported by the Department 
for the month times the protein price, and dividing the resulting 
amount by the average other solids test of the basic formula price as 
reported by the Department. If the resulting price is less than zero, 
then the protein price will be reduced so that the other solids price 
equals zero.
    (l) Somatic cell adjustment. (1) The somatic cell adjustment rate 
per 1,000 somatic cells, rounded to five decimal places, shall be 
computed by multiplying .0005 times the monthly cheddar cheese price as 
defined in paragraph (j) of this section.
    (2) The somatic cell adjustment, per hundredweight, shall be 
determined by subtracting from 350 the somatic cell count (in 
thousands) of the milk, multiplying the difference by the somatic cell 
adjustment rate, and rounding to the nearest full cent.
    4. Section 1030.53, including the section heading, is revised to 
read as follows:


Sec. 1030.53  Announcement of class and component prices.

    On or before the 5th day of the month, the market administrator 
shall announce the following prices:
    (a) The Class I price for the following month;
    (b) The Class II price for the following month;
    (c) The Class III price for the preceding month;
    (d) The Class III-A price for the preceding month;
    (e) The skim milk price for the preceding month;
    (f) The butterfat price for the preceding month;
    (g) The protein price for the preceding month;
    (h) The other solids price for the preceding month;
    (i) The somatic cell adjustment rate for the preceding month; and
    (j) The butterfat differential for the preceding month.
    5. The section heading in Sec. 1030.60 and the undesignated 
centerheading preceding it, the introductory text, and paragraphs (a) 
and (f) are revised to read as follows:

Producer Price Differential


Sec. 1030.60  Handler's value of milk.

    For the purpose of computing a handler's obligation for producer 
milk, the market administrator shall determine for each month the value 
of milk of each handler described in Sec. 1030.9(a), (b), and (c), as 
follows:
    (a) Calculate the following values:
    (1) Multiply the total hundredweight of producer milk in Class I as 
determined pursuant to Sec. 1030.44(c) by the Class I differential 
price for the month;
    (2) Add an amount obtained by multiplying the total hundredweight 
of producer milk in Class II as determined pursuant to Sec. 1030.44(c) 
by the Class II differential price for the month;
    (3) Add an amount obtained by multiplying the hundredweight of skim 
milk in Class I as determined pursuant to Sec. 1030.44(a) by the skim 
milk price;
    (4) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1030.44(a) by 
the average protein content of producer skim milk received by the 
handler, and multiplying the resulting pounds of protein by the protein 
price;
    (5) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1030.44(a) by 
the average other solids content of producer skim milk received by the 
handler, and multiplying the resulting pounds of other solids by the 
other solids price;
    (6) Add an adjustment for somatic cell content determined by 
multiplying the value reported pursuant to Sec. 1030.30(a)(1) by the 
percentage of the total producer milk allocated pursuant to 
Sec. 1030.44(c) that is allocated to Class II and Class III; and 

[[Page 41854]]

    (7) Add an amount obtained by multiplying the total hundredweight 
of producer milk eligible to be priced as Class III-A by the Class III-
A differential price for the month.
* * * * *
    (f) Add the amount obtained from multiplying the Class I 
differential price applicable at the location of the nearest 
unregulated supply plants from which an equivalent volume was received 
by the pounds of skim milk and butterfat in receipts of concentrated 
fluid milk products assigned to Class I pursuant to Sec. 1030.43(d) and 
Sec. 1030.44(a)(7)(i) and the pounds of skim milk and butterfat 
subtracted from Class I pursuant to Sec. 1030.44(a)(11) and the 
corresponding steps of Sec. 1030.44(b), excluding such skim milk and 
butterfat in receipts of bulk fluid milk products from an unregulated 
supply plant to the extent that an equivalent amount of skim milk or 
butterfat disposed of to such plant by handlers fully regulated under 
any Federal milk order is classified and priced as Class I milk and is 
not used as an offset for any other payment obligation under any order;
* * * * *
    6. Section 1030.61 is amended by revising the section heading, 
introductory text, and paragraph (a) to read as follows:


Sec. 1030.61  Producer price differential.

    For each month the market administrator shall compute a producer 
price differential per hundredweight for Zone 1. If the unreserved cash 
balance in the producer settlement fund to be included in the 
computation is less than 2 cents per hundredweight of producer milk on 
all reports, the report of any handler who has not made the payments 
required pursuant to Sec. 1030.71 for the preceding month shall not be 
included in the computation of the producer price differential. The 
report of such handler shall not be included in the computation for 
succeeding months until the handler has made full payment of 
outstanding monthly obligations. Subject to the aforementioned 
conditions, the market administrator shall compute the producer price 
differential in the following manner:
    (a) Combine into one total for all handlers:
    (1) The values computed pursuant to Sec. 1030.60(a)(1), (a)(2), 
(a)(7), and (b) through (k) for all handlers; and
    (2) Add values computed pursuant to Sec. 1030.60(a)(3), (a)(4), 
(a)(5) and (a)(6); and subtract the values obtained by multiplying the 
handlers' total pounds of protein and total pounds of other solids 
contained in such milk by their respective prices, and the total value 
of the somatic cell adjustment.
* * * * *
    7.  Section 1030.62 is revised to read as follows:


Sec. 1030.62  Announcement of producer prices.

    On or before the 14th day after the end of each month, the market 
administrator shall announce the following prices and information:
    (a) The producer price differential;
    (b) The protein price;
    (c) The other solids price;
    (d) The butterfat price;
    (e) The somatic cell adjustment rate:
    (f) The average butterfat, protein and other solids content of 
producer milk; and
    (g) The statistical uniform price for milk containing 3.5 percent 
butterfat, computed by combining the Class III price and the producer 
price differential.
    8. Section 1030.71 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1030.71  Payments to the producer-settlement fund.

    (a) * * *
    (2) The sum of:
    (i) An amount obtained by multiplying the total hundredweight of 
producer milk as determined pursuant to Sec. 1030.44(c) by the producer 
price differential as adjusted pursuant to Sec. 1030.75;
    (ii) An amount obtained by multiplying the total pounds of protein 
contained in producer milk by the protein price;
    (iii) An amount obtained by multiplying the total pounds of other 
solids contained in producer milk by the other solids price;
    (iv) The total value of the somatic cell adjustment to producer 
milk; and
    (v) An amount obtained by multiplying the pounds of skim milk and 
butterfat for which a value was computed pursuant to Sec. 1030.60(f) by 
the producer price differential as adjusted pursuant to Sec. 1030.52 
for the location of the plant from which received.
* * * * *
    9. Section 1030.73 is amended by revising paragraphs (a), (c), and 
(d) and adding a new paragraph (e), to read as follows:


Sec. 1030.73  Payments to producers and to cooperative associations.

    (a) Each handler shall pay each producer for producer milk received 
from such producer and for which payment is not made to a cooperative 
association pursuant to paragraph (b) or (c) of this section as 
follows:
    (1) On or before the 3rd day after the end of each month, to each 
producer who has not discontinued shipping milk to such handler before 
the end of the month, for producer milk received during the first 15 
days of the month at a rate per hundredweight not less than the Class 
III price for milk of 3.5 percent butterfat for the preceding month, 
less proper deductions authorized in writing by such producer; and
    (2) On or before the 18th day after the end of the month, payment 
for producer milk received during such month shall not be less than the 
sum of:
    (i) The hundredweight of producer milk received times the producer 
price differential as adjusted pursuant to Secs. 1030.75 and 1030.86;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month;
    (vi) Less any payment made pursuant to paragraph (a) of this 
section;
    (vii) Less proper deductions authorized in writing by such producer 
and plus or minus adjustments for errors in previous payments made to 
such producer; and
    (3) If by such date the handler has not received full payment from 
the market administrator pursuant to Sec. 1030.72 for such month, it 
may reduce pro rata its payment to producers by not more than the 
amount of such underpayment. Payment to producers shall be completed 
thereafter not later than the date for making payments pursuant to this 
paragraph next following receipt of the balance due from the market 
administrator.
* * * * *
    (c) Each handler shall pay a cooperative association for milk 
received by the handler from pool plant(s) operated by a cooperative 
association as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the 1st day 
after the end of the month during which the milk was received at a rate 
per hundredweight not less than the Class III price for milk of 3.5 
percent butterfat for the preceding month; and
    (2) For milk received and classified during the month the handler 
shall pay the cooperative association on or before 

[[Page 41855]]
the 16th day after the end of the month during which the milk was 
received as follows:
    (i) The hundredweight of Class I milk received times the Class I 
differential price for the month plus the pounds of Class I skim milk 
times the skim milk price for the month;
    (ii) The hundredweight of Class II milk received times the Class II 
differential price for the month;
    (iii) The hundredweight of Class III-A milk received times the 
Class III-A differential price for the month;
    (iv) The pounds of butterfat received times the butterfat price for 
the month;
    (v) The pounds of protein received in Class II and Class III milk 
times the protein price for the month;
    (vi) The pounds of other solids received in Class II and Class III 
milk times the other solids price for the month;
    (vii) The hundredweight of Class II and Class III milk received 
times the somatic cell adjustment; and
    (viii) Less any payment made pursuant to paragraph (c)(1) of this 
section.
    (d) Each handler shall pay a cooperative association for milk 
received by the handler from a cooperative association acting as a 
handler described under Sec. 1030.9(c) as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the 1st day 
after the end of the month during which the milk was received at a rate 
per hundredweight not less than the Class III price for milk of 3.5 
percent butterfat for the preceding month; and
    (2) For milk received during the month the handler shall pay the 
cooperative association on or before the 16th day after the end of the 
month during which the milk was received as follows:
    (i) The hundredweight of milk received times the producer price 
differential as adjusted pursuant to Sec. 1030.75;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month;
    (vi) Less any payment made pursuant to paragraph (d)(1) of this 
section;
    (vii) Less proper authorized deductions.
    (e) In making payments for producer milk pursuant to paragraphs 
(a)(2) or (b)(2) of this section, each handler shall furnish each 
producer or cooperative association to whom such payment is made a 
supporting statement in such form that it may be retained by the 
recipient which shall show:
    (1) The month and the identity of the producer;
    (2) The daily and total pounds for each producer;
    (3) The total pounds of butterfat contained in the producer's milk;
    (4) The total pounds of protein contained in the producer's milk;
    (5) The total pounds of other solids contained in the producer's 
milk;
    (6) The somatic cell count of the producer's milk;
    (7) The minimum rate or rates at which payment to the producer is 
required pursuant to this order;
    (8) The rate that is used in making payment if such rate is other 
than the applicable minimum rate;
    (9) The amount, or the rate per hundredweight, or rate per pound of 
component, and the nature of each deduction claimed by the handler; and
    (10) The net amount of payment to such producer or cooperative.
    10. Sections 1030.74 and 1030.75 are revised to read as follows:


Sec. 1030.74  Butterfat differential.

    The butterfat differential, rounded to the nearest one-tenth cent, 
shall be 0.138 times the current month's butter price less 0.0028 times 
the preceding month's average pay price per hundredweight, at test, for 
manufacturing grade milk in Minnesota and Wisconsin, using the ``base 
month'' series, adjusted pursuant to Sec. 1030.51 (a) through (e), as 
reported by the Department. The butter price means the simple average 
for the month of the Chicago Mercantile Exchange Grade A butter price 
as reported by the Department.


Sec. 1030.75  Plant location adjustments for producers and on nonpool 
milk.

    (a) The producer price differential for producer milk received at a 
plant shall be adjusted according to the location of the plant at the 
rates set forth in Sec. 1030.52(a).
    (b) The producer price differential applicable to other source milk 
shall be adjusted at the rates set forth in Sec. 1030.52(a), except 
that the adjusted producer differential price shall not be less than 
zero.
    11. Section 1030.76 is amended by revising paragraph (a)(4) and the 
third sentence of paragraph (b)(1)(ii) to read as follows, and changing 
the reference ``Sec. 1030.71(a)(2)(ii)'' in paragraph (b)(1)(iii) to 
``Sec. 1030.71(a)(2)(v)'':


Sec.  1030.76  Payments by handler operating a partially regulated 
distributing plant.

* * * * *
    (a) * * *
    (4) Multiply the remaining pounds by the amount by which the Class 
I differential price exceeds the producer price differential, both 
prices to be applicable at the location of the partially regulated 
distributing plant; and
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * * Any such transfers remaining after the above allocation 
which are classified in Class I and for which a value is computed for 
the handler operating the partially regulated distributing plant 
pursuant to Sec. 1030.60 shall be priced at the statistical uniform 
price (or at the weighted average price if such is provided) of the 
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of 
the nonpool plant (but not to be less than the lowest class price of 
the respective order), except that transfers of reconstituted skim milk 
in filled milk shall be priced at the lowest class price of the 
respective order; and
* * * * *
PART 1065--MILK IN THE NEBRASKA-WESTERN IOWA MARKETING AREA

    1. Section 1065.30 is amended by revising paragraphs (a) and (c) 
and removing paragraph (d), to read as follows:


Sec. 1065.30  Reports of receipts and utilization.

* * * * *
    (a) Each handler described in Sec. 1065.9(a), (b), and (c) shall 
report for each of its operations the following information:
    (1) Product pounds, pounds of butterfat, pounds of protein, pounds 
of solids-not-fat other than protein (other solids), and the value of 
the somatic cell adjustment contained in or represented by:
    (i) Receipts of producer milk, including producer milk diverted by 
the handler; and
    (ii) Receipts of milk from handlers described in Sec. 1065.9(c).
    (2) Product pounds and pounds of butterfat contained in:
    (i) Receipts by transfer or diversion of bulk fluid milk products 
from pool plants;
    (ii) Receipts of fluid milk products not included in paragraph 
(a)(1) or (a)(2)(i) of this section and bulk fluid cream products from 
any source;
    (iii) Receipts of other source milk; and 

[[Page 41856]]

    (iv) Inventories at the beginning and end of the month of fluid 
milk products and products specified in Sec. 1065.40(b)(1).
    (3) The utilization or disposition of all milk, filled milk, and 
milk products required to be reported pursuant to this paragraph.
    (4) Such other information with respect to the receipts and 
utilization of skim milk, butterfat, milk protein, other nonfat solids, 
and somatic cell information, as the market administrator may 
prescribe.
* * * * *
    (c) Each handler not specified in paragraphs (a) and (b) of this 
section shall report with respect to its receipts and utilization of 
milk, filled milk, and milk products in such manner as the market 
administrator may prescribe.
    2. Section 1065.31 is amended by revising paragraph (a) to read as 
follows:


Sec. 1065.31  Payroll reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec. 1065.9(a), (b), and (c) shall report to the 
market administrator its producer payroll for such month, in the detail 
prescribed by the market administrator, showing for each producer the 
information described in Sec. 1065.73(e).
* * * * *
    3. Section 1065.50 is amended by revising the section heading, 
introductory text and paragraph (a), and adding paragraphs (e) through 
(l), to read as follows:


Sec. 1065.50  Class and component prices.

    Subject to the provisions of Sec. 1065.52, the class prices per 
hundredweight of milk containing 3.5 percent butterfat and the 
component prices for the month shall be as follows:
    (a) Class I price. The Class I price for the month per 
hundredweight of milk containing 3.5 percent butterfat shall be the 
basic formula price for the second preceding month plus $1.75.
* * * * *
    (e) Class I differential price. The Class I differential price 
shall be the difference between the current month's Class I and Class 
III prices (this price may be negative).
    (f) Class II differential price. The Class II differential price 
shall be the difference between the current month's Class II and Class 
III prices (this price may be negative).
    (g) Class III-A differential price. The Class III-A differential 
price shall be the difference between the current month's Class III and 
Class III-A prices (this price may be negative).
    (h) Skim milk price. The skim milk price per hundredweight, rounded 
to the nearest cent, shall be the Class III price less an amount 
computed by multiplying the butterfat differential by 35.
    (i) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the Class III price plus an amount 
computed by multiplying the butterfat differential by 965 and dividing 
the resulting amount by one hundred.
    (j) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be 1.32 times the average monthly 
price per pound for 40-pound block Cheddar cheese on the National 
Cheese Exchange as reported by the Department.
    (k) Other solids price. Other solids are herein defined as solids 
not fat other than protein. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the basic formula price at 
test less the average butterfat test of the basic formula price as 
reported by the Department times the butterfat price, less the average 
protein test of the basic formula price as reported by the Department 
for the month times the protein price, and dividing the resulting 
amount by the average other solids test of the basic formula price as 
reported by the Department. If the resulting price is less than zero, 
then the protein price will be reduced so that the other solids price 
equals zero.
    (l) Somatic cell adjustment. (1) The somatic cell adjustment rate, 
per 1,000 somatic cells, rounded to five decimal places, shall be 
computed by multiplying .0005 times the monthly cheddar cheese price as 
defined in paragraph (j) of this section.
    (2) The somatic cell adjustment, per hundredweight, shall be 
determined by subtracting from 350 the somatic cell count (in 
thousands) of the milk, multiplying the difference by the somatic cell 
adjustment rate, and rounding to the nearest full cent.
    4. Section 1065.53, including the section heading, is revised to 
read as follows:


Sec. 1065.53  Announcement of class and component prices.

    On or before the 5th day of the month, the market administrator 
shall announce the following prices:
    (a) The Class I price for the following month;
    (b) The Class II price for the following month;
    (c) The Class III price for the preceding month;
    (d) The Class III-A price for the preceding month;
    (e) The skim milk price for the preceding month;
    (f) The butterfat price for the preceding month;
    (g) The protein price for the preceding month;
    (h) The other solids price for the preceding month;
    (i) The somatic cell adjustment rate for the preceding month; and
    (j) The butterfat differential for the preceding month.
    5. The section heading in Sec. 1065.60 and the undesignated 
centerheading preceding it, the introductory text, and paragraphs (a) 
and (f) are revised to read as follows:

Producer Price Differential


Sec. 1065.60  Handler's value of milk.

    For the purpose of computing a handler's obligation for milk the 
market administrator shall determine for each month the value of milk 
of each handler described in Sec. 1065.9(a) with respect to each of its 
pool plants and each handler described in Sec. 1065.9(b) and (c).
    (a) The handler's obligation for producer milk shall be computed as 
follows:
    (1) Multiply the total hundredweight of milk in Class I as 
determined pursuant to Sec. 1065.44(c) by the Class I differential 
price for the month;
    (2) Add an amount obtained by multiplying the total hundredweight 
of milk in Class II as determined pursuant to Sec. 1065.44(c) by the 
Class II differential price for the month;
    (3) Add an amount obtained by multiplying the hundredweight of skim 
milk in Class I as determined pursuant to Sec. 1065.44(a) by the skim 
milk price;
    (4) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1065.44(a) by 
the average protein content of producer skim milk received by the 
handler, and multiplying the resulting pounds of protein by the protein 
price;
    (5) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1065.44(a) by 
the average other solids content of producer skim milk received by the 
handler, and multiplying the resulting pounds of other solids by the 
other solids price.
    (6) Add an adjustment for somatic cell content determined by 
multiplying the value reported pursuant to Sec. 1065.30(a)(1) by the 
percentage of the total producer milk allocated pursuant to 
Sec. 1065.44(c) that is allocated to Class II and Class III; and 

[[Page 41857]]

    (7) Add an amount obtained by multiplying the total hundredweight 
of producer milk eligible to be priced as Class III-A by the Class III-
A differential price for the month.
* * * * *
    (f) Add the amount obtained from multiplying the Class I 
differential price applicable at the location of the nearest 
unregulated supply plants from which an equivalent volume was received 
by the pounds of skim milk and butterfat in receipts of concentrated 
fluid milk products assigned to Class I pursuant to Sec. 1065.43(d) and 
Sec. 1065.44(a)(7)(i) and the pounds of skim milk and butterfat 
subtracted from Class I pursuant to Sec. 1065.44(a)(11) and the 
corresponding steps of Sec. 1065.44(b), excluding such skim milk and 
butterfat in receipts of bulk fluid milk products from an unregulated 
supply plant to the extent that an equivalent amount of skim milk or 
butterfat disposed of to such plant by handlers fully regulated under 
any Federal milk order is classified and priced as Class I milk and is 
not used as an offset for any other payment obligation under any order;
* * * * *
    6. Section 1065.61 is amended by revising the section heading, 
introductory text, and paragraphs (a) and (f), to read as follows:


Sec. 1065.61  Producer price differential.

    For each month the market administrator shall compute a producer 
price differential per hundredweight of milk received from producers, 
as follows:
    (a) Combine into one total for all handlers:
    (1) The values computed pursuant to Sec. 1065.60(a)(1), (a)(2), 
(a)(7) and (b) through (i) for all handlers; and
    (2) Add values computed pursuant to Sec. 1065.60(a)(3), (a)(4), 
(a)(5) and (a)(6); and subtract the values obtained by multiplying the 
handlers' total pounds of protein and total pounds of other solids 
contained in such milk by their respective prices, and the total value 
of the somatic cell adjustment.
* * * * *
    (f) Subtract not less than 4 cents nor more than 5 cents from the 
price computed pursuant to paragraph (e) of this section. The result 
shall be the ``producer price differential.''
    7. Section 1065.62 is revised to read as follows:


Sec. 1065.62  Announcement of producer prices.

    On or before the 12th day after the end of each month, the market 
administrator shall announce the following prices and information:
    (a) The producer price differential;
    (b) The protein price;
    (c) The other solids price;
    (d) The butterfat price;
    (e) The somatic cell adjustment rate;
    (f) The average butterfat, protein and other solids content of 
producer milk; and
    (g) The statistical uniform price for milk containing 3.5 percent 
butterfat, computed by combining the Class III price and the producer 
price differential.
    8. Section 1065.71 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1065.71  Payments to the producer-settlement fund.

    (a) * * *
    (2) The sum of:
    (i) An amount obtained by multiplying the total hundredweight of 
producer milk determined pursuant to Sec. 1065.44(c) by the producer 
price differential as adjusted pursuant to Sec. 1065.75;
    (ii) An amount obtained by multiplying the total pounds of protein 
contained in producer milk by the protein price;
    (iii) An amount obtained by multiplying the total pounds of other 
solids contained in producer milk by the other solids price;
    (iv) The total value of the somatic cell adjustment to producer 
milk; and
    (v) An amount obtained by multiplying the pounds of skim milk and 
butterfat for which a value was computed pursuant to Sec. 1065.60(f) by 
the producer price differential as adjusted pursuant to Sec. 1065.52 
for the location of the plant from which received.
* * * * *
    9. Section 1065.73 is amended by revising paragraphs (a), (c), (d) 
and (e) to read as follows:


Sec. 1065.73  Payments to producers and to cooperative associations.

    (a) Each handler shall pay for milk received from producers for 
which payment is not made to a cooperative association pursuant to 
paragraph (b) or (c) of this section as follows:
    (1) On or before the 27th day of the month, to each producer who 
has not discontinued shipping milk to such handler before the end of 
the month, for producer milk received during the first 15 days of the 
month at a rate per hundredweight not less than the statistical uniform 
price computed pursuant to Sec. 1065.62(g) for the preceding month, 
less proper deductions authorized in writing by such producer; and
    (2) On or before the 18th day after the end of the month, payment 
for producer milk received during such month shall not be less than the 
sum of:
    (i) The hundredweight of producer milk received times the producer 
price differential as adjusted pursuant to Sec. 1065.75;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month;
    (vi) Less any payment made pursuant to paragraph (a)(1) of this 
section;
    (vii) Less proper deductions authorized in writing by such producer 
and plus or minus adjustments for errors in previous payments made to 
such producer;
    (viii) Less deductions for marketing services pursuant to 1065.86 
and for advertising and promotion pursuant to Sec. 1065.107; and
    (ix) If by such date the handler has not received full payment from 
the market administrator pursuant to Sec. 1065.72 for such month, it 
may reduce pro rata its payment to producers by not more than the 
amount of such underpayment. Payment to producers shall be completed 
thereafter not later than the date for making payments pursuant to this 
paragraph next following receipt of the balance due from the market 
administrator.
* * * * *
    (c) Each handler shall pay a cooperative association for milk 
received by the handler from a cooperative association acting as a 
handler described in Sec. 1065.9(c) as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the 26th day 
of the month during which the milk was received at a rate per 
hundredweight not less than the statistical uniform price computed 
pursuant to Sec. 1065.62(g) for the preceding month; and
    (2) For milk received during the month the handler shall pay the 
cooperative association on or before the 17th day after the end of the 
month during which the milk was received as follows:
    (i) The hundredweight of milk received times the producer price 
differential applicable at the location of the receiving handler's 
plant;
    (ii) The pounds of butterfat received times the butterfat price for 
the month; 

[[Page 41858]]

    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month; and
    (vi) Less any payment made pursuant to paragraph (c)(1) of this 
section.
    (d) Each handler shall pay a cooperative association for fluid milk 
products received by transfer or diversion from a pool plant operated 
by the cooperative association as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the 26th day 
of the month during which the milk was received at a rate per 
hundredweight not less than the Class III price for the preceding 
month; and
    (2) For milk received and classified during the month the handler 
shall pay the cooperative association on or before the 17th day after 
the end of the month during which the milk was received as follows:
    (i) The hundredweight of Class I milk received times the Class I 
differential price for the month applicable at the transferee plant, 
plus the pounds of Class I skim milk times the skim milk price for the 
month;
    (ii) The hundredweight of Class II milk received times the Class II 
differential price for the month;
    (iii) The hundredweight of Class III-A milk received times the 
Class III-A differential price for the month;
    (iv) The pounds of butterfat received times the butterfat price for 
the month;
    (v) The pounds of protein received in Class II and Class III milk 
times the protein price for the month;
    (vi) The pounds of other solids received in Class II and Class III 
milk times the other solids price for the month;
    (vii) The hundredweight of Class II and Class III milk received 
times the somatic cell adjustment; and
    (viii) Less any payment made pursuant to paragraph (d)(1) of this 
section.
    (e) In making payments for producer milk pursuant to paragraphs 
(a)(2) or (b)(2) of this section, each handler shall furnish each 
producer or cooperative association to whom such payment is made a 
supporting statement in such form that it may be retained by the 
recipient which shall show:
    (1) The month and the identity of the producer;
    (2) The daily and total pounds for each producer;
    (3) The total pounds of butterfat contained in the producer's milk;
    (4) The total pounds of protein contained in the producer's milk;
    (5) The total pounds of other solids contained in the producer's 
milk;
    (6) The somatic cell count of the producer's milk;
    (7) The minimum rate or rates which payment to the producer is 
required pursuant to this order;
    (8) The rate that is used in making payment if such rate is other 
than the applicable minimum rate;
    (9) The amount, or the rate per hundredweight, or rate per pound of 
component, and the nature of each deduction claimed by the handler; and
    (10) The net amount of payment to such producer or cooperative.
* * * * *
    10. Sections 1065.74 and 1065.75 are revised to read as follows:
Sec. 1065.74  Butterfat differential.

    The butterfat differential, rounded to the nearest one-tenth cent, 
shall be 0.138 times the current month's butter price less 0.0028 times 
the preceding month's average pay price per hundredweight, at test, for 
manufacturing grade milk in Minnesota and Wisconsin, using the ``base 
month'' series, adjusted pursuant to Sec. 1065.51 (a) through (e), as 
reported by the Department. The butter price means the simple average 
for the month of the Chicago Mercantile Exchange Grade A butter price 
as reported by the Department.


Sec. 1065.75  Plant location adjustments for producers and on nonpool 
milk.

    (a) The producer price differential for producer milk shall be 
adjusted according to the location of the plant of actual receipt at 
the rates set forth in Sec. 1065.52.
    (b) For purposes of computations pursuant to Secs. 1065.71 and 
1065.72, the producer price differential shall be adjusted at the rates 
set forth in Sec. 1065.52 applicable at the location of the nonpool 
plant from which the milk was received, except that the adjusted 
producer price differential shall not be less than zero.
    11. Section 1065.76 is amended by revising paragraph (a)(4) and the 
third sentence of paragraph (b)(1)(ii) to read as follows, and changing 
the reference ``Sec. 1065.71(a)(2)(ii)'' in paragraph (b)(1)(iii) to 
``Sec. 1065.71(a)(2)(v)'':


Sec. 1065.76  Payments by handler operating a partially regulated 
distributing plant.

* * * * *
    (a) * * *
    (4) Multiply the remaining pounds by the amount by which the Class 
I differential price exceeds the producer price differential, both 
prices to be applicable at the location of the partially regulated 
distributing plant, with the difference to be not less than zero;
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * * Any such transfers remaining after the above allocation 
which are classified in Class I and for which a value is computed for 
the handler operating the partially regulated distributing plant 
pursuant to Sec. 1065.60 shall be priced at the statistical uniform 
price (or at the weighted average price if such is provided) of the 
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of 
the nonpool plant (but not to be less than the lowest class price of 
the respective order), except that transfers of reconstituted skim milk 
in filled milk shall be priced at the lowest class price of the 
respective order; and
* * * * *

PART 1068--MILK IN THE UPPER MIDWEST MARKETING AREA

    1. Section 1068.30 is amended by revising paragraphs (a) and (c) 
and removing paragraph (d), to read as follows:


Sec. 1068.30  Reports of receipts and utilization.

* * * * *
    (a) Each handler described in Sec. 1068.9 (a), (b), and (c) shall 
report for each of its operations the following information:
    (1) Product pounds, pounds of butterfat, pounds of protein, pounds 
of solids-not-fat other than protein (other solids), and the value of 
the somatic cell adjustment contained in or represented by:
    (i) Receipts of producer milk, including producer milk diverted by 
the handler; and
    (ii) Receipts of milk from handlers described in Sec. 1068.9(c).
    (2) Product pounds and pounds of butterfat contained in:
    (i) Receipts by transfer or diversion of bulk fluid milk products 
from pool plants;
    (ii) Receipts of fluid milk products not included in paragraphs 
(a)(1) or (a)(2)(i) of this section and bulk fluid cream products from 
any source;
    (iii) Receipts of other source milk; and
    (iv) Inventories at the beginning and end of the month of fluid 
milk products and products specified in Sec. 1068.40(b)(1).
    (3) The utilization or disposition of all milk, filled milk, and 
milk products required to be reported pursuant to this paragraph.

[[Page 41859]]

    (4) Such other information with respect to the receipts and 
utilization of skim milk, butterfat, milk protein, other nonfat solids, 
and somatic cell information, as the market administrator may 
prescribe.
* * * * *
    (c) Each handler not specified in paragraphs (a) and (b) of this 
section shall report with respect to its receipts and utilization of 
milk, filled milk, and milk products in such manner as the market 
administrator may prescribe.
    2. Section 1068.31 is amended by revising paragraph (a) to read as 
follows:


Sec. 1068.31  Payroll reports.

    (a) On or before the 22nd day of each month, each handler described 
in Sec. 1068.9 (a), (b), and (c) shall report to the market 
administrator its producer payroll for such month, in the detail 
prescribed by the market administrator, showing for each producer the 
information described in Sec. 1068.73(f).
* * * * *
    3. Section 1068.50 is amended by revising the section heading, 
introductory text and paragraph (a), and adding paragraphs (e) through 
(l) to read as follows:


Sec. 1068.50  Class and component prices.

    Subject to the provisions of Sec. 1068.52, the class prices per 
hundredweight of milk containing 3.5 percent butterfat and the 
component prices for the month shall be as follows:
    (a) Class I price. The Class I price shall be the basic formula 
price for the second preceding month plus $1.20.
* * * * *
    (e) Class I differential price. The Class I differential price 
shall be the difference between the current month's Class I and Class 
III prices (this price may be negative).
    (f) Class II differential price. The Class II differential price 
shall be the difference between the current month's Class II and Class 
III prices (this price may be negative).
    (g) Class III-A differential price. The Class III-A differential 
price shall be the difference between the current month's Class III and 
Class III-A prices (this price may be negative).
    (h) Skim milk price. The skim milk price per hundredweight, rounded 
to the nearest cent, shall be the Class III price less an amount 
computed by multiplying the butterfat differential by 35.
    (i) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the Class III price plus an amount 
computed by multiplying the butterfat differential by 965 and dividing 
the resulting amount by one hundred.
    (j) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be 1.32 times the average monthly 
price per pound for 40-pound block Cheddar cheese on the National 
Cheese Exchange as reported by the Department.
    (k) Other solids price. Other solids are herein defined as solids-
not-fat other than protein. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the basic formula price at 
test less the average butterfat test of the basic formula price as 
reported by the Department times the butterfat price, less the average 
protein test of the basic formula price as reported by the Department 
for the month times the protein price, and dividing the resulting 
amount by the average other solids test of the basic formula price as 
reported by the Department. If the resulting price is less than zero, 
then the protein price will be reduced so that the other solids price 
equals zero.
    (l) Somatic cell adjustment. (1) The somatic cell adjustment rate, 
per 1,000 somatic cells, rounded to five decimal places, shall be 
computed by multiplying .0005 times the monthly cheddar cheese price as 
defined in paragraph (j) of this section.
    (2) The somatic cell adjustment per hundredweight shall be 
determined by subtracting from 350 the somatic cell count (in 
thousands) of the milk, multiplying the difference by the somatic cell 
adjustment rate, and rounding to the nearest full cent.
    4. Section 1068.53, including the section heading, is revised to 
read as follows:


Sec. 1068.53  Announcement of class and component prices.

    On or before the 5th day of the month, the market administrator 
shall announce the following prices:
    (a) The Class I price for the following month;
    (b) The Class II price for the following month;
    (c) The Class III price for the preceding month;
    (d) The Class III-A price for the preceding month;
    (e) The skim milk price for the preceding month;
    (f) The butterfat price for the preceding month;
    (g) The protein price for the preceding month;
    (h) The other solids price for the preceding month;
    (i) The somatic cell adjustment rate for the preceding month; and
    (j) The butterfat differential for the preceding month.
    5. The section heading in Sec. 1068.60 and the undesignated 
centerheading preceding it, the introductory text and paragraphs (a), 
(f), and (g), are revised to read as follows:
Producer Price Differential


Sec. 1068.60  Handler's value of milk.

    For the purpose of computing a handler's obligation for producer 
milk, the market administrator shall determine for each month the value 
of milk of each handler described in Sec. 1068.9 (a), (b), and (c).
    (a) The handler's obligation for producer milk shall be computed as 
follows:
    (1) Multiply the total hundredweight of producer milk in Class I as 
determined pursuant to Sec. 1068.43(a) and Sec. 1068.44(c) by the Class 
I differential price for the month;
    (2) Add an amount obtained by multiplying the total hundredweight 
of producer milk in Class II as determined pursuant to Sec. 1068.43(a) 
and Sec. 1068.44(c) by the Class II differential price for the month;
    (3) Add an amount obtained by multiplying the hundredweight of skim 
milk in Class I as determined pursuant to Sec. 1068.43(a) and 
Sec. 1068.44(a) by the skim milk price;
    (4) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1068.43(a) and 
Sec. 1068.44(a) by the average protein content of producer skim milk 
received by the handler, and multiplying the resulting pounds of 
protein by the protein price;
    (5) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1068.43(a) and 
Sec. 1068.44(a) by the average other solids content of producer skim 
milk received by the handler, and multiplying the resulting pounds of 
other solids by the other solids price.
    (6) Add an adjustment for somatic cell content determined by 
multiplying the value reported pursuant to Sec. 1068.30(a)(1) by the 
percentage of the total producer milk assigned to Class II and Class 
III pursuant to Secs. 1068.43(a) and 1068.44(c); and
    (7) Add an amount obtained by multiplying the total hundredweight 
of producer milk eligible to be priced as Class III-A by the Class III-
A differential price for the month.
* * * * *
    (f) Add the amount obtained from multiplying the Class I 
differential price 

[[Page 41860]]
applicable at the location of the nearest unregulated supply plants 
from which an equivalent volume was received by the pounds of skim milk 
and butterfat in receipts of concentrated fluid milk products assigned 
to Class I pursuant to Sec. 1068.43(e) and Sec. 1068.44(a)(7)(i) and 
the pounds of skim milk and butterfat subtracted from Class I pursuant 
to Sec. 1068.44(a)(11) and the corresponding steps of Sec. 1068.44(b), 
excluding such skim milk and butterfat in receipts of bulk fluid milk 
products from an unregulated supply plant to the extent that an 
equivalent amount of skim milk or butterfat disposed of to such plant 
by handlers fully regulated under any Federal milk order is classified 
and priced as Class I milk and is not used as an offset for any other 
payment obligation under any order;
    (g) Subtract, for a handler described in Sec. 1068.9(c), the amount 
charged the preceding month for the skim milk and butterfat contained 
in inventory at the beginning of the month that was delivered to a pool 
plant during the month;
* * * * *
    6. Section 1068.61 is amended by revising the section heading, 
introductory text, and paragraphs (a) and (e), to read as follows:


Sec. 1068.61  Producer price differential.

    For each month the market administrator shall compute a producer 
price differential per hundredweight of milk as follows:
    (a) Combine into one total for all handlers:
    (1) The estimated values computed pursuant to Sec. 1068.60 (a)(1), 
(a)(2), (a)(7) and (b) through (j) for all handlers; and
    (2) Add the estimated values computed pursuant to Sec. 1068.60 
(a)(3), (a)(4), (a)(5) and (a)(6); and subtract the values obtained by 
multiplying the handlers' total pounds of protein and total pounds of 
other solids contained in such milk by their respective prices, and the 
total value of the somatic cell adjustment.
* * * * *
    (e) Subtract not less than 4 cents nor more than 5 cents from the 
price computed pursuant to paragraph (d) of this section. The result 
shall be the ``producer price differential'' for milk received from 
producers.
    7. Section 1068.62 is revised to read as follows:


Sec. 1068.62  Announcement of producer prices.

    On or before the 12th day after the end of each month, the market 
administrator shall announce the following prices and information:
    (a) The producer price differential;
    (b) The protein price;
    (c) The other solids price;
    (d) The butterfat price;
    (e) The somatic cell adjustment rate;
    (f) The average butterfat, protein and other solids content of 
producer milk; and
    (g) The statistical uniform price for milk containing 3.5 percent 
butterfat, computed by combining the Class III price and the producer 
price differential.
    8. Section 1068.71 is amended by revising paragraph (a) to read as 
follows:


Sec. 1068.71  Payments to the producer-settlement fund.

    (a) 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 specified in paragraph (a)(1) of this section exceeds 
the amount specified in paragraph (a)(2) of this section:
    (1) The total value of milk of the handler for such month as 
determined pursuant to Sec. 1068.60.
    (2) The sum of:
    (i) The value of such handler's receipts of producer milk and milk 
received from a handler described in Sec. 1068.9(c). In the case of a 
handler described in Sec. 1068.9(c), less the amount due from other 
handlers pursuant to Sec. 1068.73(d). The value of producer milk shall 
be computed as follows:
    (A) An amount obtained by multiplying the total hundredweight of 
producer milk by the producer price differential as adjusted pursuant 
to Sec. 1068.75;
    (B) An amount obtained by multiplying the total pounds of protein 
contained in producer milk by the protein price;
    (C) An amount obtained by multiplying the total pounds of other 
solids contained in producer milk by the other solids price;
    (D) The total value of the somatic cell adjustment to producer 
milk; and
    (ii) An amount obtained by multiplying the pounds of skim milk and 
butterfat for which a value was computed pursuant to Sec. 1068.60(f) by 
the producer price differential as adjusted pursuant to Sec. 1068.52 
for the location of the plant from which received.
* * * * *
    9. Sections 1068.73, 1068.74, and 1068.75 are revised to read as 
follows:


Sec. 1068.73  Payments to producers and to cooperative associations.

    Each handler shall pay for milk received from producers or 
cooperative associations as follows:
    (a) On or before the 25th day of the month, each handler shall pay 
for skim milk and butterfat received during the first 15 days of the 
month from a cooperative association:
    (1) That is a handler pursuant to Sec. 1068.9(a), at not less than 
the Class I price for the month at the location of the transferee or 
transferor plant, whichever is higher, adjusted by the butterfat 
differential for the preceding month;
    (2) That is a handler pursuant to Sec. 1068.9(c), at not less than 
the statistical uniform price at its plant location for the preceding 
month, adjusted by the butterfat differential for the preceding month; 
and
    (3) That is not a handler but which is authorized to collect 
payment on behalf of its member producers and has requested that 
payment be made to it in aggregate, at not less than the statistical 
uniform price at its plant location for the preceding month, adjusted 
by the butterfat differential for the preceding month.
    (b) On or before the 4th day after the end of the month, each 
handler shall pay for skim milk and butterfat received during the first 
15 days of the month from a producer for whom payment is not being made 
pursuant to paragraph (a) of this section and who has not discontinued 
shipping to such handler, at not less than the statistical uniform 
price at its plant location for the preceding month, adjusted by the 
butterfat differential for the preceding month.
    (c) On or before the 11th day after the end of the month, each 
handler shall pay for milk received and classified during the month 
from a cooperative association which is a handler pursuant to 
Sec. 1068.9(a) adjusted at the location of the transferee or transferor 
plant, whichever is higher, payment shall be determined as follows:
    (1) The hundredweight of Class I milk received times the Class I 
differential price for the month plus the pounds of Class I skim milk 
times the skim milk price for the month;
    (2) The hundredweight of Class II milk received times the Class II 
differential price for the month;
    (3) The hundredweight of Class III-A milk received times the Class 
III-A differential price for the month;
    (4) The pounds of butterfat received times the butterfat price for 
the month;
    (5) The pounds of protein received in Class II and Class III milk 
times the protein price for the month;
    (6) The pounds of other solids received in Class II and Class III 
milk times the other solids price for the month; 

[[Page 41861]]

    (7) The hundredweight of Class II and Class III milk received times 
the somatic cell adjustment; and
    (8) Less any payment made pursuant to paragraph (a)(1) of this 
section.
    (d) On or before the 18th day after the end of the month, each 
handler shall make payment as described in this paragraph to:
    (1) A cooperative association that is a handler pursuant to 
Sec. 1068.9(c);
    (2) A cooperative association that is not a handler but which is 
authorized to collect payment on behalf of its member producers and has 
requested that payment be made to it in aggregate;
    (3) A producer for whom payment is not being made pursuant to 
paragraph (d) (1) and (2) of this section.
    (4) Payment shall be determined by:
    (i) The hundredweight of producer milk received times the producer 
price differential as adjusted pursuant to Sec. 1068.75;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month; and
    (vi) Less any payment made pursuant to paragraph (a) or (b) of this 
section.
    (e) In making payments pursuant to paragraphs (a) (2) and (3), (b) 
and (d) of this section, deductions may be made for marketing services 
pursuant to Sec. 1068.86 and for any proper deductions authorized by 
the producer. In the event a handler has not received full payment from 
the market administrator pursuant to Sec. 1068.72 by the 18th day of 
the month, the handler may reduce pro rata its payments to producers 
pursuant to paragraph (d) by not more than the amount of such 
underpayment. Following receipt of the balance due from the market 
administrator, the handler shall complete payments to producers not 
later than the next payment date provided under this section.
    (f) In making payment to individual producers as required by this 
section, each handler shall furnish each producer from whom it received 
milk a supporting statement, in such form that it may be retained by 
the producer, which shall show:
    (1) The month and the identity of the handler and producer;
    (2) The total pounds of milk received from the producer;
    (3) The total pounds of butterfat contained in the producer's milk;
    (4) The total pounds of protein contained in the producer's milk;
    (5) The total pounds of other solids contained in the producer's 
milk;
    (6) The somatic cell count of the producer's milk;
    (7) The minimum rate or rates at which payment to the producer is 
required pursuant to this section;
    (8) The rate that is used in making payment if such rate is other 
than the applicable minimum;
    (9) The amount, or the rate per hundredweight, or rate per pound of 
component, of each deduction claimed by the handler, including any 
deduction claimed under Sec. 1068.86, together with a description of 
the respective deductions; and
    (10) The net amount of the payment to the producer.


Sec. 1068.74  Butterfat differential.

    The butterfat differential, rounded to the nearest one-tenth cent, 
shall be 0.138 times the current month's butter price less 0.0028 times 
the preceding month's average pay price per hundredweight, at test, for 
manufacturing grade milk in Minnesota and Wisconsin, using the ``base 
month'' series, adjusted pursuant to Sec. 1068.51 (a) through (e), as 
reported by the Department. The butter price means the simple average 
for the month of the Chicago Mercantile Exchange Grade A butter price 
as reported by the Department.


Sec. 1068.75  Plant location adjustments for producers and on nonpool 
milk.

    (a) The producer price differential for producer milk received at a 
pool plant or delivered to a nonpool plant shall be adjusted according 
to the location of the plant of actual receipt at the rates set forth 
in Sec. 1068.52.
    (b) The producer price differential applicable to other source milk 
shall be adjusted at the rates set forth in Sec. 1068.52, except that 
the adjusted producer price differential shall not be less than zero.
    10. Section 1068.76 is amended by revising paragraph (a)(4) and the 
third sentence of paragraph (b)(1)(ii) to read as follows:


Sec. 1068.76  Payments by handler operating a partially regulated 
distributing plant.

* * * * *
    (a) * * *
    (4) Multiply the remaining pounds by the amount by which the Class 
I differential price exceeds the producer price differential, both 
prices to be applicable at the location of the partially regulated 
distributing plant, with the difference to be not less than zero;
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * * Any such transfers remaining after the above allocation 
which are classified in Class I and for which a value is computed for 
the handler operating the partially regulated distributing plant 
pursuant to Sec. 1068.60 shall be priced at the statistical uniform 
price (or at the weighted average price if such is provided) of the 
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of 
the nonpool plant (but not to be less than the lowest class price of 
the respective order), except that transfers of reconstituted skim milk 
in filled milk shall be priced at the lowest class price of the 
respective order; and
* * * * *


Sec. 1068.85  [Amended]

    11. Section 1068.85 is amended by changing the word ``15th'' in the 
introductory text to ``16th.''


Sec. 1068.86  [Amended]

    12. Section 1068.86 is amended by changing the word ``15th'' in 
paragraphs (a) and (b) to ``16th.''
PART 1076--MILK IN THE EASTERN SOUTH DAKOTA MARKETING AREA

    1. Section 1076.30 is amended by revising paragraphs (a) and (c) 
and removing paragraph (d) to read as follows:


Sec. 1076.30  Reports of receipts and utilization.

* * * * *
    (a) Each handler described in Sec. 1076.9(a), (b), and (c) shall 
report for each of its operations the following information:
    (1) Product pounds, pounds of butterfat, pounds of protein, pounds 
of solids-not-fat other than protein (other solids), and the value of 
the somatic cell adjustment contained in or represented by:
    (i) Receipts of producer milk, including producer milk diverted by 
the handler; and
    (ii) Receipts of milk from handlers described in Sec. 1076.9(c);
    (2) Product pounds and pounds of butterfat contained in:
    (i) Receipts by transfer or diversion of bulk fluid milk products 
from pool plants;
    (ii) Receipts of fluid milk products not included in paragraph 
(a)(1) or (a)(2)(i) of this section and bulk fluid cream products from 
any source;
    (iii) Receipts of other source milk; and
    (iv) Inventories at the beginning and end of the month of fluid 
milk products 

[[Page 41862]]
and products specified in Sec. 1076.40(b)(1).
    (3) The utilization or disposition of all milk, filled milk, and 
milk products required to be reported pursuant to this paragraph.
    (4) Such other information with respect to the receipts and 
utilization of skim milk, butterfat, milk protein, other nonfat solids, 
and somatic cell information, as the market administrator may 
prescribe.
* * * * *
    (c) Each handler not specified in paragraphs (a) and (b) of this 
section shall report with respect to its receipts and utilization of 
milk, filled milk, and milk products in such manner as the market 
administrator may prescribe.
    2. Section 1076.31 is amended by revising paragraph (a) to read as 
follows:


Sec. 1076.31  Payroll reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec. 1076.9(a), (b), and (c) shall report to the 
market administrator its producer payroll for such month, in the detail 
prescribed by the market administrator, showing for each producer the 
information described in Sec. 1076.73(e).
* * * * *
    3. Section 1076.50 is amended by revising the section heading, 
introductory text and paragraph (a), reserving paragraph (d), and 
adding paragraphs (e) through (l):


Sec. 1076.50  Class and component prices.

    Subject to the provisions of Sec. 1076.52, the class prices per 
hundredweight of milk containing 3.5 percent butterfat and the 
component prices for the month shall be as follows:
    (a) Class I price. The Class I price for the month per 
hundredweight of milk containing 3.5 percent butterfat shall be the 
basic formula price for the second preceding month plus $1.50.
* * * * *
    (d) [Reserved]
    (e) Class I differential price. The Class I differential price 
shall be the difference between the current month Class I and Class III 
prices (this price may be negative).
    (f) Class II differential price. The Class II differential price 
shall be the difference between the current month Class II and Class 
III prices (this price may be negative).
    (g) [Reserved]
    (h) Skim milk price. The skim milk price per hundredweight, rounded 
to the nearest cent, shall be the Class III price less an amount 
computed by multiplying the butterfat differential by 35.
    (i) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the Class III price plus an amount 
computed by multiplying the butterfat differential by 965 and dividing 
the resulting amount by one hundred.
    (j) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be 1.32 times the average monthly 
price per pound for 40-pound block Cheddar cheese on the National 
Cheese Exchange as reported by the Department.
    (k) Other solids price. Other solids are herein defined as solids 
not fat other than protein. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the basic formula price at 
test less the average butterfat test of the basic formula price as 
reported by the Department times the butterfat price, less the average 
protein test of the basic formula price as reported by the Department 
for the month times the protein price, and dividing the resulting 
amount by the average other solids test of the basic formula price as 
reported by the Department. If the resulting price is less than zero, 
then the protein price will be reduced so that the other solids price 
equals zero.
    (l) Somatic cell adjustment. (1) The somatic cell adjustment rate, 
per 1,000 somatic cells, rounded to five decimal places, shall be 
computed by multiplying .0005 times the monthly cheddar cheese price as 
defined in paragraph (j) of this section.
    (2) The somatic cell adjustment, per hundredweight, shall be 
determined by subtracting from 350 the somatic cell count (in 
thousands) of the milk, multiplying the difference by the somatic cell 
adjustment rate, and rounding to the nearest full cent.
    4. Section 1076.53 is revised to read as follows:


Sec. 1076.53  Announcement of class and component prices.

    On or before the 5th day of the month, the market administrator 
shall announce the following prices:
    (a) The Class I price for the following month;
    (b) The Class II price for the following month;
    (c) The Class III price for the preceding month;
    (d) [Reserved]
    (e) The skim milk price for the preceding month;
    (f) The butterfat price for the preceding month;
    (g) The protein price for the preceding month;
    (h) The other solids price for the preceding month;
    (i) The somatic cell adjustment rate for the preceding month; and
    (j) The butterfat differential for the preceding month.
    5. The section heading in Sec. 1076.60 and the undesignated 
centerheading preceding it, the introductory text, and paragraphs (a) 
and (f) are revised to read as follows:
Producer Price Differential


Sec. 1076.60  Handler's value of milk.

    For the purpose of computing a handler's obligation for milk the 
market administrator shall determine for each month the value of milk 
of each handler described in Sec. 1076.9(a) with respect to each of its 
pool plants and each handler described in Sec. 1076.9(b) and (c).
    (a) The handler's obligation for producer milk and milk received 
from a handler described in Sec. 1076.9(c) shall be computed as 
follows:
    (1) Multiply the total hundredweight of milk in Class I as 
determined pursuant to Sec. 1076.43(a) and Sec. 1076.44(c) by the Class 
I differential price for the month;
    (2) Add an amount obtained by multiplying the total hundredweight 
of milk in Class II as determined pursuant to Sec. 1076.43(a) and 
Sec. 1076.44(c) by the Class II differential price for the month;
    (3) Add an amount obtained by multiplying the hundredweight of skim 
milk in Class I as determined pursuant to Sec. 1076.43(a) and 
Sec. 1076.44(a) by the skim milk price;
    (4) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1076.43(a) and 
Sec. 1076.44(a) by the average protein content of the skim milk 
received by the handler, and multiplying the resulting pounds of 
protein by the protein price;
    (5) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1076.43(a) and 
Sec. 1076.44(a) by the average other solids content of the skim milk 
received by the handler, and multiplying the resulting pounds of other 
solids by the other solids price; and
    (6) Add an adjustment for somatic cell content determined by 
multiplying the value reported pursuant to Sec. 1076.30(a)(1) by the 
percentage of the total producer milk assigned to Class II and Class 
III pursuant to Secs. 1076.43(a) and 1076.44(c); and
* * * * *
    (f) Add the amount obtained from multiplying the Class I 
differential price applicable at the location of the nearest 
unregulated supply plants from which an equivalent volume was received 
by 

[[Page 41863]]
the pounds of skim milk and butterfat in receipts of concentrated fluid 
milk products assigned to Class I pursuant to Sec. 1076.43(d) and 
Sec. 1076.44(a)(7)(i) and the pounds of skim milk and butterfat 
subtracted from Class I pursuant to Sec. 1076.44(a)(11) and the 
corresponding steps of Sec. 1076.44(b), excluding such skim milk and 
butterfat in receipts of bulk fluid milk products from an unregulated 
supply plant to the extent that an equivalent amount of skim milk or 
butterfat disposed of to such plant by handlers fully regulated under 
any Federal milk order is classified and priced as Class I milk and is 
not used as an offset for any other payment obligation under any order;
* * * * *
    6. Section 1076.61 is amended by revising the section heading, 
introductory text, and paragraphs (a) and (e), to read as follows:


Sec. 1076.61  Producer price differential.

    For each month the market administrator shall compute a producer 
price differential per hundredweight of milk received from producers as 
follows:
    (a) Combine into one total for all handlers:
    (1) The values computed pursuant to Sec. 1076.60, paragraphs 
(a)(1), (a)(2), and (b) through (i) for all handlers;
    (2) Add values computed pursuant to Sec. 1076.60(a)(3), (a)(4), 
(a)(5) and (a)(6); and subtract the values obtained by multiplying the 
handlers' total pounds of protein and total pounds of other solids 
contained in such milk by their respective prices, and the total value 
of the somatic cell adjustment.
* * * * *
    (e) Subtract not less than 4 cents nor more than 5 cents from the 
price computed pursuant to paragraph (d) of this section. The result 
shall be the ``producer price differential.''
    7. Section 1076.62 is revised to read as follows:


Sec. 1076.62  Announcement of producer prices.

    On or before the 12th day after the end of each month, the market 
administrator shall announce the following prices and information:
    (a) The producer price differential;
    (b) The protein price;
    (c) The other solids price;
    (d) The butterfat price;
    (e) The somatic cell adjustment rate;
    (f) The average butterfat, protein and other solids content of 
producer milk and milk received from a handler described in 
Sec. 1076.9(c); and
    (g) The statistical uniform price for milk containing 3.5 percent 
butterfat, computed by combining the Class III price and the producer 
price differential.
    8. Section 1076.71 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1076.71  Payments to the producer-settlement fund.

    (a) * * *
    (2) The sum of:
    (i) An amount obtained by multiplying the total hundredweight of 
producer milk and milk received from a handler described in 
Sec. 1076.9(c) by the producer price differential as adjusted pursuant 
to Sec. 1076.75;
    (ii) An amount obtained by multiplying the total pounds of protein 
contained in producer milk and milk received from a handler described 
in Sec. 1076.9(c) by the protein price;
    (iii) An amount obtained by multiplying the total pounds of other 
solids contained in producer milk and milk received from a handler 
described in Sec. 1076.9(c) by the other solids price;
    (iv) The total value of the somatic cell adjustment to producer 
milk and milk received from handlers described in Sec. 1076.9(c); and
    (v) An amount obtained by multiplying the pounds of skim milk and 
butterfat for which a value was computed pursuant to Sec. 1076.60(f) by 
the producer price differential as adjusted pursuant to Sec. 1076.52 
for the location of the plant from which received.
* * * * *


Sec. 1076.72  [Amended]

    9. Section 1076.72 is amended by removing the last sentence.
    10. Section 1076.73 is amended by revising paragraphs (a), (c), (d) 
and (e) to read as follows:


Sec. 1076.73  Payments to producers and to cooperative associations.

    (a) Each handler shall pay each producer for milk received from 
producers for which payment is not made to a cooperative association 
pursuant to paragraph (b) or (c) of this section as follows:
    (1) On or before the last day of each month, for producer milk 
received during the first 15 days of the month at a rate per 
hundredweight not less than the Class III price for the preceding 
month; and
    (2) On or before the 18th day after the end of the month, payment 
for producer milk received during such month shall not be less than the 
sum of:
    (i) The hundredweight of producer milk received times the producer 
price differential as adjusted pursuant to Sec. 1076.75;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month;
    (vi) Less any payment made pursuant to paragraph (a)(1) of this 
section;
    (vii) Less proper deductions authorized in writing by such producer 
and plus or minus adjustments for errors in previous payments made to 
such producer;
    (viii) Less deductions for marketing services pursuant to 
Sec. 1076.86; and
    (ix) If by such date the handler has not received full payment from 
the market administrator pursuant to Sec. 1076.72 for such month, it 
may reduce pro rata its payment to producers by not more than the 
amount of such underpayment. Payment to producers shall be completed 
thereafter not later than the date for making payments pursuant to this 
paragraph next following receipt of the balance due from the market 
administrator.
* * * * *
    (c) Each handler shall pay a cooperative association for milk 
received by the handler from a cooperative association acting as a 
handler described in Sec. 1076.9(c) as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the 28th day 
of the month during which the milk was received at a rate per 
hundredweight not less than the statistical uniform price computed 
pursuant to Sec. 1076.62(g) for the preceding month; and
    (2) For milk received during the month the handler shall pay the 
cooperative association on or before the 15th day after the end of the 
month during which the milk was received follows:
    (i) The hundredweight of milk received times the producer price 
differential applicable at the location of the receiving handler's 
plant;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month; and
    (vi) Less any payment made pursuant to paragraph (c)(1) of this 
section.

[[Page 41864]]

    (d) Each handler shall pay a cooperative association for fluid milk 
products received by transfer from pool plant(s) operated by the 
cooperative association as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the 28th day 
of the month during which the milk was received at a rate per 
hundredweight not less than the statistical uniform price computed 
pursuant to Sec. 1076.62(g) adjusted by the butterfat differential, 
both for the preceding month; and
    (2) For milk received and classified during the month the handler 
shall pay the cooperative association on or before the 15th day after 
the end of the month during which the milk was received, as follows:
    (i) The hundredweight of Class I milk received times the Class I 
differential price for the month applicable at the transferee plant, 
plus the pounds of Class I skim milk times the skim milk price for the 
month;
    (ii) The hundredweight of Class II milk received times the Class II 
differential price for the month,
    (iii) [Reserved]
    (iv) The pounds of butterfat received times the butterfat price for 
the month;
    (v) The pounds of protein received in Class II and Class III milk 
times the protein price for the month;
    (vi) The pounds of other solids received in Class II and Class III 
milk times the other solids price for the month;
    (vii) The hundredweight of Class II and Class III milk received 
times the somatic cell adjustment; and
    (viii) Less any payment made pursuant to paragraph (d)(1) of this 
section.
    (e) In making payments for producer milk pursuant to paragraphs 
(a)(2) or (b)(2) of this section, each handler shall furnish each 
producer or cooperative association to whom such payment is made a 
supporting statement in such form that it may be retained by the 
recipient which shall show:
    (1) The month and the identity of the producer;
    (2) The daily and total pounds for each producer;
    (3) The total pounds of butterfat contained in the producer's milk;
    (4) The total pounds of protein contained in the producer's milk;
    (5) The total pounds of other solids contained in the producer's 
milk;
    (6) The somatic cell count of the producer's milk;
    (7) The minimum rate or rates which payment to the producer is 
required pursuant to this order;
    (8) The rate that is used in making payment if such rate is other 
than the applicable minimum rate;
    (9) The amount, or the rate per hundredweight, or rate per pound of 
component, and the nature of each deduction claimed by the handler; and
    (10) The net amount of payment to such producer or cooperative.
    11. Sections 1076.74 and 1076.75 are revised to read as follows:


Sec. 1076.74  Butterfat differential.

    The butterfat differential, rounded to the nearest one-tenth cent, 
shall be 0.138 times the current month's butter price less 0.0028 times 
the preceding month's average pay price per hundredweight, at test, for 
manufacturing grade milk in Minnesota and Wisconsin, using the ``base 
month'' series, adjusted pursuant to Sec. 1076.51(a) through (e), as 
reported by the Department. The butter price means the simple average 
for the month of the Chicago Mercantile Exchange Grade A butter price 
as reported by the Department.


Sec. 1076.75  Plant location adjustments for producers and on nonpool 
milk.

    (a) The producer price differential for producer milk shall be 
adjusted according to the location of the plant of actual receipt at 
the rates set forth in Sec. 1076.52; and
    (b) For the purpose of computations pursuant to Sec. Sec. 1076.71 
and 1076.72 the producer price differential shall be adjusted at the 
rates set forth in Sec. 1076.52 applicable at the location of the 
nonpool plant from which the milk was received, except that the 
adjusted producer price differential shall not be less than zero.
    12. Section 1076.76 is amended by revising paragraphs (a)(4) and 
the last sentence of (b)(1)(ii) to read as follows, and changing the 
reference ``Sec. 1076.71(a)(2)(ii)'' in paragraph (b)(1)(iii) to 
``Sec. 1076.71(a)(2)(v)'':


Sec.  1076.76  Payments by handler operating a partially regulated 
distributing plant.

* * * * *
    (a) * * *
    (4) Multiply the remaining pounds by the amount by which the Class 
I differential price exceeds the producer price differential, both 
price to be applicable at the location of the partially regulated 
distributing plant, with the difference to be not less than zero;
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * * Any such transfers remaining after the above allocation 
which are classified in Class I and for which a value is computed for 
the handler operating the partially regulated distributing plant 
pursuant to Sec. 1076.60 shall be priced at the statistical uniform 
price (or at the weighted average price if such is provided) of the 
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of 
the nonpool plant (but not to be less than the lowest class price of 
the respective order), except that transfers of reconstituted skim milk 
in filled milk shall be priced at the lowest class price of the 
respective order; and
* * * * *

PART 1079--MILK IN THE IOWA MARKETING AREA

    1. Section 1079.30 is amended by revising paragraphs (a) and (c) 
and removing paragraph (d), to read as follows:


Sec. 1079.30  Reports of receipts and utilization.

* * * * *
    (a) Each handler described in Sec. 1079.9(a), (b), and (c) shall 
report for each of its operations the following information:
    (1) Product pounds, pounds of butterfat, pounds of protein, pounds 
of solids-not-fat other than protein (other solids), and the value of 
the somatic cell adjustment contained in or represented by:
    (i) Receipts of producer milk, including producer milk diverted by 
the handler; and
    (ii) Receipts of milk from handlers described in Sec. 1079.9(c).
    (2) Product pounds and pounds of butterfat contained in:
    (i) Receipts by transfer or diversion of bulk fluid milk products 
from pool plants.
    (ii) Receipts of fluid milk products not included in paragraph 
(a)(1) or (a)(2)(i) of this section and bulk fluid cream products from 
any source;
    (iii) Receipts of other source milk;
    (iv) Inventories at the beginning and end of the month of fluid 
milk products and products specified in Sec. 1079.40(b)(1); and
    (3) The utilization or disposition of all milk, filled milk, and 
milk products required to be reported pursuant to this paragraph.
    (4) Such other information with respect to the receipts and 
utilization of skim milk, butterfat, milk protein, other nonfat solids, 
and somatic cell information, as the market administrator may 
prescribe.
* * * * *
    (c) Each handler not specified in paragraphs (a) and (b) of this 
section 

[[Page 41865]]
shall report with respect to its receipts and utilization of milk, 
filled milk, and milk products in such manner as the market 
administrator may prescribe.
    2. Section 1079.31 is amended by revising paragraph (a) to read as 
follows:


Sec. 1079.31  Payroll reports.

    (a) On or before the 22nd day after the end of each month, each 
handler described in Sec. 1079.9(a), (b), or (c) shall report to the 
market administrator its producer payroll for such month in the detail 
prescribed by the market administrator, showing for each producer the 
information described in Sec. 1079.73(e).
* * * * *
    3. Section 1079.50 is amended by revising the section heading, 
introductory text and paragraph (a), and adding paragraphs (e) through 
(l) to read as follows:


Sec. 1079.50  Class and component prices.

    Subject to the provisions of Sec. 1079.52, the class prices per 
hundredweight of milk containing 3.5 percent butterfat and the 
component prices for the month shall be as follows:
    (a) Class I price. The Class I price for the month per 
hundredweight of milk containing 3.5 percent butterfat shall be the 
basic formula price for the second preceding month plus $1.55.
* * * * *
    (e) Class I differential price. The Class I differential price 
shall be the difference between the current month Class I and Class III 
prices (this price may be negative).
    (f) Class II differential price. The Class II differential price 
shall be the difference between the current month Class II and Class 
III prices (this price may be negative).
    (g) Class III-A differential price. The Class III-A differential 
price shall be the difference between the current month's Class III and 
Class III-A prices (this price may be negative).
    (h) Skim milk price. The skim milk price per hundredweight, rounded 
to the nearest cent, shall be the Class III price less an amount 
computed by multiplying the butterfat differential by 35.
    (i) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the Class III price plus an amount 
computed by multiplying the butterfat differential by 965 and dividing 
the resulting amount by one hundred.
    (j) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be 1.32 times the average monthly 
price per pound for 40-pound block Cheddar cheese on the National 
Cheese Exchange as reported by the Department.
    (k) Other solids price. Other solids are herein defined as solids 
not fat other than protein. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the basic formula price at 
test less the average butterfat test of the basic formula price as 
reported by the Department times the butterfat price, less the average 
protein test of the basic formula price as reported by the Department 
for the month times the protein price, and dividing the resulting 
amount by the average other solids test of the basic formula price as 
reported by the Department. If the resulting price is less than zero, 
then the protein price will be reduced so that the other solids price 
equals zero.
    (l) Somatic cell adjustment. (1) The somatic cell adjustment rate, 
per 1,000 somatic cells, rounded to five decimal places, shall be 
computed by multiplying .0005 times the monthly cheddar cheese price as 
defined in paragraph (j) of this section.
    (2) The somatic cell adjustment, per hundredweight, shall be 
determined by subtracting from 350 the somatic cell count (in 
thousands) of the milk, multiplying the difference by the somatic cell 
adjustment rate, and rounding to the nearest full cent.
    4. Section 1079.53 is revised to read as follows:


Sec. 1079.53  Announcement of class and component prices.

    On or before the 5th day of the month, the market administrator 
shall announce the following prices:
    (a) The Class I price for the following month;
    (b) The Class II price for the following month;
    (c) The Class III price for the preceding month;
    (d) The Class III-A price for the preceding month;
    (e) The skim milk price for the preceding month;
    (f) The butterfat price for the preceding month;
    (g) The protein price for the preceding month;
    (h) The other solids price for the preceding month;
    (i) The somatic cell adjustment rate for the preceding month; and
    (j) The butterfat differential for the preceding month.
    5. The section heading in Sec. 1079.60 and the undesignated 
centerheading preceding it, the introductory text, and paragraphs (a), 
(f), and (g), are revised to read as follows:

Producer Price Differential


Sec. 1079.60  Handler's value of milk.

    For the purpose of computing a handler's obligation for milk the 
market administrator shall determine for each month the value of milk 
of each handler described in Sec. 1079.9(a) with respect to each of its 
pool plants, and each handler described in Sec. 1079.9 (b) and (c).
    (a) The handler's obligation for producer milk and milk received 
from a handler described in Sec. 1079.9(c) shall be computed as 
follows:
    (1) Multiply the total hundredweight of milk in Class I as 
determined pursuant to Sec. 1079.43(a) and Sec. 1079.44(c) by the Class 
I differential price for the month;
    (2) Add an amount obtained by multiplying the total hundredweight 
of milk in Class II as determined pursuant to Sec. 1079.43(a) and 
Sec. 1079.44(c) by the Class II differential price for the month;
    (3) Add an amount obtained by multiplying the hundredweight of skim 
milk in Class I as determined pursuant to Sec. 1079.43(a) and 
Sec. 1079.44(a) by the skim milk price;
    (4) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1079.43(a) and 
Sec. 1079.44(a) by the average protein content of the skim milk 
received by the handler, and multiplying the resulting pounds of 
protein by the protein price;
    (5) Add an amount obtained by multiplying the pounds of skim milk 
in Class II and Class III as determined pursuant to Sec. 1079.43(a) and 
Sec. 1079.44(a) by the average other solids content of the skim milk 
received by the handler, and multiplying the resulting pounds of other 
solids by the other solids price;
    (6) Add an adjustment for somatic cell content determined by 
multiplying the value reported pursuant to Sec. 1079.30(a)(1) by the 
percentage of the total producer milk assigned to Class II and Class 
III pursuant to Secs. 1079.43(a) and 1079.44(c); and
    (7) Add an amount obtained by multiplying the total hundredweight 
of producer milk eligible to be priced as Class III-A by the Class III-
A differential price for the month.
* * * * *
    (f) Add the amount obtained from multiplying the Class I 
differential price applicable at the location of the nearest 
unregulated supply plants from which an equivalent volume was received 
by the pounds of skim milk and butterfat in receipts of concentrated 
fluid milk products assigned to Class I pursuant to Sec. 1079.43(d) and 
Sec. 1079.44(a)(7)(i) and the pounds of skim milk and butterfat 

[[Page 41866]]
subtracted from Class I pursuant to Sec. 1079.44(a)(11) and the 
corresponding steps of Sec. 1079.44(b), excluding such skim milk and 
butterfat in receipts of bulk fluid milk products from an unregulated 
supply plant to the extent that an equivalent amount of skim milk or 
butterfat disposed of to such plant by handlers fully regulated under 
any Federal milk order is classified and priced as Class I milk and is 
not used as an offset for any other payment obligation under any order;
    (g) Subtract for a handler described in Sec. 1079.9(c) the amount 
charged the preceding month for the skim milk and butterfat contained 
in inventory at the beginning of the month that was delivered to a pool 
plant during the month;
* * * * *
    6. Section 1079.61 is amended by revising the section heading, 
introductory text, and paragraphs (a) and (e) to read as follows:


Sec. 1079.61  Producer price differential.

    For each month the market administrator shall compute a producer 
price differential per hundredweight for Zone 1. If the unreserved cash 
balance in the producer settlement fund to be included in the 
computation is less than 2 cents per hundredweight of producer milk on 
all reports, the report of any handler who has not made the payments 
required pursuant to Sec. 1079.71 for the preceding month shall not be 
included in the computation of the producer price differential. The 
report of such handler shall not be included in the computation for 
succeeding months until the handler has made full payment of 
outstanding monthly obligations. Subject to the aforementioned 
conditions, the market administrator shall compute the producer price 
differential in the following manner:
    (a) Combine into one total for all handlers:
    (1) The values computed pursuant to Sec. 1079.60 (a)(1), (a)(2), 
(a)(7), and (b) through (j) for all handlers; and
    (2) Add values computed pursuant to Sec. 1079.60 (a)(3), (a)(4), 
(a)(5) and (a)(6); and subtract the values obtained by multiplying the 
handlers' total pounds of protein and total pounds of other solids 
contained in such milk by their respective prices, and the total value 
of somatic cell adjustments.
* * * * *
    (e) Subtract not less than 4 cents nor more than 5 cents from the 
price computed pursuant to paragraph (d) of this section. The result 
shall be known as the ``producer price differential.''

    7. Section 1079.62 is revised to read as follows:


Sec. 1079.62  Announcement of producer prices.

    On or before the 12th day after the end of each month, the market 
administrator shall announce the following prices and information:
    (a) The producer price differential;
    (b) The protein price;
    (c) The other solids price;
    (d) The butterfat price;
    (e) The somatic cell adjustment rate;
    (f) The average butterfat, protein and other solids content of 
producer milk and milk received from a handler described in 
Sec. 1079.9(c); and
    (g) The statistical uniform price for milk containing 3.5 percent 
butterfat, computed by combining the Class III price and the producer 
price differential.

    8. Section 1079.71 is amended by revising paragraph (a)(2) and 
reserving paragraph (b), to read as follows:


Sec. 1079.71  Payments to the producer-settlement fund.

    (a) * * *
    (2) The sum of:
    (i) An amount obtained by multiplying the total hundredweight of 
producer milk and milk received from a handler described in 
Sec. 1079.9(c) by the producer price differential as adjusted by 
Sec. 1079.75. In the case of a handler described in Sec. 1079.9(c), 
less the amount due from handlers pursuant to Sec. 1079.73;
    (ii) An amount obtained by multiplying the total pounds of protein 
contained in producer milk and milk received from a handler described 
in Sec. 1079.9(c) by the protein price;
    (iii) An amount obtained by multiplying the total pounds of other 
solids contained in producer milk and milk received from a handler 
described in Sec. 1079.9(c) by the other solids price;
    (iv) The total value of the somatic cell adjustment to producer 
milk and milk received from handlers described in Sec. 1079.9(c); and
    (v) An amount obtained by multiplying the pounds of skim milk and 
butterfat for which a value was computed pursuant to Sec. 1079.60(f) by 
the producer price differential as adjusted pursuant to Sec. 1079.52 
for the location of the plant from which received.
    (b) [Reserved]
    9. Sections 1079.73, 1079.74 and 1079.75 are revised to read as 
follows:


Sec. 1079.73  Payments to producers and to cooperative associations.

    (a) Each handler shall pay for milk received from producers for 
which payment is not made to a cooperative association pursuant to 
paragraph (b) or (c) of this section as follows:
    (1) On or before the last day of each month, to each producer who 
has not discontinued shipping milk to such handler before the end of 
the month, for producer milk received during the first 15 days of the 
month at a rate per hundredweight not less than the statistical uniform 
price computed pursuant to Sec. 1079.62(g) for the preceding month and 
adjusted pursuant to Sec. 1079.75, less proper deductions authorized in 
writing by such producer; and
    (2) On or before the 18th day after the end of the month, payment 
for producer milk received during such month shall not be less than the 
sum of:
    (i) The hundredweight of producer milk received times the producer 
price differential adjusted pursuant to Sec. 1079.75;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month;
    (vi) Less any payment made pursuant to paragraph (a)(1) of this 
section;
    (vii) Less proper authorized deductions authorized in writing by 
such producer and plus or minus adjustments for errors in previous 
payments made to such producer;
    (viii) Less deductions for marketing services pursuant to 
Sec. 1079.86; and
    (ix) If by such date the handler has not received full payment from 
the market administrator pursuant to Sec. 1079.72 for such month, it 
may reduce pro rata its payment to producers by not more than the 
amount of such underpayment. Payment to producers shall be completed 
thereafter not later than the date for making payments pursuant to this 
paragraph next following receipt of the balance due from the market 
administrator.
    (b) Each handler shall pay a cooperative association as follows for 
milk received from producers if the cooperative association has filed a 
written request for payment with the handler and if the market 
administrator has determined that such cooperative association is 
authorized to collect payment:
    (1) On or before the last day of the month, an amount not less than 
the sum of the individual payments otherwise payable to producers 
pursuant to paragraph (a)(1) of this section, less any deductions 
authorized in writing by such cooperative association; and 

[[Page 41867]]

    (2) On or before the 18th day after the end of each month an amount 
not less than the sum of the individual payments otherwise payable to 
producers pursuant to paragraph (a)(2) of this section, less proper 
deductions authorized in writing by such cooperative association.
    (c) Each handler shall pay a cooperative association for milk 
received by the handler from a cooperative association acting as a 
handler described in Sec. 1079.9(c) as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the last day 
of the month during which the milk was received at a rate per 
hundredweight not less than the statistical uniform price computed 
pursuant to Sec. 1079.62(g), applicable at the location of the 
receiving handler's plant, for the preceding month; and
    (2) For milk received during the month the handler shall pay the 
cooperative association on or before the 18th day after the end of the 
month during which the milk was received as follows:
    (i) The hundredweight of milk received times the producer price 
differential applicable at the location of the receiving handler's 
plant;
    (ii) The pounds of butterfat received times the butterfat price for 
the month;
    (iii) The pounds of protein received times the protein price for 
the month;
    (iv) The pounds of other solids received times the other solids 
price for the month;
    (v) The hundredweight of milk received times the somatic cell 
adjustment for the month;
    (vi) Less any payment made pursuant to paragraph (c)(1) of this 
section;
    (d) Each handler shall pay a cooperative association for fluid milk 
products received by transfer from pool plant(s) operated by a 
cooperative association as follows:
    (1) For milk received during the first 15 days of the month, the 
handler shall pay the cooperative association on or before the last day 
of the month during which the milk was received at a rate per 
hundredweight not less than the statistical uniform price applicable at 
the transferee plant as computed pursuant to Sec. 1079.62(g) and 
adjusted by the butterfat differential, both for the preceding month; 
and
    (2) For milk received and classified during the month the handler 
shall pay the cooperative association on or before the 18th day after 
the end of the month during which the milk was received, as follows:
    (i) The hundredweight of Class I milk received times the Class I 
differential price for the month applicable at the transferee plant, 
plus the pounds of Class I skim milk times the skim milk price for the 
month;
    (ii) The hundredweight of Class II milk received times the Class II 
differential price for the month;
    (iii) The hundredweight of Class III-A milk received times the 
Class III-A differential price for the month;
    (iv) The pounds of butterfat received times the butterfat price for 
the month;
    (v) The pounds of protein received in Class II and Class III milk 
times the protein price for the month;
    (vi) The pounds of other solids received in Class II and Class III 
milk times the other solids price for the month;
    (vii) The hundredweight of Class II and Class III milk received 
times the somatic cell adjustment; and
    (viii) Less any payment made pursuant to paragraph (d)(1) of this 
section.
    (e) In making payments for producer milk pursuant to paragraphs 
(a)(2) or (b)(2) of this section, each handler shall furnish each 
producer or cooperative association to whom such payment is made a 
supporting statement in such form that it may be retained by the 
recipient which shall show:
    (1) The month and the identity of the producer;
    (2) The daily and total pounds for each producer;
    (3) The total pounds of butterfat contained in the producer's milk;
    (4) The total pounds of protein contained in the producer's milk;
    (5) The total pounds of other solids contained in the producer's 
milk;
    (6) The somatic cell count of the producer's milk;
    (7) The minimum rate or rates at which payment to the producer is 
required pursuant to this order;
    (8) The rate that is used in making payment if such rate is other 
than the applicable minimum rate;
    (9) The amount, rate per hundredweight, or rate per pound of 
component, and the nature of each deduction claimed by the handler; and
    (10) The net amount of payment to such producer or cooperative.


Sec. 1079.74  Butterfat differential.

    The butterfat differential, rounded to the nearest one-tenth cent, 
shall be 0.138 times the current month's butter price less 0.0028 times 
the preceding month's average pay price per hundredweight, at test, for 
manufacturing grade milk in Minnesota and Wisconsin, using the ``base 
month'' series, adjusted pursuant to Sec. 1079.51(a) through (e), as 
reported by the Department. The butter price means the simple average 
for the month of the Chicago Mercantile Exchange Grade A butter price 
as reported by the Department.


Sec. 1079.75  Plant location adjustments for producers and on nonpool 
milk.

    (a) The producer price differential for producer milk pursuant to 
Sec. 1079.61 received at a pool plant or diverted from a pool plant 
shall be reduced according to the location of the plant of actual 
receipt at the rates set forth in Sec. 1079.52.
    (b) For purposes of computations pursuant to Secs. 1079.71 and 
1079.72 the producer price differential shall be adjusted at the rates 
set forth in Sec. 1079.52 applicable at the location of the nonpool 
plant from which the milk was received, except that the adjusted 
producer price differential shall not be less than zero.
    10. Section 1079.76 is amended by revising paragraph (a)(4) and the 
last sentence of paragraph (b)(1)(ii) to read as follows, and changing 
the reference ``Sec. 1079.71(a)(2)(ii)'' in paragraph (b)(1)(iii) to 
``Sec. 1079.71(a)(2)(v)'':


Sec. 1079.76  Payments by handler operating a partially regulated 
distributing plant.

* * * * *
    (a) * * *
    (4) Multiply the remaining pounds by the amount by which the Class 
I differential price exceeds the producer price differential, both 
prices to be applicable at the location of the partially regulated 
distributing plant, with the difference to be not less than zero;
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * * Any such transfers remaining after the above allocation 
which are classified in Class I and for which a value is computed for 
the handler operating the partially regulated distributing plant 
pursuant to Sec. 1079.60 shall be priced at the statistical uniform 
price (or at the weighted average price if such is provided) of the 
respective order regulating the handling of milk at the transferee-
plant, with such statistical uniform price adjusted to the location of 
the nonpool plant (but not to be less than the lowest class price of 
the respective order), except that transfers of reconstituted skim milk 
in filled milk shall be priced at the lowest class price of the 
respective order; and
* * * * *

[[Page 41868]]


Marketing Agreement Regulating the Handling of Milk in Certain 
Marketing Areas

    The parties hereto, in order to effectuate the declared policy of 
the Act, and in accordance with the rules of practice and procedure 
effective thereunder (7 CFR Part 900), desire to enter into this 
marketing agreement and do hereby agree that the provisions referred to 
in paragraph I hereof as augmented by the provisions specified in 
paragraph II hereof, shall be and are the provisions of this marketing 
agreement as if set out in full herein.
    I. The findings and determinations, order relative to handling, and 
the provisions of Secs. __________\1\ to __________, all inclusive, of 
the order regulating the handling of milk in the (__________ Name of 
order __________) marketing area (7 CFR PART __________\2\) which is 
annexed hereto; and

    \1\ First and last sections of order.
    \2\ Appropriate Part number.
---------------------------------------------------------------------------

    II. The following provisions: Sec. ____________\3\ Record of milk 
handled and authorization to correct typographical errors.

    \3\ Next consecutive section number.
---------------------------------------------------------------------------

    (a) Record of milk handled. The undersigned certifies that he/she 
handled during the month of December 1994, ______ 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. __________\3\ Effective date. This marketing agreement shall 
become effective upon the execution of a counterpart hereof by the 
Secretary in accordance with Section 900.14(a) of the aforesaid rules 
of practice and procedure.
    In Witness Whereof, The contracting handlers, acting under the 
provisions of the Act, for the purposes and subject to the limitations 
herein contained and not otherwise, have hereunto set their respective 
hands and seals.

Signature

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

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

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

(Seal)-----------------------------------------------------------------

Attest-----------------------------------------------------------------

[FR Doc. 95-19677 Filed 8-11-95; 8:45 am]
BILLING CODE 3410-02-P