[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Proposed Rules]
[Pages 20094-20104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9172]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 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.
 
 ========================================================================
 

  Federal Register / Vol. 65, No. 73 / Friday, April 14, 2000 / 
Proposed Rules  

[[Page 20094]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1124, 1126, 
1131, and 1135

[Docket No. AO-14-A69, et al.; DA-00-03]


Milk in the Northeast and Other Marketing Areas; Notice of 
Hearing on Class III and Class IV Milk Pricing Formulas

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              7 CFR Part                             Marketing area                           AO Nos.
----------------------------------------------------------------------------------------------------------------
1001..................................  Northeast...............................  AO-14-A69.
1005..................................  Appalachian.............................  AO-388-A11.
1006..................................  Florida.................................  AO-356-A34.
1007..................................  Southeast...............................  AO-366-A40.
1030..................................  Upper Midwest...........................  AO-361-A34.
1032..................................  Central.................................  AO-313-A43.
1033..................................  Mideast.................................  AO-166-A67.
1124..................................  Pacific Northwest.......................  AO-368-A27.
1126..................................  Southwest...............................  AO-231-A65.
1131..................................  Arizona-Las Vegas.......................  AO-271-A35.
1135..................................  Western.................................  AO-380-A17.
----------------------------------------------------------------------------------------------------------------

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; Notice of public hearing on proposed rulemaking.

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

SUMMARY: A public hearing is being held in response to a mandate from 
Congress via the Consolidated Appropriations Act, 2000, which requires 
the Secretary of Agriculture to conduct a formal rulemaking proceeding 
to reconsider the Class III and Class IV milk pricing formulas included 
in the final rule for the consolidation and reform of Federal milk 
orders. The legislation requiring the hearing describes the proceeding 
as an emergency. Any changes to the formulas resulting from the 
required proceeding are to be implemented on January 1, 2001.

DATES: The hearing will convene at 8 a.m. on May 8, 2000.

ADDRESSES: The hearing will be held at the Embassy Suites Hotel, 1900 
Diagonal Rd., Alexandria, Virginia 22314, (703-684-5900).

FOR FURTHER INFORMATION CONTACT: Constance M. Brenner, Marketing 
Specialist, Order Formulation Branch, USDA/AMS/Dairy Programs, Room 
2971, South Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 
720-2357, e-mail address [email protected].
    Persons requiring a sign language interpreter or other special 
accommodations should contact David Walker at (703) 549-097003; email 
[email protected] before the hearing begins.

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.
    Notice is hereby given of a public hearing to be held at the 
Embassy Suites Hotel, 1900 Diagonal Rd., Alexandria, Virginia 22314, 
beginning at 8 a.m., on Monday, May 8, 2000, with respect to proposed 
amendments to the tentative marketing agreements and to the orders 
regulating the handling of milk in the Northeast and other marketing 
areas.
    The hearing is called 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 governing the 
formulation of marketing agreements and marketing orders (7 CFR Part 
900).
    The purpose of the hearing is to receive evidence with respect to 
the economic and marketing conditions which relate to re-consideration 
of the Class III and Class IV milk pricing formulas included in the 
final rule for the consolidation and reform of Federal milk orders. The 
mandate from Congress via the Consolidated Appropriations Act, 2000 
(Pub. L. 106-113, 115 Stat. 1501), requires the Secretary of 
Agriculture to conduct a formal

[[Page 20095]]

rulemaking proceeding to reconsider the Class III and Class IV milk 
pricing formulas included in the final rule for the consolidation and 
reform of Federal milk orders and to implement any changes on January 
1, 2001.
    To ensure a comprehensive consideration of these pricing formulas, 
the Department invited all interested persons to submit proposals. As 
detailed below, 32 proposals (and any appropriate modifications 
thereof) will be heard. A number of other proposals were rejected in 
that they lacked authority, were beyond the purpose of the hearing, or 
were otherwise inappropriate. The proposals received are available for 
public inspection at USDA/AMS/Dairy Programs, Room 2968, South 
Building, 14th and Independence Ave., SW., Washington, DC 20250.
    The legislation requiring the hearing describes the proceeding as 
an emergency. It should be noted that an emergency rulemaking 
proceeding omits a recommended decision with the opportunity to file 
comments thereon. Evidence will be taken to determine whether emergency 
marketing conditions exist that would warrant omission of a recommended 
decision under the rules of practice and procedure (7 CFR 900.12(d)) 
with respect to the proposal.

Initial Regulatory Flexibility Analysis

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (RFA) (5 U.S.C. 601 et seq.), the Agricultural 
Marketing Service (AMS) has considered the economic impact of the 
proposed amendment on small entities and has prepared this initial 
regulatory flexibility analysis. The RFA provides that when preparing 
such analysis an agency shall address: the reasons, objectives, and 
legal basis for the anticipated proposed rule; the kind and number of 
small entities which would be affected; the projected recordkeeping, 
reporting, and other requirements; and federal rules which may 
duplicate, overlap, or conflict with the proposed rule. Finally, any 
significant alternatives to the proposal should be addressed. This 
initial regulatory flexibility analysis considers these points and the 
impact of this proposed regulation on small entities. The legal basis 
for this action is discussed in the preceding section.
    This Act seeks to ensure that, within the statutory authority of a 
program, the regulatory and informational requirements are tailored to 
the size and nature of small businesses. For the purpose of the Act, a 
dairy farm is a ``small business'' if it has an annual gross revenue of 
less than $500,000, and a dairy products manufacturer is a ``small 
business'' if it has fewer than 500 employees. For the purposes of 
determining which dairy farms are ``small businesses,'' the $500,000 
per year criterion was used to establish a production guideline of 
326,000 pounds per month. Although this guideline does not factor in 
additional monies that may be received by dairy producers, it should be 
an inclusive standard for most ``small'' dairy farmers. For purposes of 
determining a handler's size, if the plant is part of a larger company 
operating multiple plants that collectively exceed the 500-employee 
limit, the plant will be considered a large business even if the local 
plant has fewer than 500 employees.
    USDA has identified as small businesses approximately 66,327 of the 
71,716 dairy producers (farmers) that have their milk pooled under a 
Federal order. Thus, small businesses represent approximately 92.5 
percent of the dairy farmers in the United States. On the processing 
side, there are approximately 1,200 plants associated with Federal 
orders, and of these plants, approximately 720 qualify as ``small 
businesses,'' representing about 60 percent of the total.
    During January 2000, there were approximately 240 fully regulated 
handlers (of which 186 were small businesses), 43 partially regulated 
handlers (of which 28 were small businesses), and 71 producer-handlers 
of which all were considered small businesses for the purpose of this 
initial regulatory flexibility analysis, submitting reports under the 
Federal milk marketing order program. This volume of milk pooled under 
Federal orders represents 72 percent of all milk marketed in the U.S. 
and 74 percent of the milk of bottling quality (Grade A) sold in the 
country. Forty-four distributing plants were exempt from Federal order 
regulation on the basis of their small volume of distribution.
    Producer deliveries of milk used in Class I products (mainly fluid 
milk products) totaled 3.965 billion pounds in January 2000--38.8 
percent of total Federal order producer deliveries. More than 200 
million Americans reside in Federal order marketing areas--
approximately 77 percent of the total U.S. population.
    In order to accomplish the goal of imposing no additional 
regulatory burdens on the industry, a review of the current reporting 
requirements was completed pursuant to the Paperwork Reduction Act of 
1995 (44 U.S.C. Chapter 35). In light of this review, it was determined 
that these proposed amendments would have little or no impact on 
reporting, recordkeeping, or other compliance requirements because 
these would remain identical to the current Federal order program. No 
new forms have been proposed, and no additional reporting would be 
necessary.
    This notice does not require additional information collection that 
requires clearance by the OMB beyond the currently approved information 
collection. The primary sources of data used to complete the forms are 
routinely used in most business transactions. Forms require only a 
minimal amount of information which can be supplied without data 
processing equipment or a trained statistical staff. Thus, the 
information collection and reporting burden is relatively small. 
Requiring the same reports for all handlers does not significantly 
disadvantage any handler that is smaller than industry average.
    No other burdens are expected to fall upon the dairy industry as a 
result of overlapping Federal rules. This proposed rulemaking does not 
duplicate, overlap or conflict with any existing Federal rules.
    To ensure that small businesses are not unduly or 
disproportionately burdened based on these proposed amendments, 
consideration was given to mitigating negative impacts. Possible 
changes to the Class III and Class IV price formulas should not have 
any special impact on small handler entities. All handlers 
manufacturing dairy products from milk classified as Class III or Class 
IV would remain subject to the same minimum prices regardless of the 
size of their operations. Such handlers would also be subject to the 
same minimum prices to be paid to producers. These features of minimum 
pricing should not raise barriers to the ability of small handlers to 
compete in the marketplace. It is similarly expected that small 
producers would not experience any particular disadvantage to larger 
producers as a result of any of the proposed amendments.
    Interested parties are invited to present evidence on the probable 
regulatory and informational impact of the hearing proposals on small 
businesses. Also, parties may suggest modifications of these proposals 
for the purpose of tailoring their applicability to small businesses.

Preliminary Analysis

    In order to assist the industry in considering the effects of 
various types of proposals, the Department conducted a preliminary 
analysis. While the proposals seek to amend the product pricing 
formulas used to price milk

[[Page 20096]]

regulated under Federal milk marketing orders and classified as either 
Class III or Class IV milk, these product price formulas also would 
affect the prices of regulated milk classified as Class I and Class II. 
Of those proposals submitted, six were selected for preliminary 
quantitative analysis. Selection of a proposal for analysis should not 
be considered to be a judgement on the merit of a proposal. Proposals 
were selected either as reflective of a significant number of proposals 
received or to capture the possible range of impacts of the proposals 
submitted. For a number of reasons, including lack of authority, lack 
of detail presented by the proponent, and lack of data, all proposed 
amendments could not be analyzed.
    Scope of Analysis. The scope of the proposed amendments were 
segmented into four categories for analysis. The categories were: (A) 
Butter and Butterfat Prices and Factors; (B) Cheese and Protein Prices 
and Factors; (C) Whey Powder and Other Solids Prices and Factors; and 
(D) Nonfat Dry Milk and Nonfat Solids Prices and Factors.

A. Butter and Butterfat Prices and Factors

    The first proposal selected for analysis would subtract six cents 
from the National Agricultural Statistic Service (NASS) Grade AA butter 
price prior to inputting it into the Class IV and Class III formulas 
for purposes of establishing Class II, Class III, and Class IV 
butterfat prices, as well as the advanced Class I butterfat price.
    The second proposal selected for analysis would substitute the make 
allowance determined by a study performed by the Rural Business-
Cooperative Service (RB-CS) for the current butter make allowance. As a 
proxy for a study result expected to be presented at the hearing, the 
butter make allowance result of the most recent RB-CS study available 
was used in the analysis.

B. Cheese and Protein Prices and Factors

    One proposal was selected for preliminary analysis. The selected 
proposal would reduce the make allowance per pound of cheese from the 
current level of $0.1702 to $0.142. The proposed make allowance of 
$0.142 is the level determined by the most recent RB-CS study available 
of costs of manufacturing cheddar cheese before the addition of 
marketing costs or return on investment.

C. Whey Powder and Other Solids Prices and Factors

    One proposal was selected for preliminary analysis. The selected 
proposal would increase the make allowance for dry whey from $0.137 per 
pound to $0.171 per pound.

D. Nonfat Dry Milk and Nonfat Solids Prices and Factors

    The first proposal selected for preliminary analysis would replace 
the current make allowance for nonfat dry milk of $0.137 per pound with 
a make allowance of $0.1563 per pound.
    The second proposal selected for analysis would replace the current 
make allowance, $0.137, with the make allowance determined by an RB-CS 
study expected to be made available at the hearing. The most recent RB-
CS study available of the cost of manufacturing nonfat dry milk placed 
the cost at $0.126 per pound before the addition of a marketing cost or 
a return on investment.
    Scope of Analysis. Impacts were measured as changes from the model 
baseline as adapted from the USDA dairy baseline. That baseline--a 
national annual projection of the supply-demand-price situation for 
milk and dairy products--was the basis for the model projection. Both 
the USDA baseline and the model baseline assume: (1) The price support 
program would end on December 31, 2000; (2) the Dairy Export Incentive 
Program would continue to be utilized; and (3) the Federal Milk 
Marketing Order Program would continue unchanged.
    It was necessary to make some simplifying assumptions in order to 
provide some preliminary analysis prior to the hearing. It is 
anticipated that the proponents of the various proposals will provide 
some analysis as to their expectations of the adoption of their 
proposals. At this point in time, AMS has made no judgement of the 
impacts of any proposal on orderly marketing of milk, including the 
willingness or ability of manufacturers to accept regulated milk for 
manufacturing, or of the long term existence of sufficient capacity to 
clear the market of milk surplus to the fluid market. The Federal order 
share of U.S. milk marketings is about 67 percent. About 60 percent of 
all milk manufactured is marketed under Federal order regulation. Given 
the prominence of Federal order marketings in the U.S. milk 
manufacturing industry, prices paid for manufactured milk under Federal 
orders cannot get too far out of alignment with the value of milk for 
manufacturing in the rest of the United States. Similarly, the fluid 
prices in non-Federal order markets are largely reflective of Federal 
order minimum Class I prices. Therefore, U.S. milk marketings are 
estimated as a function of the U.S. all-milk price, and the Federal 
order share is estimated as a function of the Federal order all-milk 
price relative to the U.S. all-milk price.
    Cooperatives manufacture about 40 percent of the cheese and about 
70 percent of the butter and nonfat dry milk manufactured nationally, 
and sell such dairy products in wholesale and retail markets in 
competition with other manufacturers. In estimating the change in the 
all-milk price and in cash receipts from milk marketings, it is assumed 
that these proposals will have a lesser effect on farm prices and 
receipts of member milk processed and marketed by cooperatives than on 
prices and receipts of milk manufactured by proprietary processors. A 
baseline assumption is that a cooperative passes through to its members 
the best price and best return on investment that it can. A higher 
minimum Federal order price could result in cooperatives paying higher 
monthly prices for milk, but would result in lower returns on 
investments paid at the end of the year. Total cash receipts for member 
milk marketings processed by the cooperative would be changed only by 
changes in wholesale product prices. The proposals under consideration 
are expected to have a minimal secondary impact on the wholesale prices 
for butter, cheese or nonfat dry milk. Therefore, total revenues from 
the sale of these products by manufacturers will be virtually 
unchanged.
    In addition to altering the sharing of manufacturing proceeds 
between manufacturing plants and producers, these proposals have an 
impact on Class I and Class II prices. Class II prices move in concert 
with changes in Class IV. The effects on the Class I price depend upon 
how proposals affect the Class III price relative to the Class IV price 
since Class I prices are based on the higher of the Class III or IV 
prices.
    We have assumed that plants would pay a higher or lower minimum 
price and that plant pooling decisions would be unchanged from the 
baseline. Changes in pay prices and cash receipts to cooperative 
members for raw milk marketed by cooperatives or to non-members for 
milk marketed to proprietary handlers would be fully reflected by 
changes in the Federal order blend price, given changes in Federal 
minimum class prices and uses. Changes in pay prices and cash receipts 
to cooperative members for milk manufactured by cooperatives are

[[Page 20097]]

additionally influenced by the changes in market prices for 
manufactured milk resulting from changes in manufactured product 
prices. For the 40 percent of the Class III milk and 70 percent of the 
Class IV milk manufactured by cooperatives, it is assumed that 
differences between the model generated average price for manufactured 
milk and the average of the Class II, Class III, and Class IV prices 
would be passed on to producer-members in the form of higher or lower 
pay prices. In the case of proprietary plants, it is assumed that the 
differences would be absorbed by the plants. However, in the case of a 
loss, proprietary manufacturing plants could de-pool milk to equalize 
their margins with cooperative plant margins. We hope proponents will 
shed some light on this issue.
    Retail prices of fluid milk and Class II soft manufactured products 
are assumed to respond penny for penny to changes in the milk cost of 
these products. Wholesale and retail margins are assumed unchanged from 
baseline for all proposals analyzed. Demands for products in these 
classes are functions of price, per capita consumption and population. 
Wholesale prices for cheese, butter and nonfat dry milk reflect supply 
and demand for these products. The milk supply for manufacturing these 
hard products is the result of milk marketings minus the volumes 
demanded for Class I and Class II products. The remaining volume is 
allocated to Class III and Class IV according to returns to 
manufacturing in each class. Demands for products in these classes are 
functions of price, per capita consumption and population.

Summary Preliminary Results

    The results of the proposed amendments to the Class III and Class 
IV formulas are summarized using six-year, 2001-2005, average changes 
from the model baseline. Averages tend to mask year-to-year changes in 
the variables. These results in the Federal order system are in the 
context of the larger U.S. market. In particular, the Federal order 
price formulas use national manufactured dairy product prices. In 
addition, the advanced Class I price mover is driven by the higher of 
the Class III or Class IV prices; both of which are used over the 
period, and do switch depending on the scenario. The preliminary 
results are summarized in Table 1.
    Changes in Class III and Class IV minimum pricing formulas have 
secondary effects beyond the initial price change because of the 
impacts on Class I and Class II prices and uses. If Class III or Class 
IV minimum prices are reduced, minimum Class I or II prices are also 
reduced. These lower prices result in increased use of milk in Class I 
or II, reducing the volume of milk available for Class III and Class IV 
uses. In turn, the prices for cheese, butter, and nonfat dry milk 
increase. The market prices for milk in manufactured uses increase with 
manufactured product price increases. The opposite can be the case with 
a proposal that increases either the minimum Class III or Class IV 
price. Thus, the market does tend to offset large changes over time and 
move the results towards the baseline.

Butter and Butterfat Prices and Factors

    The butter pricing scenarios are similar in effect and direction, 
differing only in magnitude in the butterfat price equation (BF 
price=(NASS butter price--0.114)/0.82). Using February 2000 prices and 
holding them constant, increases in the make allowance from $0.114 to 
$0.133 per pound reduces the Class IV price by $0.08 per hundredweight. 
Subtracting 6 cents from the NASS butter price before use in the 
formula yields a $0.26 reduction in the Class IV price.
    For the 2001-2006 period, subtracting 6 cents from the butter price 
has about double the effect on marketings and cash receipts of raising 
the make allowance by 1.9 cents. The butterfat price and minimum Class 
IV and Class II prices fall in turn. The Class III price is increased 
slightly with the inverse effect on the butterfat price in the cheese 
protein price calculation. The increase in Class II use in response to 
the price decline reduces milk allocated to Class III and Class IV. 
This results in slight wholesale price increases for cheese, butter, 
and nonfat dry milk.
    Producers. Changing the make allowance from $0.114 to $0.133 
results in a decline of $0.002 per hundredweight in the Federal order 
blend for the 2001-2006 period. The average all-milk price for 
producers in Federal orders declines by only $0.001, reflecting the 
slightly higher prices for cheese, butter, and nonfat dry milk. 
Marketings decrease by 39.8 million pounds and cash receipts decrease 
by $7.0 million from baseline receipts of $16,116.8 million.
    Deducting 6 cents from the NASS butter price decreases the 6-year 
Federal order blend by $0.006 per hundredweight and decreases the 
average all-milk price for Federal order producers by only $0.003, 
reflecting the higher cheese, butter, and nonfat dry milk prices. Cash 
receipts decrease by $14.0 million.
    Milk Manufacturers and Processors. Soft product manufacturers 
benefit from the lower minimum Class II prices, driven by a lower 
average Class IV price. Federal order manufacturing receipts decline by 
$8.7 million with the $0.133 make allowance, and $24.6 million with the 
6-cent deduction in the butter price. The decrease in total Federal 
order marketings and an increase in Class II use results in less milk 
moving to Class III and IV in the Federal order marketing areas. Thus, 
the reduction in the volume of milk used in Class III and Class IV 
results in increases in the wholesale prices for cheese, butter, and 
nonfat dry milk. In the case of Class IV, handlers benefit as well from 
lower Class IV prices. Cheese manufacturers face an increased Class III 
price.
    Consumers. The fluid milk price increases by $0.004 with the $0.133 
increase in make allowance, and is increased by $0.027 per 
hundredweight with the 6-cent reduction in the NASS butter price. The 
larger change converts to 0.3 cents per gallon. Thus, the retail price 
increase would be expected to be no greater than one cent per gallon.

Cheese Make Allowance Reduction

    Reducing the cheese make allowance from $0.1702 to $0.142 affects 
the Class III price through the protein price. The Class III formula 
is: Protein Price=((Cheese price--0.1702) x 1.405)+((((Cheese price--
0.1702)  x 1.582)--Butterfat price) x 1.28). Using February 2000 
prices, reducing the make allowance results in a $0.29 per 
hundredweight increase in the Class III price.
    For the 2001-2006 analytical period, the Class III price increases 
by an average of $0.21 per hundredweight, and Class II and IV prices 
drop by $0.09. The Class III price increase results in an increase in 
the Class I price of $0.19 per hundredweight. Consumers respond to the 
Class I price increase by reducing fluid consumption and Class I use 
declines. The reduction in Class I use is diverted to Class III and 
Class IV use. Consumers require lower prices for cheese, butter, and 
nonfat dry milk to clear the product markets of higher volumes. While 
the blend price increases, the increase in the all-milk price for 
Federal order producers is somewhat smaller because the lower product 
prices drive manufactured milk values below Federal order prices, and 
this is reflected in cooperative producer pay prices.
    Producers. Reducing the cheese make allowance from $0.1702 to 
$0.142 results in a $0.15 increase in Federal order blend prices. The 
average all-milk price for Federal order producers,

[[Page 20098]]

however, increases by $0.09 per hundredweight, reflecting the lower 
cheese, butter, and nonfat dry milk prices. Marketings increase by 
about 627.9 million pounds, on average, and cash receipts increase by 
$198.2 million from baseline average receipts of $16,116.8 million.
    Milk Manufacturers and Processors. Soft product manufacturers 
benefit from the lower minimum Class II prices, driven by a lower 
average Class IV price. Federal order manufacturing receipts increase 
by $123.5 million, with increases in the use of Class III and Class IV 
milk, and a Class III price increase.
    Consumers. The fluid milk price increase of $0.19 per 
hundredweight, on average, converts to 1.6 cents per gallon. Thus 
average retail fluid price increases would be expected to be no greater 
than 2 cents per gallon for the 2001-2006 period.

Whey Make Allowance Reduction

    Increasing the whey make allowance from $ 0.137 to $0.171 affects 
the Class III price through the other solids price formula: Other 
Solids Price = (Dry whey price--0.137)/0.968. Using February 2000 
prices, increasing the make allowance results in a $0.20 per 
hundredweight reduction in the Class III price.
    For the 2001-2006 analytical period, the Class III price decreases 
by an average of $0.17 per hundredweight and the Class I price drops by 
$0.07. Consumers respond to the Class I price decline by increasing 
fluid consumption and Class I use increases, resulting in reduced milk 
in Class III and Class IV use. The reduced volumes on the product 
markets result in higher prices for cheese, butter, and nonfat dry 
milk. While the blend price decreases, the decrease in the all-milk 
price received by Federal order producers is somewhat smaller because 
of the higher product prices.
    Producers. Increasing the whey make allowance from $ 0.137 to 
$0.171 results in an average $0.09 decrease in Federal order blend 
prices. The average all-milk price for producers in Federal orders, 
however, declines by an average of only $0.06 per hundredweight, 
reflecting the higher cheese, butter, and nonfat dry milk prices. 
Marketings decline by an average of about 329.0 million pounds and cash 
receipts decrease by an average $113.1 million from baseline receipts 
of $16,116.8 million.
    Milk Manufacturers and Processors. Soft product manufacturers face 
a slightly higher minimum Class II price, driven by a slightly higher 
average Class IV price. Federal order manufacturing receipts decrease 
by an average of $86.3 million, with a decrease in Class III and Class 
IV uses and a Class III price decrease. Wholesale prices for cheese, 
butter, and nonfat dry milk increase with reduced volumes of product.
    Consumers. The average fluid milk price decrease of $0.07 per 
hundredweight converts to 0.6 cents per gallon. Thus retail fluid 
prices would be expected to be about 1 cent per gallon lower for 2001-
2006.

Nonfat Dry Milk Make Allowance Changes

    Two nonfat solids price (NFS price=(NASS NDM price--0.137)/1.02) 
proposals were analyzed, in which the make allowance was increased by 
1.9 cents to $0.156 per pound in one case, and decreased by 1.1 cents 
to $0.126 per pound in the other. Using February 2000 prices, 
increasing the nonfat dry milk make allowance to $0.156 decreases the 
minimum Class IV price by $0.16 per hundredweight. Decreasing the make 
allowance to $0.126 results in an increase of $0.09 per hundredweight 
in the Class IV price.
    For the 2001-2006 analytical period, increasing the make allowance 
in the nonfat solids price decreases the Class IV price and therefore 
the Class II price. With less milk available to make cheese, the Class 
III price increases sightly due to an increase in the cheese price.
    On the other hand, a decrease in the make allowance would increase 
the Class II and Class IV minimum prices during 2001-2006. This 
increase in Class IV price leads the Class IV price to be the Class I 
price mover during several of the years during the period of the 
analysis. With less milk going to Class I and Class II due to higher 
prices, the Class III price decreases slightly due to more milk 
available for cheese, resulting in slightly lower wholesale prices for 
cheese, butter, and nonfat dry milk.
    Producers. The average all-milk price for producers in Federal 
orders would decrease by $0.007 per hundredweight during the analytical 
period with the make allowance increased to $0.156 per pound. 
Marketings decrease by 102.0 million pounds, on average, and cash 
receipts decrease by an average of $22.7 million from baseline receipts 
of $16,116.8 million.
    The average all-milk price increases by $0.007 per cwt. with the 
make allowance reduced to $0.126 per pound, which leads to an annual 
average increase in milk marketings of 78.9 million pounds in the 
Federal order system. Total cash receipts increase by an average of 
$19.2 million over the six-year period.
    Milk Manufacturers and Processors. With the nonfat dry milk make 
allowance at $0.156, Class II price declines, on average, by $0.14 per 
hundredweight from the baseline, benefitting soft product manufacturers 
with increased consumption of Class II dairy products. The decrease in 
total marketings and the increase in Class II volume is sufficient to 
reduce Class III and Class IV volumes and cause a slight increase in 
the wholesale prices for cheese, butter, and nonfat dry milk. The value 
of milk for manufacturing in the Federal orders decrease by $23.5 
million, on average, over the 2001-2006 period.
    When decreasing the nonfat dry milk make allowance to $0.126, Class 
I prices increase by $0.02 per hundredweight, Class II prices increase 
by $0.07 per hundredweight, and about 16 million pounds moves into 
Class III and IV use. Coupled with the increase in marketings of 79 
million pounds, the total volume of milk available for manufacturing 
would increase by about 87 million pounds annually. The value of milk 
used to manufacture dairy products increases by an annual average of 
$12.1 million.
    Consumers. The increase in the fluid milk price with an increase in 
the make allowance to $0.156 is less than a half cent per 
hundredweight. Reducing the make allowance proposals for the nonfat 
solids price to $0.126 would increase the fluid milk price $0.02 per 
hundredweight, which translates into a retail price increase of less 
than a cent for a gallon of milk. Consumers would spend $0.8 million 
more on fluid milk products under the $0.156 make allowance, and $7.1 
million more under the $0.126 make allowance. Consumption of fluid milk 
products would decrease slightly under both proposals. The consumption 
of manufactured products would decrease on average by 101.5 million 
pounds under the make allowance of $0.156 and increase on average by 
94.7 million pounds under the make allowance of $0.126.
    Interested parties are invited to present evidence or testimony at 
the hearing concerning the economic impact of any of the proposals on 
producers, handlers, or the national economy.

[[Page 20099]]



                    Table 1.--Summary of Impacts of Class III/IV Pricing Proposal on All Federal Orders, Six-year Average, 2001-2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Butter       NASS       Cheese
                                                                                     make       butter       make      Whey make   NDM make    NDM make
                Change in                            Units             Baseline    allowance     price     allowance   allowance   allowance   allowance
                                                                                   of $0.133     minus     of $0.142   of $0.171   of $0.156   of $0.126
                                                                                   per pound     $0.06     per pound   per pound   per pound   per pound
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal order minimum prices:
    Class I price.......................  $/cwt.....................       15.25       0.004       0.027       0.193      -0.069       0.002       0.018
    Class II price......................  $/cwt.....................       13.14      -0.072      -0.232      -0.092       0.033      -0.142       0.071
    Class III price.....................  $/cwt.....................       12.57       0.017       0.046       0.211      -0.170       0.021      -0.018
    Class IV price......................  $/cwt.....................       12.44      -0.072      -0.232      -0.092       0.033      -0.142       0.071
    Blend price.........................  $/cwt.....................       13.70      -0.002      -0.006       0.145      -0.093      -0.012       0.010
All-milk price, F.O. producers \1\......  $/cwt.....................       14.07      -0.001      -0.003       0.094      -0.058      -0.007       0.007
U.S. Product prices:
    Cheese price........................  $/lb......................      1.4148      0.0009      0.0022     -0.0079      0.0031      0.0021      -0.001
    Butter price........................  $/lb......................      1.3095      0.0017      0.0042     -0.0170      0.0059      0.0040     -0.0041
    NDM price...........................  $/lb......................      0.9992      0.0003      0.0007     -0.0022      0.0009      0.0006     -0.0005
    Whey price..........................  $/lb......................      0.1850      0.0000      0.0001     -0.0006      0.0001      0.0001     -0.0002
Federal order class use:
    Class I use.........................  mil. lbs..................    45,545.4        -1.5       -11.5       -83.4        30.4        -0.4        -8.0
    Class II use........................  mil. lbs..................    13,499.6        12.4        47.1        95.6       -46.4        22.1        -7.8
    Class III use.......................  mil. lbs..................    50,229.8        -4.8       -11.7        40.7       -15.9       -11.0         9.6
    Class IV use........................  mil. lbs..................     5,096.2       -45.9      -101.1       574.9      -297.2      -112.6        85.1
      Total marketings..................  mil. lbs..................   114,371.1       -39.8       -77.3       627.9      -329.0      -102.0        78.9
Federal order cash receipts:
    Total...............................  mil. dol..................    16,116.8        -7.0       -14.0       198.2      -113.1       -22.7        19.2
    Fluid...............................  mil. dol..................     7,314.1         1.6        10.6        74.7       -26.8         0.8         7.1
    Manufacturing.......................  mil. dol..................     8,802.8        -8.7       -24.6       123.5       -86.3       -23.5       12.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Reflects Federal order minimum prices and over order premiums.

Civil Rights Impact Statement

    A public hearing is being held in response to a mandate from 
Congress via the Consolidated Appropriations Act, 2000, that requires 
the Secretary of Agriculture to conduct a formal rulemaking proceeding 
to reconsider the Class III and Class IV milk pricing formulas included 
in the final rule for the consolidation and reform of Federal milk 
orders. The consolidated orders were implemented on January 1, 2000.
    Pursuant to Departmental Regulation (DR) 4300-4, a comprehensive 
Civil Rights Impact Analysis (CRIA) was conducted and published with 
the final decision on Federal milk order consolidation and reform. That 
CRIA included descriptions of (1) The purpose of performing a CRIA; (2) 
the civil rights policy of the U.S. Department of Agriculture; and (3) 
basics of the Federal milk marketing order program to provide 
background information. Also included in that CRIA was a detailed 
presentation of the characteristics of the dairy producer and general 
populations located within the former and current marketing areas.
    The conclusion of that analysis disclosed no potential for 
affecting dairy farmers in protected groups differently than the 
general population of dairy farmers. All producers, regardless of race, 
national origin, or disability, who choose to deliver milk to handler 
regulated under a Federal order will receive the minimum blend price. 
It also was concluded that ``one of the reasons for success of the 
Federal milk order program is that all producers benefit through 
assistance in developing steady, dependable markets, reducing price 
instability and unnecessary price fluctuations, and assurances of a 
minimum price for their milk. With this assurance, producers are more 
willing to make the significant cost investments in milk cows and 
equipment needed to produce high-quality milk. Federal orders provide 
the same assurance for all producers, without regard to sex, race, 
origin, or disability. The value of all milk delivered to handlers 
competing for sales within a defined marketing area is divided equally 
among all producers delivering milk to those handlers.''
    The issue of the hearing being announced is an issue that was 
addressed as part of Federal milk order consolidation and reform. 
Establishing a representative make allowance in the formulas that price 
milk used in Class III and Class IV dairy products is an issue that 
affects the obligations of handlers of those products to the Federal 
milk order pool, and similarly the pool obligations of Class I and 
Class II handlers. However, the process of dividing the pool among all 
producers delivering milk to those regulated handlers is not affected. 
Therefore, USDA sees no potential for affecting dairy farmers in 
protected groups differently that the general population of dairy 
farmers.
    Decisions on proposals to amend Federal milk marketing orders must 
be based on testimony and evidence presented on the record of the 
proceeding. Thus, testimony concerning any possible civil rights impact 
of the proposals being considered should be presented at the hearing.
    Copies of the Civil Rights Impact Analysis can be obtained from AMS 
Dairy Programs at (202) 720-4392; any Milk Market Administrator office; 
or via the Internet at: www.ams.usda.gov/dairy/.

Executive Order 12988, Civil Justice Reform

    The amendments to the rules proposed herein have been reviewed 
under Executive Order 12988, Civil Justice Reform. They are not 
intended to have a retroactive effect. If adopted, the proposed 
amendments would not preempt any state or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.

[[Page 20100]]

    The Agricultural Marketing Agreement Act provides that 
administrative proceedings must be exhausted before parties may file 
suit in court. Under section 8c(15)(A) of the Act, any handler subject 
to an order may request modification or exemption from such order by 
filing with the Secretary a petition stating that the order, any 
provision of the order, or any obligation imposed in connection with 
the order is not in accordance with the law. A handler is afforded the 
opportunity for a hearing on the petition. After a hearing, the 
Secretary would rule on the petition. The Act provides that the 
district court of the United States in any district in which the 
handler is an inhabitant, or has its principal place of business, has 
jurisdiction in equity to review the Secretary's ruling on the 
petition, provided a bill in equity is filed not later than 20 days 
after the date of the entry of the ruling.

Request for Public Input

    Interested parties who wish to introduce exhibits should provide 
the Presiding Officer at the hearing with 6 copies of such exhibits for 
the Official Record. Also, it would be helpful if additional copies are 
available for the use of other participants at the hearing.

List of Subjects in 7 CFR Parts 1001 Through 1135

    Milk marketing orders.

PARTS 1001 THROUGH 1135--[AMENDED]

    The authority citation for 7 CFR Parts 1001 through 1135 continues 
to read as follows:

    Authority: 7 U.S.C. 601-674, 7253, Pub. L. 106-113, 115 Stat. 
1501.

    The proposed amendments, as set forth below, have not received the 
approval of the Secretary of Agriculture.
    Proposed by Western States Dairy Producers Trade Association, Dairy 
Producers of New Mexico, Texas Association of Dairymen, Milk Producers 
Council, California Dairy Campaign, Western United Dairymen, Idaho 
Dairymen's Association, Utah Dairymen's Association, Continental Dairy 
Products, Inc., Elite Milk Producers, Inc., Select Milk Producers, 
Inc.; and National Farmers Organization:
    Proposal No. 1: In Sec. 1000.50, amend the introductory text and 
paragraph (q) by changing the source of product prices in the pricing 
formulas from the National Agricultural Statistical Service (NASS) to 
the Chicago Mercantile Exchange (CME), as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

    Class prices per hundredweight of milk containing 3.5 percent 
butterfat, component prices, and advanced pricing factors shall be as 
follows: The prices and pricing factors described in paragraphs (a), 
(b), (c), (e), (f), and (q) of this section shall be based on a simple 
average of the most recent 2 weekly prices announced by the Chicago 
Mercantile Exchange (CME) before the 24th day of the month. These 
prices shall be announced on or before the 23rd day of the month and 
shall apply to milk received during the following month. The prices 
described in paragraphs (g) through (p) of this section shall be based 
on a simple average for the preceding month of weekly prices announced 
by CME on or before the 5th day of the month and shall apply to milk 
received during the preceding month. The price described in paragraph 
(d) of this section shall be derived from the Class II skim milk price 
announced on or before the 23rd day of the month preceding the month to 
which it applies and the butterfat price announced on or before the 5th 
day of the month following the month to which it applies.
* * * * *
    (q) Advanced pricing factors. For the purpose of computing the 
Class I skim milk price, the Class II skim milk price, the Class II 
nonfat solids price, and the Class I butterfat price for the following 
month, the following pricing factors shall be computed using the 2 most 
recent CME average weekly prices announced before the 24th day of the 
month:
    (1) An advanced Class III skim milk price per hundredweight, 
rounded to the nearest cent, shall be computed as follows:
    (i) Following the procedure set forth in paragraphs (n) and (o) of 
this section, but using the 2 most recent CME average weekly prices 
announced before the 24th day of the month, compute a protein price and 
an other solids price;
* * * * *
    (2) * * *
    (i) Following the procedure set forth in paragraph (m) of this 
section, but using the 2 most recent CME average weekly prices 
announced before the 24th day of the month, compute a nonfat solids 
price; and
    (ii) Multiply the nonfat solids price computed in paragraph 
(q)(2)(i) of this section by 9.
    (3) An advanced butterfat price per pound, rounded to the nearest 
one-hundredth cent, shall be calculated by computing the 2 most recent 
CME average AA Butter prices announced before the 24th day of the 
month, subtracting 11.4 cents from this average, and dividing the 
result by 0.82.
    Proposed by Pam Festge:
    Proposal No. 2: Remove the marketing allowance from the 
manufacturing allowance factor in all product price formulas.

Butter/Butterfat Price Proposals

    Proposed by Suiza Foods Corporation, Milk Industry Foundation 
(MIF), International Ice Cream Association (IICA), and Wells' Dairy, 
Inc.:
    Proposal No. 3: (To affect Class II, III and IV butterfat prices). 
Reduce the NASS AA Butter survey price used in the butterfat price 
computation by 6 cents (the Wells' Dairy proposal does not specify an 
amount) before computing the butterfat price, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (l) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the U.S. average NASS AA Butter 
survey price reported by the Department for the month, minus 6 cents, 
less 11.4 cents, with the result divided by 0.82.
* * * * *
    Proposed by MIF, IICA, and Wells' Dairy, Inc.:
    Proposal No. 4: (Reduce the butterfat price for Class I). Reduce 
the NASS AA Butter survey price used in the advanced butterfat price 
computation by 6 cents (the Wells' Dairy proposal does not specify an 
amount) before computing the advanced butterfat price, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (q) * * *
    (3) An advanced butterfat price per pound, rounded to the nearest 
one-hundredth cent, shall be calculated by computing a weighted average 
of the 2 most recent U.S. average NASS AA Butter survey prices 
announced before the 24th day of the month minus 6 cents, less 11.4 
cents, and dividing the result by 0.82.
* * * * *
    Proposed by Schreiber Foods, Inc.:
    Proposal No. 5: Reduce butterfat prices by reducing the CME butter 
price by 9 cents before computing the butterfat price, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (l) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-

[[Page 20101]]

hundredth cent, shall be the simple average for the preceding month of 
weekly prices announced by CME less 9 cents, minus 11.4 cents, with the 
result divided by 0.82.
* * * * *
    Proposed by National Milk Producers Federation (NMPF):
    Proposal No. 6: Substitute a make allowance using the plant cost 
data in the Rural Business-Cooperative Service (RB-CS) survey report to 
be issued in March 2000, plus a marketing cost allowance of $.0015, for 
the make allowance in the current rule, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (l) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the U.S. average NASS AA Butter 
survey price reported by the Department for the month less the RB-CS 
survey report manufacturing cost for butter plus $.0015 cents, with the 
result divided by 0.82.
* * * * *
    Proposed by South East Dairy Farmers Association (SE Dairy 
Farmers):
    Proposal No. 7: Substitute a make allowance using the plant cost 
data in the Rural Business-Cooperative Service (RB-CS) survey report to 
be issued in March 2000 for the make allowance in the current rule, as 
follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (1) Butterfat price. The butterfat price per pound, rounded to the 
nearest one-hundredth cent, shall be the U.S. average NASS AA Butter 
survey price reported by the Department for the month less the RB-CS 
survey report manufacturing cost for butter, with the result divided by 
0.82.
* * * * *
    Proposed by NMPF, South East Dairy Farmers Association (SE Dairy 
Farmers), Land O'Lakes, Inc., and Dairy Farmers of America, Inc. (DFA):
    Proposal No. 8: Incorporate a Class IV butterfat price in the 
pricing structure by subtracting 6 cents from the butterfat price, 
inserting a new paragraph (l) and renumbering the current paragraphs 
Sec. 1000.50.(l) through (q) as paragraphs Sec. 1000.50.(m) through 
(r), as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (l) Class IV butterfat price. The Class IV butterfat price per 
pound shall be the butterfat price pursuant to paragraph (m) of this 
section less $.06.
* * * * *

Cheese/Protein Price Proposals

    Proposed by Deer River Bulk Milk Cooperative, Jefferson Bulk Milk 
Cooperative, Lowville Producers Dairy Cooperative, and Henry L. Parr 
(Headspring Farm):
    Proposal No. 9: To return the Class III (protein) make allowance to 
its previous (proposed rule) level, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) Protein price. * * *
    (2) Subtract 12.7 cents from the price computed pursuant to 
paragraph (n)(1) of this section and multiply the result by 1.405;
    (3) Add to the amount computed pursuant to paragraph (n)(2) of this 
section an amount computed as follows:
    (i) Subtract 12.7 cents from the price computed pursuant to 
paragraph (n)(1) of this section and multiply the result by 1.582;
* * * * *
    Proposed by Western States Dairy Producers Trade Association, Dairy 
Producers of New Mexico, Texas Association of Dairymen, Milk Producers 
Council, California Dairy Campaign, Western United Dairymen, Idaho 
Dairymen's Association, Utah Dairymen's Association, Continental Dairy 
Products, Inc., Elite Milk Producers, Inc., Select Milk Producers, 
Inc.:
    Proposal No. 10: To modify the protein price by using the CME 40-
lb. block cheddar cheese price, reduce the manufacturing allowance from 
.1702 to .142, and change the 1.582 factor in the butterfat portion of 
the protein price formula to 1.61, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be computed as follows:
    (1) Compute the simple average CME price for 40-lb. block cheese 
reported for the month;
    (2) Subtract 14.2 cents from the price computed pursuant to 
paragraph (n)(1) of this section and multiply the result by 1.405;
    (3) Add to the amount computed pursuant to paragraph (n)(2) of this 
section an amount computed as follows:
    (i) Subtract 14.2 cents from the price computed pursuant to 
paragraph (n)(1) of this section and multiply the result by 1.61;
* * * * *
    Proposed by National Farmers Organization:
    Proposal No. 11: Change the 1.582 factor in the butterfat portion 
of the protein price formula to 1.60, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) * * *
    (3) * * *
    (i) Subtract 17.02 cents from the price computed pursuant to 
paragraph (n)(1) of this section and multiply the result by 1.60;
* * * * *
    Proposed by the National Cheese Institute:
    Proposal No. 12: Include price data for cheddar cheese in 640-pound 
blocks in addition to 40-pound blocks and 500-pound barrels, and to use 
adjustors for the 640-pound block and 500-pound barrel prices based on 
actual industry data on the difference in manufacturing costs between 
cheddar cheese packaged in blocks and barrels, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be computed as follows:
    (1) Compute a weighted average of the amounts described in 
paragraphs (n)(1)(i) through (iii) of this section:
    (i) The U.S. average NASS survey price for 40-lb. block cheese 
reported by the Department for the month;
    (ii) The U.S. average NASS survey price for 500-pound barrel 
cheddar cheese (39 percent moisture) reported by the Department for the 
month plus the difference between the 40-lb. block price and the 500-
pound barrel price; and
    (iii) The U.S. average NASS survey price for 640-pound block 
cheddar cheese reported by the Department for the month plus the 
difference between the 40-lb. block price and the 640-pound block 
price;
* * * * *
    Proposed by National Farmers Organization, Cyrus S. Cochran, James 
R. Davis, Peter L. Hardin, Tom Landis, and Sean W. Nolan:
    Proposal No. 13: Adjust 40-pound block cheese prices for moisture, 
as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *

[[Page 20102]]

    (n) Protein price. The protein price per pound, rounded to the 
nearest one-hundredth cent, shall be computed as follows:
    (1) Compute a weighted average of the amounts described in 
paragraphs (n)(1)(i) through (iii) of this section:
    (i) The U.S. average NASS survey price for 40-lb. block cheese (39 
percent moisture) reported by the Department for the month;
* * * * *
    Proposed by National Milk Producers Federation:
    Proposal No. 14: In the protein price formula, substitute a make 
allowance using the plant cost data in the Rural Business-Cooperative 
Service (RB-CS) survey report to be issued in March 2000, plus a 
marketing cost allowance of $.0015, for the make allowance in the 
current rule, and to amend the 1.582 factor in the butterfat portion of 
the protein price formula to 1.60, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) Protein price. * * *
    (2) Subtract the sum of the RB-CS survey report manufacturing cost 
for cheddar cheese plus $.0015 cents from the price computed pursuant 
to paragraph (n)(1) of this section and multiply the result by 1.405;
    (3) Add to the amount computed pursuant to paragraph (n)(2) of this 
section an amount computed as follows:
    (i) Subtract the sum of the RB-CS survey report manufacturing cost 
for cheddar cheese plus $.0015 cents from the price computed pursuant 
to paragraph (n)(1) of this section and multiply the result by 1.60;
* * * * *
    Proposed by Dairy Farmers of America, Inc.:
    Proposal No. 15: Reduce the manufacturing allowance used in the 
protein price formula from .1702 to .1508, (and support the amendment 
of the 1.582 factor in the butterfat portion of the protein price 
formula to 1.60), as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) Protein price. * * *
    (2) Subtract 15.08 cents from the price computed pursuant to 
paragraph (n)(1) of this section and multiply the result by 1.405;
    (3) Add to the amount computed pursuant to paragraph (n)(2) of this 
section an amount computed as follows:
    (i) Subtract 15.08 from the price computed pursuant to paragraph 
(n)(1) of this section and multiply the result by 1.60;
* * * * *
    Proposed by the American Farm Bureau Federation and SE Dairy 
Farmers:
    Proposal No. 16: Replace the current $.1702 manufacturing allowance 
for cheddar cheese with the RB-CS survey cost, reviewed annually. In 
addition, the American Farm Bureau Federation proposed that if 
California plants are not adequately represented in the survey, 
published California costs of manufacture be weighted with the RB-CS 
cost.
    Proposed by Michigan Milk Producers Association:
    Proposal No. 17: Simplify the Class III protein price formula, as 
follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (n) Protein price.
    (2) Subtract 17.02 cents and the quantity obtained by multiplying 
the butterfat price by .3732 from the price computed pursuant to 
paragraph (n)(1) of this section and divide the result by .2915;
* * * * *
    Proposed by Cyrus S. Cochran, James R. Davis, Peter L. Hardin, Tom 
Landis, and Sean W. Nolan:
    Proposal No. 18: Include as a component of the Class III price a 
value for butterfat in whey cream.

Whey Powder/Other Solids

    Proposed by Western States Dairy Producers Trade Association, Dairy 
Producers of New Mexico, Texas Association of Dairymen, Milk Producers 
Council, California Dairy Campaign, Western United Dairymen, Idaho 
Dairymen's Association, Utah Dairymen's Association, Continental Dairy 
Products, Inc., Elite Milk Producers, Inc., and Select Milk Producers, 
Inc.:
    Proposal No. 19: Change the source of the dry whey price used to 
calculate the other solids price from the NASS survey to the CME 
average dry whey price, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (o) Other solids price. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the average CME dry whey 
price for the month minus 13.7 cents, with the result divided by 0.968.
* * * * *
    Proposed by the National Cheese Institute:
    Proposal No. 20: Replace the $.137 manufacturing allowance for whey 
powder with an actual industry cost of manufacturing this product; 
i.e., $.171, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (o) Other solids price. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS dry 
whey survey price reported by the Department for the month minus (the 
actual industry cost of manufacturing whey powder), with the result 
divided by 0.968.
* * * * *
    Proposed by National Milk Producers Federation:
    Proposal No. 21: Substitute a dry whey make allowance using the 
plant cost data in the Rural Business-Cooperative Service (RB-CS) 
survey report to be issued in March 2000, plus a marketing cost 
allowance of $.0015, for the make allowance in the current rule, as 
follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (o) Other solids price. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS dry 
whey survey price reported by the Department for the month, minus the 
sum of the RB-CS survey report manufacturing cost for dry whey plus 
$.0015 cents, with the result divided by 0.968.
* * * * *
    Proposed by SE Dairy Farmers:
    Proposal No. 22: Substitute a dry whey make allowance using the 
plant cost data in the Rural Business-Cooperative Service (RB-CS) 
survey report to be issued in March 2000 for the make allowance in the 
current rule, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (o) Other solids price. The other solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS dry 
whey survey price reported by the Department for the month, minus the 
sum of the RB-CS survey report manufacturing cost for dry whey with the 
result divided by 0.968.
* * * * *

Nonfat Dry Milk/ Nonfat Solids

    Proposed by National Milk Producers Federation:
    Proposal No. 23: Replace the nonfat dry milk make allowance in the 
current

[[Page 20103]]

rule with one using the plant cost data in the Rural Business-
Cooperative Service (RB-CS) survey report to be issued in March 2000, 
plus a marketing cost allowance of $.0015, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (m) Nonfat solids price. The nonfat solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS 
nonfat dry milk survey price reported by the Department for the month, 
minus the sum of the RB-CS survey report manufacturing cost for nonfat 
dry milk plus $.0015 cents, with the result divided by 1.02.
* * * * *
    Proposed by SE Dairy Farmers:
    Proposal No. 24: Replace the nonfat dry milk make allowance in the 
current rule with one using the plant cost data in the Rural Business-
Cooperative Service (RB-CS) survey report to be issued in March 2000, 
as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (m) Nonfat solids price. The nonfat solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS 
nonfat dry milk survey price reported by the Department for the month, 
minus the sum of the RB-CS survey report manufacturing cost for nonfat 
dry milk, with the result divided by 1.02.
* * * * *
    Proposed by Associated Milk Producers, Inc.:
    Proposal No. 25: Increase the current nonfat dry milk make 
allowance of 13.7 cents to 15.63 cents, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (m) Nonfat solids price. The nonfat solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS 
nonfat dry milk survey price reported by the Department for the month 
less 15.63 cents, with the result divided by 1.02.
* * * * *
    Proposed by Western States Dairy Producers Trade Association, Dairy 
Producers of New Mexico, Texas Association of Dairymen, Milk Producers 
Council, California Dairy Campaign, Western United Dairymen, Idaho 
Dairymen's Association, Utah Dairymen's Association, Continental Dairy 
Products, Inc., Elite Milk Producers, Inc., and Select Milk Producers, 
Inc.:
    Proposal No. 26: Multiply the CME nonfat dry milk price minus the 
manufacturing allowance by 1.02 instead of dividing by 1.02, as 
follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (m) Nonfat solids price. The nonfat solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the average CME nonfat dry 
milk price extra grade for the month less 13.7 cents, with the result 
multiplied by 1.02.
* * * * *
    Proposed by National Farmers Organization:
    Proposal No. 27: Divide the CME nonfat dry milk price minus the 
manufacturing allowance by .99 instead of by 1.02, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (m) Nonfat solids price. The nonfat solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the average CME nonfat dry 
milk price extra grade for the month less 13.7 cents, with the result 
divided by .99.
* * * * *
    Proposed by Cyrus S. Cochran, James R. Davis, Peter L. Hardin, Tom 
Landis, and Sean W. Nolan:
    Proposal No. 28: Divide the nonfat dry milk price minus the 
manufacturing allowance by .975 instead of by 1.02, as follows:


Sec. 1000.50  Class prices, component prices, and advanced pricing 
factors.

* * * * *
    (m) Nonfat solids price. The nonfat solids price per pound, rounded 
to the nearest one-hundredth cent, shall be the U.S. average NASS 
nonfat dry milk survey price reported by the Department for the month 
less 13.7 cents, with the result divided by .975.
* * * * *

Incorporate Cost of Production Factor In Class III and IV Prices

    Proposed by Cyrus S. Cochran, James R. Davis, Peter L. Hardin, Tom 
Landis, Kenneth Mahalko, National Farmers Union, Sean W. Nolan:
    Proposal No. 29: Incorporate cost of production into Class III and 
Class IV formulas.

Class I Price

    Proposed by Family Dairies, USA, and Midwest Dairy Coalition:
    Proposal No. 30: Assure that any increases resulting from changes 
to the Class III and Class IV price formulas not be allowed to result 
in increases in Class I prices

Class II Skim and Butterfat Prices

    Proposed by Galloway Company and Hershey Foods:
    Proposal No. 31: Although the Class II price formula is not at 
issue in this proceeding, proponents expressed concern about the effect 
that any changes made to the Class IV formula that would increase the 
Class IV skim milk and butterfat prices would have on the Class II 
prices. They want to assure that any such increases would result in a 
corresponding reduction in the Class II differential. Galloway and 
Hershey urged that the current relationship between Class II prices and 
the prices for manufactured dairy products that are alternative 
ingredients in Class II products not be changed.
    Proposed by Dairy Programs, Agricultural Marketing Service:
    Proposal No. 32: Make such changes as may be necessary to make the 
entire marketing agreements and the orders conform with any amendments 
thereto that may result from this hearing.

Class III and Producer Butterfat Prices

    Proposals to change the Class IV butterfat price that would not 
also result in changes to the Class III butterfat price raise the issue 
of whether the butterfat price for milk used in Class III should be 
based directly on the value of butterfat in cheese instead of the value 
of butterfat in butter. One of the primary considerations for 
incorporating some of the value of butterfat in cheese into the protein 
price was to maintain a single butterfat price for milk used in 
manufactured products. Changing the protein price calculation to 
reflect only the value of protein in cheese, with a separate Class III 
butterfat price calculation is an issue that should be considered at 
the same time as the proposals to reduce the Class IV butterfat price. 
Data and testimony concerning yield factors specific to butterfat in 
cheese would be appropriate additions to the hearing record.
    In addition, the possibility of having four different butterfat 
prices raises the issue of whether the component pricing orders, like 
the four orders that price and pool only skim and butterfat, should 
pool butterfat values for payment to producers instead of passing 
through the Class III butterfat price. Testimony on this issue also 
would be appropriate.
    Copies of this notice of hearing and the orders may be procured 
from the Market Administrator of each of the aforesaid marketing areas, 
or from the Hearing Clerk, Room 1083, South Building, United States 
Department of Agriculture, Washington, D.C. 20250, or may be inspected 
there.

[[Page 20104]]

    Copies of the transcript of testimony taken at the hearing will not 
be available for distribution through the Hearing Clerk's Office. If 
you wish to purchase a copy, arrangements may be made with the reporter 
at the hearing.
    From the time that a hearing notice is issued and until the 
issuance of a final decision in a proceeding, Department employees 
involved in the decisionmaking process are prohibited from discussing 
the merits of the hearing issues on an ex parte basis with any person 
having an interest in the proceeding. For this particular proceeding, 
the prohibition applies to employees in the following organizational 
units: Office of the Secretary of Agriculture, Office of the 
Administrator, Agricultural Marketing Service, Office of the General 
Counsel, Dairy Programs, Agricultural Marketing Service (Washington 
office) and the Offices of all Market Administrators.
    Procedural matters are not subject to the above prohibition and may 
be discussed at any time.

    Dated: April 6, 2000.
Kathleen A. Merrigan,
Administrator, Agricultural Marketing Service.
[FR Doc. 00-9172 Filed 4-13-00; 8:45 am]
BILLING CODE 3410-02-P