[Federal Register Volume 71, Number 3 (Thursday, January 5, 2006)]
[Proposed Rules]
[Pages 545-552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24707]


 ========================================================================
 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. 71, No. 3 / Thursday, January 5, 2006 / 
Proposed Rules  

[[Page 545]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1124, 
1126, and 1131

[Docket No. AO-14-A74, et al.; DA-06-01]


Milk in the Northeast and Other Marketing Areas; Notice of 
Hearing on Proposed Amendments to Tentative Marketing Agreements and 
Orders

------------------------------------------------------------------------
    7 CFR part            Marketing area                AO Nos.
------------------------------------------------------------------------
1001..............  Northeast................  AO-14-A74.
1005..............  Appalachian..............  AO-388-A18.
1006..............  Florida..................  AO-356-A39.
1007..............  Southeast................  AO-366-A47.
1030..............  Upper Midwest............  AO-361-A40.
1032..............  Central..................  AO-313-A49.
1033..............  Mideast..................  AO-166-A73.
1124..............  Pacific Northwest........  AO-368-A35.
1126..............  Southwest................  AO-231-A68.
1131..............  Arizona-Las Vegas........  AO-271-A40.
------------------------------------------------------------------------

AGENCY: Agricultural Marketing Service, USDA.

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

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

SUMMARY: A national public hearing is being held to consider and take 
evidence on a proposal seeking to amend the Class III and Class IV milk 
price formula manufacturing allowances applicable to all Federal milk 
marketing orders. Evidence also will be taken at the hearing 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)).

DATES: The hearing will convene at 8:30 a.m., Tuesday, January 24, 
2006.

ADDRESSES: The hearing will be held at Sheraton Suites Old Town 
Alexandria, 801 North Saint Asaph Street, Alexandria, Virginia 22314. 
Telephone Number: (703) 836-4700.

FOR FURTHER INFORMATION CONTACT: Jack Rower, Marketing Specialist, 
USDA/AMS/Dairy Programs, Order Formulation and Enforcement Branch, Stop 
0231-Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 720-2357, e-mail -address: [email protected].
    Persons requiring a sign language interpreter or other special 
accommodations should contact Richard F. Sarna, Assistant Market 
Administrator, at (703) 549-7000; e-mail address: [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 Sheraton 
Suites Old Town, Alexandria, VA, beginning at 8:30 a.m., on Tuesday, 
January 24, 2006, 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 the proposed 
amendments, hereinafter set forth, and any appropriate modifications 
thereof, to the tentative marketing agreements and to the orders.
    Evidence will be taken at the hearing 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 any proposed amendments.
    Also, since the proponent of the proposed amendment has requested 
that the hearing be held on an expedited basis, under the rules of 
practice and procedure (7 CFR 900.4(a)), it is determined that less 
than 15 days notice is reasonable under the circumstances.

Initial Regulatory Flexibility Analysis

    Actions under the Federal milk order program are subject to the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This Act seeks to 
ensure that, within the statutory authority of a program, the 
regulatory and information collection 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 $750,000, and a dairy products manufacturer is a ``small 
business'' if it has fewer than 500 employees (13 CFR 121.201). Most 
parties subject to a milk order are considered as a small business. 
Accordingly, interested parties are invited to present evidence on the 
probable regulatory and information collection impact of the hearing 
proposals on small businesses. Also, parties may suggest modifications 
of the proposals for tailoring their applicability to small businesses.
    USDA has identified that during 2004 approximately 49,160 of the 
52,425 dairy producers whose milk is pooled on Federal orders are small 
businesses. Small businesses represent about 94 percent of the dairy 
farmers who participate in the Federal milk order program.
    On the processing side, during June 2005 there were approximately 
350 fully regulated plants (of which 149 or 43 percent were small 
businesses) and 110 partially regulated plants (of which 50 or 45 
percent were small businesses). In addition, there were 48 producer-
handlers, of which 29 were considered small businesses for the purposes 
of this initial regulatory flexibility analysis, who submitted reports 
under the Federal milk order program during this period.
    The fluid use of milk represented more than 43.8 percent of total 
Federal milk marketing order producer deliveries during January 2005. 
More than 234 million Americans reside in Federal milk marketing areas, 
representing about 80 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. 3501 et seq.) In light of that review, it was 
determined that these proposed amendments would have little or no 
impact on reporting, record keeping, or other compliance requirements 
because

[[Page 546]]

these requirements would remain identical to those currently in effect 
under the Federal order program. No new or 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. Information currently collected through the use of OMB-
approved forms and the primary sources of data used to complete the 
forms are routinely used in business transactions. The forms require 
only a minimal amount of information that can be provided without data 
processing equipment or trained statistical staff. Thus, the 
information collection burden is relatively small. Requiring the same 
reports from all handlers does not disadvantage any handler that is 
smaller than the 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 any negative impacts. If these 
proposals are adopted, income will decline for all dairy farmers. 
However, possible changes to the Class III and Class IV price formulas 
(or concomitant manufacturing allowances) should not have any special 
impacts 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. Minimum pricing should not raise barriers regarding the 
ability of small handlers to compete in the marketplace. It is 
similarly expected that small producers would not experience any 
particular disadvantage compared to larger producers as a result of the 
proposed amendments.
    Interested parties are invited to present evidence on the probable 
regulatory and information collection impact of the hearing proposals 
on small businesses. Also, such parties may suggest modifications of 
the proposal for tailoring its applicability to small businesses.

Preliminary Analysis

    The Department has conducted a preliminary analysis in order to 
assist the industry in considering the effects of increasing 
manufacturing allowances, commonly referred to as ``make allowances''. 
While the proposal seeks to amend the product pricing formulas used to 
price Class III or Class IV milk pooled under Federal milk marketing 
orders, changes in these formulas also would affect the prices of Class 
I and Class II milk pooled on Federal milk marketing orders.
    Current make allowances relied on to establish Class III and Class 
IV prices for all Federal orders are based on three sources: (1) 1998 
Dairy Product Plant Costs, USDA/Rural Business Cooperative Service 
(RBCS) Technical Assistance Project, (2) Weighted Average Manufacturing 
Costs for Butter, Nonfat Powder, and Cheddar Cheese January 1997 to 
April 1999, California Department of Food and Agriculture (CDFA), and 
(3) Dry Whey Total Costs of Manufacturing, 1999, National Cheese 
Institute (NCI)-sponsored survey. The make allowances for cheese, 
butter, and nonfat dry milk are based on the data from the first two 
sources and have been in effect since January 2001. The dry whey make 
allowance is based on data from the third source and it has been in 
effect since April 2003.
    The following preliminary analysis is quantitative and based on the 
changes in processing costs for butter, cheese, and nonfat dry milk 
reported by the CDFA for 1997-1999 and 2004. The analysis, which was 
conducted for illustrative purposes, includes an increase in the whey 
make allowance of 10 percent as CDFA did not begin surveying costs of 
manufacturing whey powder until 2003. California cheese-making costs 
over the same period increased by a much smaller amount.

Manufacturing Cost Data

    Currently, the most comprehensive data available concerning dairy 
manufacturing costs are provided by CDFA's California Survey of 
Weighted Average Manufacturing Costs (CDFA survey, various issues). The 
updated RBCS manufacturing cost survey is not yet available. Current 
Federal order make allowances are partially based upon data provided in 
the CDFA survey released in February 2000 covering the period from 
January 1997 through April 1999 (CDFA 1997-1999 survey). The most 
recent CDFA Survey was released on November 18, 2005, and covers the 
2004 period (CDFA 2004 survey). Table 1 illustrates the changes in 
manufacturing costs as reported in the CDFA 1997-1999 and 2004 surveys.
[GRAPHIC] [TIFF OMITTED] TP05JA06.032

Economic Analysis Framework

    The following estimated impacts of increasing make allowances were 
measured as changes from the 2004 USDA dairy baseline (USDA 
Agricultural Baseline Projections to 2014, OCE-2005-1; http://www.usda.gov/agency/oce/waob/commodity-projections/proj.htm). The 
analysis was accomplished using an econometric model of the dairy 
industry developed by Dairy Programs. The USDA baseline and the model 
baseline assume: (1) The Milk Price Support Program will continue 
unchanged; (2) the Dairy Export Incentive Program will be utilized at 
the maximum extent allowed beginning in the 2005/06 fiscal year; and 
(3) the Federal Milk Marketing Order Program will continue unchanged.
    During the last five years, milk marketings under the Federal order 
milk program have been about 68 percent of total U.S. milk marketings. 
Marketings under the Federal milk order program have accounted for 
about 61 percent of all milk used for manufacturing. Given the 
prominence of Federal order marketings in the U.S. dairy manufacturing 
industry, prices paid for manufactured milk under Federal orders are 
consistent with the value of milk for manufacturing in the rest of the 
United States. Similarly, the fluid prices in non-Federal order markets 
reflect fluid

[[Page 547]]

prices established as Federal order minimum Class I prices. Therefore, 
U.S. milk marketings in this analysis are estimated as a function of 
the U.S. all-milk price. For the USDA baseline period, the Federal 
order share of total U.S. milk marketings is estimated as a proportion 
from recent data.
    The econometric model used in this preliminary analysis includes 
demands for fluid milk products and manufactured dairy products. The 
demand for fluid milk products and for manufactured dairy products are 
functions of price, per capita consumption, and population. 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 the 
USDA baseline for all proposals analyzed. Wholesale prices for cheese, 
butter, nonfat dry milk, and dry whey reflect supply and demand 
conditions for each of 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.
    The model and Federal order price formulas use national 
manufactured dairy product prices to establish the Class prices. Class 
prices, quantities of milk marketed through the Federal order system, a 
blend price, and Federal order cash receipts are projected.
    The quantity of milk supplied is a function of the all-milk price, 
feed prices, cow slaughter prices, and trend. The all-milk price, i.e., 
the average price paid for milk on an f.o.b. plants basis, is estimated 
as a function of the wholesale prices for dairy products and Federal 
order prices. The relationship implicitly reflects average 
manufacturing costs, over-order payments for milk, and prices paid for 
milk outside of the Federal order system.

Make Allowance Scenarios

    Three illustrative scenarios are presented that estimate the impact 
on producers, consumers, and processors. Each scenario includes make 
allowance increases of 36 percent for butter, 15 percent for nonfat dry 
milk, and 10 percent for dry whey. The cheese make allowance is 
increased successively in each scenario by 1 cent per pound (6 
percent), 2.5 cents (15 percent), and 4 cents (24 percent). These 
successive cheese make allowance scenarios illustrate the interaction 
of the protein and butterfat prices and the effects on the Class III 
and Class IV prices. All three scenarios and the illustrative changes 
in make allowances beginning with fiscal year 2005/06 are detailed in 
Table 2.
[GRAPHIC] [TIFF OMITTED] TP05JA06.033

Results

    The results of the increased make allowances in the Class III and 
Class IV formulas are summarized using five-year, 2005/06 to 2009/10, 
average changes from the baseline. Results in the Federal order system 
are in the context of the larger U.S. market.
    Increased make allowances generally result in reduced Class III and 
Class IV milk prices and pool revenues. Increased make allowances also 
have an impact on Class I and Class II prices. Class II prices at 3.5 
percent butterfat decline in concert with changes in Class IV prices. 
The Class I price reduction depends upon the resulting higher of the 
reduced Class III or IV advanced values. The small increases in the 
quantity of fluid milk demanded are not sufficient to offset the 
effects of the price decline, and a lower all-milk price and reduced 
milk marketings result. Reduced marketings result in slightly increased 
dairy product prices, tempering the all-milk price decline.
    Across the three scenarios, all Federal order class and blend 
prices fall, the U.S. all-milk price falls, and dairy product prices 
increase. The interaction between the butterfat and the protein prices 
determines the relative effects on the Class III and Class IV prices. 
As the cheese make allowance increases from one scenario to the next, 
the protein price impact shifts from an increase to a decline while the 
butterfat price impact shifts from a decline to an increase.
    These preliminary results generally can be divided into two 
periods, the first two years and the last three years of the 5 year 
projection period, due to the lagged adjustments in the milk supply 
responses. Once producers respond to lower prices with less production, 
the effects on the all-milk price and the average Federal order blend 
price stabilize at levels less than initial changes from the USDA 
baseline. The differences are more notable for Scenarios 2 and 3, with 
the greater increases in the cheese make allowance.

Scenario 1

    For Scenario 1, the butter make allowance is increased by $0.0411 
per pound (to $0.1561), and the nonfat dry milk make allowance is 
increased by $0.0215 per pound (to $0.1615). These increases, which are 
for illustrative purposes, match the changes in

[[Page 548]]

manufacturing costs from the CDFA 1997-1999 and 2004 surveys.
    It is not feasible, for purposes of this analysis, to use the CDFA 
survey as a basis to consider changes to the make allowance for whey. 
The 1997-1999 CDFA survey did not include dry whey. The most recent 
CDFA survey shows the manufacturing cost for whey is $0.2673 per pound. 
A make allowance of $0.20 per pound is used by CDFA in the California 
Class 4b formula. The baseline average price for dry whey during the 
five-year projection period is $0.1863 per pound.\1\ While the Federal 
order formulation allows for a negative other solids price, it does not 
seem realistic to set up a scenario for which the other solids price is 
usually negative. For the purpose of our analysis, the whey make 
allowance for Scenario 1 is simply increased by 10 percent ($0.0159) to 
$0.1749 per pound.
---------------------------------------------------------------------------

    \1\ The whey price has increased significantly in recent months. 
Baseline projections for whey, developed in November 2004 appear to 
be lower than expected given current conditions.
---------------------------------------------------------------------------

    The change in manufacturing costs for cheese reflected in the CDFA 
surveys released February 2000 to November 2005 was $0.0076 per pound. 
Anecdotal evidence suggests that manufacturing costs for cheese on 
average throughout the United States may have increased by more than 
the CDFA survey value. To illustrate the effects of changing the cheese 
make allowance relative to the other make allowances, the cheese make 
allowance varies for each scenario. Scenario 1 increases the cheese 
make allowance by $0.01 per pound to $0.1750 (Table 3).
    Under this scenario, protein prices increase while butterfat prices 
decline. Increases in make allowances result in declines in the Class 
prices and the all-milk price. The accompanying decrease in milk 
marketings causes wholesale dairy product prices to rise. However, the 
negative effect on the protein price of this relatively small change in 
the cheese make allowance is more than offset by the positive effect of 
the decline in the butterfat price. Thus, while the butterfat, other 
solids, and nonfat solids prices fall due to make allowances increases, 
the increase in the cheese make allowance is not sufficient to keep the 
protein price from rising.

Producers

    The all-milk price at test falls by an average $0.03 per cwt over 
the (5-year) 2005/06-2009/10 projection period. Producers respond by 
reducing milk marketings by an annual average 120 million pounds. 
Producer revenue falls by $72 million on average per year.
    The Federal order blend price for milk testing at 3.5 percent 
butterfat falls by $0.05 per cwt averaged over the five-year period, 
and by $0.03 per cwt over the last three years. Federal order cash 
receipts fall by a five-year average of $77 million, and by an average 
$53 million during the last three of the five years, as compared to a 
five-year baseline average of $18.491 billion. The greatest average 
reduction is in Class IV receipts ($28 million), and the smallest 
reduction is in Class I receipts ($8 million).

Milk Manufacturers and Processors

    Wholesale prices of manufactured products rise slightly as the milk 
supply is reduced. The protein price increases in each of the five 
years, by about $0.046 per pound in the last two years. The butterfat 
price declines in all years, and by about $0.012 per pound in the last 
three years.
    The Class IV price at 3.5% butterfat falls by $0.18 per cwt on 
average. Since Class IV advanced value is the mover for Class II, the 
Class II price at 3.5% butterfat falls by the same amount. The Class 
III price at 3.5% butterfat is reduced by $0.02 per cwt, with the 
decreases in the butterfat and other solids prices largely offset by 
the protein price increases. The Class I price at 3.5% butterfat falls 
by $0.03 per cwt. While the baseline indicates the Class IV advanced 
value as the mover in the 2005/06 fiscal year with the Class III 
advanced value as the mover in the other years, for Scenario 1 Class 
III becomes the mover throughout the projection period. Class uses on 
average rise for Classes I and II and fall for Classes III and IV.
    Class I prices decline and use increases in the first two years. 
However, for the last three years, the Class III and Class I skim milk 
prices increase slightly, as does the Class I milk price at class 
butterfat test which is less than 3.5 percent. Thus, Class I use rises 
slightly in the first two years, and declines slightly in the last 
three.
    The aggregate obligation of processors and manufacturers to the 
Federal order revenue pools fall by a 5-year average of $77 million, 
with 30 percent of the savings to soft product manufacturers, 22 
percent accruing to cheese manufacturers, and 36 percent accruing to 
butter and nonfat dry milk manufacturers.

Consumers

    On average, the retail fluid milk price is virtually unchanged, 
falling by $0.0017 per gallon, during the projection period.\2\ 
Increases in Federal order Class I use are projected in the first two 
years while small decreases are projected in the last three years, 
averaging an increase of 4 million pounds. Federal order Class II use 
increases slightly each year (less than one percent).
---------------------------------------------------------------------------

    \2\ Throughout this discussion, we make the simplifying 
assumption that changes in prices are passed on to consumers in 
constant margins.
---------------------------------------------------------------------------

    Consumers of manufactured dairy products face slightly higher 
average prices. Price increases are $0.0181 per pound (1.2 percent) for 
cheese, $0.0324 per pound (1.8 percent) for butter, $0.0054 per pound 
(0.6 percent) for nonfat dry milk, and $0.0005 per pound (0.3 percent) 
for dry whey. This is caused by a 5-year average U.S. decline of 181 
million pounds of milk available for cheese, butter, and nonfat dry 
milk (0.17 percent decline).

Scenario 2

    Scenario 2 has the same make allowances as Scenario 1, except for 
cheese which is increased to $0.1900 per pound, $0.0250 above the 
current level (Table 3). At these levels, the protein price change 
starts out negative, becoming positive in the last 3 years. Butterfat 
prices decline in all but one year.

Producers

    The all-milk price at test falls by $0.06 per cwt on average and 
$0.03 per cwt for the last three years. Producers respond with a 5-year 
average decrease in milk marketings of 226 million pounds. Producer 
revenue falls by $140 million on average per year.
    The average Federal order blend price at 3.5 percent butterfat test 
falls by $0.09 per cwt averaged over 5 years and by an average $0.06 in 
the last 3 years. Federal order cash receipts fall by an average $135 
million and by an average $101 million over the last 3 years, as 
compared to a baseline 5-year average of $18.491 billion. The greatest 
5-year average reductions are in Class III receipts at $60 million 
followed by Class I receipts at $38 million. The smallest reduction is 
in Class II receipts ($13 million).

Milk Manufacturers and Processors

    Wholesale prices of manufactured products rise as the milk supply 
is reduced. As expected, the increase in product prices are greater 
when compared to Scenario 1. The protein price falls in the first two 
years of the projection period but rises thereafter, reaching about 
$0.018 per pound in the last two years. The projected butterfat

[[Page 549]]

price falls in all but one year, falling by about $0.005 per pound in 
the last two years.
    Class III is the Class I price mover for all projection years 
except 2005/06. On average, the Class I price (at 3.5 percent 
butterfat) falls by $0.09 per cwt, the Class III price falls by $0.10 
per cwt, and the Class II and IV prices fall by $0.11 per cwt. Class I 
and II uses rise each year in response to price declines. Class III and 
IV uses fall as available milk volume declines. The aggregate 
obligation of processors and manufacturers to Federal order pools falls 
by a 5-year average of $135 million, with 44 percent savings accruing 
to cheese manufacturers and 28 percent accruing to fluid processors.

Consumers

    There is little change in the price of fluid milk at retail, 
averaging a decrease of $0.0076 per gallon for the five year projection 
period. Federal order Class I use increases a 5-year average of 17 
million pounds per year as compared to a baseline average of 45.928 
billion pounds. Federal order Class II use increases by 27 million 
pounds per year as compared to a baseline average of 15.675 billion 
pounds.
    Consumers of hard manufactured dairy products face slightly higher 
average prices. Price increases are $0.0245 per pound (1.6 percent) for 
cheese, $0.0385 per pound (2.1 percent) for butter, $0.0098 per pound 
(1.1 percent) for nonfat dry milk, and $0.0006 per pound (0.3 percent) 
for dry whey. This is caused by a U.S. decline of 278 million pounds of 
milk available for cheese, butter, and nonfat dry milk (0.26 percent 
decline).

Scenario 3

    Scenario 3 uses the same make allowances as the first two scenarios 
with the exception of cheese which is increased by $0.0400 per pound 
above the baseline to a level of $0.2050 (Table 3). At these levels, 
the protein price falls below baseline levels throughout the projection 
period while the butterfat price rises above baseline levels in all but 
the first year of the projection period.

Producers

    The all-milk price at test falls by an average $0.09 per cwt over 5 
years, and by about $0.05 per cwt for the last 3 years. Producers 
respond with a decrease in average milk marketings of 327 million 
pounds. Producer revenue falls by $207 million on average per year.
    The average Federal order blend price at 3.5 percent butterfat 
falls by $0.13 per cwt averaged over 5 years and by an average $0.09 
per cwt in the last 3 years. Federal order cash receipts fall by an 
average $191 million over 5 years, and by an average $147 million over 
the last 3 years, as compared to a baseline 5-year average of $18.491 
billion. The greatest 5-year average reductions are in Class III 
receipts at $103 million, followed by Class I receipts at $65 million, 
and the smallest reduction is in Class II receipts ($3 million).

Milk Manufacturers and Processors

    Wholesale prices of manufactured products rise as the milk supply 
is reduced. As expected, the increase in product prices is greater than 
for either of the other two scenarios. The protein price falls in all 
years, averaging $0.0336 per pound below baseline levels but the 
reduction is attenuated to $0.0086 per pound by the last year. The 
butterfat price rises above baseline levels in all years except the 
first, averaging an increase of $0.0039 per pound above baseline 
levels.
    As with the baseline, the Class III price is the Class I price 
mover for all years except 2005/06. While Class I and III prices fall 
in all years, Class II and IV prices at 3.5 percent butterfat fall 
below baseline levels in the first 2 years and are virtually unchanged 
in the final 3 years. Class IV and Class II prices at class butterfat 
tests increase in the last 3 years of the period. Class II use rises in 
the first 2 years and declines slightly in the last 3 years with the 
slight increases in the Class II price at class butterfat test.
    The aggregate obligation of processors and manufacturers to the 
Federal order revenue pools falls by a 5-year average of $191 million, 
with 54 percent of the savings accruing to cheese manufacturers and 34 
percent accruing to fluid processors.

Consumers

    As with the other scenarios, there is little change in retail fluid 
milk prices which fall $0.0130 per gallon on average over the 
projection period. Class I use increases an average of 29 million 
pounds per year, compared to a baseline average of 45.928 billion 
pounds. Class II use increases by negligible amounts on average during 
the projection period.
    Consumers of hard manufactured dairy products face slightly higher 
average prices. Price increases are $0.0309 per pound (2.1 percent) for 
cheese, $0.0444 per pound (2.5 percent) for butter, $0.0142 per pound 
(1.6 percent) for nonfat dry milk, and $0.0008 per pound (0.4 percent) 
for dry whey. This is caused by a U.S. decline of 370 million pounds of 
milk available for cheese, butter, and nonfat dry milk (0.35 percent 
decline).

Preliminary Conclusions

    Increasing the make allowances will generally result in lower 
Federal order class and blend prices, lower all-milk prices, slightly 
higher manufactured dairy product prices, and slightly lower fluid milk 
prices. Federal order cash receipts and U.S. producer revenues decline 
slightly. Manufacturing plants have higher dairy product prices on the 
revenue side and lower Federal order class and all-milk prices on the 
cost side.
    The scenarios also demonstrate that seemingly small changes in the 
relative values of the various make allowances can result in possibly 
unexpected changes in the relative values of the manufacturing class 
prices. This is caused in part by the interaction between the 
quantities of milk supplied and the demands for nonfat solids and 
butterfat in the various dairy products. Further, the inverse 
relationship between the butterfat price and protein price in the 
Federal order protein formula also contributes to these circumstances.
BILLING CODE 3410-02-P

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[GRAPHIC] [TIFF OMITTED] TP05JA06.034


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[GRAPHIC] [TIFF OMITTED] TP05JA06.035

BILLING CODE 3410-02-C

    Parties interested in additional detail of these analyses can 
obtain them from the Appendix to this preliminary analysis located at 
http://www.ams.usda.gov/dairy/hearings.htm.

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.
    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 (7 U.S.C. 
608c(15)(A)), any handler subject to an order may request modification 
or exemption from such order by filing with the Department of 
Agriculture (Department) 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 
Department 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 Department'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.
    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 1000, 1001, 1005, 1006, 1007, 1030, 
1032, 1033, 1124, 1126, and 1131.

    Milk marketing orders.

    The authority citation for 7 CFR Parts 1000, 1001, 1005, 1006, 
1007, 1030, 1032, 1033, 1124, 1126, and 1131 continues to read as 
follows:

    Authority: 7 U.S.C. 601-674.

    The proposed amendments, as set forth below, have not received the 
approval of the Department.

Proposed by Agri-Mark Dairy Cooperative

Proposal No. 1

    This proposal seeks to amend the manufacturing allowances for Class 
III and Class IV product formulas, as enumerated in Sec.  1000.50 based 
on record evidence that may include the most current California State 
dairy products manufacturing cost survey and a recently updated survey 
of manufacturing costs conducted by the USDA Rural Business and 
Cooperatives Service (RBCS). Specifically, this proposal seeks to amend 
Sec.  1000.50 milk price formulas by revising the existing 
manufacturing allowances for butter, nonfat dry milk, cheese, and whey 
powder based upon evidence obtained

[[Page 552]]

from the hearing record. Amendments to these manufacturing allowances 
would directly affect the milk component values used in Federal order 
milk price formulas for all classes of milk.

Proposed by Dairy Programs, Agricultural Marketing Service

Proposal No. 2

    For all Federal Milk Marketing Orders, 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.
    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, United States Department of Agriculture, 
STOP 9200--Room 1083, 1400 Independence Avenue, SW., Washington, DC 
20250-9200, or may be inspected there.
    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 decision-making 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: December 30, 2005.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 05-24707 Filed 12-30-05; 4:31 pm]
BILLING CODE 3410-02-P