[Federal Register Volume 71, Number 177 (Wednesday, September 13, 2006)]
[Proposed Rules]
[Pages 54136-54149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-7496]
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Part III
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 1030
Milk in the Upper Midwest Marketing Area; Decision on Proposed
Amendments to Marketing Agreement and to Order; Proposed Rule
Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 /
Proposed Rules
[[Page 54136]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1030
[Docket No. AO-361-A39; DA-04-03-B]
Milk in the Upper Midwest Marketing Area; Decision on Proposed
Amendments to Marketing Agreement and to Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule; final decision.
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SUMMARY: This document is the final decision proposing to adopt
amendments to the Upper Midwest order intended to deter the de-pooling
of milk and increase the order's maximum administrative assessment
rate. This final decision is subject to producer approval by
referendum.
FOR FURTHER INFORMATION CONTACT: Gino Tosi, Associate Deputy
Administrator, Order Formulation and Enforcement Branch, USDA/AMS/Dairy
Programs, STOP 0231--Room 2968, 1400 Independence Avenue, SW.,
Washington, DC 20250-0231, (202) 690-1366, e-mail [email protected].
SUPPLEMENTARY INFORMATION: This final decision adopts amendments that:
(1) Establish a limit on the volume of milk a handler may pool during
the months of April through February to 125 percent of the volume of
milk pooled in the prior month; (2) Establish a limit on the volume of
milk a handler may pool during the month of March to 135 percent of the
volume of milk pooled in the prior month; and (3) Allow the Market
Administrator to increase the maximum administrative assessment rate up
to 8 cents per hundredweight on all pooled milk if necessary to
maintain the required fund reserves. The proposed amended order is
subject to producer approval by referendum.
This administrative action is governed by the provisions of
Sections 556 and 557 of Title 5 of the United States Code and,
therefore, is excluded from the requirements of Executive Order 12866.
The 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. The amendments would not preempt
any state or local laws, regulations, or policies, unless they present
an irreconcilable conflict with this rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under section
608c(15)(A) of the Act, any handler subject to an order may request
modification or exemption from such order by filing with the 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 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.
Regulatory Flexibility Act and Paperwork Reduction Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.), the Agricultural Marketing Service has considered the economic
impact of this action on small entities and has certified that this
proposed rule will not have a significant economic impact on a
substantial number of small entities.
For the purpose of the Regulatory Flexibility Act, a dairy farm is
considered 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. For the purposes of
determining which dairy farms are ``small businesses,'' the $750,000
per year criterion was used to establish a production guideline of
500,000 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.
During August 2004, the month during which the hearing occurred,
there were 15,802 dairy producers pooled on and 60 handlers regulated
by the Upper Midwest (UMW) order. Approximately 15,608 producers, or 97
percent, were considered small businesses based on the above criteria.
Of the 60 handlers regulated by the UMW during August 2004, 49
handlers, or 82 percent, were considered small businesses.
The adopted amendments regarding the pooling standards serve to
revise established criteria that determine those producers, producer
milk, and plants that have a reasonable association with and
consistently serve the fluid needs of the UMW marketing area. Criteria
for pooling milk are established on the basis of performance standards
that are considered adequate to meet the Class I fluid needs of the
market and, by doing so, determine those producers who are eligible to
share in the revenue that arises from the classified pricing of milk.
Criteria for pooling are established without regard to the size of
any dairy industry organization or entity. Administrative assessments
are similarly charged without regard to the size of any dairy industry
organization or entity. Therefore, the proposed amendments will not
have a significant economic impact on a substantial number of small
entities.
The Agricultural Marketing Service is committed to complying with
the E-Government Act, to promote the use of the Internet and other
information technologies to provide increased opportunities for citizen
access to Government information and services, and for other purposes.
This action does not require additional information collection that
needs clearance by the Office of Management and Budget (OMB) beyond
currently approved information collection. The primary sources of data
used to complete the approved forms are routinely used in most business
transactions. The 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
the industry average.
No other burdens are expected to fall on the dairy industry as a
result of overlapping Federal rules. This rulemaking proceeding does
not duplicate, overlap, or conflict with any existing Federal rules.
Prior documents in this proceeding:
Notice of Hearing: Issued June 16, 2004; published June 23, 2004
(69 FR 34963).
Notice of Hearing Delay: Issued July 14, 2004; published July 21,
2004 (69 FR 43538).
Tentative Partial Decision: Issued April 8, 2005; published April
14, 2005 (70 FR 19709).
[[Page 54137]]
Interim Final Rule: Issued May 26, 2005; published June 1, 2005 (70
FR 31321).
Final Partial Decision: Issued September 29, 2005; published
October 5, 2005 (70 FR 58086).
Final Partial Rule: Issued December 5, 2005; published December 9,
2005 (70 FR 73126).
Recommended Decision: Issued February 15, 2006; published February
22, 2006 (71 FR 9004).
Preliminary Statement
A public hearing was held upon proposed amendments to the marketing
agreement and the order regulating the handling of milk in the UMW
marketing area. The hearing was held pursuant to the provisions of the
Agricultural Marketing Agreement Act of 1937 (AMAA), 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 amendments set forth below are based on the record of a public
hearing held at Bloomington, Minnesota, on August 16-19, 2004, pursuant
to a notice of hearing issued June 16, 2004, published June 23, 2004
(69 FR 34963), and a notice of hearing delay issued July 14, 2004, and
published July 21, 2004(69 FR 43538).
Upon the basis of the evidence introduced at the hearing and the
record thereof, the Administrator, on February 15, 2006, issued a
Recommended Decision containing notice of the opportunity to file
written exceptions thereto.
The material issues, findings, conclusions and rulings of the
Recommended Decision, with one modification, are hereby approved,
adopted and are set forth herein. The material issues on the record of
hearing relate to:
1. Pooling Standards
A. Establishing Pooling Limits
B. Producer Definition
2. Administrative Assessment Rate
Findings and Conclusions
This final decision specifically addresses proposals published in
the hearing notice as Proposals 3, 4, and 5 and features of Proposal 2
that seek to establish a limit on the volume of milk that can be pooled
on the order, features of Proposal 6 intending to clarify the Producer
definition by providing a definition of ``temporary loss of Grade A
approval,'' and Proposal 7 which seeks to increase the order's maximum
administrative assessment rate. As published in the hearing notice,
Proposals 1, 6, and a portion of Proposal 2 concerning diversion limit
standards and transportation credits were addressed in a tentative
partial decision published on April 14, 2005 (70 FR 19709). For the
purpose of this decision, references to Proposal 2 will only pertain to
the first portion regarding de-pooling and references to Proposal 6
will only pertain to establishing a definition of ``temporary loss of
Grade A approval.''
The following findings and conclusions on the material issues are
based on evidence presented at the hearing and the record thereof:
1. Pooling Standards
A. Establishing Pooling Limits
Preliminary Statement. Federal milk marketing orders rely on the
tools of classified pricing and marketwide pooling to assure an
adequate supply of milk for fluid (Class I) use and to provide for the
equitable sharing of the revenues arising from the classified pricing
of milk. Classified pricing assigns a value to milk according to how
the milk is used. Regulated handlers who buy milk from dairy farmers
are charged class prices according to how they use the farmer's milk.
Dairy farmers are then paid a weighted average or ``blend'' price. The
blend price that dairy farmers are paid for their milk is derived
through the marketwide pooling of all class uses of milk in a marketing
area. Thus each producer receives an equal share of each use class of
milk and is indifferent as to the actual class for which the milk was
used. The Class I price is usually the highest class price for milk.
Historically, the Class I use of milk provides the additional revenue
to a marketing area's total classified use value of milk.
The series of class prices that are applicable for any given month
are not announced simultaneously. The Class I price and the Class II
skim milk price are announced prior to the beginning of the month for
which they will be effective. Class prices for milk in all other uses
are not determined until on or before the 5th day of the following
month. The Class I price is determined by adding a differential value
to the higher of either an advanced Class III or Class IV value. These
values are calculated based on a formula using National Agricultural
Statistics Service (NASS) survey prices of cheese, butter, and nonfat
dried milk powder for the first two weeks of the preceding month. For
example, the Class I price for August is announced in late July and is
based on the higher of the Class III or IV value computed using NASS
commodity price surveys for the first two weeks of July.
The Class III and IV prices for the month are determined and
announced after the end of the month based on the NASS survey prices
for the selected dairy commodities during the month. For example, the
Class III and IV prices for August are based on NASS survey commodity
prices during August. A large increase in the NASS survey price for the
selected dairy commodities from one month to the next can result in the
Class III or IV price exceeding the Class I price. This occurrence is
commonly referred to by the dairy industry as a ``class price
inversion.'' A producer price inversion generally refers to when the
Class III or IV price exceeds the classified use value, or blend price,
of milk for the month. Price inversions have occurred with increasing
frequency in Federal milk orders since the current pricing plan was
implemented on January 1, 2000, despite efforts made during Federal
Order Reform to reduce such occurrences. Price inversions can create an
incentive for dairy farmers and manufacturing handlers who voluntarily
participate in the marketwide pooling of milk to elect not to pool
their milk on the order. Class I handlers do not have this option;
their participation in the marketwide pool is mandatory.
The producer price differential, or PPD, is the difference between
the Class III price and the weighted average value of all Classes. In
essence, the PPD is the dairy farmer's share of the additional/reduced
revenues associated with the Class I, II and IV milk pooled in the
market. If the value of the Class I, II and IV milk in the pool is
greater than the Class III value, dairy farmers receive a positive PPD.
However a negative PPD can occur if the value of the Class III milk in
the pool exceeds the value of the remaining classes of milk in the
pool. This can occur as a result of the price inversions discussed
above.
The UMW Federal order operates a marketwide pool. The Order
contains pooling provisions which specify criteria that, if met, allow
dairy farmers to share in the benefits that arise from classified
pricing through pooling. The equalization of all class prices among
handlers regulated by an order is accomplished through a mechanism
known as the producer settlement fund (PSF). Typically, Class I
handlers pay the difference between the blend price and their use-value
of milk into the PSF. Manufacturing handlers typically receive a draw
from the PSF, usually the difference between the Class II, III or IV
price and the blend price. In this way, all handlers pay the class
value for milk
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and all dairy farmer suppliers receive at least the order's blend
price.
When manufacturing class prices of milk are high enough to result
in a use-value of milk for a handler that is higher than the blend
price, manufacturing handlers may choose to not pool their milk
receipts. Opting to not pool their milk receipts allows these handlers
to avoid the obligation of paying into the PSF. The choice by a
manufacturing handler to not pool their milk receipts is commonly
referred to as ``de-pooling.'' When the blend price rises above the
manufacturing class use-values of milk these same handlers again opt to
pool their milk receipts. This is often referred to as ``re-pooling.''
The ability of manufacturing handlers to de-pool and re-pool
manufacturing milk is viewed by some market participants as being
inequitable to both producers and handlers.
The ``De-pooling'' Proposals. Proponents are in agreement that milk
marketing orders should contain provisions that will tend to deter the
practice of de-pooling. Four proposals intending to deter the de-
pooling of milk were considered in this proceeding. The proposals
offered different degrees of deterrence against de-pooling by
establishing limits on the amount of milk that can be re-pooled. The
proponents of these four proposals are generally of the opinion that
de-pooling erodes equity among producers and handlers, undermines the
orderly marketing of milk and is detrimental to the Federal order
system.
Two different approaches on how to best limit de-pooling are
represented by these four proposals. The first approach, published in
the hearing notice as Proposals 2 and 5, addresses de-pooling by
limiting the volume of milk a handler can pool in a month to a
specified percentage of what the handler pooled in the prior month. The
second approach, published in the hearing notice as Proposals 3 and 4,
addresses de-pooling by establishing what is commonly referred to as a
``dairy farmer for other markets'' provision. These proposals would
require milk of a producer that was de-pooled to not be able to be re-
pooled by that producer for a defined time period. All proponents
agreed that while none of the proposals would completely eliminate de-
pooling, they would likely deter the practice.
Of the four proposals received that would limit de-pooling, this
decision adopts Proposal 2, offered by Mid-West Dairymen's Company
(Mid-West) on behalf of Cass-Clay Creamery Inc. (Cass-Clay); Dairy
Farmers of America, Inc. (DFA); Foremost Farms USA Cooperative
(Foremost Farms); Land O'Lakes Inc. (LOL); Milwaukee Cooperative Milk
Producers (MCMP); Manitowoc Milk Producers Cooperative (MMPC); Swiss
Valley Farms Company (Swiss Valley); and Woodstock Progressive Milk
Producers Association (Woodstock). Hereinafter, this decision will
refer to these proponents as ``Mid-West, et al.'' Although Foremost
Farms was a proponent of Proposal 2, no testimony was offered on their
behalf. At the hearing, Plainview Milk Products Cooperative and Westby
Cooperative Creamery also supported the testimony given on behalf of
Mid-West, et al. The proponents of Proposal 2 are all cooperatives
representing producers who supply the milk needs of the marketing area
and is pooled on the UMW order.
Specifically, adoption of Proposal 2 will limit the volume of milk
a handler can pool in a month to no more than 125 percent of the volume
of milk pooled in the prior month during the months of April through
February, and to no more than 135 percent of the prior month's pooled
volume in the month of March. Milk diverted to nonpool plants in excess
of this limit will not be pooled. Milk shipped to pool distributing
plants in excess of the volume shipped to pool distributing plants in
the prior month will not be subject to the 125 or 135 percent
limitation.
As published in the hearing notice, Proposal 5, offered by Dean
Foods Company (Dean), addresses de-pooling in a similar manner as
Proposal 2, but would establish a limit on the total volume of milk a
handler could pool in a given month to 115 percent of the volume that
was pooled in the prior month. Dean is a handler who operates
manufacturing plants and distributing plants in the UMW marketing area.
Producer milk shipped to and physically received at a pool distributing
plant, and producer milk that was pooled continuously on another
Federal Order during the previous 6 months, would not be subject to
this pooling standard. Proposal 5 is not recommended for adoption.
As published in the hearing notice, Proposals 3 and 4, also offered
by Dean, address de-pooling by establishing defined time periods during
which de-pooled milk could not be pooled. Proposal 3 would require an
annual pooling commitment by a handler to the UMW market. As advanced
in Proposal 3, if the milk of a producer is de-pooled in a month, the
milk of a producer could not re-establish eligibility for pooling on
the order during the following 11 months unless 10 day's milk
production of a producer was delivered to a pool distributing plant
during the month. Under Proposal 3, handlers that de-pool milk have
limited options to return milk to the pool, either shipping 10 day's
milk production of a producer to a pool distributing plant during the
month or waiting 11 months to regain pooling eligibility.
Proposal 4 is similar to Proposal 3 but is less restrictive. Under
Proposal 4, as modified at the hearing, if a producer's milk is de-
pooled in any of the months of February through June, or during any of
the preceding 3 months, or during any of the preceding months of July
through January, the equivalent of at least 10 day's milk production
would need to be physically received at a pool distributing plant in
order to pool all of the dairy farmer's production for the month.
Additionally, if the milk of a dairy farmer is de-pooled in any of the
months of July through January, or in a preceding month, at least 10
day's milk production of the dairy farmer would need to be delivered to
a pool distributing plant to have all the milk of the dairy farmer
pooled for the month. Proposals 3 and 4 are not adopted.
The current Producer milk provision of the UMW order considers the
milk of a dairy farmer to be producer milk when it is delivered
directly from farms to a pool plant or diverted by a pool plant or
cooperative handler to a nonpool plant. Milk is not eligible for
diversion to nonpool plants unless at least 1 day's production of such
dairy farmer is received at a pool plant anytime during the initial
qualifying month, often referred to as ``touching-base.'' To be
eligible to pool all of its milk receipts, the pooling handler must
ship at least 10 percent of its milk receipts to a pool distributing
plant, producer-handler, a partially regulated distributing plant, or a
pool distributing plant regulated by another Federal order. A handler's
diversion of milk to nonpool plants can only be made to nonpool plants
located in the States of Illinois, Iowa, Minnesota, Wisconsin, North
Dakota, South Dakota, and the Upper Peninsula of Michigan. Milk that is
subject to inclusion in another marketwide equalization program
operated by a state government is not considered producer milk. The
order currently does not limit a handler's ability to re-pool milk.
The proponents of Proposals 2, 3, 4 and 5 are all of the opinion
that the current pooling standards are inadequate because they enable
manufacturing handlers to de-pool milk when advantageous to do so and
immediately re-pool milk in a following month if advantageous to do so.
According to the proponents, the UMW blend price is lowered when large
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volumes of sometimes higher-valued milk used for manufacturing are de-
pooled and when these large volumes of de-pooled milk return to the
pool. Furthermore, the witnesses argued that de-pooling handlers do not
account to the UMW pool at the order's classified prices and therefore
face different costs than their similarly situated pooling competitors.
The proponents insisted that the pooling standards of the order need to
be amended to ensure producer and handler equity, even though the
proposals differed on how best to meet this end.
A witness appearing on behalf of Mid-West, et al., testified in
support of Proposal 2. The witness was of the opinion that the
underlying principles of the Federal order program are to supply milk
to the fluid market, equitably share pool proceeds among all
participating producers, and promote orderly marketing. The witness
explained that the Federal order program achieves these objectives
through classified pricing, through which Class I milk generates
revenue for the pool; and marketwide pooling, which equalizes payments
to all participating producers who serve the market regardless of how
the milk of any single producer is utilized.
The Mid-West, et al., witness said that currently milk utilized at
manufacturing plants can be de-pooled and again pooled in a subsequent
month when it is economically beneficial to the handler. When choosing
to pool or not to pool, the witness explained, handlers assess whether
participating in the marketwide pool would require them to make a
payment into or receive a payment from the PSF. According to the
witness, milk utilized as Class I must always be pooled regardless of
whether the pooling handler would make a payment into, or receive a
payment from, the PSF.
The Mid-West, et al., witness testified that because manufacturing
milk can freely exit and return to the pool, producers who regularly
and consistently service the UMW fluid market are not being treated
equitably under the terms of the order. According to the witness, these
producers receive a lower blend price because the value of the milk
that was de-pooled was not shared equitably among all the market's
producers.
The Mid-West, et al., witness maintained that the ability of
manufacturing handlers to de-pool milk creates inequities among
handlers and producers. The witness said that when the PPD is negative,
dairy farmers receive different payments for their milk depending on if
their milk was pooled, and handlers are not required to account to the
pool at classified prices depending on their pooling decisions. Class I
handlers who must pool their milk receipts always have a disadvantage
when the PPD is negative, explained the witness, because manufacturing
handlers can opt to de-pool and avoid paying into the PSF. According to
the witness, this results in higher prices that can be paid to the
producers supplying manufacturing handlers. The witness contrasted that
when the PPD is positive, milk that had been de-pooled seeks to return
to the pool. According to the witness, this also dilutes the blend
price paid to producers who had been supplying Class I handlers.
The Mid-West, et al., witness, relying on Market Administrator
statistics, noted that in May 2004, all producer milk pooled on the
order was subject to a negative $1.97 per hundredweight (cwt) PPD.
However, the witness emphasized that a manufacturing handler who chose
to de-pool its milk supply and did not have to account to the pool at
classified prices had an imputed PPD of zero. In other words, the
witness explained, milk used in manufactured products was worth more
than milk used in fluid products. Relying on additional Market
Administrator statistics, the witness demonstrated that if 100 percent
of eligible Class III milk had pooled in July 2003 through May 2004,
the estimated PPD would have averaged a negative $0.098 per cwt rather
than the actual average PPD of negative $0.773 per cwt.
The Midwest, et al., witness explained how adoption of Proposal 2
would improve both producer and handler equity. The witness said that
Proposal 2 would only limit the amount of milk a handler could pool up
to 125 or 135 percent of the previous month's pooled volume and
clarified that any milk delivered to a distributing plant would not be
subject to the 125 or 135 percent pooling calculation. If Proposal 2
were adopted, the witness claimed, no current handler would have to
change the physical operations of their plant. While adoption of this
proposal would not end the practice of de-pooling, speculated the
witness, it would establish financial consequences for handlers who
might not otherwise consistently pool their milk receipts.
In explaining why adoption of Proposal 2 would be reasonable and
appropriate for the UMW order, the Mid-West, et al., witness said that
a 125 percent standard should accommodate any change in the potential
growth of a handler's pooled milk volume resulting from seasonal
fluctuations in milk supply or the addition of new producers, assuming
that the handler did not de-pool. Additionally, the witness added that
to ensure no handler would need to change its physical operations,
Proposal 2 allows a 135 percent re-pooling standard in March because of
the fewer calendar days in February. The witness stressed that the 125
and 135 percent standards allow a handler to de-pool a portion of its
milk supply and over a period of months, regain the ability to again
pool its entire supply. The witness added that the proposal does not
restrict the volume of milk able to be pooled in August since this is
generally considered the start of the new marketing year.
The Mid-West, et al., witness also emphasized that establishing a
standard on the basis of the prior month's pooled volume has been done
in other orders. The Northeast order has a ``producer for other
markets'' provision that restricts the ability to pool the milk of a
producer if the milk of that producer had been previously de-pooled,
noted the witness. Furthermore, the witness said, milk orders in the
south and southeastern part of the country had provisions which limited
the sharing of marketwide returns in the spring months to only those
producers whose milk served the fluid market during the fall months.
The Mid-West, et al., witness predicted that price volatility would
continue in the future and result in negative PPD's and the further de-
pooling of milk. The witness was of the opinion that price volatility
and de-pooling have created emergency marketing conditions that would
warrant the Department to omit issuing a recommended decision.
A witness from DFA, appearing on behalf of Mid-West, et al.,
testified in support of Proposal 2. The witness testified that DFA
engages in the practice of de-pooling when warranted to earn sufficient
revenue to pay their producer members a competitive milk price. The
witness emphasized that de-pooling creates disorderly marketing
conditions and supported Proposal 2 as the best option to deter the
practice of de-pooling. The witness offered scenarios that demonstrated
the financial incentives available to handlers who de-pool milk. The
witness asserted that the current pooling standards of the UMW order,
where producers qualify for pooling by meeting a one-day touch base
standard, allow handlers the opportunity to reap financial rewards from
the market by de-pooling and re-pooling their milk receipts.
[[Page 54140]]
The DFA witness explained that Proposal 2 was a compromise position
among all the entities of Mid-West, et al., noting that its adoption
would improve the current disorderly market conditions arising from the
practice of de-pooling. The witness noted that many alternatives were
considered but the proponents were of the opinion that Proposal 2 is a
significant improvement to the order's pooling provisions while still
allowing handlers to make their own pooling decisions.
Witnesses from LOL, Swiss Valley, Cass-Clay, MMPC, and DFA Central
Council, all appearing on behalf of Mid-West, et al., testified in
support of Proposal 2. Many of the witnesses testified that their
respective organizations engage in the practice of de-pooling when it
is advantageous but that they recognize that the practice has a
negative impact on the PPD and creates disorderly marketing conditions.
Consequently, they are of the opinion that while a moderate level of
de-pooling should be tolerated, a set of standards should be
established to deter de-pooling to maintain orderly marketing
conditions.
The Mid-West, et al., witnesses identified above expressed support
for Proposal 2 as an acceptable and moderate approach to limiting the
practice of de-pooling. The proposal would allow flexibility in making
pooling decisions, explained the witnesses, but would also establish
significant consequences for those who opt to de-pool large volumes of
their producer milk supply. In this regard, the witnesses said that
Proposal 2 would result in improving equity among handlers and among
producers during times of price inversions.
A DFA dairy farmer member, whose milk is pooled on the UMW order,
testified in support of Proposal 2. The witness was of the opinion that
if dairy farmers want to participate in the UMW marketwide pool and
share in the revenue generated from the market, they should be prepared
to service the market every month. When handlers engage in the practice
of de-pooling their milk receipts, the witness said, severe price
fluctuations and larger, negative PPDs result that negatively affect
the price paid to pooled producers. The witness was of the opinion that
the adoption of Proposal 2 would result in more stable pooled milk
volumes and lessen the severe and volatile price changes that producers
have experienced.
A dairy farmer appearing on behalf of MCMP, whose milk is pooled on
the UMW order, testified in support of Proposal 2. The witness said
that their farm income was reduced during May 2004 as a result of the
negative $1.97 per cwt PPD. The witness added that neighboring farms
that shipped milk to other handlers reported receiving a higher price
for their milk. The opinion of the witness was that the practice of de-
pooling has led to non-uniform prices received by farmers and that
adoption of Proposal 2 would restore price equity among producers.
Comments filed on behalf of the members of Midwest, et al., Westby
Cooperative Creamery, and Woodstock Progressive Milk Producers
Association expressed their support for the proposed re-pooling
standards of Proposal 2 and increasing the maximum administrative
assessment. Midwest, et al., clarified that the intent of Proposal 2
was to constrain the practice of de-pooling while still encouraging
additional milk shipments for Class I use. Midwest, et al., proposed
that the re-pooling standard be amended to exempt milk delivered to
distributing plants in excess of the previous month's pooled volume
instead of the proposed standard that exempts all milk delivered to
distributing plants. Midwest, et al., explained that their intent was
not to exempt all milk delivered to distributing plants from the re-
pooling standard, rather it was to exempt any incremental increase in
distributing plant deliveries to ensure that handlers would not be
discouraged from serving the Class I market.
A witness appearing on behalf of Dean testified in opposition to
Proposal 2. The witness said that the pooling standards of Proposal 2
are too liberal and that unlimited pooling in the month of August could
allow handlers to again take advantage of the pooling system.
A witness appearing on behalf of Northwest Dairy Association (NDA)
testified in opposition to Proposal 2. NDA is a dairy cooperative that
markets 7 billion pounds of milk annually with members in the States of
Washington, Oregon, Idaho, and Northern California. The witness
explained that NDA engages in the practice of de-pooling in other
Federal orders as a way to recover costs in their manufacturing of
butter and cheese because the Class III and IV make allowances do not
adequately reflect such costs. The NDA witness was of the opinion that
the practice of de-pooling should be addressed at a national hearing
that would also consider other issues such as the make allowances used
in the Class III and IV price formulas.
A witness appearing on behalf of Dean testified in support of
Proposals 3, 4, and 5. The witness asserted that the intent of the
Federal order system is to ensure a sufficient supply of milk for fluid
use and provide for uniform payments to producers who stand ready,
willing, and able to serve the fluid market. While some entities are of
the opinion that the Federal order system should ensure a sufficient
milk supply to all plants, the Dean witness was of the opinion that the
Federal order system addresses only the need for ensuring a milk supply
to distributing plants. The witness elaborated on this opinion by
citing examples of order provisions that stress providing for a regular
supply of milk to distributing plants as a priority of the Federal milk
order program.
The Dean witness was of the opinion that for the Federal milk order
system to ensure orderly marketing, orders need to provide adequate
economic incentives that will attract milk to fluid plants and to
properly define regulations that identify the milk of those producers
who can participate in the marketwide pool. The witness argued that a
major flaw in the current regulations is that they allow handlers to
choose when to participate in the pool. In this regard, the witness
said, the order lacks the economic incentive for pool participation by
its lack of an economic disincentive to the practice of de-pooling.
The Dean witness testified that Proposals 3, 4, and 5 are designed
to establish proper economic incentives for supplying the fluid market
and maintain equity among handlers and producers. While each proposal
offered a slightly different solution to the problem, the witness said,
Dean Foods supports their adoption in the following order or
preference: Proposal 3, Proposal 4, and then Proposal 5.
A second witness appearing on behalf of Dean testified in support
of Proposals 3, 4, and 5. The witness argued that when handlers engage
in the practice of de-pooling it creates a burden on the producers who
consistently serve the Class I needs of the market. According to the
witness, when the PPD is negative, there is an incentive for handlers
to de-pool Class III and Class IV milk. When a handler opts to de-pool,
it decreases the amount of pooled milk and makes the PPD more negative
than it would have been had all milk been pooled, the witness said.
When the PPD is positive, milk previously de-pooled seeks to be re-
pooled which increases the volume of pooled milk valued at lower
classified prices and lowers the blend price paid to all producers, the
witness asserted. The major ``losers'' in this process, concluded the
witness, are the
[[Page 54141]]
producers whose milk is continuously pooled regardless of the PPD.
The second Dean witness said that Proposal 3 was designed to
increase the availability of milk for fluid use and ensure that pool
proceeds are only shared among producers who consistently service the
fluid market. The witness said that if Proposal 3 is adopted, de-pooled
milk could again become pooled as long as the producer delivered 10-
day's milk production to a pool distributing plant for 12 consecutive
months. Once that standard was met, the witness added, the producer's
milk could then be pooled under the more flexible provisions of the UMW
order.
The Dean witness asserted that there are three benefits to adoption
of Proposal 3: (1) When the PPD is negative, more Class III milk would
stay in the pool resulting in a less negative PPD; (2) Some Class III
de-pooled milk would never be re-pooled which would result in a more
positive PPD; and (3) Class III de-pooled milk would have to
demonstrate regular and significant deliveries to distributing plants
in order to be re-pooled.
In explaining Proposal 4 as an alternative to Proposal 3, the
second Dean witness indicated that the difference in the two proposals
is the number of months that the 10-day touch base provision would be
applicable before de-pooled milk could again be pooled under normal
circumstances. The witness was of the opinion that Proposal 4 would
discourage some de-pooling; however, the harm caused by the practice of
de-pooling would be better prevented by the adoption of Proposal 3.
The Dean witness also discussed Proposal 5 as a less desirable
alternative to Proposals 3 and 4. According to the witness, Proposal 5
would limit the amount of milk that can be pooled to 115 percent of the
handler's previous month's pooled milk volume. The witness explained
that the greater the volume of de-pooled milk, the more time needed
under Proposal 5 for a handler to re-pool all its milk receipts. This,
the witness said, ensures that the entities that benefit the most from
the practice of de-pooling would not receive an immediate benefit that
would otherwise occur when re-pooling.
A third witness appearing on behalf of Dean testified in support of
Proposal 3. The witness said that the current liberal pooling standards
of the UMW order are one source of disorderly marketing and are
preventing all producers from sharing equally in pool proceeds. The
witness asserted that the Federal milk order system was designed so
that through marketwide pooling all producers would share equally in
pool proceeds, and that through classified pricing milk would move to
the market's highest-valued use.
Relying on Market Administrator statistics for January 2000 through
June 2004, the Dean witness asserted that the volume of pooled Class
III milk varied from 1.5 billion pounds in January 2004 to 11 million
pounds in April 2004. Furthermore, the witness said, the blend price in
April 2004 would have been $2.97 higher if all Class III milk had been
pooled. The witness was of the opinion that these large swings in the
volume of pooled milk results in the disorderly marketing condition of
inequitable sharing of pool proceeds among producers.
A witness appearing on behalf of Oberweis Dairy testified in
support of Proposals 2 and 3. Oberweis Dairy operates a distributing
plant with approximately 40 dairy farmer suppliers and 32 ice cream
stores in the Chicago and St. Louis area markets. The witness was of
the opinion that it is inequitable to producers and Class I handlers
when manufacturing handlers engage in the practice of de-pooling. The
witness was of the opinion that either all handlers should be able to
engage in the practice of de-pooling or it should be prohibited. While
no proposal at the hearing proposed such a restriction, the witness was
of the opinion that Proposal 3 would be the best option to restore
equity among producers. Nevertheless, the witness said that Oberweis
would support the adoption of Proposal 2 if the Department finds it to
be more appropriate.
A witness appearing on behalf of the Wisconsin Farmers Union,
Minnesota Farmers Union, and the North Dakota Farmers Union testified
about the negative effects of de-pooling on dairy producers. According
to the witness, these organizations represent farmers of various
agricultural products in their respective States. The witness asserted
that when a cooperative engages in the practice of de-pooling, dairy
farmers are negatively affected because the revenue a cooperative gains
from de-pooling is not paid to producers by the cooperatives. The
witness insisted that the practice of de-pooling should be curbed so
that producers are adequately paid for the total value of their milk.
A witness appearing on behalf of Galloway Company (Galloway)
testified in support of all proposals that would limit the practice of
de-pooling. Galloway owns and operates a dairy manufacturing plant in
the UMW marketing area. The witness was of the opinion that large
negative PPD's are due, in part, to de-pooling and that has a negative
impact on the income of Galloway. The witness was of the opinion that
changes to order provisions to limit the ability to re-pool are
necessary but had no opinion as to which proposal would be the best
option.
A post-hearing brief submitted by Dean reiterated their opinion
that the pooling standards of the order need to be amended to correct
the disorderly marketing conditions arising from the practice of de-
pooling. The brief argued that the practice of de-pooling is disorderly
because a handler who de-pools milk avoids accounting to the pool at
classified prices and is not required to pay its suppliers the minimum
blend price. However, asserted Dean, a pooled handler not only accounts
to the pool at classified prices and pays its suppliers the minimum
blend price, the handler also finds it necessary to pay large premiums
to keep its suppliers.
According to the Dean brief, negative PPD's and the resulting
practice of de-pooling are not a national issue, noting that de-pooling
typically occurs in markets with low Class I utilization such as the
UMW. The Dean brief predicted that the practice of de-pooling would
occur in the future and therefore concluded that the disorderly
marketing conditions arising from the practice of de-pooling warrant
emergency action from the Department by omitting a recommended
decision.
Comments filed on behalf of Dean in response to the Recommended
Decision supported the Department's decision to deter the practice of
de-pooling. However, Dean expressed reservations that adoption of
Proposal 2 would be sufficient to adequately deter the practice of de-
pooling in the Upper Midwest marketing area. Dean also commented that
the re-pooling standard for the month of February should be modified to
115 percent to account for additional days in January much like the re-
pooling standard for the month of March was modified to account for the
fewer days in February.
A post hearing brief submitted on behalf of Lamers Dairy, Inc.
(Lamers) asserted that the ability of some handlers to engage in the
practice of de-pooling when it is economically advantageous is a
disorderly marketing condition. Furthermore, the brief expressed the
opinion that de-pooling causes inequitable treatment among handlers
because pooling handlers must account to the PSF at minimum classified
prices while handlers who de-pool their milk receipts do not. The
Lamers brief supported adoption of
[[Page 54142]]
Proposal 3 as the most appropriate solution to limit the practice of
de-pooling.
A witness appearing on behalf of Mid-West, et al., testified in
opposition to Proposal 3. According to the witness, requiring a
producer whose milk was de-pooled to deliver 10-day's milk production
to a pool distributing plant is a standard that would be extremely
difficult to meet. The witness stressed that finding access to a pool
distributing plant for 10-day's production would not only be extremely
difficult, it would also be costly. The Mid-West, et al., brief also
contended that the proposals offered by Dean would require physical
changes in plant operations that are not necessary to address the
practice of de-pooling in the UMW market.
The Mid-West, et al., brief disagreed with others who were of the
opinion that the de-pooling issue should be addressed at a national
hearing. The brief explained that historical Federal milk order policy
is that the pooling provisions of orders be reflective of each order's
individual marketing conditions. Therefore, the brief concluded, it is
appropriate to address the practice of de-pooling on an individual
order basis.
A witness appearing on behalf of Associated Milk Producers, Inc.
(AMPI) testified in opposition to all proposals intended to limit the
practice of de-pooling as specified in Proposals 2, 3, 4, and 5. The
witness' testimony was given on behalf of Alto Dairy Cooperative,
Bongards' Creameries, Ellsworth Cooperative Creamery, Family Dairies
USA, First District Association, Davisco Foods, Valley Queen Cheese
Company and Wisconsin Cheesemakers Association (WCA). The members
consist of cooperative associations and handlers who market or purchase
milk in the UMW marketing area. Hereinafter, this coalition of members
will be referred to collectively as ``AMPI, et al.''
The AMPI, et al., witness testified that the option to engage in
the practice of de-pooling in response to price inversions has been a
longstanding part of the Federal milk order system. The witness
testified that as a result of timing differences in announcing
classified prices, a lag between changes in the market value of milk
used in manufacturing and corresponding changes in the Federal order
Class I price sometimes results in price inversions. The witness
explained that the occasional price inversion is caused by the
announcement of the Class I price approximately two weeks prior to the
month and the announcement of the price for milk used in Class II, III,
and IV products occurring after the close of the month--a difference of
six weeks. The witness drew attention to April 2004 where the value of
Class III milk increased $6.02 per cwt during the six-week lag. This
resulted in a blend price that was substantially less than the
estimated Class III price, resulting in a large amount of de-pooled
Class III milk because, the witness said, there was no incentive for
manufacturing handlers to pool all of their milk receipts.
The AMPI, et al., witness asserted that the argument that de-pooled
milk does not serve, nor is available to serve, the fluid market is
false. According to the witness, milk that is de-pooled is available to
the Class I market during the month it is marketed and a decision to
de-pool the milk is made after the end of the month when the Class II,
III and IV prices are known. Additionally, the witness asserted that
fluid milk plants always receive a continuous supply of fluid milk
because of their contractual supply agreements.
The AMPI, et al., witness characterized the proposals under
consideration to address the practice of de-pooling as designed to
penalize handlers who engage in de-pooling their Class III milk. AMPI,
et al., the witness stated, is strongly opposed to this change in
pooling philosophy. The witness was of the opinion that the Federal
order system should continue to provide for the marketwide sharing of
money derived from sales of Class I milk since it is Class I sales that
historically generate additional revenue to producers. However, the
witness said, the order should not force handlers to share money
generated from manufactured milk products to offset a low Class I
price.
The AMPI, et al., witness was of the opinion that the practice of
de-pooling is a national issue that should be addressed in a national
hearing. The witness believed that a better solution to the practice of
de-pooling would be to eliminate the advanced pricing of Class I milk
and instead announce all Class prices after the end of the month.
The AMPI, et al., witness also testified that emergency marketing
conditions do not exist to warrant the omission of a recommended
decision by the Department. The witness stressed that price inversions
and the practice of de-pooling have occurred in the Federal order
system for decades and any major change in Department policy regarding
this practice should be addressed in a recommended decision where
interested parties can file comments and exceptions.
A post-hearing brief submitted on behalf of AMPI, et al.,
reiterated their opposition to all of the proposals that seek to deter
de-pooling. The brief argued that the AMAA intended for the government
to only require the sharing of the revenues generated from fluid sales.
According to the brief, requiring manufactured milk to remain pooled
oversteps the authority of the AMAA. The brief also expressed the
opinion that Proposals 3, 4, and 5 are designed to limit a producer's
access to the market and should therefore be denied. Furthermore, the
brief stressed that Proposals 3 through 5 would unfairly increase costs
of some UMW handlers because of the increased transportation and
capital investment that would be needed to comply with the proposed
amendments.
A witness appearing on behalf of WCA, testified in opposition to
all proposals intended to limit the practice of de-pooling as specified
in Proposals 2, 3, 4, and 5. The witness testified that WCA represents
dairy manufacturers and marketers with 32 of its members operating 42
pooled dairy facilities on the UMW order. According to the witness, 30
of the 42 pooled dairy facilities are small businesses and if the
proposals to limit the practice of de-pooling were adopted, these small
businesses would face new and significant costs to comply with the
proposed new standards without benefit to their dairy farmer suppliers.
The WCA witness expressed concern that Proposal 2 addressed the
practice of de-pooling without regard to the cause of negative PPD's,
specifically the inversion of classified prices. The witness also said
that Proposals 2, 3, 4 and 5 would put an additional administrative
burden on handlers by requiring them to designate which producers would
remain pooled or de-pooled. The witness asserted that access to
distributing plants in the UMW market is very limited and it would be
hard for a de-pooled producer to re-associate with a distributing plant
in order to be eligible to again pool their milk on the order.
The WCA witness was of the opinion that Proposals 3 and 4 also
would add additional transportation costs, administrative costs, and
the potential need for additional silo capacity to accommodate the
increased volume of milk that would be needed to meet the 10-day
production delivery standard at a pool distributing plant. The witness
explained that many WCA members do not have the capacity to accommodate
meeting a 10-day production delivery standard for each month. The
witness was also of the opinion that existing supply contracts provide
ample milk supplies for the Class I market and concluded that
additional deliveries to
[[Page 54143]]
pool plants are not needed to assure an adequate supply to Class I
facilities.
Comments filed by on behalf of AMPI, Bongards' Creameries,
Ellsworth Cooperative Creamery, Family Dairies USA, First District
Association, Davisco Foods, Valley Queen Cheese Company, and Wisconsin
Cheese Markers Association (hereinafter referred to as ``AMPI Group'')
took exception to the re-pooling standard proposed in the Recommended
Decision. They asserted that the proposed standard did not solve the
underlying cause of the practice of de-pooling. The AMPI group asserted
that the Department arbitrarily refused to consider proposals that
would end the time lag in classified price announcements as a remedy to
de-pooling and did not consider alternative proposals that would be
less burdensome to handlers or requests to address the practice of de-
pooling on a national basis.
AMPI Group commented that provisions which allow the market
administrator to waive the re-pooling standard for handlers that
experience a significant change in their milk supply due to unusual
circumstances should be more specific as to what constitutes an unusual
circumstance. The AMPI Group argued that small manufacturers may
experience a growth in their milk supply which would not be considered
an unusual circumstance and that such a situation should not cause a
handler to be penalized under the re-pooling standard. The AMPI Group
also cited various legal issues as reasons why the Department should
not adopt the re-pooling standards.
Comments filed by Eau Galle Cheese Factory and the Wisconsin Cheese
Makers Association took exception to the Department's proposed re-
pooling standards and offered support for the views expressed by the
AMPI Group.
Comments filed on behalf of Family Dairies USA took exception to
amendments proposed in the Recommended Decision and reiterated the
testimony given on their behalf at the hearing by the AMPI, et al.,
witness.
A witness appearing on behalf of the National Family Farm
Coalition, an organization representing family farms located in 32
states including those states comprising the UMW marketing area,
testified in opposition to all proposals at the hearing. The witness
was of the opinion that the entire Federal order system was in need of
a complete reform. The witness asserted that the proponents of the
proposals being heard were entities whose past actions have lowered
prices received by family farmers.
A post-hearing brief submitted on behalf of Alto Dairy (Alto), a
cooperative with 580 dairy farmer members in Wisconsin and Michigan,
reiterated their opposition to all proposals seeking to limit the
practice of de-pooling. The brief stressed that a decision to de-pool
is made separately from the decision to adequately supply the Class I
needs of the market.
Comments filed on behalf of Alto Dairy Cooperative and Foremost
Farms USA took exception to the proposed regulations that would require
a producer to be continuously pooled on another Federal order for the
previous 6 months to be exempted from the re-pooling standards. Their
exception asserted that a producer should be allowed to have some de-
pooled milk receipts during the previous 6 months and still be exempt
from the re-pooling standards of the Upper Midwest order.
An Extension Dairy Marketing Specialist from the University of
Wisconsin testified on the issues surrounding the practice of de-
pooling but did not support or oppose any specific proposal. The
witness referred to and explained a research paper which identified and
explained problems arising in the UMW marketing area by pooling distant
milk, the practice of de-pooling, and the resulting economic impacts to
producers. The witness said that if manufacturing prices for milk
rapidly increase during the month there will be a negative PPD but as
prices begin to decline, the PPD will again become positive over time.
The witness also explained that a negative PPD does not mean that
producers lost money. Rather, the witness clarified, the PPD is a
calculation of the difference between the Class III price and the blend
price that producers receive. However, concluded the witness, the
ability to engage in the practice of de-pooling does result in volatile
PPD's and gives rise to inequities among producers and among handlers.
Comments filed on behalf of Grande Cheese Company took exception to
findings made by the Department in the Recommended Decision. Grande was
of the opinion that the cause of negative PPD's is the timing of
classified price announcements. In addition, they were of the opinion
that the Department was incorrect in establishing re-pooling standards
as a way to address negative PPD's.
Comments filed on behalf of the Cedar Grove Cheese Company (CGCC)
took exception to establishing re-pooling standards. CGCC was of the
opinion that previous amendments to the order's pooling provisions in a
final partial decision (70 FR 58086) would deter the practice of de-
pooling, making the establishment of a re-pooling standard unnecessary.
CGCC advocated rejecting or delaying the implementation of the re-
pooling standards until Upper Midwest market participants are given the
opportunity to operate under the newly amended pooling standards. CGCC
commented that the re-pooling standard would cause producers whose milk
was de-pooled to be unfairly disadvantaged in subsequent months when
prices are no longer inverted because their pooling handlers would be
unable to pay a competitive price for their milk. CGCC also excepted to
the discretion granted to the Market Administrator to determine if a
handler has purposely misreported milk for the purpose of evading the
re-pooling standard because it does not provide the Market
Administrator or handlers with guidance for making such a finding.
All Federal milk marketing orders require the pooling of milk
received at pool distributing plants--which is predominantly Class I
milk--and all pooled producers and handlers on an order share in the
additional revenue arising from higher valued Class I sales.
Manufacturing handlers and cooperatives of Class II, III and IV uses of
milk who meet the pooling and performance standards make all of their
milk receipts eligible to be pooled and usually find it advantageous.
Manufacturing handlers and cooperatives who supply a portion of their
total milk receipts to Class I distributing plants receive the
difference between their use-value of milk and the order's blend price.
Federal milk orders, including the UMW order, establish limits on the
volume of milk eligible to be pooled that is not for fluid uses
primarily through diversion limit standards. However, manufacturing
handlers and cooperatives are not required, as are Class I handlers, to
pool all their eligible milk receipts.
According to the record, manufacturing handlers and cooperatives
have opted to not pool their milk receipts when the manufacturing class
prices of milk are higher than the order's blend price--commonly
referred to as being ``inverted.'' During such months, manufacturing
handlers and cooperatives have elected to not pool all of their
eligible milk receipts because doing so would require them to pay into
the PSF of the order, the mechanism through which handler and producer
prices are equalized. When prices are not inverted, handlers would pool
all of their eligible receipts and receive a payment or draw from the
PSF. In receiving a draw from the PSF, such
[[Page 54144]]
handlers will have sufficient money to pay at least the order's blend
price to their supplying dairy farmers.
When manufacturing handlers and cooperatives opt to not pool all of
their eligible milk receipts in a month, they are essentially avoiding
a payment to the PSF. This, in turn, enables them to avoid the
marketwide sharing of the additional value of milk that accrues in the
higher-valued uses of milk other than Class I. When the Class I price
again becomes the highest valued use of milk, or when other class-price
relationships become favorable, the record reveals that these same
handlers opt to again pool their eligible milk receipts and draw money
from the PSF. It is the ability of manufacturing handlers and
cooperatives opting to not pool milk and thereby avoid the marketwide
sharing of the revenue accruing from non-Class I milk sales that is
viewed by proponents as giving rise to disorderly marketing conditions.
According to proponents, producers and handlers who cannot escape being
pooled and priced under the order are not assured of equitable prices.
The record reveals that since the implementation of Federal milk
marketing order reform in January 2000, and especially in more recent
years, large and rapid increases in manufactured product prices during
certain months have provided the economic incentives for manufacturing
handlers to opt not to pool eligible milk on the UMW order. For
example, during the three-month period of February to April 2004, the
Class III price increased over 65 percent from $11.89 per cwt to $19.66
per cwt. During the same time period, total producer milk pooled on the
UMW order decreased by over 60 percent from 1.94 billion pounds to 608
million pounds. When milk volumes of this magnitude are not pooled the
impacts on producer blend prices are significant. Producers who incur
the additional costs of consistently servicing the Class I needs of the
market receive a lower return than would otherwise have been received
if they did not continue to service the Class I market. Prices received
by dairy farmers who supplied the other milk needs of the market are
not known. However, it is reasonable to conclude that prices received
by dairy farmers were not equitable or uniform.
The record reveals that ``inverted'' prices of milk are generally
the result of the timing of Class price announcements. Despite changes
made as part of Federal milk order reform to shorten the time period of
setting and announcing Class I milk prices and basing the Class I price
on the higher of the Class III or Class IV price to avoid price
inversions, large month-to-month price increases in Class III and Class
IV product prices sometimes trumped the intent of better assuring that
the Class I price for the month would be the highest-valued use of
milk. In all orders, the Class I price (and the Class II skim price) is
announced prior to or in advance of the month for which it will apply.
The Class I price is calculated by using the National Agricultural
Statistics Service (NASS) surveyed cheese, butter, nonfat dry milk and
dry whey prices for the two most current weeks prior to the 24th day of
the preceding month and then adding a differential value to the higher
of either the advanced Class III or Class IV price.
Historically, the advance pricing of Class I milk has been used in
all Federal orders because Class I handlers cannot avoid regulation and
are required to pool all of their Class I milk receipts, they should
know their product costs in advance of notifying their customers of
price changes. However, milk receipts for Class III and IV uses are not
required to be pooled thus, Class III and IV product prices (and the
Class II butterfat value) are not announced in advance. These prices
are announced on or before the 5th of the following month. Of
importance here is that manufacturing plant operators and cooperatives
have the benefit of knowing all the classified prices of milk before
making a decision to pool or not pool eligible receipts.
The record reveals that the decision of manufacturing handlers or
cooperatives to pool or not pool milk is made on a month-to-month basis
and is generally independent of past pooling decisions. Manufacturing
handlers and cooperatives that elected to not pool their milk receipts
did so to avoid making payments to the PSF and they anticipated that
all other manufacturing handlers and cooperatives would do the same.
However, the record indicates that normally pooled manufacturing
handlers and cooperatives met the pooling standards of the order to
ensure that the Class I market was adequately supplied and that they
established eligibility to pool their physical receipts, including
diversions to nonpool plants. Opponents to proposals to deter de-
pooling are of the view that meeting the pooling standards of the order
and deciding how much milk to pool are unrelated events. Proponents
took the view that participation in the marketwide pool should be based
on a long-term commitment to supply the market because in the long-term
it is the sales of higher priced Class I milk that adds additional
revenue to the pool.
The producer price differential, or PPD, is the difference between
the Class III price and the weighted average value of all Class I, II
and IV milk pooled. In essence, the PPD is the residual revenue
remaining after all butterfat, protein and other solids values are paid
to producers. If the pooled value of Class I, II and IV milk is greater
than the Class III value, dairy farmers receive a positive PPD. While
the PPD is usually positive, a negative PPD can occur when class prices
rise rapidly during the 6-week period between the time the Class I
price is announced and the time the Class II butterfat and III and IV
milk prices are announced. When manufacturing prices fall, this same
lag in the announcement of class prices yields a positive PPD.
As revealed by the record, when manufacturing plants and
cooperatives opted to not pool milk because of inverted price
relationships, PPD's were much more negative. When this milk is not
pooled, a larger percentage of the milk remaining pooled will be
``lower'' priced Class I milk. When manufacturing milk is not pooled
the weighted average value of milk decreases relative to the Class II,
III or IV value making the PPD more negative. For example, record
evidence demonstrated that in April 2004, a month when a sizeable
volume of milk was not pooled, the PPD was a negative $4.11 per cwt. If
all eligible milk had been pooled, the PPD would have been $2.97 per
cwt higher or a negative $1.14 per cwt. This $2.97 per cwt represents
the additional burden borne by those producers who remained pooled.
The record reveals that when manufacturing handlers and
cooperatives opt to not pool milk, unequal pay prices may result to
similarly located dairy farmers. For example, Dean noted that when a
cooperative delivers a high percentage of their milk receipts to a
distributing plant, it lessens their ability to not pool milk, making
them less competitive in a marketplace relative to other producers and
handlers. Other evidence in the record supports conclusions identical
to Dean that when a dairy farmer or cooperative is able to receive
increased returns from shipping milk to a manufacturing handler during
times of price inversions, other dairy farmers or cooperatives who may
have shipped more milk to a pool distributing plant are competitively
disadvantaged.
The record of this proceeding reveals that the ability of
manufacturing handlers and cooperatives to not pool all of their
eligible milk receipts gives rise to disorderly marketing conditions
and warrants the establishment of
[[Page 54145]]
additional pooling standards to safeguard marketwide pooling. Current
pooling provisions do not require or prohibit handlers and cooperatives
from pooling all eligible milk receipts. However, the record reveals
that when handlers and cooperatives opt to not pool milk inequities
arise among producers and handlers that are contrary to the intent of
the Federal milk marketing order program--maintaining orderly marketing
conditions.
The record contains extensive testimony regarding the effects on
the milk order program resulting from advance pricing and the priority
the milk order program has placed on the Class I price being the
highest valued use of milk. It remains true that the Class I use of
milk is still the highest valued use of milk notwithstanding those
occasional months when milk used in usually lower-valued classes may be
higher. This has been demonstrated by an analysis of the effective
Class I differential values--the difference in the Class I price at the
base zone of Cook County, Illinois, and the higher of the Class III or
Class IV price--for the 65 month period of January 2000 through May
2005 performed by USDA.\1\ These computations reveal that the effective
monthly Class I differential averaged $1.76 per cwt. Accordingly, it
can only be concluded that in the longer-term Class I sales continue to
be the source of additional revenue accruing to the pool even when, in
some months, the effective differential is negative.
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\1\ Official notice is taken of data and information published
in Market Administrator Bulletins as posted on individual Market
Administrator Web sites.
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Price inversions occur when the wholesale price for manufactured
products rises rapidly indicating a tightening of milk supplies to
produce those products. It is for this reason that the Department chose
the higher of the Class III or Class IV prices as the mover of the
Class I price. Distributing plants must have a price high enough to
attract milk away from manufacturing uses to meet Class I demands. As
revealed by the record, this method has not been sufficient to provide
the appropriate price signals to assure an adequate supply of milk for
the Class I market. Accordingly, additional measures are needed as a
means of assuring that milk remains pooled and thus available to the
Class I market. Adoption of Proposal 2 is a reasonable measure to meet
the objectives of orderly marketing.
This final decision does find that disorderly marketing conditions
are present when producers do not receive uniform prices. Handlers and
cooperatives opting to not pool milk do not account to the pool at the
classified use-value of those milk receipts. They do not share in all
the additional costs and burdens with those producers who are pooled
and are incurring the costs of servicing the Class I needs of the
market. This is not a desired or reasonable outcome especially when the
same handlers and cooperatives will again pool all of their eligible
receipts when class-price relationships change in a subsequent month.
These inequities borne by the market's producers are contrary to the
intent of the Federal order program's reliance on marketwide pooling--
ensuring that all producers supplying the market are paid uniform
prices for their milk regardless of how the milk of any single producer
is used.
Exceptions filed by the AMPI Group, Eau Galle Cheese, WCMA, Family
Dairies and Grande Cheese asserting that the re-pooling standards do
not address the cause of de-pooling--price inversions--are
unpersuasive. It is reasonable that the order contain pooling
provisions intended to deter the disorderly conditions that arise when
de-pooling occurs. Such provisions maintain and enhance orderly
marketing. Accordingly, this final decision finds it reasonable to
adopt provisions that limit the volume of milk a handler or cooperative
may pool during the months of April through February to 125 percent of
the total volume pooled by the handler or cooperative in the prior
month and to 135 percent of the prior month's pooled volume during the
month of March. Adoption of this standard will not prevent
manufacturing handlers or cooperatives from electing to not pool milk.
However, it should serve to maintain and enhance orderly marketing by
encouraging participation in the marketwide pooling of all classified
uses of milk.
A modification proposed by Dean in their exceptions to the
Recommended Decision to lower the re-pooling standard in February to
115 percent is denied. This modification was not discussed at the
hearing. The 125 percent re-pooling standard should adequately deter
excessive de-pooling.
Exceptions filed by the AMPI Group and CGCC to more specifically
define ``unusual circumstances'' are denied. This decision continues to
adopt provisions that grant authority to the Market Administrator to
waive the re-pooling standard for a bloc of milk due to unusual
circumstances. This discretion has been previously granted to the
Market Administrator to amend or waive other pooling standards and it
is reasonable to make a similar accommodation here.
Consideration was given on whether de-pooling should be considered
at a national hearing with other, broader national issues of milk
marketing. However, each marketing area has unique marketing conditions
and characteristics that have area-specific pooling provisions to
address those specific conditions. Because of this, pooling issues are
considered unique to each order. Historically, pooling issues have been
addressed on an order by order basis and despite exceptions filed by
the AMPI Group this final decision continues to find that it would be
unreasonable to address pooling issues, including de-pooling, on a
national basis. Other objections by the AMPI Group that the Department
should take into account a manufacturer's cost of production are
irrelevant in regards to the pooling standards of the order. The record
does not support finding that manufacturers de-pool milk to recoup
manufacturing costs that they otherwise cannot. The record clearly
establishes that manufacturers de-pool their milk supply to avoid
making a payment into the order's PSF. Nevertheless, manufacturing
allowances, which are uniform in all Federal orders, are currently
being addressed by the Department on a national basis (71 FR 545).
Some manufacturing handlers and cooperatives argued at the hearing
and noted in exceptions to the Recommended Decision that their milk did
perform in meeting the Class I needs during the month and this occurred
before making their pooling decisions. They argue that the Class I
market is therefore not harmed and that the intents and goals of the
order program are satisfied. With respect to this proceeding and in
response to these arguments, this decision finds that the practice of
de-pooling undermines the intent of the Federal order program to assure
producers uniform prices across all uses of milk normally associated
with the market as a critical indicator of orderly marketing
conditions.
Exceptions filed by Foremost, et al., regarding the interpretation
of ``continuously pooled'' and arguing that a producer should be
allowed to de-pool some milk in each month without penalty is contrary
to the goal of the Federal order program and would undermine the intent
of the re-pooling standard. Handlers and cooperatives that de-pool
purposefully do so to gain a momentary financial benefit (by avoiding
making payments to the PSF) which would otherwise be equitably
[[Page 54146]]
shared among all market participants. While the order's performance
standards tend to assure that distributing plants are adequately
supplied with fresh, fluid milk, the goals of marketwide pooling are
undermined by the practice of de-pooling. Producers and handlers who
regularly and consistently bear the costs of serving the Class I needs
of the market will not equitably share in the additional value arising
momentarily from non-fluid uses of milk. These same producers and
handlers will, in turn, be required to share the additional revenue
arising from higher-valued Class I sales in a subsequent month when
class price relationships change. In regards to the re-pooling
standard, ``continuously pooled'' will be interpreted to mean that a
producer's milk is pooled every day on a Federal order.
The four proposals considered in this proceeding to deter the
practice of de-pooling in the UMW order have differences. They all seek
to address the market disorder arising from the practice of de-pooling.
However, this decision does not find adoption of the two ``dairy farmer
for other market'' proposals--Proposals 3 and 4--reasonable because
they would make it needlessly difficult for milk to be re-pooled and
because their adoption may disrupt prevailing marketing channels or
cause the inefficient movement of milk. Likewise, Proposal 5, to
restrict pooling in a month to 115 percent of the rior month's volume
pooled by the handler, is not adopted. Adoption of this proposal would
disrupt current marketing conditions beyond what the record justifies.
Therefore, this decision adopts Proposal 2 to limit the pooling of
milk by a handler during the months of April through February to 125
percent of the total milk receipts the handler pooled in the prior
month and to 135 percent of the prior month's pooled volume during the
month of March because it provides the most reasonable measure to deter
the practice of de-pooling.
A modification made by Midwest, et al., in their exceptions to the
Recommended Decision to exempt all milk delivered to distributing
plants in excess of the previous month's pooled volume is adopted. It
is clear from the record that the intent of re-pooling standards is to
deter the practice of de-pooling while continuing to encourage
shipments for Class I use. The Recommended Decision proposed that all
distributing plants deliveries be exempt from the re-pooling standard.
However, such a large exemption would continue to give rise to
disorderly marketing conditions and could result in uneconomical
movements of milk to distributing plants solely to circumvent the re-
pooling standard. Exempting only distributing plant deliveries in
excess of the previous month's pooled volume will still encourage
service to the Class I market while maintaining order in the
marketplace.
A request by CGCC in their exceptions to delay the implementation
of the re-pooling standard until other new pooling standards are given
the opportunity to operate is denied. The record clearly establishes
that the practice of depooling gives rise to disorderly marketing
conditions. The ``other'' new pooling standards that were considered at
the hearing were adopted on an interim basis on July 1, 2005, and on a
final basis on February 1, 2006. Additionally, further delay of
adopting the re-pooling standards will result in disorderly conditions
as already described in this decision when pricing conditions again
offer incentives to de-pool milk.
B. Producer Definition
A proposal published in the hearing notice as Proposal 6, seeking
to specify the length of time a dairy farmer may lose Grade A status
before losing producer status on the order, is not adopted. Proposal 6,
offered by Dean, would amend the Producer definition by explicitly
stating that a dairy farmer may lose Grade A status for up to 21
calendar days per year before needing to requalify as a producer on the
order. The UMW order currently does not specify the specific length of
time a dairy farmer may lose Grade A status before needing to requalify
as a producer on the order. Currently, a dairy farmer must deliver one
day's milk production to a pool plant during the first month a producer
is to be pooled in order to have their milk pooled and priced under the
terms of the order.
A witness appearing on behalf of Dean testified in support of
Proposal 6. The witness said the UMW order currently does not specify
how long a dairy farmer who temporarily loses their Grade A status can
retain producer status before they must requalify as a producer on the
order. Proposal 6, the witness stated, sets a reasonable limit to the
number of days a producer can lose Grade A status within a calendar
year.
Comments filed on behalf of Dean in response to the Recommended
Decision took exception to the Department's denial of Proposal 6 to
define the term ``temporary'' in the producer milk definition. Dean
maintained that a producer should bear the burden of establishing that
their temporary loss of Grade A approval was not a maneuver designed to
avoid the new re-pooling standards.
A witness appearing on behalf of Mid-West, et al., testified in
opposition to Proposal 6. The witness said that many situations could
arise where a producer is unable to regain Grade A status in less than
21 days due to damages resulting from situations beyond their control.
The current order language provides for waivers in pooling standards
for pool plants due to such ``acts of God'' and, in the witness''
opinion, is adequately provided for in the Producer definition of the
current order language.
The Producer definition of the UMW order does not define the length
of time a producer may lose Grade A status before needing to requalify
for producer status on the order. The issue of qualifying for producer
status is important since it determines which producers and which
producer milk is entitled to share in the revenues arising from the
marketwide pooling of milk on the UMW order.
The definition of ``temporary'' used by the Market Administrator
has accommodated the Upper Midwest market by giving producers a
reasonable amount of time to regain Grade A status without burdening
the market with excessive touch-base shipments or recordkeeping
requirements. Limiting the time period a producer can lose Grade A
status would require handlers and the Market Administrator to track the
producer's loss of Grade A status throughout the year to determine when
the 21 day limit is reached.
Despite exceptions filed by Dean requesting an exact definition of
``temporary'', this decision continues to find that the additional
touch-base shipments that would be required for a dairy farmer to
requalify for producer status on the order would cause uneconomic
shipments of milk. Additionally, the increased recordkeeping
requirements would burden handlers without contributing to the goals
and application of the proposed amendments to the pooling standards
contained in this decision. Other amendments adopted in this decision
that grant the Market Administrator authority to disqualify milk for
pooling if it is found that the handler attempted to circumvent the re-
pooling standards provide an adequate safeguard against pooling abuses.
Accordingly, Proposal 6 is not adopted.
2. Administrative Assessment Rate
A proposal, published in the hearing notice as Proposal 7, seeking
to increase the maximum assessment rate of the UMW order, is adopted.
Specifically,
[[Page 54147]]
the maximum administrative assessment rate is increased from the
current rate of 5 cents per cwt to 8 cents per cwt. At the time of the
hearing, the administrative assessment rate of 5 cents per cwt applied
to all milk pooled on the order and was the maximum assessment rate
that could be charged. Adoption of this proposal will not increase the
administrative assessment above the current rate but it will give the
market administrator the ability to increase the assessment up to a
maximum 8 cents per cwt, if necessary.\2\
---------------------------------------------------------------------------
\2\ Official notice is taken of a letter from the UMW Market
Administrator to UMW handlers, cooperatives and interested persons,
dated September 28, 2005, that decreases the administrative
assessment from 5 cents to 4 cents per cwt, effective with milk
produced on or after September 1, 2005.
---------------------------------------------------------------------------
According to the Market Administrator, Proposal 7 was offered
because there is not sufficient milk volume being consistently pooled
on the UMW order to generate adequate funding for the proper
administration of the order. Administration of the UMW order generates
substantial costs for the many services provided to UMW marketing area
participants including pooling, auditing, gathering market information,
and providing market services such as laboratory testing, explained the
witness. The Market Administrator noted that there are also fixed
expenses such as salaries and office leases and that the order must
maintain a specified minimum level of operating reserves.
The Market Administrator stated that from 2000 to 2002, the amount
of producer milk on the UMW order ranged from 1.7 to 1.95 billion
pounds per month. According to the Market Administrator, this volume of
pooled milk generated sufficient funds for the administration of the
order for the 4-cent per cwt assessment rate being assessed on pooled
milk during that time. However, the Market Administrator said, from
July through November 2003 almost 6.2 billion pounds of producer milk
was de-pooled which resulted in the loss of nearly $2.5 million in
potential revenue for the administration of the order. According to the
Market Administrator, this loss of revenue caused the assessment rate
to be increased from 4 cents to 5 cents per cwt. The Market
Administrator stressed that substantial de-pooling occurred again from
March through May 2004 when nearly 4.7 billion pounds of producer milk
was de-pooled.
The Market Administrator emphasized that the UMW order still
services the de-pooled milk because handlers make decisions to de-pool
their milk receipts after the end of the month after already utilizing
many of the UMW order services. According to the Market Administrator,
the UMW order must sometimes service an approximately 2 billion pound
market per month while only collecting an assessment on 600 to 700
million pounds of milk. At the current assessment rate of 5 cents per
cwt, noted the Market Administrator, the order needs approximately 1.5
billion pounds of pooled producer milk per month to operate and provide
the services expected by market participants.
The Market Administrator said that actions to reduce operating
costs have taken place but an increase in the maximum assessment rate
is needed to ensure the proper administration of the order and to
maintain necessary operating reserves. The Market Administrator
explained that increasing the maximum administrative assessment rate to
8 cents per cwt would not necessarily be the actual rate that would be
charged to pooling handlers. The Market Administrator stressed that the
proposed 8-cent assessment rate is a maximum level, and the actual
assessment rate charged would only be as high as needed to operate the
order.
The Mid-West, et al., brief expressed support of the Proposal 7 but
emphasized that the assessment rate should be viewed as a maximum. The
brief speculated that if Proposal 2 is adopted, the volume of milk
pooled consistently will stabilize making it unnecessary to raise the
assessment rate. The brief also discussed the option of having the
assessment rate vary to ensure that milk which is consistently pooled
does not pay for services on milk that is de-pooled and does not pay an
assessment.
A witness appearing on behalf of Dean viewed Proposal 7 as an extra
tax on those producers who already pay for the administration of the
order every month, unlike those producers whose milk is de-pooled. The
witness contended that if Proposal 3, 4, or 5 were adopted, the amount
of milk being de-pooled on the UMW order would decrease significantly,
thus giving the Market Administrator a more consistent income stream.
However, asserted the witness, if the Department decided to increase
the administrative assessment, Dean would encourage an amended
provision that would charge a higher assessment on milk not pooled in
the previous month.
Dean's post-hearing brief reiterated support for increasing the
maximum administrative rate while maintaining that adoption of Proposal
3 would prevent the need to actually increase the administrative
assessment rate. The brief proposed that if the administrative
assessment rate is increased, the Market Administrator should be
granted the authority to insulate continuously pooled producers from
paying the increased assessment.
A witness appearing on behalf of WCA testified in opposition to
Proposal 7. The witness asserted that the Market Administrator should
use other means to address what the witness characterized as short-term
funding declines.
A witness representing Oberweis Dairy also opposed adoption of
Proposal 7 because it would increase costs to producers.
The hearing record reveals that fluctuations in the volume of milk
pooled on the UMW order attributed to de-pooling can reduce the Market
Administrator revenues to a level too low for proper administration of
the order. At the current assessment rate of 5 cents per cwt, 1.5
billion pounds of pooled milk is needed to generate sufficient funds
for the administration of the order. However, de-pooling has resulted
in pooled volumes far below that needed to generate an adequate revenue
stream.
The adoption of re-pooling standards to deter the de-pooling of
milk should result in a more stable revenue stream for the
administration of the UMW order. Nevertheless, it is reasonable to
increase the maximum administrative assessment rate to ensure that the
Market Administrator has the proper funds to carry out all of the
services provided by the UMW order. While the maximum administrative
rate is increased to 8 cents per cwt, the actual rate charged will only
be as high as necessary to properly administer the order and provide
the necessary services to market participants.
Rulings on Proposed Findings and Conclusions
Briefs and proposed findings and conclusions were filed on behalf
of certain interested parties. These briefs, proposed findings and
conclusions, and the evidence in the record were considered in making
the findings and conclusions set forth above. To the extent that the
suggested findings and conclusions filed by interested parties are
inconsistent with the findings and conclusions set forth herein, the
requests to make such findings or reach such conclusions are denied for
the reasons previously stated in this decision.
[[Page 54148]]
General Findings
The findings and determinations hereinafter set forth supplement
those that were made when the UMW order was first issued and when it
was amended. The previous findings and determinations are hereby
ratified and confirmed, except where they may conflict with those set
forth herein.
(a) The tentative marketing agreement and the order, as hereby
proposed to be amended, and all of the terms and conditions thereof,
will tend to effectuate the declared policy of the Act;
(b) The parity prices of milk as determined pursuant to section 2
of the Act are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the marketing area, and the minimum
prices specified in the tentative marketing agreement and the order, as
hereby proposed to be amended, are such prices as will reflect the
aforesaid factors, insure a sufficient quantity of pure and wholesome
milk, and be in the public interest; and
(c) The tentative marketing agreement and the order, as hereby
proposed to be amended, will regulate the handling of milk in the same
manner as, and will be applicable only to persons in the respective
classes of industrial and commercial activity specified in, the
marketing agreement upon which a hearing has been held.
Rulings on Exceptions
In arriving at the findings and conclusions, and the regulatory
provisions of this decision, each of the exceptions received was
carefully and fully considered in conjunction with the record evidence.
To the extent that the findings and conclusions and the regulatory
provisions of this decision are at variance with any of the exceptions,
such exceptions are hereby overruled for the reasons previously stated
in this decision.
Marketing Agreement and Order
Annexed hereto and made a part hereof are two documents, a
Marketing Agreement regulating the handling of milk, and an Order
amending the order regulating the handling of milk in the Upper Midwest
marketing area, which has been decided upon as the detailed and
appropriate means of effectuating the foregoing conclusions.
It is hereby ordered that this entire decision and the two
documents annexed hereto be published in the Federal Register.
Referendum Order To Determine Producer Approval; Determination of
Representative Period; and Designation of Referendum Agent
It is hereby directed that a referendum be conducted and completed
on or before the 30th day from the date this decision is published in
the Federal Register, in accordance with the procedures for the conduct
of referenda [7 CFR 900.300-311], to determine whether the issuance of
the order as amended and hereby proposed to be amended, regulating the
handling of milk in the Upper Midwest marketing area is approved or
favored by producers, as defined under the terms of the order, as
amended and as hereby proposed to be amended, who during such
representative period were engaged in the production of milk for sale
within the aforesaid marketing area.
The representative period for the conduct of such referendum is
hereby determined to be March 2006.
The agent of the Secretary to conduct such referendum is hereby
designated to be H. Paul Kyburz, Upper Midwest Market Administrator.
List of Subjects in 7 CFR Part 1030
Milk marketing orders.
Dated: September 1, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
Order Amending the Order Regulating the Handling of Milk in the Upper
Midwest Marketing Area
This order shall not become effective unless and until the
requirements of Sec. 900.14 of the rules of practice and procedure
governing proceedings to formulate marketing agreements and marketing
orders have been met.
Findings and Determinations
The findings and determinations hereinafter set forth supplement
those that were made when the order was first issued and when it was
amended. The previous findings and determinations are hereby ratified
and confirmed, except where they may conflict with those set forth
herein.
(a) Findings. A public hearing was held upon certain proposed
amendments to the tentative marketing agreement and to the order
regulating the handling of milk in the Upper Midwest marketing area.
The hearing was held pursuant to the provisions of the Agricultural
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the
applicable rules of practice and procedure (7 CFR part 900).
Upon the basis of the evidence introduced at such hearing and the
record thereof, it is found that:
(1) The said order as hereby amended, and all of the terms and
conditions thereof, will tend to effectuate the declared policy of the
Act;
(2) The parity prices of milk, as determined pursuant to Section 2
of the Act, are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the aforesaid marketing area. The minimum
prices specified in the order as hereby amended are such prices as will
reflect the aforesaid factors, insure a sufficient quantity of pure and
wholesome milk, and be in the public interest; and
(3) The said order as hereby amended regulates the handling of milk
in the same manner as, and is applicable only to persons in the
respective classes of industrial or commercial activity specified in, a
marketing agreement upon which a hearing has been held.
Order Relative to Handling
It is therefore ordered, that on and after the effective date
hereof, the handling of milk in the Upper Midwest marketing area shall
be in conformity to and in compliance with the terms and conditions of
the order, as amended, and as hereby amended, as follows:
The provisions of the order amending the order contained in the
Recommended Decision issued by the Administrator, Agricultural
Marketing Service, on February 15, 2006, and published in the Federal
Register on February 22, 2006 (71 FR 9004), are adopted with one minor
modification and shall be the terms and provisions of this order. The
revised order follows.
PART 1030--MILK IN THE UPPER MIDWEST MARKETING AREA
1. The authority citation for 7 CFR part 1030 is amended to read as
follows:
Authority: 7 U.S.C. 601-674, and 7253.
2. Section 1030.13 is amended by adding a new paragraph (f), to
read as follows:
Sec. 1030.13 Producer milk.
* * * * *
(f) The quantity of milk reported by a handler pursuant to either
Sec. 1030.30(a)(1) or Sec. 1030.30(c)(1) for April through February
may not exceed 125 percent, and March may not exceed 135 percent of the
producer milk receipts pooled by the handler during the prior month.
Milk diverted to nonpool plants reported in excess of this limit shall
be removed from the
[[Page 54149]]
pool. Milk in excess of this limit received at pool plants, other than
pool distributing plants, shall be classified pursuant to Sec.
1000.44(a)(3)(v) and Sec. 1000.44(b). The handler must designate, by
producer pick-up, which milk is to be removed from the pool. If the
handler fails to provide this information, the market administrator
will make the determination. The following provisions apply:
(1) Milk shipped to and physically received at pool distributing
plants in excess of the previous month's pooled volume shall not be
subject to the 125 or 135 percent limitation;
(2) Producer milk qualified pursuant to Sec. --13 of any other
Federal Order and continuously pooled in any Federal Order for the
previous six months shall not be included in the computation of the 125
or 135 percent limitation;
(3) The market administrator may waive the 125 or 135 percent
limitation:
(i) For a new handler on the order, subject to the provisions of
Sec. 1030.13(f)(4), or
(ii) For an existing handler with significantly changed milk supply
conditions due to unusual circumstances;
(4) A bloc of milk may be considered ineligible for pooling if the
market administrator determines that handlers altered the reporting of
such milk for the purpose of evading the provisions of this paragraph.
3. Section 1030.85 is revised to read as follows:
Sec. 1030.85 Assessment for order administration.
On or before the payment receipt date specified under Sec.
1030.71, each handler shall pay to the market administrator its pro
rata share of the expense of administration of the order at a rate
specified by the market administrator that is no more than 8 cents per
hundredweight with respect to:
(a) Receipts of producer milk (including the handler's own
production) other than such receipts by a handler described in Sec.
1000.9(c) that were delivered to pool plants of other handlers;
(b) Receipts from a handler described in Sec. 1000.9(c);
(c) Receipts of concentrated fluid milk products from unregulated
supply plants and receipts of nonfluid milk products assigned to Class
I use pursuant to Sec. 1000.43(d) and other source milk allocated to
Class I pursuant to Sec. 1000.44(a)(3) and (8) and the corresponding
steps of Sec. 1000.44(b), except other source milk that is excluded
from the computations pursuant to Sec. 1030.60(h) and (i); and
(d) Route disposition in the marketing area from a partially
regulated distributing plant that exceeds the skim milk and butterfat
subtracted pursuant to Sec. 1000.76(a)(1)(i) and (ii) of this title.
Marketing Agreement Regulating the Handling of Milk in the Upper
Midwest Marketing Area
The parties hereto, in order to effectuate the declared policy
of the Act, and in accordance with the rules of practice and
procedure effective thereunder (7 CFR Part 900), desire to enter
into this marketing agreement and do hereby agree that the
provisions referred to in paragraph I hereof as augmented by the
provisions specified in paragraph II hereof, shall be and are the
provisions of this marketing agreement as if set out in full herein.
I. The findings and determinations, order relative to handling,
and the provisions of Sec. Sec. 1030.1 to 1030.86 all inclusive, of
the order regulating the handling of milk in the Upper Midwest
marketing area (7 CFR Part 1030 which is annexed hereto); and
II. The following provisions: Record of milk handled and
authorization to correct typographical errors.
(a) Record of milk handled. The undersigned certifies that he/
she handled during the month of March 2006, ------------
hundredweight of milk covered by this marketing agreement.
(b) Authorization to correct typographical errors. The
undersigned hereby authorizes the Deputy Administrator, or Acting
Deputy Administrator, Dairy Programs, Agricultural Marketing
Service, to correct any typographical errors which may have been
made in this marketing agreement.
Effective date. This marketing agreement shall become effective
upon the execution of a counterpart hereof by the Department in
accordance with Section 900.14(a) of the aforesaid rules of practice
and procedure.
In witness whereof, the contracting handlers, acting under the
provisions of the Act, for the purposes and subject to the
limitations herein contained and not otherwise, have hereunto set
their respective hands and seals.
Signature
By (Name)--------------------------------------------------------------
(Title)----------------------------------------------------------------
(Address)--------------------------------------------------------------
(Seal)
Attest
[FR Doc. 06-7496 Filed 9-6-06; 8:45 am]
BILLING CODE 3410-02-P