Milk in the Northeast and Other Marketing Areas; Notice of Hearing on Proposed Amendments to Tentative Marketing Agreements and Orders, 545-552 [05-24707]
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545
Proposed Rules
Federal Register
Vol. 71, No. 3
Thursday, January 5, 2006
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1000, 1001, 1005, 1006,
1007, 1030, 1032, 1033, 1124, 1126, and
1131
[Docket No. AO–14–A74, et al.; DA–06–01]
Milk in the Northeast and Other
Marketing Areas; Notice of Hearing on
Proposed Amendments to Tentative
Marketing Agreements and Orders
7 CFR
part
1001
1005
1006
1007
1030
1032
1033
1124
1126
1131
Marketing area
AO Nos.
Northeast .................
Appalachian .............
Florida ......................
Southeast ................
Upper Midwest ........
Central .....................
Mideast ....................
Pacific Northwest .....
Southwest ................
Arizona-Las Vegas ..
AO–14–A74.
AO–388–A18.
AO–356–A39.
AO–366–A47.
AO–361–A40.
AO–313–A49.
AO–166–A73.
AO–368–A35.
AO–231–A68.
AO–271–A40.
Agricultural Marketing Service,
USDA.
ACTION: Proposed rule; Notice of public
hearing on proposed rulemaking.
bjneal on PROD1PC70 with PROPOSALS
AGENCY:
SUMMARY: A national public hearing is
being held to consider and take
evidence on a proposal seeking to
amend the Class III and Class IV milk
price formula manufacturing allowances
applicable to all Federal milk marketing
orders. Evidence also will be taken at
the hearing to determine whether
emergency marketing conditions exist
that would warrant omission of a
recommended decision under the rules
of practice and procedure (7 CFR
900.12(d)).
DATES: The hearing will convene at 8:30
a.m., Tuesday, January 24, 2006.
ADDRESSES: The hearing will be held at
Sheraton Suites Old Town Alexandria,
801 North Saint Asaph Street,
Alexandria, Virginia 22314. Telephone
Number: (703) 836–4700.
FOR FURTHER INFORMATION CONTACT: Jack
Rower, Marketing Specialist, USDA/
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AMS/Dairy Programs, Order
Formulation and Enforcement Branch,
Stop 0231-Room 2971, 1400
Independence Avenue, SW.,
Washington, DC 20250–0231, (202) 720–
2357, e-mail -address:
jack.rower@usda.gov.
Persons requiring a sign language
interpreter or other special
accommodations should contact
Richard F. Sarna, Assistant Market
Administrator, at (703) 549–7000; e-mail
address: rsarna@fedmilk1.com before
the hearing begins.
SUPPLEMENTARY INFORMATION: This
administrative action is governed by the
provisions of sections 556 and 557 of
Title 5 of the United States Code and,
therefore, is excluded from the
requirements of Executive Order 12866.
Notice is hereby given of a public
hearing to be held at Sheraton Suites
Old Town, Alexandria, VA, beginning at
8:30 a.m., on Tuesday, January 24, 2006,
with respect to proposed amendments
to the tentative marketing agreements
and to the orders regulating the
handling of milk in the Northeast and
other marketing areas.
The hearing is called pursuant to the
provisions of the Agricultural Marketing
Agreement Act of 1937, as amended (7
U.S.C. 601–674), and the applicable
rules of practice and procedure
governing the formulation of marketing
agreements and marketing orders (7 CFR
part 900).
The purpose of the hearing is to
receive evidence with respect to the
economic and marketing conditions
which relate to the proposed
amendments, hereinafter set forth, and
any appropriate modifications thereof,
to the tentative marketing agreements
and to the orders.
Evidence will be taken at the hearing
to determine whether emergency
marketing conditions exist that would
warrant omission of a recommended
decision under the rules of practice and
procedure (7 CFR 900.12(d)) with
respect to any proposed amendments.
Also, since the proponent of the
proposed amendment has requested that
the hearing be held on an expedited
basis, under the rules of practice and
procedure (7 CFR 900.4(a)), it is
determined that less than 15 days notice
is reasonable under the circumstances.
Initial Regulatory Flexibility Analysis
Actions under the Federal milk order
program are subject to the Regulatory
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Flexibility Act (5 U.S.C. 601 et seq.).
This Act seeks to ensure that, within the
statutory authority of a program, the
regulatory and information collection
requirements are tailored to the size and
nature of small businesses. For the
purpose of the Act, a dairy farm is a
‘‘small business’’ if it has an annual
gross revenue of less than $750,000, and
a dairy products manufacturer is a
‘‘small business’’ if it has fewer than 500
employees (13 CFR 121.201). Most
parties subject to a milk order are
considered as a small business.
Accordingly, interested parties are
invited to present evidence on the
probable regulatory and information
collection impact of the hearing
proposals on small businesses. Also,
parties may suggest modifications of the
proposals for tailoring their
applicability to small businesses.
USDA has identified that during 2004
approximately 49,160 of the 52,425
dairy producers whose milk is pooled
on Federal orders are small businesses.
Small businesses represent about 94
percent of the dairy farmers who
participate in the Federal milk order
program.
On the processing side, during June
2005 there were approximately 350 fully
regulated plants (of which 149 or 43
percent were small businesses) and 110
partially regulated plants (of which 50
or 45 percent were small businesses). In
addition, there were 48 producerhandlers, of which 29 were considered
small businesses for the purposes of this
initial regulatory flexibility analysis,
who submitted reports under the
Federal milk order program during this
period.
The fluid use of milk represented
more than 43.8 percent of total Federal
milk marketing order producer
deliveries during January 2005. More
than 234 million Americans reside in
Federal milk marketing areas,
representing about 80 percent of the
total U.S. population.
In order to accomplish the goal of
imposing no additional regulatory
burdens on the industry, a review of the
current reporting requirements was
completed pursuant to the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501
et seq.) In light of that review, it was
determined that these proposed
amendments would have little or no
impact on reporting, record keeping, or
other compliance requirements because
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these requirements would remain
identical to those currently in effect
under the Federal order program. No
new or additional reporting would be
necessary.
This notice does not require
additional information collection that
requires clearance by the OMB beyond
the currently approved information
collection. Information currently
collected through the use of OMBapproved forms and the primary sources
of data used to complete the forms are
routinely used in business transactions.
The forms require only a minimal
amount of information that can be
provided without data processing
equipment or trained statistical staff.
Thus, the information collection burden
is relatively small. Requiring the same
reports from all handlers does not
disadvantage any handler that is smaller
than the industry average.
No other burdens are expected to fall
upon the dairy industry as a result of
overlapping Federal rules. This
proposed rulemaking does not
duplicate, overlap, or conflict with any
existing Federal rules.
To ensure that small businesses are
not unduly or disproportionately
burdened based on these proposed
amendments, consideration was given
to mitigating any negative impacts. If
these proposals are adopted, income
will decline for all dairy farmers.
However, possible changes to the Class
III and Class IV price formulas (or
concomitant manufacturing allowances)
should not have any special impacts on
small handler entities. All handlers
manufacturing dairy products from milk
classified as Class III or Class IV would
remain subject to the same minimum
prices regardless of the size of their
operations. Minimum pricing should
not raise barriers regarding the ability of
small handlers to compete in the
marketplace. It is similarly expected
that small producers would not
experience any particular disadvantage
compared to larger producers as a result
of the proposed amendments.
Interested parties are invited to
present evidence on the probable
regulatory and information collection
impact of the hearing proposals on
small businesses. Also, such parties may
suggest modifications of the proposal for
tailoring its applicability to small
businesses.
Economic Analysis Framework
The following estimated impacts of
increasing make allowances were
measured as changes from the 2004
USDA dairy baseline (USDA
Agricultural Baseline Projections to
2014, OCE–2005–1; https://
www.usda.gov/agency/oce/waob/
commodity-projections/proj.htm). The
analysis was accomplished using an
econometric model of the dairy industry
developed by Dairy Programs. The
USDA baseline and the model baseline
assume: (1) The Milk Price Support
Program will continue unchanged; (2)
the Dairy Export Incentive Program will
be utilized at the maximum extent
allowed beginning in the 2005/06 fiscal
year; and (3) the Federal Milk Marketing
Order Program will continue
unchanged.
During the last five years, milk
marketings under the Federal order milk
program have been about 68 percent of
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Preliminary Analysis
The Department has conducted a
preliminary analysis in order to assist
the industry in considering the effects of
increasing manufacturing allowances,
commonly referred to as ‘‘make
allowances’’. While the proposal seeks
to amend the product pricing formulas
used to price Class III or Class IV milk
pooled under Federal milk marketing
orders, changes in these formulas also
would affect the prices of Class I and
Class II milk pooled on Federal milk
marketing orders.
Current make allowances relied on to
establish Class III and Class IV prices for
all Federal orders are based on three
sources: (1) 1998 Dairy Product Plant
Costs, USDA/Rural Business
Cooperative Service (RBCS) Technical
Assistance Project, (2) Weighted
Average Manufacturing Costs for Butter,
Nonfat Powder, and Cheddar Cheese
January 1997 to April 1999, California
Department of Food and Agriculture
(CDFA), and (3) Dry Whey Total Costs
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of Manufacturing, 1999, National
Cheese Institute (NCI)-sponsored
survey. The make allowances for cheese,
butter, and nonfat dry milk are based on
the data from the first two sources and
have been in effect since January 2001.
The dry whey make allowance is based
on data from the third source and it has
been in effect since April 2003.
The following preliminary analysis is
quantitative and based on the changes
in processing costs for butter, cheese,
and nonfat dry milk reported by the
CDFA for 1997–1999 and 2004. The
analysis, which was conducted for
illustrative purposes, includes an
increase in the whey make allowance of
10 percent as CDFA did not begin
surveying costs of manufacturing whey
powder until 2003. California cheesemaking costs over the same period
increased by a much smaller amount.
Manufacturing Cost Data
Currently, the most comprehensive
data available concerning dairy
manufacturing costs are provided by
CDFA’s California Survey of Weighted
Average Manufacturing Costs (CDFA
survey, various issues). The updated
RBCS manufacturing cost survey is not
yet available. Current Federal order
make allowances are partially based
upon data provided in the CDFA survey
released in February 2000 covering the
period from January 1997 through April
1999 (CDFA 1997–1999 survey). The
most recent CDFA Survey was released
on November 18, 2005, and covers the
2004 period (CDFA 2004 survey). Table
1 illustrates the changes in
manufacturing costs as reported in the
CDFA 1997–1999 and 2004 surveys.
total U.S. milk marketings. Marketings
under the Federal milk order program
have accounted for about 61 percent of
all milk used for manufacturing. Given
the prominence of Federal order
marketings in the U.S. dairy
manufacturing industry, prices paid for
manufactured milk under Federal orders
are consistent with the value of milk for
manufacturing in the rest of the United
States. Similarly, the fluid prices in
non-Federal order markets reflect fluid
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supply and demand conditions for each
of these products. The milk supply for
manufacturing these hard products is
the result of milk marketings minus the
volumes demanded for Class I and Class
II products. The remaining volume is
allocated to Class III and Class IV
according to returns to manufacturing in
each class.
The model and Federal order price
formulas use national manufactured
dairy product prices to establish the
Class prices. Class prices, quantities of
milk marketed through the Federal
order system, a blend price, and Federal
order cash receipts are projected.
The quantity of milk supplied is a
function of the all-milk price, feed
prices, cow slaughter prices, and trend.
The all-milk price, i.e., the average price
paid for milk on an f.o.b. plants basis,
is estimated as a function of the
wholesale prices for dairy products and
Federal order prices. The relationship
implicitly reflects average
manufacturing costs, over-order
payments for milk, and prices paid for
milk outside of the Federal order
system.
Results
The results of the increased make
allowances in the Class III and Class IV
formulas are summarized using fiveyear, 2005/06 to 2009/10, average
changes from the baseline. Results in
the Federal order system are in the
context of the larger U.S. market.
Increased make allowances generally
result in reduced Class III and Class IV
milk prices and pool revenues.
Increased make allowances also have an
impact on Class I and Class II prices.
Class II prices at 3.5 percent butterfat
decline in concert with changes in Class
IV prices. The Class I price reduction
depends upon the resulting higher of
the reduced Class III or IV advanced
values. The small increases in the
quantity of fluid milk demanded are not
sufficient to offset the effects of the
price decline, and a lower all-milk price
and reduced milk marketings result.
Reduced marketings result in slightly
increased dairy product prices,
tempering the all-milk price decline.
Across the three scenarios, all Federal
order class and blend prices fall, the
U.S. all-milk price falls, and dairy
product prices increase. The interaction
between the butterfat and the protein
prices determines the relative effects on
the Class III and Class IV prices. As the
cheese make allowance increases from
one scenario to the next, the protein
price impact shifts from an increase to
a decline while the butterfat price
impact shifts from a decline to an
increase.
These preliminary results generally
can be divided into two periods, the
first two years and the last three years
of the 5 year projection period, due to
the lagged adjustments in the milk
supply responses. Once producers
respond to lower prices with less
production, the effects on the all-milk
price and the average Federal order
blend price stabilize at levels less than
initial changes from the USDA baseline.
The differences are more notable for
Scenarios 2 and 3, with the greater
increases in the cheese make allowance.
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Make Allowance Scenarios
Three illustrative scenarios are
presented that estimate the impact on
producers, consumers, and processors.
Each scenario includes make allowance
increases of 36 percent for butter, 15
percent for nonfat dry milk, and 10
percent for dry whey. The cheese make
allowance is increased successively in
each scenario by 1 cent per pound (6
percent), 2.5 cents (15 percent), and 4
cents (24 percent). These successive
cheese make allowance scenarios
illustrate the interaction of the protein
and butterfat prices and the effects on
the Class III and Class IV prices. All
three scenarios and the illustrative
changes in make allowances beginning
with fiscal year 2005/06 are detailed in
Table 2.
Scenario 1
For Scenario 1, the butter make
allowance is increased by $0.0411 per
pound (to $0.1561), and the nonfat dry
milk make allowance is increased by
$0.0215 per pound (to $0.1615). These
increases, which are for illustrative
purposes, match the changes in
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prices established as Federal order
minimum Class I prices. Therefore, U.S.
milk marketings in this analysis are
estimated as a function of the U.S. allmilk price. For the USDA baseline
period, the Federal order share of total
U.S. milk marketings is estimated as a
proportion from recent data.
The econometric model used in this
preliminary analysis includes demands
for fluid milk products and
manufactured dairy products. The
demand for fluid milk products and for
manufactured dairy products are
functions of price, per capita
consumption, and population. Retail
prices of fluid milk and Class II soft
manufactured products are assumed to
respond penny for penny to changes in
the milk cost of these products.
Wholesale and retail margins are
assumed unchanged from the USDA
baseline for all proposals analyzed.
Wholesale prices for cheese, butter,
nonfat dry milk, and dry whey reflect
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manufacturing costs from the CDFA
1997–1999 and 2004 surveys.
It is not feasible, for purposes of this
analysis, to use the CDFA survey as a
basis to consider changes to the make
allowance for whey. The 1997–1999
CDFA survey did not include dry whey.
The most recent CDFA survey shows the
manufacturing cost for whey is $0.2673
per pound. A make allowance of $0.20
per pound is used by CDFA in the
California Class 4b formula. The
baseline average price for dry whey
during the five-year projection period is
$0.1863 per pound.1 While the Federal
order formulation allows for a negative
other solids price, it does not seem
realistic to set up a scenario for which
the other solids price is usually
negative. For the purpose of our
analysis, the whey make allowance for
Scenario 1 is simply increased by 10
percent ($0.0159) to $0.1749 per pound.
The change in manufacturing costs for
cheese reflected in the CDFA surveys
released February 2000 to November
2005 was $0.0076 per pound. Anecdotal
evidence suggests that manufacturing
costs for cheese on average throughout
the United States may have increased by
more than the CDFA survey value. To
illustrate the effects of changing the
cheese make allowance relative to the
other make allowances, the cheese make
allowance varies for each scenario.
Scenario 1 increases the cheese make
allowance by $0.01 per pound to
$0.1750 (Table 3).
Under this scenario, protein prices
increase while butterfat prices decline.
Increases in make allowances result in
declines in the Class prices and the allmilk price. The accompanying decrease
in milk marketings causes wholesale
dairy product prices to rise. However,
the negative effect on the protein price
of this relatively small change in the
cheese make allowance is more than
offset by the positive effect of the
decline in the butterfat price. Thus,
while the butterfat, other solids, and
nonfat solids prices fall due to make
allowances increases, the increase in the
cheese make allowance is not sufficient
to keep the protein price from rising.
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Producers
The all-milk price at test falls by an
average $0.03 per cwt over the (5-year)
2005/06–2009/10 projection period.
Producers respond by reducing milk
marketings by an annual average 120
million pounds. Producer revenue falls
by $72 million on average per year.
1 The whey price has increased significantly in
recent months. Baseline projections for whey,
developed in November 2004 appear to be lower
than expected given current conditions.
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The Federal order blend price for milk
testing at 3.5 percent butterfat falls by
$0.05 per cwt averaged over the fiveyear period, and by $0.03 per cwt over
the last three years. Federal order cash
receipts fall by a five-year average of $77
million, and by an average $53 million
during the last three of the five years, as
compared to a five-year baseline average
of $18.491 billion. The greatest average
reduction is in Class IV receipts ($28
million), and the smallest reduction is
in Class I receipts ($8 million).
Milk Manufacturers and Processors
Wholesale prices of manufactured
products rise slightly as the milk supply
is reduced. The protein price increases
in each of the five years, by about
$0.046 per pound in the last two years.
The butterfat price declines in all years,
and by about $0.012 per pound in the
last three years.
The Class IV price at 3.5% butterfat
falls by $0.18 per cwt on average. Since
Class IV advanced value is the mover for
Class II, the Class II price at 3.5%
butterfat falls by the same amount. The
Class III price at 3.5% butterfat is
reduced by $0.02 per cwt, with the
decreases in the butterfat and other
solids prices largely offset by the protein
price increases. The Class I price at
3.5% butterfat falls by $0.03 per cwt.
While the baseline indicates the Class
IV advanced value as the mover in the
2005/06 fiscal year with the Class III
advanced value as the mover in the
other years, for Scenario 1 Class III
becomes the mover throughout the
projection period. Class uses on average
rise for Classes I and II and fall for
Classes III and IV.
Class I prices decline and use
increases in the first two years.
However, for the last three years, the
Class III and Class I skim milk prices
increase slightly, as does the Class I
milk price at class butterfat test which
is less than 3.5 percent. Thus, Class I
use rises slightly in the first two years,
and declines slightly in the last three.
The aggregate obligation of processors
and manufacturers to the Federal order
revenue pools fall by a 5-year average of
$77 million, with 30 percent of the
savings to soft product manufacturers,
22 percent accruing to cheese
manufacturers, and 36 percent accruing
to butter and nonfat dry milk
manufacturers.
Consumers
On average, the retail fluid milk price
is virtually unchanged, falling by
$0.0017 per gallon, during the
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projection period.2 Increases in Federal
order Class I use are projected in the
first two years while small decreases are
projected in the last three years,
averaging an increase of 4 million
pounds. Federal order Class II use
increases slightly each year (less than
one percent).
Consumers of manufactured dairy
products face slightly higher average
prices. Price increases are $0.0181 per
pound (1.2 percent) for cheese, $0.0324
per pound (1.8 percent) for butter,
$0.0054 per pound (0.6 percent) for
nonfat dry milk, and $0.0005 per pound
(0.3 percent) for dry whey. This is
caused by a 5-year average U.S. decline
of 181 million pounds of milk available
for cheese, butter, and nonfat dry milk
(0.17 percent decline).
Scenario 2
Scenario 2 has the same make
allowances as Scenario 1, except for
cheese which is increased to $0.1900
per pound, $0.0250 above the current
level (Table 3). At these levels, the
protein price change starts out negative,
becoming positive in the last 3 years.
Butterfat prices decline in all but one
year.
Producers
The all-milk price at test falls by $0.06
per cwt on average and $0.03 per cwt for
the last three years. Producers respond
with a 5-year average decrease in milk
marketings of 226 million pounds.
Producer revenue falls by $140 million
on average per year.
The average Federal order blend price
at 3.5 percent butterfat test falls by $0.09
per cwt averaged over 5 years and by an
average $0.06 in the last 3 years. Federal
order cash receipts fall by an average
$135 million and by an average $101
million over the last 3 years, as
compared to a baseline 5-year average of
$18.491 billion. The greatest 5-year
average reductions are in Class III
receipts at $60 million followed by
Class I receipts at $38 million. The
smallest reduction is in Class II receipts
($13 million).
Milk Manufacturers and Processors
Wholesale prices of manufactured
products rise as the milk supply is
reduced. As expected, the increase in
product prices are greater when
compared to Scenario 1. The protein
price falls in the first two years of the
projection period but rises thereafter,
reaching about $0.018 per pound in the
last two years. The projected butterfat
2 Throughout this discussion, we make the
simplifying assumption that changes in prices are
passed on to consumers in constant margins.
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price falls in all but one year, falling by
about $0.005 per pound in the last two
years.
Class III is the Class I price mover for
all projection years except 2005/06. On
average, the Class I price (at 3.5 percent
butterfat) falls by $0.09 per cwt, the
Class III price falls by $0.10 per cwt, and
the Class II and IV prices fall by $0.11
per cwt. Class I and II uses rise each
year in response to price declines. Class
III and IV uses fall as available milk
volume declines. The aggregate
obligation of processors and
manufacturers to Federal order pools
falls by a 5-year average of $135 million,
with 44 percent savings accruing to
cheese manufacturers and 28 percent
accruing to fluid processors.
Consumers
There is little change in the price of
fluid milk at retail, averaging a decrease
of $0.0076 per gallon for the five year
projection period. Federal order Class I
use increases a 5-year average of 17
million pounds per year as compared to
a baseline average of 45.928 billion
pounds. Federal order Class II use
increases by 27 million pounds per year
as compared to a baseline average of
15.675 billion pounds.
Consumers of hard manufactured
dairy products face slightly higher
average prices. Price increases are
$0.0245 per pound (1.6 percent) for
cheese, $0.0385 per pound (2.1 percent)
for butter, $0.0098 per pound (1.1
percent) for nonfat dry milk, and
$0.0006 per pound (0.3 percent) for dry
whey. This is caused by a U.S. decline
of 278 million pounds of milk available
for cheese, butter, and nonfat dry milk
(0.26 percent decline).
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Scenario 3
Scenario 3 uses the same make
allowances as the first two scenarios
with the exception of cheese which is
increased by $0.0400 per pound above
the baseline to a level of $0.2050 (Table
3). At these levels, the protein price falls
below baseline levels throughout the
projection period while the butterfat
price rises above baseline levels in all
but the first year of the projection
period.
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Producers
The all-milk price at test falls by an
average $0.09 per cwt over 5 years, and
by about $0.05 per cwt for the last 3
years. Producers respond with a
decrease in average milk marketings of
327 million pounds. Producer revenue
falls by $207 million on average per
year.
The average Federal order blend price
at 3.5 percent butterfat falls by $0.13 per
cwt averaged over 5 years and by an
average $0.09 per cwt in the last 3 years.
Federal order cash receipts fall by an
average $191 million over 5 years, and
by an average $147 million over the last
3 years, as compared to a baseline 5-year
average of $18.491 billion. The greatest
5-year average reductions are in Class III
receipts at $103 million, followed by
Class I receipts at $65 million, and the
smallest reduction is in Class II receipts
($3 million).
Milk Manufacturers and Processors
Wholesale prices of manufactured
products rise as the milk supply is
reduced. As expected, the increase in
product prices is greater than for either
of the other two scenarios. The protein
price falls in all years, averaging
$0.0336 per pound below baseline
levels but the reduction is attenuated to
$0.0086 per pound by the last year. The
butterfat price rises above baseline
levels in all years except the first,
averaging an increase of $0.0039 per
pound above baseline levels.
As with the baseline, the Class III
price is the Class I price mover for all
years except 2005/06. While Class I and
III prices fall in all years, Class II and
IV prices at 3.5 percent butterfat fall
below baseline levels in the first 2 years
and are virtually unchanged in the final
3 years. Class IV and Class II prices at
class butterfat tests increase in the last
3 years of the period. Class II use rises
in the first 2 years and declines slightly
in the last 3 years with the slight
increases in the Class II price at class
butterfat test.
The aggregate obligation of processors
and manufacturers to the Federal order
revenue pools falls by a 5-year average
of $191 million, with 54 percent of the
savings accruing to cheese
PO 00000
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Sfmt 4702
549
manufacturers and 34 percent accruing
to fluid processors.
Consumers
As with the other scenarios, there is
little change in retail fluid milk prices
which fall $0.0130 per gallon on average
over the projection period. Class I use
increases an average of 29 million
pounds per year, compared to a baseline
average of 45.928 billion pounds. Class
II use increases by negligible amounts
on average during the projection period.
Consumers of hard manufactured
dairy products face slightly higher
average prices. Price increases are
$0.0309 per pound (2.1 percent) for
cheese, $0.0444 per pound (2.5 percent)
for butter, $0.0142 per pound (1.6
percent) for nonfat dry milk, and
$0.0008 per pound (0.4 percent) for dry
whey. This is caused by a U.S. decline
of 370 million pounds of milk available
for cheese, butter, and nonfat dry milk
(0.35 percent decline).
Preliminary Conclusions
Increasing the make allowances will
generally result in lower Federal order
class and blend prices, lower all-milk
prices, slightly higher manufactured
dairy product prices, and slightly lower
fluid milk prices. Federal order cash
receipts and U.S. producer revenues
decline slightly. Manufacturing plants
have higher dairy product prices on the
revenue side and lower Federal order
class and all-milk prices on the cost
side.
The scenarios also demonstrate that
seemingly small changes in the relative
values of the various make allowances
can result in possibly unexpected
changes in the relative values of the
manufacturing class prices. This is
caused in part by the interaction
between the quantities of milk supplied
and the demands for nonfat solids and
butterfat in the various dairy products.
Further, the inverse relationship
between the butterfat price and protein
price in the Federal order protein
formula also contributes to these
circumstances.
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bjneal on PROD1PC70 with PROPOSALS
550
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Proposed Rules
Parties interested in additional detail
of these analyses can obtain them from
the Appendix to this preliminary
analysis located at https://
www.ams.usda.gov/dairy/hearings.htm.
bjneal on PROD1PC70 with PROPOSALS
Executive Order 12988, Civil Justice
Reform
The amendments to the rules
proposed herein have been reviewed
under Executive Order 12988, Civil
Justice Reform. They are not intended to
have a retroactive effect. If adopted, the
proposed amendments would not
preempt any state or local laws,
regulations, or policies, unless they
present an irreconcilable conflict with
this rule.
The Agricultural Marketing
Agreement Act provides that
administrative proceedings must be
exhausted before parties may file suit in
court. Under section 8c(15)(A) of the
Act (7 U.S.C. 608c(15)(A)), any handler
subject to an order may request
modification or exemption from such
order by filing with the Department of
Agriculture (Department) a petition
VerDate Aug<31>2005
15:48 Jan 04, 2006
Jkt 208001
stating that the order, any provision of
the order, or any obligation imposed in
connection with the order is not in
accordance with the law. A handler is
afforded the opportunity for a hearing
on the petition. After a hearing, the
Department would rule on the petition.
The Act provides that the district court
of the United States in any district in
which the handler is an inhabitant, or
has its principal place of business, has
jurisdiction in equity to review the
Department’s ruling on the petition,
provided a bill in equity is filed not
later than 20 days after the date of the
entry of the ruling.
Interested parties who wish to
introduce exhibits should provide the
Presiding Officer at the hearing with (6)
copies of such exhibits for the Official
Record. Also, it would be helpful if
additional copies are available for the
use of other participants at the hearing.
List of Subjects in 7 CFR Parts 1000,
1001, 1005, 1006, 1007, 1030, 1032,
1033, 1124, 1126, and 1131.
Milk marketing orders.
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The authority citation for 7 CFR Parts
1000, 1001, 1005, 1006, 1007, 1030,
1032, 1033, 1124, 1126, and 1131
continues to read as follows:
Authority: 7 U.S.C. 601–674.
The proposed amendments, as set
forth below, have not received the
approval of the Department.
Proposed by Agri-Mark Dairy
Cooperative
Proposal No. 1
This proposal seeks to amend the
manufacturing allowances for Class III
and Class IV product formulas, as
enumerated in § 1000.50 based on
record evidence that may include the
most current California State dairy
products manufacturing cost survey and
a recently updated survey of
manufacturing costs conducted by the
USDA Rural Business and Cooperatives
Service (RBCS). Specifically, this
proposal seeks to amend § 1000.50 milk
price formulas by revising the existing
manufacturing allowances for butter,
nonfat dry milk, cheese, and whey
powder based upon evidence obtained
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BILLING CODE 3410–02–C
551
552
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Proposed Rules
from the hearing record. Amendments
to these manufacturing allowances
would directly affect the milk
component values used in Federal order
milk price formulas for all classes of
milk.
Proposed by Dairy Programs,
Agricultural Marketing Service
bjneal on PROD1PC70 with PROPOSALS
For all Federal Milk Marketing
Orders, make such changes as may be
necessary to make the entire marketing
agreements and the orders conform with
any amendments thereto that may result
from this hearing.
Copies of this notice of hearing and
the orders may be procured from the
Market Administrator of each of the
aforesaid marketing areas, or from the
Hearing Clerk, United States
Department of Agriculture, STOP
9200—Room 1083, 1400 Independence
Avenue, SW., Washington, DC 20250–
9200, or may be inspected there.
Copies of the transcript of testimony
taken at the hearing will not be available
for distribution through the Hearing
Clerk’s Office. If you wish to purchase
a copy, arrangements may be made with
the reporter at the hearing.
From the time that a hearing notice is
issued and until the issuance of a final
decision in a proceeding, Department
employees involved in the decisionmaking process are prohibited from
discussing the merits of the hearing
issues on an ex parte basis with any
person having an interest in the
proceeding. For this particular
proceeding, the prohibition applies to
employees in the following
organizational units:
Office of the Secretary of Agriculture.
Office of the Administrator,
Agricultural Marketing Service.
Office of the General Counsel.
Dairy Programs, Agricultural
Marketing Service (Washington office)
and the Offices of all Market
Administrators.
Procedural matters are not subject to
the above prohibition and may be
discussed at any time.
Dated: December 30, 2005.
Lloyd C. Day,
Administrator, Agricultural Marketing
Service.
[FR Doc. 05–24707 Filed 12–30–05; 4:31 pm]
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15:48 Jan 04, 2006
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Federal Aviation Administration
14 CFR Part 71
[Docket No. FAA–2005–23374; Airspace
Docket No. 05–ACE–34]
Proposed Establishment of Class E5
Airspace; David City, NE
Proposal No. 2
BILLING CODE 3410–02–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking.
AGENCY:
This notice proposes to
amend Part 71 of the Federal Aviation
Regulations (14 CFR Part 71) by
establishing a Class E airspace area
extending upward from 700 feet above
the surface at David City Municipal
Airport, NE.
DATES: Comments for inclusion in the
Rules Docket must be received on or
before January 27, 2006.
ADDRESSES: Send comments on this
proposal to the Docket Management
System, U.S. Department of
Transportation, Room Plaza 401, 400
Seventh Street, SW., Washington, DC
20590–0001. You must identify the
docket number FAA–2005–23374/
Airspace Docket No. 05–ACE–34, at the
beginning of your comments. You may
also submit comments on the Internet at
https://dms.dot.gov. You may review the
public docket containing the proposal,
any comments received, and any final
disposition in person in the Dockets
Office between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal
holidays. The Docket Office (telephone
1–800–647–5527) is on the plaza level
of the Department of Transportation
NASSIF Building at the above address.
FOR FURTHER INFORMATION CONTACT:
Brenda Mumper, Air Traffic Division,
Airspace Branch, ACE–520A, DOT
Regional Headquarters Building, Federal
Aviation Administration, 901 Locust,
Kansas City, MO 64106; telephone:
(816) 329–2524.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Comments Invited
Interested parties are invited to
participate in this proposed rulemaking
by submitting such written data, views,
or arguments, as they may desire.
Comments that provide the factual basis
supporting the views and suggestions
presented are particularly helpful in
developing reasoned regulatory
decisions on the proposal. Comments
are specifically invited on the overall
regulatory, aeronautical, economic,
environmental, and energy-related
aspects of the proposal.
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Communications should identify both
docket numbers and be submitted in
triplicate to the address listed above.
Commenters wishing the FAA to
acknowledge receipt of their comments
on this notice must submit with those
comments a self-addressed, stamped
postcard on which the following
statement is made: ‘‘Comments to
Docket No. FAA–2005–23374/Airspace
Docket No. 05–ACE–34.’’ The postcard
will be date/time stamped and returned
to the commenter.
Availability of NPRM’s
An electronic copy of this document
may be downloaded through the
Internet at https://dms.dot.gov. Recently
published rulemaking documents can
also be accessed through the FAA’s Web
page at https://www.faa.gov or the
Superintendent of Documents’ Web
page at https://www.access.gpo.gov/nara.
Additionally, any person may obtain
a copy of this notice by submitting a
request to the Federal Aviation
Administration (FAA), Office of Air
Traffic Airspace Management, ATA–
400, 800 Independence Avenue, SW.,
Washington, DC 20591, or by calling
(202) 267–8783. Communications must
identify both docket numbers for this
notice. Persons interested in being
placed on a mailing list for future
NPRM’s should contact the FAA’s
Office of Rulemaking, (202) 267–9677,
to request a copy of Advisory Circular
No. 11–2A, Notice of Proposed
Rulemaking Distribution System, which
describes the application procedure.
The Proposal
This notice proposes to amend Part 71
of the Federal Aviation Regulations (14
CFR Part 71) by establishing a Class E
airspace area extending upward from
700 feet above the surface at David City
Municipal Airport, NE. The
establishment of a Very High Frequency
Omni-directional Range (VOR)/Distance
Measuring Equipment (DME)
Instrument Approach Procedure (IAP) to
Runway (RWY) 32 and Area Navigation
(RNAV) Global Positioning System
(GPS) IAPs to RWYs 14 and 32 have
made this action necessary. The
intended effect of this proposal is to
provide adequate controlled airspace for
Instrument Flight Rules operations at
David City Municipal Airport, NE. The
area would be depicted on appropriate
aeronautical charts.
Class E airspace areas extending
upward from 700 feet or more above the
surface of the earth are published in
Paragraph 6005 of FAA Order 7400.9N,
dated September 1, 2005, and effective
September 16, 2005, which is
incorporated by reference in 14 CFR
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]]>Agencies
[Federal Register Volume 71, Number 3 (Thursday, January 5, 2006)]
[Proposed Rules]
[Pages 545-552]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24707]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 /
Proposed Rules
[[Page 545]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1124,
1126, and 1131
[Docket No. AO-14-A74, et al.; DA-06-01]
Milk in the Northeast and Other Marketing Areas; Notice of
Hearing on Proposed Amendments to Tentative Marketing Agreements and
Orders
------------------------------------------------------------------------
7 CFR part Marketing area AO Nos.
------------------------------------------------------------------------
1001.............. Northeast................ AO-14-A74.
1005.............. Appalachian.............. AO-388-A18.
1006.............. Florida.................. AO-356-A39.
1007.............. Southeast................ AO-366-A47.
1030.............. Upper Midwest............ AO-361-A40.
1032.............. Central.................. AO-313-A49.
1033.............. Mideast.................. AO-166-A73.
1124.............. Pacific Northwest........ AO-368-A35.
1126.............. Southwest................ AO-231-A68.
1131.............. Arizona-Las Vegas........ AO-271-A40.
------------------------------------------------------------------------
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule; Notice of public hearing on proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: A national public hearing is being held to consider and take
evidence on a proposal seeking to amend the Class III and Class IV milk
price formula manufacturing allowances applicable to all Federal milk
marketing orders. Evidence also will be taken at the hearing to
determine whether emergency marketing conditions exist that would
warrant omission of a recommended decision under the rules of practice
and procedure (7 CFR 900.12(d)).
DATES: The hearing will convene at 8:30 a.m., Tuesday, January 24,
2006.
ADDRESSES: The hearing will be held at Sheraton Suites Old Town
Alexandria, 801 North Saint Asaph Street, Alexandria, Virginia 22314.
Telephone Number: (703) 836-4700.
FOR FURTHER INFORMATION CONTACT: Jack Rower, Marketing Specialist,
USDA/AMS/Dairy Programs, Order Formulation and Enforcement Branch, Stop
0231-Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 720-2357, e-mail -address: jack.rower@usda.gov.
Persons requiring a sign language interpreter or other special
accommodations should contact Richard F. Sarna, Assistant Market
Administrator, at (703) 549-7000; e-mail address: rsarna@fedmilk1.com
before the hearing begins.
SUPPLEMENTARY INFORMATION: This administrative action is governed by
the provisions of sections 556 and 557 of Title 5 of the United States
Code and, therefore, is excluded from the requirements of Executive
Order 12866.
Notice is hereby given of a public hearing to be held at Sheraton
Suites Old Town, Alexandria, VA, beginning at 8:30 a.m., on Tuesday,
January 24, 2006, with respect to proposed amendments to the tentative
marketing agreements and to the orders regulating the handling of milk
in the Northeast and other marketing areas.
The hearing is called pursuant to the provisions of the
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), and the applicable rules of practice and procedure governing the
formulation of marketing agreements and marketing orders (7 CFR part
900).
The purpose of the hearing is to receive evidence with respect to
the economic and marketing conditions which relate to the proposed
amendments, hereinafter set forth, and any appropriate modifications
thereof, to the tentative marketing agreements and to the orders.
Evidence will be taken at the hearing to determine whether
emergency marketing conditions exist that would warrant omission of a
recommended decision under the rules of practice and procedure (7 CFR
900.12(d)) with respect to any proposed amendments.
Also, since the proponent of the proposed amendment has requested
that the hearing be held on an expedited basis, under the rules of
practice and procedure (7 CFR 900.4(a)), it is determined that less
than 15 days notice is reasonable under the circumstances.
Initial Regulatory Flexibility Analysis
Actions under the Federal milk order program are subject to the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This Act seeks to
ensure that, within the statutory authority of a program, the
regulatory and information collection requirements are tailored to the
size and nature of small businesses. For the purpose of the Act, a
dairy farm is a ``small business'' if it has an annual gross revenue of
less than $750,000, and a dairy products manufacturer is a ``small
business'' if it has fewer than 500 employees (13 CFR 121.201). Most
parties subject to a milk order are considered as a small business.
Accordingly, interested parties are invited to present evidence on the
probable regulatory and information collection impact of the hearing
proposals on small businesses. Also, parties may suggest modifications
of the proposals for tailoring their applicability to small businesses.
USDA has identified that during 2004 approximately 49,160 of the
52,425 dairy producers whose milk is pooled on Federal orders are small
businesses. Small businesses represent about 94 percent of the dairy
farmers who participate in the Federal milk order program.
On the processing side, during June 2005 there were approximately
350 fully regulated plants (of which 149 or 43 percent were small
businesses) and 110 partially regulated plants (of which 50 or 45
percent were small businesses). In addition, there were 48 producer-
handlers, of which 29 were considered small businesses for the purposes
of this initial regulatory flexibility analysis, who submitted reports
under the Federal milk order program during this period.
The fluid use of milk represented more than 43.8 percent of total
Federal milk marketing order producer deliveries during January 2005.
More than 234 million Americans reside in Federal milk marketing areas,
representing about 80 percent of the total U.S. population.
In order to accomplish the goal of imposing no additional
regulatory burdens on the industry, a review of the current reporting
requirements was completed pursuant to the Paperwork Reduction Act of
1995 (44 U.S.C. 3501 et seq.) In light of that review, it was
determined that these proposed amendments would have little or no
impact on reporting, record keeping, or other compliance requirements
because
[[Page 546]]
these requirements would remain identical to those currently in effect
under the Federal order program. No new or additional reporting would
be necessary.
This notice does not require additional information collection that
requires clearance by the OMB beyond the currently approved information
collection. Information currently collected through the use of OMB-
approved forms and the primary sources of data used to complete the
forms are routinely used in business transactions. The forms require
only a minimal amount of information that can be provided without data
processing equipment or trained statistical staff. Thus, the
information collection burden is relatively small. Requiring the same
reports from all handlers does not disadvantage any handler that is
smaller than the industry average.
No other burdens are expected to fall upon the dairy industry as a
result of overlapping Federal rules. This proposed rulemaking does not
duplicate, overlap, or conflict with any existing Federal rules.
To ensure that small businesses are not unduly or
disproportionately burdened based on these proposed amendments,
consideration was given to mitigating any negative impacts. If these
proposals are adopted, income will decline for all dairy farmers.
However, possible changes to the Class III and Class IV price formulas
(or concomitant manufacturing allowances) should not have any special
impacts on small handler entities. All handlers manufacturing dairy
products from milk classified as Class III or Class IV would remain
subject to the same minimum prices regardless of the size of their
operations. Minimum pricing should not raise barriers regarding the
ability of small handlers to compete in the marketplace. It is
similarly expected that small producers would not experience any
particular disadvantage compared to larger producers as a result of the
proposed amendments.
Interested parties are invited to present evidence on the probable
regulatory and information collection impact of the hearing proposals
on small businesses. Also, such parties may suggest modifications of
the proposal for tailoring its applicability to small businesses.
Preliminary Analysis
The Department has conducted a preliminary analysis in order to
assist the industry in considering the effects of increasing
manufacturing allowances, commonly referred to as ``make allowances''.
While the proposal seeks to amend the product pricing formulas used to
price Class III or Class IV milk pooled under Federal milk marketing
orders, changes in these formulas also would affect the prices of Class
I and Class II milk pooled on Federal milk marketing orders.
Current make allowances relied on to establish Class III and Class
IV prices for all Federal orders are based on three sources: (1) 1998
Dairy Product Plant Costs, USDA/Rural Business Cooperative Service
(RBCS) Technical Assistance Project, (2) Weighted Average Manufacturing
Costs for Butter, Nonfat Powder, and Cheddar Cheese January 1997 to
April 1999, California Department of Food and Agriculture (CDFA), and
(3) Dry Whey Total Costs of Manufacturing, 1999, National Cheese
Institute (NCI)-sponsored survey. The make allowances for cheese,
butter, and nonfat dry milk are based on the data from the first two
sources and have been in effect since January 2001. The dry whey make
allowance is based on data from the third source and it has been in
effect since April 2003.
The following preliminary analysis is quantitative and based on the
changes in processing costs for butter, cheese, and nonfat dry milk
reported by the CDFA for 1997-1999 and 2004. The analysis, which was
conducted for illustrative purposes, includes an increase in the whey
make allowance of 10 percent as CDFA did not begin surveying costs of
manufacturing whey powder until 2003. California cheese-making costs
over the same period increased by a much smaller amount.
Manufacturing Cost Data
Currently, the most comprehensive data available concerning dairy
manufacturing costs are provided by CDFA's California Survey of
Weighted Average Manufacturing Costs (CDFA survey, various issues). The
updated RBCS manufacturing cost survey is not yet available. Current
Federal order make allowances are partially based upon data provided in
the CDFA survey released in February 2000 covering the period from
January 1997 through April 1999 (CDFA 1997-1999 survey). The most
recent CDFA Survey was released on November 18, 2005, and covers the
2004 period (CDFA 2004 survey). Table 1 illustrates the changes in
manufacturing costs as reported in the CDFA 1997-1999 and 2004 surveys.
[GRAPHIC] [TIFF OMITTED] TP05JA06.032
Economic Analysis Framework
The following estimated impacts of increasing make allowances were
measured as changes from the 2004 USDA dairy baseline (USDA
Agricultural Baseline Projections to 2014, OCE-2005-1; https://
www.usda.gov/agency/oce/waob/commodity-projections/proj.htm). The
analysis was accomplished using an econometric model of the dairy
industry developed by Dairy Programs. The USDA baseline and the model
baseline assume: (1) The Milk Price Support Program will continue
unchanged; (2) the Dairy Export Incentive Program will be utilized at
the maximum extent allowed beginning in the 2005/06 fiscal year; and
(3) the Federal Milk Marketing Order Program will continue unchanged.
During the last five years, milk marketings under the Federal order
milk program have been about 68 percent of total U.S. milk marketings.
Marketings under the Federal milk order program have accounted for
about 61 percent of all milk used for manufacturing. Given the
prominence of Federal order marketings in the U.S. dairy manufacturing
industry, prices paid for manufactured milk under Federal orders are
consistent with the value of milk for manufacturing in the rest of the
United States. Similarly, the fluid prices in non-Federal order markets
reflect fluid
[[Page 547]]
prices established as Federal order minimum Class I prices. Therefore,
U.S. milk marketings in this analysis are estimated as a function of
the U.S. all-milk price. For the USDA baseline period, the Federal
order share of total U.S. milk marketings is estimated as a proportion
from recent data.
The econometric model used in this preliminary analysis includes
demands for fluid milk products and manufactured dairy products. The
demand for fluid milk products and for manufactured dairy products are
functions of price, per capita consumption, and population. Retail
prices of fluid milk and Class II soft manufactured products are
assumed to respond penny for penny to changes in the milk cost of these
products. Wholesale and retail margins are assumed unchanged from the
USDA baseline for all proposals analyzed. Wholesale prices for cheese,
butter, nonfat dry milk, and dry whey reflect supply and demand
conditions for each of these products. The milk supply for
manufacturing these hard products is the result of milk marketings
minus the volumes demanded for Class I and Class II products. The
remaining volume is allocated to Class III and Class IV according to
returns to manufacturing in each class.
The model and Federal order price formulas use national
manufactured dairy product prices to establish the Class prices. Class
prices, quantities of milk marketed through the Federal order system, a
blend price, and Federal order cash receipts are projected.
The quantity of milk supplied is a function of the all-milk price,
feed prices, cow slaughter prices, and trend. The all-milk price, i.e.,
the average price paid for milk on an f.o.b. plants basis, is estimated
as a function of the wholesale prices for dairy products and Federal
order prices. The relationship implicitly reflects average
manufacturing costs, over-order payments for milk, and prices paid for
milk outside of the Federal order system.
Make Allowance Scenarios
Three illustrative scenarios are presented that estimate the impact
on producers, consumers, and processors. Each scenario includes make
allowance increases of 36 percent for butter, 15 percent for nonfat dry
milk, and 10 percent for dry whey. The cheese make allowance is
increased successively in each scenario by 1 cent per pound (6
percent), 2.5 cents (15 percent), and 4 cents (24 percent). These
successive cheese make allowance scenarios illustrate the interaction
of the protein and butterfat prices and the effects on the Class III
and Class IV prices. All three scenarios and the illustrative changes
in make allowances beginning with fiscal year 2005/06 are detailed in
Table 2.
[GRAPHIC] [TIFF OMITTED] TP05JA06.033
Results
The results of the increased make allowances in the Class III and
Class IV formulas are summarized using five-year, 2005/06 to 2009/10,
average changes from the baseline. Results in the Federal order system
are in the context of the larger U.S. market.
Increased make allowances generally result in reduced Class III and
Class IV milk prices and pool revenues. Increased make allowances also
have an impact on Class I and Class II prices. Class II prices at 3.5
percent butterfat decline in concert with changes in Class IV prices.
The Class I price reduction depends upon the resulting higher of the
reduced Class III or IV advanced values. The small increases in the
quantity of fluid milk demanded are not sufficient to offset the
effects of the price decline, and a lower all-milk price and reduced
milk marketings result. Reduced marketings result in slightly increased
dairy product prices, tempering the all-milk price decline.
Across the three scenarios, all Federal order class and blend
prices fall, the U.S. all-milk price falls, and dairy product prices
increase. The interaction between the butterfat and the protein prices
determines the relative effects on the Class III and Class IV prices.
As the cheese make allowance increases from one scenario to the next,
the protein price impact shifts from an increase to a decline while the
butterfat price impact shifts from a decline to an increase.
These preliminary results generally can be divided into two
periods, the first two years and the last three years of the 5 year
projection period, due to the lagged adjustments in the milk supply
responses. Once producers respond to lower prices with less production,
the effects on the all-milk price and the average Federal order blend
price stabilize at levels less than initial changes from the USDA
baseline. The differences are more notable for Scenarios 2 and 3, with
the greater increases in the cheese make allowance.
Scenario 1
For Scenario 1, the butter make allowance is increased by $0.0411
per pound (to $0.1561), and the nonfat dry milk make allowance is
increased by $0.0215 per pound (to $0.1615). These increases, which are
for illustrative purposes, match the changes in
[[Page 548]]
manufacturing costs from the CDFA 1997-1999 and 2004 surveys.
It is not feasible, for purposes of this analysis, to use the CDFA
survey as a basis to consider changes to the make allowance for whey.
The 1997-1999 CDFA survey did not include dry whey. The most recent
CDFA survey shows the manufacturing cost for whey is $0.2673 per pound.
A make allowance of $0.20 per pound is used by CDFA in the California
Class 4b formula. The baseline average price for dry whey during the
five-year projection period is $0.1863 per pound.\1\ While the Federal
order formulation allows for a negative other solids price, it does not
seem realistic to set up a scenario for which the other solids price is
usually negative. For the purpose of our analysis, the whey make
allowance for Scenario 1 is simply increased by 10 percent ($0.0159) to
$0.1749 per pound.
---------------------------------------------------------------------------
\1\ The whey price has increased significantly in recent months.
Baseline projections for whey, developed in November 2004 appear to
be lower than expected given current conditions.
---------------------------------------------------------------------------
The change in manufacturing costs for cheese reflected in the CDFA
surveys released February 2000 to November 2005 was $0.0076 per pound.
Anecdotal evidence suggests that manufacturing costs for cheese on
average throughout the United States may have increased by more than
the CDFA survey value. To illustrate the effects of changing the cheese
make allowance relative to the other make allowances, the cheese make
allowance varies for each scenario. Scenario 1 increases the cheese
make allowance by $0.01 per pound to $0.1750 (Table 3).
Under this scenario, protein prices increase while butterfat prices
decline. Increases in make allowances result in declines in the Class
prices and the all-milk price. The accompanying decrease in milk
marketings causes wholesale dairy product prices to rise. However, the
negative effect on the protein price of this relatively small change in
the cheese make allowance is more than offset by the positive effect of
the decline in the butterfat price. Thus, while the butterfat, other
solids, and nonfat solids prices fall due to make allowances increases,
the increase in the cheese make allowance is not sufficient to keep the
protein price from rising.
Producers
The all-milk price at test falls by an average $0.03 per cwt over
the (5-year) 2005/06-2009/10 projection period. Producers respond by
reducing milk marketings by an annual average 120 million pounds.
Producer revenue falls by $72 million on average per year.
The Federal order blend price for milk testing at 3.5 percent
butterfat falls by $0.05 per cwt averaged over the five-year period,
and by $0.03 per cwt over the last three years. Federal order cash
receipts fall by a five-year average of $77 million, and by an average
$53 million during the last three of the five years, as compared to a
five-year baseline average of $18.491 billion. The greatest average
reduction is in Class IV receipts ($28 million), and the smallest
reduction is in Class I receipts ($8 million).
Milk Manufacturers and Processors
Wholesale prices of manufactured products rise slightly as the milk
supply is reduced. The protein price increases in each of the five
years, by about $0.046 per pound in the last two years. The butterfat
price declines in all years, and by about $0.012 per pound in the last
three years.
The Class IV price at 3.5% butterfat falls by $0.18 per cwt on
average. Since Class IV advanced value is the mover for Class II, the
Class II price at 3.5% butterfat falls by the same amount. The Class
III price at 3.5% butterfat is reduced by $0.02 per cwt, with the
decreases in the butterfat and other solids prices largely offset by
the protein price increases. The Class I price at 3.5% butterfat falls
by $0.03 per cwt. While the baseline indicates the Class IV advanced
value as the mover in the 2005/06 fiscal year with the Class III
advanced value as the mover in the other years, for Scenario 1 Class
III becomes the mover throughout the projection period. Class uses on
average rise for Classes I and II and fall for Classes III and IV.
Class I prices decline and use increases in the first two years.
However, for the last three years, the Class III and Class I skim milk
prices increase slightly, as does the Class I milk price at class
butterfat test which is less than 3.5 percent. Thus, Class I use rises
slightly in the first two years, and declines slightly in the last
three.
The aggregate obligation of processors and manufacturers to the
Federal order revenue pools fall by a 5-year average of $77 million,
with 30 percent of the savings to soft product manufacturers, 22
percent accruing to cheese manufacturers, and 36 percent accruing to
butter and nonfat dry milk manufacturers.
Consumers
On average, the retail fluid milk price is virtually unchanged,
falling by $0.0017 per gallon, during the projection period.\2\
Increases in Federal order Class I use are projected in the first two
years while small decreases are projected in the last three years,
averaging an increase of 4 million pounds. Federal order Class II use
increases slightly each year (less than one percent).
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\2\ Throughout this discussion, we make the simplifying
assumption that changes in prices are passed on to consumers in
constant margins.
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Consumers of manufactured dairy products face slightly higher
average prices. Price increases are $0.0181 per pound (1.2 percent) for
cheese, $0.0324 per pound (1.8 percent) for butter, $0.0054 per pound
(0.6 percent) for nonfat dry milk, and $0.0005 per pound (0.3 percent)
for dry whey. This is caused by a 5-year average U.S. decline of 181
million pounds of milk available for cheese, butter, and nonfat dry
milk (0.17 percent decline).
Scenario 2
Scenario 2 has the same make allowances as Scenario 1, except for
cheese which is increased to $0.1900 per pound, $0.0250 above the
current level (Table 3). At these levels, the protein price change
starts out negative, becoming positive in the last 3 years. Butterfat
prices decline in all but one year.
Producers
The all-milk price at test falls by $0.06 per cwt on average and
$0.03 per cwt for the last three years. Producers respond with a 5-year
average decrease in milk marketings of 226 million pounds. Producer
revenue falls by $140 million on average per year.
The average Federal order blend price at 3.5 percent butterfat test
falls by $0.09 per cwt averaged over 5 years and by an average $0.06 in
the last 3 years. Federal order cash receipts fall by an average $135
million and by an average $101 million over the last 3 years, as
compared to a baseline 5-year average of $18.491 billion. The greatest
5-year average reductions are in Class III receipts at $60 million
followed by Class I receipts at $38 million. The smallest reduction is
in Class II receipts ($13 million).
Milk Manufacturers and Processors
Wholesale prices of manufactured products rise as the milk supply
is reduced. As expected, the increase in product prices are greater
when compared to Scenario 1. The protein price falls in the first two
years of the projection period but rises thereafter, reaching about
$0.018 per pound in the last two years. The projected butterfat
[[Page 549]]
price falls in all but one year, falling by about $0.005 per pound in
the last two years.
Class III is the Class I price mover for all projection years
except 2005/06. On average, the Class I price (at 3.5 percent
butterfat) falls by $0.09 per cwt, the Class III price falls by $0.10
per cwt, and the Class II and IV prices fall by $0.11 per cwt. Class I
and II uses rise each year in response to price declines. Class III and
IV uses fall as available milk volume declines. The aggregate
obligation of processors and manufacturers to Federal order pools falls
by a 5-year average of $135 million, with 44 percent savings accruing
to cheese manufacturers and 28 percent accruing to fluid processors.
Consumers
There is little change in the price of fluid milk at retail,
averaging a decrease of $0.0076 per gallon for the five year projection
period. Federal order Class I use increases a 5-year average of 17
million pounds per year as compared to a baseline average of 45.928
billion pounds. Federal order Class II use increases by 27 million
pounds per year as compared to a baseline average of 15.675 billion
pounds.
Consumers of hard manufactured dairy products face slightly higher
average prices. Price increases are $0.0245 per pound (1.6 percent) for
cheese, $0.0385 per pound (2.1 percent) for butter, $0.0098 per pound
(1.1 percent) for nonfat dry milk, and $0.0006 per pound (0.3 percent)
for dry whey. This is caused by a U.S. decline of 278 million pounds of
milk available for cheese, butter, and nonfat dry milk (0.26 percent
decline).
Scenario 3
Scenario 3 uses the same make allowances as the first two scenarios
with the exception of cheese which is increased by $0.0400 per pound
above the baseline to a level of $0.2050 (Table 3). At these levels,
the protein price falls below baseline levels throughout the projection
period while the butterfat price rises above baseline levels in all but
the first year of the projection period.
Producers
The all-milk price at test falls by an average $0.09 per cwt over 5
years, and by about $0.05 per cwt for the last 3 years. Producers
respond with a decrease in average milk marketings of 327 million
pounds. Producer revenue falls by $207 million on average per year.
The average Federal order blend price at 3.5 percent butterfat
falls by $0.13 per cwt averaged over 5 years and by an average $0.09
per cwt in the last 3 years. Federal order cash receipts fall by an
average $191 million over 5 years, and by an average $147 million over
the last 3 years, as compared to a baseline 5-year average of $18.491
billion. The greatest 5-year average reductions are in Class III
receipts at $103 million, followed by Class I receipts at $65 million,
and the smallest reduction is in Class II receipts ($3 million).
Milk Manufacturers and Processors
Wholesale prices of manufactured products rise as the milk supply
is reduced. As expected, the increase in product prices is greater than
for either of the other two scenarios. The protein price falls in all
years, averaging $0.0336 per pound below baseline levels but the
reduction is attenuated to $0.0086 per pound by the last year. The
butterfat price rises above baseline levels in all years except the
first, averaging an increase of $0.0039 per pound above baseline
levels.
As with the baseline, the Class III price is the Class I price
mover for all years except 2005/06. While Class I and III prices fall
in all years, Class II and IV prices at 3.5 percent butterfat fall
below baseline levels in the first 2 years and are virtually unchanged
in the final 3 years. Class IV and Class II prices at class butterfat
tests increase in the last 3 years of the period. Class II use rises in
the first 2 years and declines slightly in the last 3 years with the
slight increases in the Class II price at class butterfat test.
The aggregate obligation of processors and manufacturers to the
Federal order revenue pools falls by a 5-year average of $191 million,
with 54 percent of the savings accruing to cheese manufacturers and 34
percent accruing to fluid processors.
Consumers
As with the other scenarios, there is little change in retail fluid
milk prices which fall $0.0130 per gallon on average over the
projection period. Class I use increases an average of 29 million
pounds per year, compared to a baseline average of 45.928 billion
pounds. Class II use increases by negligible amounts on average during
the projection period.
Consumers of hard manufactured dairy products face slightly higher
average prices. Price increases are $0.0309 per pound (2.1 percent) for
cheese, $0.0444 per pound (2.5 percent) for butter, $0.0142 per pound
(1.6 percent) for nonfat dry milk, and $0.0008 per pound (0.4 percent)
for dry whey. This is caused by a U.S. decline of 370 million pounds of
milk available for cheese, butter, and nonfat dry milk (0.35 percent
decline).
Preliminary Conclusions
Increasing the make allowances will generally result in lower
Federal order class and blend prices, lower all-milk prices, slightly
higher manufactured dairy product prices, and slightly lower fluid milk
prices. Federal order cash receipts and U.S. producer revenues decline
slightly. Manufacturing plants have higher dairy product prices on the
revenue side and lower Federal order class and all-milk prices on the
cost side.
The scenarios also demonstrate that seemingly small changes in the
relative values of the various make allowances can result in possibly
unexpected changes in the relative values of the manufacturing class
prices. This is caused in part by the interaction between the
quantities of milk supplied and the demands for nonfat solids and
butterfat in the various dairy products. Further, the inverse
relationship between the butterfat price and protein price in the
Federal order protein formula also contributes to these circumstances.
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BILLING CODE 3410-02-C
Parties interested in additional detail of these analyses can
obtain them from the Appendix to this preliminary analysis located at
https://www.ams.usda.gov/dairy/hearings.htm.
Executive Order 12988, Civil Justice Reform
The amendments to the rules proposed herein have been reviewed
under Executive Order 12988, Civil Justice Reform. They are not
intended to have a retroactive effect. If adopted, the proposed
amendments would not preempt any state or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule.
The Agricultural Marketing Agreement Act provides that
administrative proceedings must be exhausted before parties may file
suit in court. Under section 8c(15)(A) of the Act (7 U.S.C.
608c(15)(A)), any handler subject to an order may request modification
or exemption from such order by filing with the Department of
Agriculture (Department) a petition stating that the order, any
provision of the order, or any obligation imposed in connection with
the order is not in accordance with the law. A handler is afforded the
opportunity for a hearing on the petition. After a hearing, the
Department would rule on the petition. The Act provides that the
district court of the United States in any district in which the
handler is an inhabitant, or has its principal place of business, has
jurisdiction in equity to review the Department's ruling on the
petition, provided a bill in equity is filed not later than 20 days
after the date of the entry of the ruling.
Interested parties who wish to introduce exhibits should provide
the Presiding Officer at the hearing with (6) copies of such exhibits
for the Official Record. Also, it would be helpful if additional copies
are available for the use of other participants at the hearing.
List of Subjects in 7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030,
1032, 1033, 1124, 1126, and 1131.
Milk marketing orders.
The authority citation for 7 CFR Parts 1000, 1001, 1005, 1006,
1007, 1030, 1032, 1033, 1124, 1126, and 1131 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
The proposed amendments, as set forth below, have not received the
approval of the Department.
Proposed by Agri-Mark Dairy Cooperative
Proposal No. 1
This proposal seeks to amend the manufacturing allowances for Class
III and Class IV product formulas, as enumerated in Sec. 1000.50 based
on record evidence that may include the most current California State
dairy products manufacturing cost survey and a recently updated survey
of manufacturing costs conducted by the USDA Rural Business and
Cooperatives Service (RBCS). Specifically, this proposal seeks to amend
Sec. 1000.50 milk price formulas by revising the existing
manufacturing allowances for butter, nonfat dry milk, cheese, and whey
powder based upon evidence obtained
[[Page 552]]
from the hearing record. Amendments to these manufacturing allowances
would directly affect the milk component values used in Federal order
milk price formulas for all classes of milk.
Proposed by Dairy Programs, Agricultural Marketing Service
Proposal No. 2
For all Federal Milk Marketing Orders, make such changes as may be
necessary to make the entire marketing agreements and the orders
conform with any amendments thereto that may result from this hearing.
Copies of this notice of hearing and the orders may be procured
from the Market Administrator of each of the aforesaid marketing areas,
or from the Hearing Clerk, United States Department of Agriculture,
STOP 9200--Room 1083, 1400 Independence Avenue, SW., Washington, DC
20250-9200, or may be inspected there.
Copies of the transcript of testimony taken at the hearing will not
be available for distribution through the Hearing Clerk's Office. If
you wish to purchase a copy, arrangements may be made with the reporter
at the hearing.
From the time that a hearing notice is issued and until the
issuance of a final decision in a proceeding, Department employees
involved in the decision-making process are prohibited from discussing
the merits of the hearing issues on an ex parte basis with any person
having an interest in the proceeding. For this particular proceeding,
the prohibition applies to employees in the following organizational
units:
Office of the Secretary of Agriculture.
Office of the Administrator, Agricultural Marketing Service.
Office of the General Counsel.
Dairy Programs, Agricultural Marketing Service (Washington office)
and the Offices of all Market Administrators.
Procedural matters are not subject to the above prohibition and may
be discussed at any time.
Dated: December 30, 2005.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 05-24707 Filed 12-30-05; 4:31 pm]
BILLING CODE 3410-02-P
