Extension of Dairy Forward Pricing Program, 15633-15636 [2014-06189]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 79, Number 55 (Friday, March 21, 2014)]
[Rules and Regulations]
[Pages 15633-15636]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06189]



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Federal Register / Vol. 79, No. 55 / Friday, March 21, 2014 / Rules 
and Regulations

[[Page 15633]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1145

[Doc. No. AMS-DA-14-0018]


Extension of Dairy Forward Pricing Program

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule extends the Dairy Forward Pricing Program in 
accordance with the Agricultural Act of 2014 (2014 Farm Bill). The 
Dairy Forward Pricing Program was first authorized in section 1502 of 
the Food, Conservation and Energy Act of 2008. The program allows 
handlers regulated under the Federal milk marketing order program to 
pay producers and cooperative associations in accordance with the terms 
of a forward contract and not have to pay the minimum Federal order 
uniform price for milk. Establishing new contracts under the Dairy 
Forward Pricing Program has been prohibited since the expiration of the 
program on September 30, 2013. The 2014 Farm Bill (H.R. 2642) was 
signed into law on February 7, 2014, and extends the program to allow 
new contracts to be entered into until September 30, 2018. Any forward 
contract entered into up and until the September 30, 2018, deadline is 
subject to a September 30, 2021, expiration date to meet the terms of 
the contract.

DATES: Effective March 24, 2014.

FOR FURTHER INFORMATION CONTACT: Roger Cryan, Director, Economics 
Division, USDA/AMS/Dairy Programs, Stop 0229--Room 2753-S, 1400 
Independence Avenue SW., Washington, DC 20250-0231, (202) 720-7091, 
email address: roger.cryan@ams.usda.gov.

SUPPLEMENTARY INFORMATION: This final rule extends the Dairy Forward 
Pricing Program (DFPP) in accordance with the 2014 Farm Bill. The 2008 
Food, Conservation and Energy Act (2008 Farm Bill) (Pub. L. 110-246) 
initially established the DFPP, which prohibited new forward contracts 
from being entered into after September 30, 2012, and no forward 
contracts entered into under the program extending beyond September 30, 
2015 (7 U.S.C. 8772(e)). Passage of the ``American Taxpayer Relief Act 
of 2012,'' (ATRA) (Pub. L. 112-240), signed into law on January 2, 
2013, revised the program to allow new contracts to be entered into 
until September 30, 2013. New contracts have been prohibited since 
then.
    The DFPP (7 U.S.C. 8772, 7 CFR 1145) allows handlers, under the 
Agricultural Marketing Agreement Act of 1937, (AMAA) (7 U.S.C. 601-
612), to pay producers or cooperative associations of producers a 
negotiated price, rather than the Federal order minimum blend price for 
producer milk if subject to conditions and terms of a forward contract, 
provided the volume of such milk does not exceed the handler's Class 
II, III, and IV utilization for the month on the order that regulates 
the milk. The program applies to producer milk regulated under Federal 
milk marketing orders that is not classified as Class I milk or milk 
otherwise intended for fluid use and that is in the current of 
interstate or foreign commerce or directly burdens, obstructs, or 
affects interstate or foreign commerce of Federally regulated milk. The 
Federal milk marketing order program consists of 10 Federal milk 
marketing orders (7 CFR parts 1001-1135).
    This document provides notice that producers and cooperative 
associations of producers may now enter into forward price contracts 
under the DFPP through September 30, 2018, and that all terms of the 
forward contract must expire prior to September 30, 2021. All other 
provisions and requirements of the program as provided for in the final 
rule published October 31, 2008 (73 FR 64868) are still in effect.

Discussion of Rules Applicable to Program

    Section 1502 of the 2008 Farm Bill required the Secretary of 
Agriculture to establish a Dairy Forward Pricing Program. Authorization 
for this program expired on September 30, 2013, under the provisions of 
the ATRA. The DFPP allows a handler to forward contract for an amount 
of milk up to the volume of Class II, III, and IV milk pooled on the 
order by the handler under the AMAA, as amended, during a month and be 
exempt from the minimum Federal order blend price provisions for that 
milk. USDA, including Market Administrator personnel, does not 
determine the terms of forward contracts or enforce negotiated prices.
    For producers who consider forward contracting as a risk-management 
tool, the ``benchmark'' price for milk is the minimum Federal order 
blend price that they would receive in the absence of a forward 
contract. It is reasonable to expect a producer to negotiate a forward 
contract that would approximate the minimum blend price plus applicable 
premiums averaged over the forward contract period. Over time, it is 
reasonable to expect to see forward contract prices paid to producers 
below the applicable minimum order blend price in some months and above 
the minimum order blend price in others.
    Participation in the dairy forward pricing program is voluntary for 
dairy farmers, dairy farmer cooperatives, and handlers. Handlers may 
not require producer participation in a forward pricing program as a 
condition for accepting milk. A producer or cooperative association may 
continue to have its milk priced under the minimum payment provisions 
of the applicable milk order.
    Any ``handler'' defined in 7 CFR Sec.  1000.9 is eligible to enter 
into a forward contract(s) with producers or cooperatives of producers. 
As defined in that section, ``handler'' includes not only the operator 
of a pool plant or nonpool plant, but also a broker serving as a 
handler as provided in Sec.  1000.9(b), a proprietary handler, and a 
cooperative association acting as a handler with respect to non-member 
milk delivered to a pool plant or diverted to a nonpool plant. Nothing 
in this regulation affects any contractual arrangements between a 
cooperative association and its members.
    A handler's combined Class II, III, and IV producer milk 
utilization is defined in 7 CFR part 1145 as the handler's ``eligible 
milk.'' In the case of a multi-plant handler, the handler's Class II, 
III, and IV producer milk utilization will be

[[Page 15634]]

combined together for all of the handler's milk regulated under one 
milk marketing order. A handler will only be exempt from paying the 
milk marketing order's minimum blend price on its volume of ``eligible 
milk.'' If a handler enters into forward contracts for more than the 
eligible milk volume (``over-contract'' milk), the handler must notify 
the Market Administrator. If the handler fails to notify the Market 
Administrator of payment adjustments, the Market Administrator will 
prorate the over-contract milk to each producer and cooperative 
association having a contract with the handler.
    Although handlers participating in the program will not be required 
to pay producers and cooperative associations the minimum uniform blend 
or component prices for contract milk, they must continue to account to 
the pool for all milk they receive at the respective milk marketing 
order's minimum class prices. In the case of milk received by a 
transfer from a cooperative association's pool plant, a handler may 
forward contract for all such transferred milk that is not used in 
Class I.
    In many milk markets, nonpool plants regularly receive pooled milk 
from milk producers who are not members of a cooperative association. 
This milk is actually pooled by a pool plant operator or by a 
cooperative association through its deliveries to a pool plant. The 
non-member milk delivered to a nonpool plant is reported under the milk 
marketing order program as producer milk diverted to a nonpool plant by 
the cooperative association on its monthly report of receipts and 
utilization to the Market Administrator. Alternatively, if a 
cooperative association is not involved in the transaction, such milk 
could be reported by a pool plant operator on its monthly report of 
receipts and utilization.
    Many nonpool plant operators who receive non-member milk that is 
pooled through another handler issue checks to the nonpool plant's non-
member producers. They submit their payrolls showing these payments to 
the Market Administrator. Nevertheless, these nonpool plant operators 
are not responsible under the milk marketing order program for paying 
their non-member producers the minimum Federal milk marketing order 
price; it is the handler (either the cooperative association or pool 
plant operator) that pools the milk for such nonpool plants that is 
responsible for an underpayment under the milk marketing order program.
    Accordingly, only producer milk that is subject to forward 
contracting with a handler in compliance with the DFPP will be exempt 
from the order's minimum blend price provisions. In the case of non-
member milk that is reported as producer milk by a cooperative 
association handler or pool plant operator, but pay rolled by a nonpool 
plant operator, the cooperative association or pool plant operator, 
respectively, will be responsible for any underpayment to a non-member 
producer in the event that milk under contract becomes subject to 
minimum milk marketing order pricing (as in the case of over-contract 
milk). In this way, cooperative association handlers, pool plant 
operators, and nonpool plant operators may continue the arrangements 
that have evolved to pool milk under the Federal milk marketing order 
program and all will be permitted to participate in the forward 
contracting program.
    Any handler participating in the program will continue to file all 
of the reports that are required under the applicable Federal milk 
marketing order. This includes reports of receipts and utilization of 
milk and monthly payroll reports that show all information required by 
the orders. The notable difference, however, for handlers participating 
in the DFPP are that they must also provide more detailed accounting in 
their monthly payroll reports to the Market Administrator and 
remittance information provided to participating producers (7 CFR 1--
--.31, 1001.73(e), 1005.73(e), 1006.73(e), 1007.73(e), 1030.73(f), 
1032.73(f), 1033.73(e), 1124.73(f), 1126.73(e), 1131.73(e)). In 
accordance with these provisions, the monthly payroll report of 
participating handlers is required to contain detailed accounting that 
distinguishes gross values paid for applicable volumes of contract 
versus non-contract milk for each producer. Remittance information from 
participating handlers to participating producers must clearly 
distinguish gross values and volumes for contract versus non-contract 
milk. These distinctions avoid any questions concerning compliance with 
Federal order minimum price requirements for participant milk not under 
contract.
    As with the DFPP, handlers participating in the Federal order 
program must submit to the Market Administrator a copy of each contract 
for which it claims exemption from the order's minimum blend pricing 
provisions. The contract must denote the pricing terms for contract 
milk. The contract must be signed prior to the first day of the first 
month for which the contract applies and must be received by the Market 
Administrator by the 15th day of that month. For the first month that 
the program is effective, contracts must be signed on or after the day 
on which the program becomes effective. For example, if the program 
becomes effective on February 15, contracts for March milk must be 
signed between February 15 and February 28, and copies must be received 
by the Market Administrator by March 15.
    Each handler must give each contracting dairy farmer or cooperative 
association a disclosure statement informing them of the nature of the 
program and providing certain information that should be considered 
before entering into a forward contract. It is important that producers 
clearly understand on what basis they are being paid for contract milk. 
The disclosure statement must be signed on the same date as the 
contract by the dairy farmer or cooperative association representative 
and will have to be returned by the handler to the Market Administrator 
together with the contract. The disclosure is less than one page long 
and can easily be incorporated into the body of the forward contract 
itself or can be handled as a supplement that may be attached to the 
forward contract. Any contract that is submitted to the Market 
Administrator without the disclosure statement will be considered to be 
invalid for the purpose of being exempt from the order's minimum 
pricing and will be returned to the handler.
    Producers who are not members of a cooperative association should 
be aware that their milk weights and tests will continue to be handled 
in the same way by the Market Administrator even if they choose to 
enter into a forward contract which prices their milk on a different 
basis than the milk marketing order in which their milk is pooled. For 
example, if a producer in the Appalachian Order, which prices the milk 
of dairy farmers on the basis of skim milk and butterfat, enters into a 
contract that prices milk on the basis of protein, butterfat, other 
solids, and somatic cell count, the producer will only receive data 
from the Market Administrator on the skim and butterfat components to 
compare against the buying handler's test data. If the producer wants 
to verify other component tests, they must do so at their own expense.
    Handlers with forward contracts remain subject to all other milk 
marketing order provisions. Payments specified under a forward contract 
must be made on or before the same dates as order payments which they 
replace. If handlers paid producers under contract at different times 
than producers not

[[Page 15635]]

under contract, disorderly conditions might occur. Payments for milk 
covered under forward contract are required to be made by the dates 
specified in Sec.  1145.2(e) of the regulations.

Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health, and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, reducing costs, harmonizing rules, and promoting 
flexibility. This action has been designated as a ``non-significant 
regulatory action'' under Sec.  3(f) of Executive Order 12866 and 
therefore has not been reviewed by the Office of Management and Budget 
(OMB).

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. It is not intended to have a retroactive effect. There 
are no administrative procedures which must be exhausted prior to 
judicial challenge to the provisions of this rule.

Executive Order 13175

    This rule has been reviewed for compliance with Executive Order 
13175, ``Consultation and Coordination with Indian Tribal 
Governments.'' The review reveals that this rule will not have 
substantial and direct effects on Tribal Governments and will not have 
significant Tribal implications. AMS consulted with the USDA Office of 
Tribal Relations in development of this proposed rule and believes that 
it will not impact or have direct effects on Tribal governments and 
will not have significant Tribal implications. AMS continues to consult 
with the USDA Office of Tribal Relations to collaborate meaningfully to 
develop and strengthen departmental regulations.

Regulatory Flexibility Act and Paperwork Reduction Act

    The legal basis for this rule was first set forth in the 2008 Farm 
Bill, which prohibited new forward contracts from being entered into 
after September 30, 2012, and no forward contracts entered into under 
the program extending beyond September 30, 2015 (7 U.S.C. 8772(e)). 
Passage of the ATRA revised the program to allow new contracts to be 
entered into until September 30, 2013. The 2014 Farm Bill has again 
extended the program so that producers and cooperative associations of 
producers may now enter into forward price contracts under the DFPP 
through September 30, 2018, and that all terms of the forward contract 
must expire prior to September 30, 2021. All other provisions and 
requirements of the program as provided for in the final rule published 
October 31, 2008 (73 FR 64868) are still in effect.
    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the Agricultural Marketing Service (AMS) has considered the 
economic impact of this action on small entities and has certified that 
this rule will not have a significant economic impact on a substantial 
number of small entities for the reasons stated herein. 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 an average month in 2012, the milk of 40,750 dairy farmers 
was pooled throughout the Federal milk marketing order system. Of the 
total, an estimated 38,305 dairy farmers, or 94 percent, were 
considered small businesses. During the same time period, there was an 
average of 237 pool handlers per month with milk priced and pooled on a 
Federal milk marketing order. Of this total, approximately 126, or 53 
percent, were considered small businesses.
    AMS 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.
    The reporting and recordkeeping requirements for this rule are 
minimal. Section 1601 of the 2014 Farm Bill provides that the extension 
of the Dairy Forward Pricing Program shall be made without regard to 
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). Although 
exempted, the requirements of the Paperwork Reduction Act were 
considered in developing the provisions of this rule. The provisions 
extending the Dairy Forward Pricing Program have been carefully 
reviewed and every effort has been made to minimize recordkeeping costs 
or requirements.
    Any handler that enters into a forward contract with a producer or 
cooperative association of producers must have written proof of such an 
arrangement. To meet other requirements for participation in this 
program, a handler must submit a copy of each forward contract with a 
producer or cooperative association of producers to the market 
administrator of the order which regulates the milk. Submitting this 
information to the milk market administrator is estimated to take 5 
minutes or less. The handler must attach a disclosure statement to each 
forward contract, or otherwise make such statement part of the 
contract. The disclosure statement must be signed by each producer or 
cooperative representative entering into a forward contract. The 
disclosure statement explains that producers or cooperative 
associations of producers entering into forward contracts forfeit their 
rights to receive the minimum order price(s) for that portion of their 
milk that is subject to the contract for the duration of the contract 
period. Preparing the contract and attaching or including the 
disclosure statement is estimated to take 20 minutes or less per 
contract.
    Any handler participating in the program will continue to file all 
of the reports that are required under the applicable Federal milk 
marketing order, as authorized under the AMAA. The information 
collection requirements contained in the Federal milk marketing order 
program have been previously approved by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995 and have been 
assigned OMB Control Number 0581-0032. This includes reports of 
utilization of milk and monthly payroll reports that show information 
required by the orders. Taking into account the Dairy Forward Pricing 
Program, the monthly payroll report of each participating handler and 
the support statement sent from each participating handler to each 
participating producer must contain detailed accounting that 
distinguishes total rates used in making payment and volumes for milk 
under forward contract. While the resulting changes in burden are 
exempt from the Paperwork Reduction Act, slight

[[Page 15636]]

modifications to the currently approved ``Handler's Report for Producer 
Payroll'' form have been submitted to the OMB.
    If a handler's contract milk exceeds the handler's eligible milk 
for any month in which the specified contract price(s) are below the 
order's minimum prices, the handler must designate which producer milk 
shall not be contract milk. Preparing this notification is estimated to 
take 5 minutes or less. If the handler does not designate the suppliers 
of the over-contracted milk, the market administrator shall prorate the 
over-contracted milk to each producer and cooperative association 
having a forward contract with the handler.
    The primary sources of data used to complete these reports are 
routinely used in most business transactions. The additional reporting 
requirements required by this rule typically only require a minimal 
amount of data processing time, and 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.
    USDA does not expect the forward contracting program to unduly 
burden small entities or impair their ability to compete in the 
marketplace. In its simplest form, a forward contract between a milk 
buyer and a milk producer (or cooperative) is an agreement to sell a 
stated quantity of milk for a specified period at a stated price. 
Producers and handlers are able to ``lock-in'' prices, thereby 
minimizing risks associated with price and income volatility and 
enhancing their ability to obtain new or continued financing. By 
providing another tool to possibly reduce price risk, the program may 
aid small businesses in competing with larger entities that currently 
utilize futures and options markets, among other means, to reduce price 
volatility.

Final Action

    In accordance with the 2014 Farm Bill, this final rule extends the 
Dairy Forward Pricing Program applicable under all Federal milk 
marketing orders. New contracts under the Program may be entered into 
until September 30, 2018. Any forward contract entered into up to and 
until the September 30, 2018, deadline is subject to a September 30, 
2021, expiration date.
    Subtitle F of Title I of the 2014 Farm Bill provides that the 
promulgation of these regulations shall be made without regard to the 
Paperwork Reduction Act (44 U.S.C. Chapter 35), the Statement of Policy 
of the Secretary of Agriculture, effective July 24, 1971 (36 FR 
13804),\1\ and the notice and comment provisions of section 553 of 
Title 5, United States Code.
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    \1\ A Revocation of the Statement of Policy was published in the 
Federal Register on October 28, 2013 (78 FR 64194).
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    These provisions are made final in this action, and for the same 
reasons good cause exists for making this rule effective one day after 
publication in the Federal Register. To do otherwise would be 
impracticable, unnecessary, and contrary to the public interest. (5 
U.S.C. 553; 5 U.S.C. 808)

List of Subjects in 7 CFR Part 1145

    Contract, Forward contract, Forward pricing, Milk.

    For the reasons set forth in the preamble, Title 7, chapter X, Part 
1145 is amended as follows:

PART 1145--DAIRY FORWARD PRICING PROGRAM

0
1. The authority citation for 7 CFR part 1145 continues to read as 
follows:

    Authority:  7 U.S.C. 8772.


0
2. Amend Sec.  1145.2 by revising paragraph (b) to read as follows:


Sec.  1145.2  Program.

* * * * *
    (b) No forward price contract may be entered into under the program 
after September 30, 2018, and no forward contract entered into under 
the program may extend beyond September 30, 2021.
* * * * *

    Dated: February 19, 2014.
Rex A. Barnes,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2014-06189 Filed 3-20-14; 8:45 am]
BILLING CODE 3410-02-P