Milk in the Pacific Northwest and Southwestern Idaho-Eastern Oregon Marketing Area; Decision on Proposed Amendments to Tentative Marketing Agreements and to Orders

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1124 and 1135

[Docket Nos. AO-368-A21, AO-380-A11; DA-92-07]

Milk in the Pacific Northwest and Southwestern Idaho-Eastern

Oregon Marketing Area; Decision on Proposed Amendments to Tentative

Marketing Agreements and to Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: This decision adopts a proposal for pricing milk on the basis

of nonfat solids and protein, in addition to butterfat, for the Pacific

Northwest and Southwestern Idaho-Eastern Oregon marketing orders,

respectively. In addition, it reduces the supply plant shipping

percentage for the Pacific Northwest order and modifies the producer-

handler regulation to permit a State institution with outside

distribution to purchase an average of 1,000 pounds of milk per day

from pool plants. The decision denies a proposal to change location

adjustments in Yakima County, Washington.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,

USDA/AMS/Dairy Division, Order Formulation Branch, Room 2968, South

Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932.

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.

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the

Agency to examine the impact of a proposed rule on small entities.

Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural

Marketing Service has certified that this action will not have a

significant economic impact on a substantial number of small entities.

The amendments would promote orderly marketing of milk by producers and

regulated handlers.

These proposed amendments have been reviewed under Executive Order

12278, Civil Justice Reform. This action is not intended to have

retroactive effect, nor will it preempt any state or local laws,

regulations, or policies, unless they present an irreconcilable

conflict with the rule.

The Agricultural Marketing Agreement Act of 1937, as amended (7

U.S.C. 601-674) (the Act), provides that administrative proceedings

must be exhausted before parties may file suit in court. Under section

8c(15)(A) of the Act, any handler subject to an order may file with the

Secretary a petition stating that the order, any provision of the

order, or any obligation imposed in connection with the order is not in

accordance with the law and requesting a modification of an order or to

be exempted from the order. A handler is afforded the opportunity for a

hearing on the petition. After a hearing, the Secretary would rule on

the petition. The Act provides that the district court of the United

States in any district in which the handler is an inhabitant, or has

its principal place of business, has jurisdiction in equity to review

the Secretary's ruling on the petition, provided a bill in equity is

filed not later than 20 days after the entry of the ruling.

Prior Documents in This Proceeding

Notice of Hearing: Issued July 31, 1992; published August 6, 1992

(57 FR 34694).

Recommended Decision: Issued October 7, 1993; published October 15,

1993 [58 FR 53439].

Preliminary Statement

A public hearing was held to consider proposed amendments to the

marketing agreements and the orders regulating the handling of milk in

the Pacific Northwest (Order 1124) and Southwestern Idaho-Eastern

Oregon (Order 1135) marketing areas. The hearing was held pursuant to

the provisions of the Act and the applicable rules of practice and

procedure governing the formulation of marketing agreements and

marketing orders (7 CFR part 900) in Portland, Oregon, on September 9

and 10, 1992.

Upon the basis of the evidence introduced at the hearing and the

record thereof, the Acting Administrator, on October 7, 1993, issued a

recommended decision containing notice of the opportunity to file

written exceptions thereto.

The material issues, findings and conclusions, rulings, and general

findings of the recommended decision are hereby approved and adopted

and are set forth in full herein, subject to the following

modifications:

1. One paragraph is added at the conclusion of the discussion of

Issue No. 1, and paragraphs 41-42 are modified.

2. One paragraph is added at the conclusion of the discussion of

Issue No. 2.

3. One paragraph is added at the conclusion of the discussion of

Issue No. 3.

4. Under Issue No. 4, the sixth-to-last, third-to-last, and last

paragraphs are revised, the second-to-last paragraph is deleted, and a

new paragraph is added at the conclusion of the discussion.

The material issues on the record of the hearing relate to:

1. Multiple component pricing of milk under both orders.

2. Performance standards for supply plants under the Pacific

Northwest order.

3. Status of a milk plant operated by a state institution under the

Pacific Northwest order.

4. Plant location adjustments for Yakima County, Washington, under

the Pacific Northwest order.

Findings and Conclusions

The following findings and conclusions on the material issues are

based on evidence presented at the hearing and the record thereof:

1. Multiple component pricing of milk under the Pacific Northwest

and Southwestern Idaho-Eastern Oregon orders.

The Pacific Northwest and Southwestern Idaho-Eastern Oregon orders

should be amended to provide for multiple component pricing of Class II

and Class III (including Class III-A) milk to handlers and for

establishing minimum pay prices to producers. Under the Pacific

Northwest order, the components to be priced will be nonfat milk solids

and butterfat. Under the Southwestern Idaho-Eastern Oregon order, the

components to be priced will be protein and butterfat.

Multiple component pricing for both orders was proposed by Darigold

Farms, and Western Dairymen Cooperative, Inc., joined as a co-proponent

for the Southwestern Idaho-Eastern Oregon proposal. The basic thrust of

the proposal was that it was time to change the way milk is priced

under both orders such that the pricing system would send a clear

economic signal to producers as to which milk components are in the

greatest demand and which ones have the greatest economic value in the

marketplace.

Two witnesses testified on behalf of Darigold. One witness

testified extensively on the general concept of multiple component

pricing. He stated that the current pricing system, which is based on

the value of butterfat and skim milk, does not reflect changes that

have occurred over time in the value of certain milk components. In his

view, the current system is based on market conditions that prevailed

more than 50 years ago.

The current system, in his opinion, simply encourages producers to

increase the volume of skim milk produced without regard to the content

of such milk.

The Darigold witness indicated that under the current pricing

system, given the current levels of milk prices and fat differentials,

one pound of protein, lactose, other solids, or even milk water is now

valued at somewhere between nine and ten cents per pound. Thus, the

price of one pound of butterfat is about equal to the value attributed

to one gallon of milk water. He also indicated that one pound of

butterfat is said to be worth seven to eight times as much as one pound

of milk protein, even though that appears to be unreasonable. He

maintained that these unrealistic price comparisons are nonetheless

actual measurements of the incentives that dairymen are expected to

respond to under present regulations when they plan their breeding and

production activities. He further indicated his strong belief that the

present system stands in the way of achieving optimum efficiency. Thus,

he urged the adoption of multiple component pricing wherein the

marketplace values of various milk components will be reflected in

pricing milk to handlers and to producers. In this way, consumers'

demands and preferences for milk and other dairy products can be

translated into real signals that indicate to producers the milk

components consumers want and are willing to pay for.

A second witness spoke on behalf of Darigold Farms, Western

Dairymen Cooperative, Inc., Farmers Cooperative Creamery, Northwest

Independent Milk Producers Association, Tillamook County Creamery

Association, and Magic Valley Quality Milk Producers, Inc. He indicated

that in July 1991 these cooperatives represented 88 percent of the

producers for the Pacific Northwest market (Order 124) and 84 percent

of producers for the Southwestern Idaho-Eastern Oregon market (Order

135). This witness discussed how the proposed multiple component

pricing (MCP) system would work, why it should be adopted, and the form

it should take for these two markets. He stated that in order for a MCP

program to work well it needed to be mandatory under the Federal order.

Currently, just over 90 percent of the producers for Order 124 and just

over 88 percent of the producers for Order 135 are eligible to receive

some component pricing premium. He further stated that the premium

programs result from inadequacies inherent in the current butterfat and

skim pricing programs.

The witness indicated that another reason why MCP is needed is

because of increasing interest by consumers in their diet, especially

noting concerns about cholesterol and fat levels in dairy products. He

said that consumers now prefer milk products with lower fat content. He

went on to say that over the years there has been a general emphasis on

the value of fat, but that so far there has been only a general offset

of this as values of the nonfat fluid portion of milk, which is largely

water, have increased. He stated that the values of specific nonfat

components should be recognized and increased so that consumer

preferences could be more directly translated into indicating the milk

components that dairy farmers should be producing for the market. MCP

would achieve this and at the same time promote more orderly marketing

for both producers and handlers, according to Darigold's spokesman.

Darigold's witness stated that MCP would contribute to orderly

marketing by providing more equity among plants making Class II and

Class III products because their raw milk costs would be more uniform.

Also, marketing organizations would have more options in marketing

individual loads of milk. He explained that plants would be less

reluctant to receive a low-testing load of milk because they would pay

only for the components received rather than for water that must be

removed from the milk. He said that, in turn, producers in effect will

have more options in choosing marketing organizations or plants to take

their milk.

The witness also pointed to the changing relationship over time

between the values of the butterfat and skim portions of milk. For

example, he noted that during the 1960's butterfat accounted for about

75 percent of the total value of milk, while the skim value was only

about 25 percent. Currently, over 70 percent of the total value of milk

is associated with the skim component because over time the value of

butterfat has declined and the Commodity Credit Corporation has changed

the support prices of butter and nonfat dry milk. He expected that the

trend to lower fat values will continue.

The proposed MCP program was modeled after the one now in effect in

the Great Basin Federal milk order. It was chosen because it would

maintain the current Class I price structure, while applying MCP to

Class II and Class III uses of milk where there is a direct

relationship between the component content of raw milk and its yield of

manufactured milk products.

Because the principal product manufactured from milk not needed for

Class I or Class II uses in the Order 124 market is nonfat dry milk,

the proponents proposed that the MCP program for that market should be

based on butterfat and nonfat milk solids. On the other hand, in the

Order 135 market the principal use for surplus milk is in hard cheeses.

For that reason, the proponents proposed that the MCP program for that

order should be based on butterfat and protein.

As proposed, MCP would not apply to Class I milk, which would

continue to be priced to handlers as it now is. Handlers would account

for the components (butterfat and nonfat milk solids or protein) used

in Class II and Class III at prices per pound as specified in the

order. Each producer would be paid a weighted average of the Class I

and Class II differentials, plus the value per pound for the components

in the producer's milk.

Butterfat would be priced on a per-pound basis. The butterfat

price, as proposed, would be the sum of the skim milk value (based on

the basic formula price) divided by 100 plus the butterfat differential

for the month multiplied by 10.

The prices per pound for nonfat solids or protein, as the case may

be, would be determined by subtracting from the basic formula price the

value of the butterfat, and dividing the remainder by the market

average test for nonfat milk solids or protein in producer milk for the

current month.

There were three proposed modifications for determining the value

of the components other than butterfat. One, advocated by a spokesman

for Kraft General Foods, would use the average component values (tests)

of the milk included in the survey of pay prices that make up the

Minnesota-Wisconsin (M-W) estimated price for manufacturing grade milk.

The M-W price is the basic formula price for the orders. According to

the Kraft witness, use of the M-W milk component tests would provide

uniformity of component prices among orders, whereas using market

average tests could result in component prices that were not uniform

among orders. Darigold's witness indicated that Darigold would accept

this approach.

A second modification was advanced by the witness for Northwest

Independent Milk Producers (NWI). As proposed, the Class III milk price

would be a formula price based on the prices for 40-pound blocks of

cheddar cheese, plus a value for whey cream, minus the make allowance

used by the Commodity Credit Corporation. The proponent claimed that

the current Class III price (the M-W price) may be reflective of cheese

production and manufacturing in Minnesota and Wisconsin, but is totally

out of sync. with the real market situation in the Pacific Northwest

region. The proposed Class III price is needed to improve the

competitive relationship between cheesemakers in the Northwest and

those in California, according to the proponent.

NWI also proposed that the basic formula price provision should be

amended by adding the words ``or $12.10 per hundredweight, whichever is

higher for the month.'' In the view of NWI's witness, this proposal

would decouple Class I prices from the radical price fluctuations that

have occurred.

A witness for Swiss Village Cheese, a proprietary bulk tank handler

under Order 135, supported MCP for that market. The witness stated that

the failure to recognize varying protein tests for raw milk produces a

great inequity in the Federal milk order pricing system and sends the

wrong economic message to producers. He noted that the August 1992 M-W

price of $12.54 per hundredweight yields a skim milk price of $10.09

with a seven cents butterfat differential. The $10.09 figure is the

same, regardless of the protein content of the milk.

This being the case, he said, the value of a pound of protein thus

varies as the test varies. If milk tests 4 percent protein, dividing

the $10.09 by 4 yields a value per pound of $2.52. However, if the test

is only 3 percent, the per-pound value is $3.36, or a difference of 84

cents. Thus, when a cheese plant wants the lowest-priced protein, it

would want to attract the highest testing milk. In order to attract

high-testing milk, cheese plant operators pay producers protein

premiums or base their price on a cheese yield formula. He stressed

that plants can pay a premium over the Federal order price, but cannot

lower the price to a producer below the minimum Federal order price

based on butterfat content. In his view, this causes handlers or cheese

plants to play a price averaging game, which results in producers of

low-testing milk getting paid more than their milk is worth, while

producers of high-testing milk are paid less than their milk is worth.

Adoption of multiple component pricing would correct this situation and

provide a basis for making economically correct decisions at both the

dairy farm and the plant, he concluded.

The Swiss Village Cheese representative presented what he believes

are important factors regarding the future of the dairy industry in

Idaho, and in the West in general. He indicated that: (1) Herd size

will be large; (2) production per cow will be high; (3) total milk

production increases will exceed population increases; (4) nearly all

of the increased production will be used to make cheese; and (5) most

of this ``new'' cheese will be sold to consumers in the East. In view

of these factors, the witness proposed modifications to the MCP plan

proposed for Order 135.

The first proposed modification would use the protein test for milk

that is included in estimating the M-W price. The second modification

proposes adjusting the M-W price for a transportation differential

(minus 10 cents) prior to determining the protein price. This proposal

is based on the belief that the market for additional quantities of

cheese produced in Idaho will be population centers in the eastern

United States. Therefore, a price adjustment is warranted, in the view

of this witness, because the cheese produced in Idaho will have to be

moved long distances to find customers, and a lower price would help

Idaho cheese plants be more competitive with California cheese plants.

A third proposed modification by the Swiss Village Cheese witness

called for giving milk buyers the right to reduce a producer's payment

if the producer's milk had a high somatic cell count. He testified that

cheese yields and cheese quality both suffer when raw milk has somatic

cell counts above 300,000 per milliliter.The money deducted from

payments for milk with a high somatic cell count would be returned to

other producers in the pool whose milk had lower somatic cell counts.

A witness for Avonmore West, a handler under Order 135, testified

in support of MCP and urged also that if MCP is adopted, the pricing

must recognize the relationship of somatic cells to the true value of

protein in the milk. The witness cited the Recommended Decision (57 FR

36536) to adopt MCP in the Ohio Valley, Eastern Ohio-Western

Pennsylvania, and Indiana orders. The Recommended Decision in that

proceeding adopted MCP for the three orders and included adjustments

for somatic cells both in prices paid to producers and in prices paid

by handlers. He urged USDA to follow its own lead and adopt adjustments

for somatic cells based on the evidence presented at this hearing and

the Recommended Decision for the three orders noted above. He contended

that if MCP is adopted for Orders 124 and 135 without adjustments for

somatic cells, producers with a low somatic cell count in their milk

will be subsidizing producers with high somatic cell counts in their

milk.

The only brief filed on this issue was filed jointly by Darigold,

Farmers Cooperative Creamery, and Northwest Independent Milk Producers

Association. The brief supported adoption of MCP for both orders and

recapped the alternative proposals made at the hearing. The brief

concluded that the preferred basis of determining component values

(other than butterfat) would be as proposed by NWI, i.e., the Class III

price would be based on the Green Bay National Cheese Exchange price.

This approach was preferred but the brief also indicated that either

the original proposal or the proposal to use the average M-W component

tests as the divisor of the skim value to get the per-pound prices for

protein or solids nonfat would be acceptable. However, the brief

expresses the view that a somatic cell adjustor for paying producers

should not be adopted on the basis of the record in this proceeding.

The orders should be amended to provide Class II and Class III milk

prices to handlers and payments to producers based on multiple

component values. This concept is widely supported and is justified by

evidence contained in the hearing record.

MCP should be adopted as a step towards improving the way the

Federal order translates market values for dairy products into milk

prices that indicate to producers how these products are valued in the

marketplace.

As the record indicates, the current pricing system has, over time,

placed a greater share of milk value on the skim portion of milk, and a

lesser value on the butterfat portion. Nevertheless, a further

recognition of market value as it relates to the value of milk

components can be achieved by converting the skim milk value into

components, either protein or solids nonfat, on a per-pound basis. As

the testimony indicates, it is not sound pricing practice to consider

that all skim milk has the same value, regardless of its level of

protein or solids nonfat content. The varying values for the components

in skim milk can be more properly reflected in handler prices for Class

II and Class III milk, and prices to individual producers, if MCP is

incorporated into the order. Moreover, incorporating MCP into the

orders will tend to insure at least a minimum value of the components

for all handlers and producers. This element may be lacking where there

are varying premium plans in use in the market, and where perhaps not

all producers are involved. Also, providing for MCP in the Federal

orders will allow handlers to pay lower prices to producers whose milk

tests low for the component other than butterfat. Thus, pricing equity

among producers and handlers should be enhanced by adoption of MCP.

Another reason for adopting MCP is that, as a pricing system, MCP

will improve how well the pricing system in the orders translates

consumer preferences into economic signals that indicate to dairy

farmers exactly what consumers want. Data presented at the hearing show

clearly that, over time, consumers prefer milk products with less fat.

Adopting MCP for Orders 124 and 135 will facilitate sending clear

signals to producers that consumers want less fat and more protein or

solids nonfat in their dairy products.

Clearly, the vast majority of the milk pooled in these two markets

is used for Class II and Class III uses. In the Pacific Northwest

market, almost two-thirds of the milk pooled annually in 1989, 1990,

and 1991 was classified in Classes II and III combined; and the

percentage is increasing, going from 62.51 for 1989 to 64.47 percent

for 1991. In the Southwestern Idaho-Eastern Oregon market, over 80

percent of the total milk pooled in the years 1989 through 1991 was

used in Class II and Class III products.

As proposed, MCP for Order 124 will utilize a solids nonfat

component and MCP for Order 135 will utilize a protein component. Not

only will such pricing plans recognize that these markets utilize most

of their milk in Class II and Class III uses, they also will recognize

the particular principal dominant product manufactured from surplus

milk supplied in each market. Moreover, the use of protein as the

second component in Order 135 will make the provisions of that order

more compatible with provisions of the neighboring Great Basin Order.

The proponents indicated that at the time of the hearing 59 percent

of the Class II and Class III milk pooled under the Pacific Northwest

order was being made into nonfat dry milk and 26 percent into cheese.

Thus, the use of solids nonfat is appropriate since the majority of

manufactured milk is oriented more toward the products and uses in

which all the solids nonfat are consumed together.

On the other hand, in the Southwestern Idaho-Eastern Oregon market,

nearly 80 percent of the milk is made into cheese, in which protein is

an important component. Thus, the use of butterfat and protein for MCP

is appropriate for Order 135.

Under the plan adopted herein, the price for a pound of butterfat

will be the same for both orders, i.e., the sum of the skim milk price

divided by 100 and the butterfat differential multiplied by 10. Since

each producer will receive payment for the milkfat on a price-per-pound

basis, there will no longer be a need for a producer butterfat

differential in either order. Thus, the proposed order language does

not contain a provision for a ``producer butterfat differential.''

The prices per pound for solids nonfat and protein should be based

on the basic formula price (i.e., the M-W price). For each component,

the skim milk value will be determined by subtracting from the M-W

price the butterfat price multiplied by 3.5, and dividing the result by

the average percent of solids nonfat or protein (as appropriate) for

the month in the milk upon which the M-W price is based, as announced

by the Dairy Division. Use of the average tests for the components

(other than butterfat) in the M-W milk will be consistent with such a

provision recently adopted for the Great Basin, Ohio Valley, Eastern

Ohio-Western Pennsylvania, and Indiana markets. This approach was

suggested by several people and was supported in briefs. No one

specifically opposed it.

There are two related issues that also should be addressed in

connection with determining component prices. First, we should point

out that the solids nonfat content of producer milk in the Pacific

Northwest market may be higher than the solids nonfat content of the

milk that is the basis for the M-W price, based on limited information

in the record. For example, Exhibit Number 7, Table 1, shows that

Darigold Farms' solids nonfat tests averaged 8.69 percent for the

months of January through July 1992. On a monthly basis, the Darigold

tests were from .04 to .19 higher than the M-W milk solids nonfat

content for the same period. Also, page two of Exhibit 10-B shows that

NWI's solids nonfat tests averaged 9.10 percent during January through

July 1992. Each of the monthly tests of NWI's milk was more than .5

above the nonfat solids content of the M-W milk. The average percent

solids nonfat tests of producer milk included in the M-W ``Base Month''

Price Series during January through July 1992 were: January, 8.55;

February, 8.52; March, 8.55; April, 8.57; May, 8.56; June, 8.56; and

July 8.53. Official notice is taken of page 2 of Dairy Market News,

Volume 59, Report 46, dated November 13, 1992, issued by the Department

of Agriculture, Agricultural Marketing Service, Dairy Division, P.O.

Box 8911, Madison, Wisconsin 53708-8911.

The record does not contain data showing the average solids nonfat

content of all producer milk for the Pacific Northwest market. Thus,

the comparisons made above are not conclusive. However, if the

comparison reflects the actual market situation, the price for a pound

of solids nonfat would be higher if the M-W test is used as a divisor

in the proposed formula for calculating the price than if the market

average test is used. As a result, the value of Class II and Class III

milk in the pool would increase from current levels.

A second related issue that must be kept in mind is that USDA has

already conducted a hearing to consider proposed alternatives to the M-

W price as the basic formula price for all the orders. If the Secretary

decides to replace the M-W price with some other factor or factors to

establish the basic formula price, a question may arise as to what

tests for solids nonfat or protein should then be used. Absent any

knowledge at this time as to the outcome of that proceeding, it would

seem appropriate to continue to use the tests prescribed in this

decision. Later, it may be necessary to consider amending the orders in

this regard.

NWI's proposal to put a $12.10 per hundredweight floor under the

basic formula price is not adopted. The principal purpose of this

proposal relates to Class I milk prices. However, Class I milk prices

are not an issue in this proceeding.

Several other proposed modifications to the initial proposal on

component prices were offered at the hearing. However, none of these

modifications should be adopted.

One of the modifications would provide a location adjustment to the

basic formula price for Order 135 because additional milk supplies

likely would be made into cheese that would have to be transported

elsewhere to be sold. Another reason advanced is because a lower price

would improve competition with cheese made from milk priced under the

California State milk order, which has a lower price.

This proposed modification should not be adopted. The purpose of

the basic formula is to move prices for milk in most uses in all

Federal order markets. It should not be modified for the purpose of

accommodating expected sales competition for one product under one

order.

Similarly, the Class III cheese formula price modification advanced

by NWI and endorsed by Darigold in its brief also must be denied. With

the exception of consideration of a lower price for milk used to make

nonfat dry milk (Class III-A), it has long been the policy of USDA that

the lowest-priced class of use under the Federal order program is based

on the concept of a national market for products (butter, powder, and

cheese) made from milk not needed for Class I use. Those products made

from Grade A milk marketed under Federal orders compete with products

made from non-grade A milk. Since these products compete in a national

market, there has been a common surplus class price in almost all

Federal orders for many years. It should be noted, of course, that the

policy of uniformly pricing surplus milk was modified with the adoption

of a Class III-A pricing formula that was implemented in 27 Federal

orders, including the Pacific Northwest order, on December 1, 1993.

Despite this change, however, the policy of uniformly pricing all

surplus milk, except skim milk used in the production of nonfat dry

milk, should be continued, at least for the present.

There are other considerations as well. As noted earlier, a hearing

has already been held on a replacement or an alternative to the M-W

price for the basic formula price under the orders. Also, as noted

above, there is now a separate Class III-A price for skim milk used to

produce nonfat dry milk in the Pacific Northwest order. There appears

to be a question about whether a separate Class III-A price could be

justified if the proposed price to be derived from the cheese exchange

prices were adopted as a basic formula price. The record in this

proceeding is not adequate to deal with this question.

Also, there appears to be a dilemma in the difference between

handler prices for milk to make cheese prescribed under the Federal

orders and those provided under the California milk pricing program.

However, we do not feel the proper approach to this problem is to lower

the surplus milk price to handlers under one particular order.

Another reason not to adopt the NWI proposal is that it is a

product formula price based on cheese, yet the principal use of surplus

milk in the Pacific Northwest order is nonfat dry milk. The record

simply contains no explanation as to why a proposal for multiple

component pricing in this market situation should have the component

values based on a price derived from the cheese market only.

Finally, on the basis of the record in this proceeding there should

be no adjustments to prices under Order 135 based on the level of

somatic cells present in the market's raw milk supply. While the record

evidence indicates that somatic cell levels are important, the record

lacks sufficient evidence to develop appropriate provisions to

implement a price adjustment based on somatic cell levels.

In should also be noted that the brief filed on behalf of Darigold,

NWI, and Farmers Cooperative Creamery also concluded that ``there is

insufficient evidence to warrant adopting an `SCC Adjuster' in either

Order 124 or Order 135.'' Finally, we would point out that some

proponents expressed a desire to keep the MCP provisions in Order 135

compatible with those in the Great Basin order. Since the Great Basin

MCP provisions do not include a somatic cell adjustor, it would be

contrary to compatibility to include such an adjustor in Order 135.

Incorporation of component pricing in Orders 124 and 135 will

necessitate amending provisions of the orders dealing with handler

reports, class (and component) prices, the computation of handler's

obligations and payments to the producer-settlement fund, and the

determination of payments to producers.

For purposes of allocating nonfat milk solids and protein, it is

assumed that both components remain evenly distributed within the skim

milk portion of milk receipts. This assumption will allow the proration

of nonfat solids and protein to skim milk for purposes of determining

shrinkage and allocating receipts to utilization.

In addition to the information that is already reported each month

to the Market Administrator, each handler under Order 124 will be

required to report the average nonfat solids content of milk received

from each producer during the month, the amount of nonfat solids in the

handler's other receipts, except receipts of other source milk, and the

nonfat solids contained in bulk transfers of milk and cream to other

handlers. Partially regulated distributing plant operators will not be

required to report information regarding the nonfat solids of their

milk receipts unless they elect to have their obligations calculated

under the provision that would determine obligations on the same basis

as those of fully regulated handlers. Handlers under Order 135 will

have to report the protein content of their milk receipts in a similar

fashion as that described above.

The amended orders will contain definitions for a skim milk price,

a butterfat price, a nonfat dry milk price for Order 124, a milk

protein price for Order 135, and the usual class and producer prices.

The ``skim milk price'' will be used to determine the value of the skim

milk portion of producer milk that is allocated to Class I. Value

adjustments for determining payments by handlers for milk used in Class

II and Class III, and to producers, will be made by prices per pound

for the butterfat and nonfat dry milk (for Order 124) or protein (for

Order 135) contained in the milk. The skim milk price, the butterfat

price, the nonfat milk solids price, and the milk protein price will be

derived from the Class III price and the butterfat differential.

Payments to producers for deliveries of milk will be determined

through the operation of two marketwide pools for each order. Both

orders will contain a ``differential pool'' which will be used to

determine producers' share of the Class I and II market. A second

pool--the ``skim milk nonfat milk solids pool'' in the case of Order

124 and the ``skim milk protein pool'' for Order 135--will be used to

determine the price to be paid producers for the nonfat solids or

protein in their milk.

Each handler's net obligation to the pool (i.e., the handler's

payment to the producer-settlement fund) will be determined by

subtracting the differential and nonfat solids (or protein) values due

to the handler's producers from the differential and nonfat solids (or

protein) values of the producers' milk used by the handler. The value

of butterfat in each producer's milk will not be pooled, but will be

paid directly to the producer.

The differential value of each handler's receipts of producer milk

assigned to Class I and Class II will be calculated by multiplying the

hundredweights of producer milk allocated to these classes by the

difference between the respective class prices applicable at the

location of the plant and the Class III price. In addition, the

adjustments to the class values of producer milk that currently are

included in determining a handler's obligation would be included in the

differential value. The adjustments include the values of overage,

beginning Class III inventory allocated to a higher class, other source

and filled milk receipts allocated to Class I, certain receipts from

unregulated supply plants that are allocated to Class I, and receipts

of bulk concentrated fluid milk and nonfluid milk products that are

reconstituted for fluid use. Each handler's differential value will be

combined and then divided by the hundredweight of producer milk in the

differential pool to determine the ``weighted average differential

price.'' An ``estimated uniform price'' can be derived by adding the

weighted average differential price to the basic formula price for the

month. Although the uniform price would not be applicable to producers

under the component pricing plan, it is of value for price comparison

purposes with other Federal orders.

Each handler's skim milk-nonfat milk solids value for Order 124 and

skim milk-protein value for Order 135 will be determined by combining

the skim milk value of the handler's producer milk in Class I with the

nonfat solids value (or milk protein value) of the handler's milk in

Class II and III. The skim milk value will be determined by multiplying

the skim milk in producer milk assigned to Class I by the skim milk

price. The nonfat milk solids (or protein) value will be determined by

multiplying the nonfat milk solids (or protein) in producer milk

assigned to Class II and III by the nonfat milk solids price (or the

milk protein price). The amount of nonfat solids or protein in each

class will be determined by multiplying the skim milk portion of

producer milk allocated to each class by the nonfat solids (or protein)

content of all of the handler's producer milk. The price to be paid to

producers for the nonfat solids (or protein) in their milk will be

determined by combining the individual handler values of skim milk in

Class I milk and nonfat solids (or protein) in Class II and III milk,

and dividing the resulting total by the pounds of nonfat solids (or

protein) in all producer milk. The resulting price will be the

``producer nonfat milk solids price'' (or the ``producer milk protein

price'').

As a result of the order amendments described, payments to

producers will be based on three factors: (1) The weighted average

differential price for all of their milk; (2) the nonfat milk solids or

protein contained in their milk multiplied by the respective producer

nonfat milk solids price or producer protein price; and (3) the

butterfat in their milk multiplied by the butterfat price.

Adoption of multiple component pricing plans requires amending

provisions of the orders dealing with handler reports, shrinkage,

computation of class and component prices, the computation of a

handler's obligation to the pool, computation of a weighted average

differential price, and the computation of a producer nonfat milk

solids price for Order 124 and a producer protein price for Order 135.

These changes have already been discussed.

Several conforming changes must be made in the order language of

both orders to implement component pricing. Other minor changes, though

not strictly of a conforming nature, have been made to clarify and

improve order language.

Other sections of the orders, however, have been changed to

accommodate reference changes, date changes, and minor terminology

changes resulting from component pricing. These changes require some

explanation here.

Section 19 (``product prices'') of both orders has been modified to

accommodate reference changes, eliminate unnecessary language, and to

include the butterfat differential that previously was described in

section 74 of both orders. The latter change was made because the

description of the butterfat differential fits better with the product

prices which are used to compute the butterfat differential and because

of the diminished importance of the butterfat differential under a

component pricing system. This change also eliminates redundant

language that was included in both sections. As a result of making this

change, several sections following section 74 (i.e., Sec. Sec. 1124.75-

1124.78 and Sec. Sec. 1135.75-1135.79) had to be redesignated to close

the gap created and several reference changes had to be made as a

result.

Sections 30 and 31 of both orders were modified to accommodate the

reporting of nonfat milk solids in Order 124 and protein content in

Order 135. In addition, under Order 135 the date for filing reports of

receipts and utilization was changed from the 7th day to the 9th day

after the end of the month, and the date for filing payroll reports was

changed from the 20th to the 22nd day after the end of each month. In

support of these changes, the spokesman for Darigold Farms testified

that the present reporting date for the report of receipts and

utilization leaves no time to review the report, investigate apparent

errors, or make corrections. He also stated that the modified reporting

dates will correspond to those of the Pacific Northwest order. There

was no opposition to these proposals.

The ``other reports'' section of Order 124 was modified to improve

the language of that section. There was no intention to substantively

change the meaning of this section.

The present Secs. 1124.51a and 1135.51a have been eliminated, but

the contents of those sections have been incorporated in Secs. 1124.51

and 1135.51, respectively. These changes, which are also of a non-

substantive nature, were made in conformance with Federal Register

guidelines.

Comments on the component pricing portion of the recommended

decision were filed on behalf of Darigold Farms, Farmers Cooperative

Creamery, Magic Valley Quality Milk Producers Association, Tillamook

Cooperative Creamery Association, and Western Dairy Cooperative, Inc.

The commentors stated that they endorsed all aspects of the Recommended

Decision which pertain to MCP and urged its prompt implementation.

2. Performance standards for supply plants under the Pacific

Northwest order.

The Pacific Northwest order should be amended to provide that the

delivery requirements for qualification as a supply plant be not less

than 20 percent of the total quantity of milk that is (1) physically

received at the plant from dairy farmers eligible to be producers or

(2) is diverted as producer milk to another plant.

To qualify as a pool plant, the order currently requires a supply

plant to ship ``not less than 30 percent'' of the total quantity of

milk that is physically received at the plant from producers or that is

diverted as producer milk to another plant.

Tillamook County Creamery Association (TCCA) proposed a decrease in

the shipping percentage from 30 percent to 20 percent. TCCA requested,

and was granted, a temporary reduction in the delivery requirements in

1990, 1991, and 1992.

A TCCA spokesman testified that the request to reduce the supply

plant shipping percentage was made by TCCA as a result of continuing

changes in the industry. He pointed out that the present 30 percent

shipping percentage was adopted when the Federal order was adopted

February 1, 1989. The witness noted that at the time of order

implementation (early 1989), Class I utilization was 155 million

pounds, which represented in excess of 39 percent of total producer

milk in the Pacific Northwest market. By February 1992, however, Class

I utilization was 164 million pounds in the Pacific Northwest market,

and the Class I pool utilization had dropped to 35 percent. By May of

1992, the percent Class I utilization decreased even further to 30.8

percent.

Two other witnesses, one representing Darigold Farms and the other

Northwest Independent Milk Producers, testified in favor of TCCA's

proposal. No one testified in opposition to it.

The proposal to amend the delivery requirements for qualification

as a supply plant should be adopted due to the changing conditions in

the market. As a result of increases in milk production, pool supply

plants are utilized less by pool distributing plants as a source of

milk for bottling. Consequently, they may be unable to meet the order's

present shipping requirements and maintain the producer status of dairy

farmers that have been historically associated with this market.

Currently, three options are open to the operators of pool supply

plants who find that their milk is not needed at pool distributing

plants. First, despite the fact that the milk is not needed, they can

move milk from the production area to pool plants in the metropolitan

area, unload it, and pick up an equal amount of milk from the pool

plant and return it to the pool supply plant location where the milk

can then be processed into Class III products. This adversely affects

the milk quality without even considering the costs of transportation,

yield reduction, and milk volume loss. When milk is handled, abuse

occurs to some extent. When milk is pumped into a plant, through

equipment, and then reloaded and hauled back or hauled to another

plant, this process affects the quality of the product. That can affect

the milk's use for fluid products, depending on the amount of handling

involved. It can also affect the quality of cheese that can be made

from milk.

The second alternative is to find another pool plant that has

adequate pool sales and combine the two marketing reports. If the

combined delivery percentage reaches 30 percent of the total production

of the combined supply plants, then both plants qualify to participate

in the pool. This option depends entirely on the pool supply plant's

ability to find another supplier with adequate sales to cover the

deficit and one who is willing to cooperate by allowing its volume to

be used.

The third option available to the supply plant operator is to

request a temporary reduction in the delivery requirements. Paragraph

1124.7 3(c) allows the director of the Dairy Division to reduce or

increase the delivery percentage by 10 percent upon request.

After carefully reviewing the testimony on this issue, it is

concluded that the delivery requirements for qualification as a supply

plant should be decreased from not less than 30 percent to not less

than 20 percent. In view of the increases in milk production and the

lower Class I utilization percentage, it is much more appropriate to

permanently change the delivery requirements of the order than to rely

on temporary revisions in shipping percentages.

The evidence shows that TCCA is committed to meet the needs of the

fluid market. For example, on several occasions it has reduced its

cheese production to supply loads of fluid milk to the Portland market.

TCCA is the largest Oregon-based dairy cooperative, handling

approximately one-third of the milk produced in the State each day. Of

the one and a half million pounds of milk handled daily, roughly 1.1

million pounds are used to produce cheese for the retail market and

400,000 pounds are shipped to the Portland market for sale to Class I

milk handlers.

The lower shipping percentage for pool supply plants will not

jeopardize the needs of the fluid market, particularly with the

provision now in the order that permits the Director of the Dairy

Division to increase the percentage on short notice should additional

shipments become necessary. The lower percentage will, however, permit

milk that has been historically associated with this market to continue

to participate in the marketwide pool and, for this reason, it should

be adopted.

One comment letter was received with respect to this part of the

recommended decision. Darigold Farms stated that it was pleased with

the adoption of this proposal and urged that it be implemented.

3. Status of a milk plant operated by a State institution under the

Pacific Northwest order.

The Pacific Northwest order should be amended to provide that a

milk plant operated by a State institution, but which is not exempt

from the provisions applicable to a producer-handler, may receive up to

an average of 1,000 pounds per day of Class I milk from fully regulated

handlers.

The order currently provides that ``any State institution shall be

a producer-handler exempt from the provisions of this Section and

Secs. 1124.30 and 1124.32 with respect to milk of its own production

and receipts from pool plants processed or received for consumption in

State institutions and with respect to movements of milk to or from a

pool plant.'' Thus, a State institution plant may buy bulk milk or

packaged milk products as Class I milk without limits from pool plants

for use in State institutions. If such a plant has sales to outlets

other than State institutions, a limit on such purchases of 100 pounds

per day average is applicable, and the plant must file reports, the

same as any other producer-handler.

The Washington State Department of Corrections proposed amending

the producer-handler and nonpool plant provisions to provide total

exemption from all provisions of the order for ``a plant owned and

operated by a State institution or establishment which processes or

packages fluid milk products.''

The witness for the proponent testified that because the Department

of Corrections buys milk products from pool plants, there is a

continuing conflict between the State law under which the prison dairy

is operated, and the Federal order's definition of a producer-handler.

He explained that under Chapter 72, Correction Reform Act of 1981,

Revised Code of Washington, the Washington State Reformatory Dairy

(WSRD) is mandated to ``(1) provide a work training program for

inmates, (2) imitate private industry as much as possible and thereby

be self-supporting, and (3) provide quality products to government and

nonprofit agencies at or below market prices.'' Thus, the WSRD is

allowed, under the State law, to buy whatever milk products it needs in

order to serve its clients. Such purchases have, on occasion, exceeded

the quantity that a producer-handler is allowed to acquire under the

Pacific Northwest order, according to the testimony.

The only other witness that testified in favor of the proposal

represented the Oregon Department of Corrections. Under cross

examination, he indicated that there are no Oregon statutes that apply

to the Department of Corrections' dairy facility. On the other hand, he

also indicated that the Dairy is prohibited from selling to the private

sector.

The proposal to exempt State institutions was opposed by one

proprietary handler and by three cooperative associations. The

principal thrust of the opposition testimony was that adoption of the

proposal would open the door for State institutions to compete against

fully regulated handlers for Class I and Class II sales, and that the

State institutions would have a competitive advantage by being exempted

from the Federal order pricing and pooling regulations.

The proposal to totally exempt a plant operated by a State

institution should not be adopted because it would make it possible for

the operations to compete for commercial sales against fully regulated

handlers. On the other hand, there appears to be a need to provide some

relief from the very limited amount of Class I fluid milk products that

such a plant may receive from pool plants under the producer-handler

provisions of the order.

After reviewing the testimony on this issue, it is concluded that a

State institution that is not exempt from the producer-handler limits

on receipts of milk from pool plants should be able to receive more

fluid milk products from pool sources than the amount allowed for other

producer-handlers.

The evidence shows that the WSRD has had problems in conducting its

operation in accord with its operating mandate while, at the same time,

staying within the limits that the order places on receipts by a

producer-handler.

The current limit on receipts of fluid milk products from pool

plants by a producer-handler has been in effect for many years

(Official Notice is taken of the Order Amending The Order Regulating

The Handling Of Milk In The Puget Sound, Washington, Marketing Area,

effective September 1, 1959, as published in the Federal Register on

July 29, 1959, beginning at page 6027).

While this proceeding does not deal with producer-handlers as such,

it is clear that the 100 pounds per day limit as applied to a State

institution is unreasonably low. This is clearly demonstrated in the

testimony that in the last five years the number of inmates in the

Washington State Department of Corrections institutions has increased

from 6,000 to 10,000 inmates, and that growth to 12,000 is expected in

the next three years. Since the Department of Corrections is authorized

to purchase products that it does not process or manufacture, the need

for greater supplemental purchases is clear. Accordingly, a State

institution milk plant should be permitted to receive an average of

1,000 pounds per day of Class I fluid milk products from pool plants

during the month. However, no change in the limit should be provided

for producer-handlers that are not State institutions.

In commenting on the Department's handling of Issue No. 3, Darigold

Farms, the only party commenting on this issue, indicated that it

supported the position reached in the recommended decision.

4. Plant location adjustments for Yakima County, Washington, under

the Pacific Northwest order.

The proposal to change the location adjustment (No. 3 in the Notice

of Hearing) on all producer milk received at plants in Yakima County in

Federal Milk Order 124 is denied.

The order defines zones for the purpose of determining location

adjustments. The order currently states that Yakima County, Washington,

is in Zone 4, which has a 15 cents per hundredweight location

adjustment.

Darigold Farms proposed a decrease in the location adjustment from

15 cents per hundredweight to 6 cents per hundredweight, a change of 9

cents. Accordingly, Yakima County would move from Zone 4 to Zone 2.

The witness for the proponent testified that the theory behind a

location adjustment is to be able to attract producer milk from

outlying areas to market centers or alternatively to attract packaged

milk from a pool plant located in outlying areas. The Pacific Northwest

order has four market centers: Portland, Oregon; Eugene, Oregon;

Seattle, Washington; and Spokane, Washington. Yakima County is roughly

in the center of the triangle formed by Portland, Seattle, and Spokane.

The witness noted that the Pacific Northwest Order has relatively

low Class I utilization, about 35 percent. There is more than an

adequate supply of bulk milk to serve both fluid and manufacturing

markets. He also pointed out that in a low utilization market such as

Pacific Northwest, location adjustments are seldom needed. There has

been no history of handlers in the Pacific Northwest market not being

able to obtain bulk milk.

The witness testified that Darigold was not proposing the

elimination of location adjustments, but rather to maintain the status

quo for all the other fluid milk handlers in the market. The only fluid

plant that would be affected is the Darigold plant in Yakima County,

which would pay an added nine cents per hundredweight.

The witness' testimony drew a parallel between Yakima County,

Washington, and Whatcom County. The two counties are very similar, he

noted, in that there's a large concentration of milk in a small area.

Moreover, both plants are located outside major market centers, and

both counties have small fluid operations which serve the county area

but not the market centers.

The witness for the proponent testified that the proposal was being

made because of the opening of the Darigold plant in Sunnyside in

December of 1991. The plant was needed to help balance the increased

production in the Pacific Northwest and the increase of milk in Yakima

County. Comparing December of 1980 to December of 1990, Yakima County

dairymen increased their deliveries of producer milk from 18.9 million

pounds to 49.7 million pounds per month. The Yakima County producers

currently account for 13.5 percent of the milk marketed in the Pacific

Northwest order.

The witness noted that, prior to the opening of the Darigold/

Sunnyside plant, the milk from Yakima County was sent to plants in

Seattle and Chehalis, Washington, which have no location adjustment. No

location adjustment was needed since milk production increases in

western Washington are expected to keep all plants full.

The witness testified that the 15-cent-per-hundredweight location

adjustment at Sunnyside, in effect, constitutes a ``penalty'' to the

Darigold producers who financed the Sunnyside plant, which was needed

by all producers to ensure outlets for all milk produced in the

marketing area. Had the plant not been built, disorderly market

operations surely would have developed, he said. The witness argued

that this ``penalty'' is unnecessary because hauling costs will move

the milk to market centers without location adjustments. He pointed

out, for example, that Darigold's hauling costs from Sunnyside to

Spokane, the closest market center, is 76 cents per hundredweight for a

distance of 120 miles, or .6 cents per mile. In comparison, the

proposed decrease from 15 cents to 6 cents would move the milk only

about 15 miles at the .6-cent-per-hundredweight cost.

The witness testified that for any producer farm located closer to

Spokane than to Sunnyside, it is cheaper to move milk to Spokane than

to Sunnyside even with no location adjustment. Reducing the location

adjustment to six cents merely moves the geographic break-even point 15

miles closer to Sunnyside and enlarges by the same 15 miles the area

from which Spokane pool plants can readily attract milk.

The witness testified that within the original area, without the

15-mile adjustment, there already is enough milk to satisfy the needs

of Spokane pool plants, so there is no need to provide a further

incentive to move milk that is located in that 15-mile area closer to

Sunnyside. The Sunnyside milk also can and does supply Seattle pool

plants and could service plants in Portland and Spokane. A similar

analysis shows that there is far more milk in the areas closer to

Seattle and Portland than needed by pool plants in those areas.

Therefore, the 15-mile incentive which the 6-cent location adjustment

represents is not really needed as an incentive to move milk to those

market centers. The witness noted that the combination of some Yakima

Valley milk that is surplus to the Sunnyside plant's capacity, plus the

western Washington milk, is adequately supplying the needs of all the

plants in western Washington.

Three other witnesses testified on Proposal No. 3. The witnesses

for Portland Independent Milk Producers Association and Olympia Cheese

Company were opposed to Proposal No. 3, and the witness from Inland

Northwest Dairies, Inc., also expressed reservations. Two briefs

discussing Proposal No. 3 were filed, one by Darigold Farms in favor of

the proposal, and one by Portland Independent Milk Producers

Association opposed to the proposal.

Portland Independent Milk Producers Association opposed Proposal

No. 3 to change the zone classification for plants in Yakima County

from Zone 4 to Zone 2 to reflect the same location adjustment that

Whatcom County currently enjoys. The witness testified that the theory

behind a location adjustment is to be able to attract producer milk

from outlying areas to market centers. He pointed out that the proposed

zone change in the proposal appears to have the opposite effect in that

it would increase the return to producers delivering milk to plants

located in Yakima County.

The witness noted that increased returns could send two signals.

One signal is that there is actually an additional demand for fluid

milk to be delivered to Yakima County, which is not believed to be the

case. There appears to be more than an adequate supply of milk for the

Yakima County fluid operations. The second signal sent to producers

when there is a situation of increasing returns is to increase

production. The witness did not feel that either of these signals is

appropriate in light of the theory behind a functioning location

adjustment program or the already increasing supplies of milk surplus

to fluid market needs in these areas.

The witness also expressed concern that there is an increasing

imbalance between freight costs of milk produced in the Yakima Valley

area and delivered to local plants and that milk which moves up to 200

miles to the market center. He argued that acceptance of Proposal No. 3

further accentuates the potential imbalance. The witness stated that it

was their understanding that Yakima County is the type of market

situation that a location differential program is designed to protect.

In comparing Whatcom County to Yakima County in this proposal, the

witness extended that comparison by quoting from the 1988 final

decision (53 FR 49165) which merged the Oregon-Washington and Puget

Sound-Inland Federal milk orders into the Pacific Northwest order and

established the current location adjustment program under the merged

order.

Proponents' arguments for reducing the present six cent location

adjustment at locations in Whatcom County, Washington, are less

persuasive. The location adjustment should not be reduced. One

reason given for such a reduction was that the nearby manufacturing

plant in Lynden provides an outlet for milk surplus to the market's

fluid needs while location adjustments are still needed at locations

in southern and central Oregon and central Washington precisely

because no nearby manufacturing plant exists to provide an outlet

for surplus milk produced in these areas. In fact, the situation

thus described by the Darigold witness should result in a greater

location adjustment for Whatcom County, for instance, than Jackson

County, Oregon. The receipt of milk at a manufacturing plant located

in an area of heavy milk production at some distance from the

market's center is the classic situation to which location

adjustments were designed to apply. Prices paid for such milk are

adjusted downward for location to compensate for the fact that the

milk has not been hauled to distant bottling plants but instead has

been shipped a relatively short distance at a significantly lower

hauling cost.

The witness quoted another passage from that decision where it

states,

these markets, with manufacturing plants located in heavy production

areas distant from most distributing plant locations, are more

comparable to the situation of Whatcom County. Such increases, that

update location adjustments to correspond to the significant

increases in hauling costs that have been experienced since most

location adjustment provisions were written, are actually the only

means of ``modernizing'' location adjustments. It is very possible

that it would be appropriate to modernize or increase the location

adjustment at Whatcom County as urged by Northwest Independent Milk

Producers Association and Carnation Company. However, there is

inadequate data and testimony in the record of this proceeding to

determine an appropriate change in the level of location adjustment

for Whatcom County.

The witness pointed out that the same theory underlying the 1988

decision relative to Whatcom County is applicable to Proposal No. 3,

and expressed the view that based on the current harmonious

relationships within the marketplace, the 15-cent location adjustment

should be maintained if location adjustments are going to continue to

be recognized within this Federal order.

Olympia Cheese Company opposed Proposal No. 3 relative to changing

the zone classification for plants in Yakima County from Zone 4 to Zone

2 to reflect the same location adjustment as Whatcom County. The

witness testified that Olympia Cheese Company currently procures a

substantial portion of its milk supply in Yakima County. That milk has

to be shipped over the mountains in order to get to western Washington

where its plant is located. The company subsidizes part of those

hauling costs. The witness maintains that the proposed reduction in the

location adjustment in Yakima County will further add to milk costs

because in order to keep the milk supply from that county, hauling

costs will have to be subsidized further by the same amount as the

reduction in the location adjustment in order to stay competitive in

milk procurement in that region.

The witness testified that Olympia Cheese Company's suppliers are

going to be competing precisely against those suppliers in the Yakima

County area, forcing them to come up with the same amount, even though

its suppliers go across the mountains to western Washington. The

witness contends that if its suppliers were breaking even before with

respect to hauling cost, with the adoption of Proposal No. 3 they would

be nine cents worse off.

The Olympia Cheese Company's witness stated that a location

adjustment's traditional role is to reduce the payment to individual

farmers for any milk that stays in the county--i.e., that milk which is

not shipped to a heavily populated area. This provides a disincentive

and promotes the shipment of milk from high production/low population

areas to high population areas. The witness stated that in the case of

Proposal No. 3, it appears the location adjustment is doing the

opposite of intended, in the sense that all of a sudden the incentive

is reduced, therefore increasing the incentive for the milk to stay in

Yakima County. The witness pointed out that location adjustments are

there precisely to promote shipment of milk to populated areas, and

that they were used as a mechanism by USDA for this purpose.

Inland Northwest Dairies, Inc., also expressed concerns over the

adoption of Proposal No. 3. The witness emphasized that there has been

a very harmonious relationship in the marketplace. The witness stated

that, with the adoption of Proposal No. 3, the company might be in a

much tougher position in the future to recruit milk from producers in

the Yakima Valley, from where 80 percent of its milk supply comes. He

contended that because of competitive conditions, Darigold's producers

may not have to pay as much in the future to get their milk to the

Sunnyside plant as what others would have to pay to bring milk from the

Yakima region to Spokane, Washington.

The witness was further concerned with adjusting the location

allowance because of the situation that also exists in Moses Lake,

where Safeway 85, Inc., a pool plant, has a 15-cent location

adjustment. He stated that reducing the location adjustment in Yakima

County could create some disparity in the marketplace because Safeway

is definitely competition. The witness emphasized that the majority of

its milk comes from the Yakima and Benton County region and that in the

long-term there may be some inequities should the amount charged

Darigold producers in the future be adjusted by the location adjustment

in Proposal No. 3.

The purpose and intention of location adjustments is to provide the

incentive to move milk from one area to another for fluid uses only.

Generally speaking, this means moving milk from outlying production

areas to the more heavily populated market centers. It is not the

purpose of location adjustments to facilitate the movement of milk to a

distant location for manufacturing uses.

The witness for the proponent testified that the proposal was being

made because of the opening of the Darigold plant in Sunnyside in

December of 1991 to help balance the increased production in the

Pacific Northwest and the increase of milk in Yakima County. Prior to

the opening of the Darigold/Sunnyside plant, milk from Yakima County

was sent to plants in Seattle and Chehalis, Washington, which have no

location adjustment. The witness testified that the 15-cent-per-

hundredweight location adjustment at Sunnyside in effect constitutes a

``penalty'' to the Darigold producers who financed the Sunnyside plant.

In light of this, however, Darigold producers now have access to the

local Sunnyside plant without having to incur the costs of hauling milk

to Seattle and Chehalis, Washington.

Current conditions indicate harmonious relationships within the

marketplace. The location adjustment change proposed is not needed to

prevent disorderly marketing conditions in Yakima County or anywhere

within the marketplace. Fluid milk needs are being more than adequately

met, and there appears to be no need to encourage production of milk in

the Pacific Northwest market by increasing the level of returns to

producers.

In conclusion, we find no compelling reason to reduce the location

adjustment in Yakima County based on this record. Yakima County should

remain in Zone 4 with a 15-cent-per-hundredweight location adjustment.

While no exception was taken to this conclusion, two cooperative

associations did comment on it. Portland Independent Milk Producers

Association (PIMPA) stated that the department was correct in denying

the proposal, while Darigold Farms wrote that it was ``puzzled'' by the

department's rationale in denying the proposal and would like to

revisit the issue of location adjustments at a future hearing.

It was stated in the recommended decision that the record evidence

indicated there was no need to move milk for fluid use from Yakima

County to any of the population centers in this market: i.e., Seattle,

Portland, Eugene or Spokane. However, PIMPA points out in their

exception that a significant amount of their Yakima County milk does,

in fact, move to a number of handlers in one or more of these

population centers, and this point is supported by record evidence.

Consequently, it cannot be concluded on the basis of this record that

location adjustments are no longer necessary in this market.

Rulings on Proposed Findings and Conclusions

Briefs and proposed findings and conclusions were filed on behalf

of certain interested parties. These briefs, proposed findings and

conclusions, and the evidence in the record were considered in making

the findings and conclusions set forth above. To the extent that the

suggested findings and conclusions filed by interested parties are

inconsistent with the findings and conclusions set forth herein, the

requests to make such findings or reach such conclusions are denied for

the reasons previously stated in this decision.

General Findings

The findings and determinations hereinafter set forth supplement

those that were made when Orders 124 and 135 were first issued and when

they were amended. The previous findings and determinations are hereby

ratified and confirmed, except where they may conflict with those set

forth herein.

(a) The tentative marketing agreements and the orders, as hereby

proposed to be amended, and all of the terms and conditions thereof,

will tend to effectuate the declared policy of the Act;

(b) The parity prices of milk as determined pursuant to section 2

of the Act are not reasonable in view of the price of feeds, available

supplies of feeds, and other economic conditions which affect market

supply and demand for milk in the respective marketing areas, and the

minimum prices specified in the tentative marketing agreements and the

orders, as hereby proposed to be amended, are such prices as will

reflect the aforesaid factors, insure a sufficient quantity of pure and

wholesome milk, and be in the public interest; and

(c) The tentative marketing agreements and the orders, as hereby

proposed to be amended, will regulate the handling of milk in the same

manner as, and will be applicable only to persons in the respective

classes of industrial and commercial activity specified in, marketing

agreements upon which a hearing has been held.

Rulings on Exceptions

In arriving at the findings and conclusions, and the regulatory

provisions of this decision, each of the exceptions received was

carefully and fully considered in conjunction with the record evidence.

To the extent that the findings and conclusions and the regulatory

provisions of this decision are at variance with any of the exceptions,

such exceptions are hereby overruled for the reasons previously stated

in this decision.

Marketing Agreements and Order Amending the Orders

Annexed hereto and made a part hereof are two documents, a

Marketing Agreement regulating the handling of milk, and an Order

amending the orders regulating the handling of milk, in the Pacific

Northwest and Southwestern Idaho-Eastern Oregon marketing areas, which

have been decided upon as the detailed and appropriate means of

effectuating the foregoing conclusions. It is hereby ordered that this

entire decision and the two documents annexed hereto be published in

the Federal Register.

Referendum Order To Determine Producer Approval for the Southwestern

Idaho-Eastern Oregon Order; Determination of Representative Period; and

Designation of Referendum Agents

It is hereby directed that a referendum be conducted and completed

on or before the 30th day after the date this decision is issued, in

accordance with the procedure for the conduct of referenda (7 CFR

900.300-311), to determine whether the issuance of the order as amended

and as hereby proposed to be amended, regulating the handling of milk

in the Southwestern Idaho-Eastern Oregon marketing area is approved or

favored by producers, as defined under the terms of each of the

orders--as amended and as hereby proposed to be amended--who during the

representative period were engaged in the production of milk for sale

within the Southwestern Idaho-Eastern Oregon marketing area.

The representative period for the conduct of such referendum is

hereby determined to be September 1993. The agent of the Secretary to

conduct the referendum is James R. Daugherty, market administrator of

the Southwestern Idaho-Eastern Oregon order.

Determination of Producer Approval and Representative for the Pacific

Northwest Order

September 1993 is hereby determined to be the representative period

for the purpose of ascertaining whether the issuance of the order, as

amended and as hereby proposed to be amended, regulating the handling

of milk in the Pacific Northwest marketing area is approved or favored

by producers as defined under the terms of the order (as amended and as

hereby proposed to be amended) who during the representative period

were engaged in the production of milk for sale within the Pacific

Northwest marketing area.

List of Subjects in 7 CFR Parts 1124 and 1135

Milk marketing orders.

Dated: February 9, 1994.

Patricia Jensen,

Acting Assistant Secretary, Marketing and Inspection Services.

Order Amending the Orders Regulating the Handling of Milk in the

Pacific Northwest and Southwestern Idaho-Eastern Oregon Marketing Areas

This order shall not become effective unless and until the

requirements of Sec. 900.14 of the rules of practice and procedure

governing proceedings to formulate marketing agreements and marketing

orders have been met.

Findings and Determinations

The findings and determinations hereinafter set forth supplement

those that were made when the orders were first issued and when they

were amended. The previous findings and determinations are hereby

ratified and confirmed, except where they may conflict with those set

forth herein.

(a) Findings. A public hearing was held upon certain proposed

amendments to the tentative marketing agreements and to the orders

regulating the handling of milk in the Pacific Northwest and

Southwestern Idaho-Eastern Oregon marketing areas. The hearing was held

pursuant to the provisions of the Agricultural Marketing Agreement Act

of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of

practice and procedure (7 CFR part 900).

Upon the basis of the evidence introduced at such hearing and the

record thereof, it is found that:

(1) The said orders as hereby amended, and all of the terms and

conditions thereof, will tend to effectuate the declared policy of the

Act;

(2) The parity prices of milk, as determined pursuant to section 2

of the Act, are not reasonable in view of the price of feeds, available

supplies of feeds, and other economic conditions which affect market

supply and demand for milk in the said marketing areas; and the minimum

prices specified in the orders as hereby amended are such prices as

will reflect the aforesaid factors, insure a sufficient quantity of

pure and wholesome milk, and be in the public interest; and

(3) The said orders as hereby amended regulate the handling of milk

in the same manner as, and are applicable only to persons in the

respective classes of industrial or commercial activity specified in,

marketing agreements upon which a hearing has been held.

Order Relative to Handling

It is therefore ordered that on and after the effective date

hereof, the handling of milk in the Pacific Northwest and Southwestern

Idaho-Eastern Oregon marketing areas shall be in conformity to and in

compliance with the terms and conditions of the orders, as amended, and

as hereby amended, as follows:

The provisions of the proposed marketing agreements and order

amending the orders contained in the recommended decision issued by the

Acting Administrator, Agricultural Marketing Service, on October 7,

1993, and published in the Federal Register on October 15, 1993 [58 FR

53439], shall be and are the terms and provisions of this order,

amending the orders, and are set forth in full herein.

For the reasons set forth in the preamble, title 7, parts 1124 and

1135, are amended to read as follows:

PART 1124--MILK IN THE PACIFIC NORTHWEST MARKETING AREA

1. The authority citation for part 1124 continues to read as

follows:

Authority: Secs. 1-19, 48 Stat. 31, as amended (7 U.S.C. 601-

674).

Sec. 1124.7 [Amended]

2. In the introductory text of Sec. 1124.7(b), the number ``30'' is

changed to ``20''.

Sec. 1124.9 [Amended]

3. In Sec. 1124.9(c), the words ``and nonfat milk solids'' are

added following the word ``butterfat''.

4. In Sec. 1124.10, paragraph (c)(2) is revised to read as follows:

Sec. 1124.10 Producer-handler.

* * * * *

(c) * * *

(2) The producer-handler handles fluid milk products from sources

other than the milk production facilities and resources specified in

paragraph (b) of this section, except as specified as follows:

(i) A producer-handler, other than a State institution, may receive

fluid milk products from pool plants if such receipts do not exceed a

daily average of 100 pounds during the month; and

(ii) A State institution that otherwise qualifies as a producer-

handler, but which processes or receives milk for consumption outside

of a State institution, may receive fluid milk products from pool

plants if such receipts do not exceed a daily average of 1,000 pounds

per day during the month.

* * * * *

5. Section 1124.19 is revised to read as follows:

Sec. 1124.19 Product prices and butterfat differential.

The prices specified in this section, which are computed by the

Director of the Dairy Division, Agricultural Marketing Service, shall

be used, where specified, in calculating the basic formula prices

pursuant to Sec. 1124.51. The term workday as used in this section

shall mean each Monday through Friday that is not a national holiday.

(a) Butter price means the simple average, for the first 15 days of

the month, of the daily prices per pound of Grade A (92-score) butter

on the Chicago Mercantile Exchange, using the price reported each week

as the price for the day of the report, and for each following workday

until the next price is reported.

(b) Cheddar cheese price means the simple average, for the first 15

days of the month, of the daily prices per pound of cheddar cheese in

40-pound blocks. The prices used shall be those of the National Cheese

Exchange (Green Bay, WI), using the price reported each week as the

price for the day of the report and for each following workday until

the next price is reported.

(c) Nonfat dry milk price means the simple average of the prices

per pound of nonfat dry milk for the first 15 days of the month

computed as follows:

(1) The prices used shall be the prices (using the midpoint of any

price range as one price) of high heat, low heat, and Grade A nonfat

dry milk, respectively, for the Central States production area;

(2) For each week, determine the simple average of the prices

reported for the three types of nonfat dry milk. Such average shall be

the daily price for the day that such prices are reported and for each

preceding workday until the day such prices were previously reported;

and

(3) Add the prices determined in paragraph (c)(2) of this section

for the first 15 days of the month and divide by the number of days for

which there is a daily price.

(d) Edible whey price means the simple average, for the first 15

days of the month, of the daily prices per pound of edible whey powder

(nonhygroscopic). The prices used shall be the prices (using the

midpoint of any price range as one price) of edible whey powder for the

Central States production area. The average shall be computed using the

price reported each week as the daily price for that day and for each

preceding workday until the day such price was previously reported.

(e) The butterfat differential is the number that results from

subtracting the computation in paragraph (e)(2) of this section from

the computation in paragraph (e)(1) of this section and rounding to the

nearest one-tenth cent:

(1) Multiply 0.138 times the monthly average Chicago Mercantile

Exchange Grade A (92-score) butter price as reported and published by

the Dairy Division;

(2) Multiply 0.0028 times the average price per hundredweight, at

test, for manufacturing grade milk, f.o.b. plants in Minnesota and

Wisconsin, as reported by the Department for the month.

6. In Sec. 1124.30, paragraphs (a)(1)(i), (ii), and (c)(1), (2) and

(3) are revised to read as follows:

Sec. 1124.30 Reports of receipts and utilization.

* * * * *

(a) * * *

(1) * * *

(i) Milk received directly from producers (including such handler's

own production) and the pounds of nonfat milk solids contained therein;

(ii) Milk received from a cooperative association pursuant to

Sec. 1124.9(c) and the pounds of nonfat milk solids contained therein;

* * * * *

(c) * * *

(1) The pounds of skim milk, butterfat, and nonfat milk solids

received from producers;

(2) The utilization of skim milk, butterfat, and nonfat milk solids

for which it is the handler pursuant to Sec. 1124.9(b); and

(3) The quantities of skim milk, butterfat, and nonfat milk solids

delivered to each pool plant pursuant to Sec. 1124.9(c).

* * * * *

7. In Sec. 1124.31, paragraphs (a)(1), (b) introductory text, and

(b)(1) are revised to read as follows:

Sec. 1124.31 Payroll reports.

* * * * *

(a) * * *

(1) The total pounds of milk received from each producer, the

pounds of butterfat and nonfat milk solids contained in such milk, and

the number of days on which milk was delivered by the producer during

the month;

* * * * *

(b) Each handler operating a partially regulated distributing plant

who wishes computations pursuant to Sec. 1124.75(a) to be considered in

the computation of its obligation pursuant to Sec. 1124.75 shall submit

its payroll for deliveries of Grade A milk by dairy farmers which shall

show:

(1) The total pounds of milk received from each producer and the

pounds of butterfat and nonfat milk solids contained in such milk;

* * * * *

8. Section 1124.32 is revised to read as follows:

Sec. 1124.32 Other reports.

In addition to the reports required pursuant to Secs. 1124.30 and

1124.31, each handler shall report such other information as the market

administrator deems necessary to verify or establish such handler's

obligations under the order.

9. Section 1124.41 is amended by revising the second sentence of

paragraph (c) to read as follows:

Sec. 1124.41 Shrinkage.

* * * * *

(c) * * * If the operator of a plant or a commercial food

processing establishment pursuant to Sec. 1124.20 purchases such milk

on the basis of weights determined from its measurement at the farm,

and butterfat tests and nonfat milk solids determined from farm bulk

tank samples, the applicable percentage under this paragraph for the

cooperative association shall be zero.

10. The center heading preceding Sec. 1124.50 is revised to read

``Class and Component Prices''.

11. Section 1124.50 is revised to read as follows:

Sec. 1124.50 Class and component prices.

The class and component prices for the month, per hundredweight or

per pound, shall be as follows:

(a) The Class I price, subject to the provisions of Sec. 1124.52,

shall be the basic formula price defined in Sec. 1124.51 for the second

preceding month plus $1.90.

(b) The Class II price shall be computed by the Director of the

Dairy Division and transmitted to the market administrator on or before

the 15th day of the preceding month. The Class II price shall be the

basic Class II formula price computed pursuant to Sec. 1124.51(b) for

the month plus the amount that the value computed pursuant to paragraph

(b)(1) of this section exceeds the value computed pursuant to paragraph

(b)(2) of this section, plus any amount by which the basic Class II

formula price for the second preceding month, adjusted pursuant to

paragraphs (b)(1) and (b)(2) of this section, was less than the Class

III price for the second preceding month:

(1) Determine for the most recent 12-month period the simple

average (rounded to the nearest cent) of the basic formula prices

computed pursuant to Sec. 1124.51(a) and add 25 cents; and

(2) Determine for the same 12-month period as specified in

paragraph (b)(1) of this section the simple average (rounded to the

nearest cent) of the basic Class II formula prices computed pursuant to

Sec. 1124.51(b).

(c) The Class III price shall be the basic formula price for the

month.

(d) The Class III-A price for the month shall be the average

Western States nonfat dry milk price for the month, as reported by the

Department, less 12.5 cents, times an amount computed by subtracting

from 9 an amount calculated by dividing .4 by such nonfat dry milk

price, plus the butterfat differential times 35 and rounded to the

nearest cent.

(e) The skim milk price per hundredweight shall be the basic

formula price for the month pursuant to Sec. 1124.51(a) less an amount

computed by multiplying the butterfat differential computed pursuant to

Sec. 1124.19(e) by 35.

(f) The butterfat price per pound shall be the total of:

(1) The skim price computed in paragraph (e) of this section

divided by 100; and

(2) The butterfat differential computed pursuant to Sec. 1124.19(e)

multiplied by 10.

(g) The nonfat milk solids price per pound shall be computed by

subtracting the butterfat price, multiplied by 3.5, from the basic

formula price and dividing the result by the average percentage of

nonfat milk solids in the milk on which the basic formula price is

based, as announced by the Dairy Division. The resulting price shall be

rounded to the nearest whole cent.

12. Section 1124.51 is revised to read as follows:

Sec. 1124.51 Basic formula prices.

(a) The basic formula price shall be the average price per

hundredweight for manufacturing grade milk, f.o.b. plants in Minnesota

and Wisconsin, as reported by the Department for the month, adjusted to

a 3.5 percent butterfat basis and rounded to the nearest cent using the

butterfat differential computed pursuant to Sec. 1124.19(e).

(b) The basic Class II formula price for the month shall be the

basic formula price determined pursuant to Sec. 1124.51(a) for the

second preceding month plus or minus the amount computed pursuant to

paragraphs (b)(1) through (4) of this section:

(1) The gross values per hundredweight of milk used to manufacture

cheddar cheese and butter-nonfat dry milk shall be computed, using

price data determined pursuant to Sec. 1124.19 and yield factors in

effect under the Dairy Price Support Program authorized by the

Agricultural Act of 1949, as amended, for the first 15 days of the

preceding month and, separately, for the first 15 days of the second

preceding month as follows:

(i) The gross value of milk used to manufacture cheddar cheese

shall be the sum of the following computations:

(A) Multiply the cheddar cheese price by the yield factor used

under the Price Support Program for cheddar cheese;

(B) Multiply the butter price by the yield factor used under the

Price Support Program for determining the butterfat component of the

whey value in the cheese price computation; and

(C) Subtract from the edible whey price the processing cost used

under the Price Support Program for edible whey and multiply any

positive difference by the yield factor used under the Price Support

Program for edible whey.

(ii) The gross value of milk used to manufacture butter-nonfat dry

milk shall be the sum of the following computations:

(A) Multiply the butter price by the yield factor used under the

Price Support Program for butter; and

(B) Multiply the nonfat dry milk price by the yield factor used

under the Price Support Program for nonfat dry milk.

(2) Determine the amounts by which the gross value per

hundredweight of milk used to manufacture cheddar cheese and the gross

value per hundredweight of milk used to manufacture butter-nonfat dry

milk for the first 15 days of the preceding month exceed or are less

than the respective gross values for the first 15 days of the second

preceding month.

(3) Compute weighting factors to be applied to the changes in gross

values determined pursuant to paragraph (b)(2) of this section by

determining the relative proportion that the data included in each of

the following paragraphs is of the total of the data represented in

paragraphs (b)(3)(i) and (ii) of this section:

(i) Combine the total American cheese production for the States of

Minnesota and Wisconsin, as reported by the Statistical Reporting

Service of the Department for the most recent preceding period, and

divide by the yield factor used under the Price Support Program for

cheddar cheese to determine the quantity of milk used in the production

of American cheddar cheese; and

(ii) Combine the total nonfat dry milk production for the States of

Minnesota and Wisconsin, as reported by the Statistical Reporting

Service of the Department for the most recent preceding period, and

divide by the yield factor used under the Price Support Program for

nonfat dry milk to determine the quantity of milk used in the

production of butter-nonfat dry milk.

(4) Compute a weighted average of the changes in gross values per

hundredweight of milk determined pursuant to paragraph (b)(2) of this

section in accordance with the relative proportions of milk determined

pursuant to paragraph (b)(3) of this section.

Sec. 1124.51a [Removed]

13. Section 1124.51a is removed.

14. Section 1124.53 is revised to read as follows:

Sec. 1124.53 Announcement of class and component prices.

The market administrator shall announce publicly:

(a) On or before the 5th day of each month, the Class I price for

the following month and the Class III and Class III-A prices for the

preceding month;

(b) On or before the 15th day of each month, the Class II price for

the following month; and

(c) On or before the 5th day after the end of each month, the basic

formula price, the prices for skim milk and butterfat, and the nonfat

milk solids price.

15. The center heading preceding Sec. 1124.60 is revised to read

``Differential Pool and Handler Obligations''.

16. Section 1124.60 is revised to read as follows:

Sec. 1124.60 Computation of handlers' obligations to pool.

The market administrator shall compute each month for each handler

defined in Sec. 1124.9(a) with respect to each of the handler's pool

plants, and for each handler described in Sec. 1124.9 (b) and (c), an

obligation to the pool by combining the amounts computed as follows:

(a) Multiply the pounds of producer milk in Class I pursuant to

Sec. 1124.44 by the difference between the Class I price, adjusted

pursuant to Sec. 1124.52, and the Class III price;

(b) Multiply the pounds of producer milk in Class II pursuant to

Sec. 1124.44 by the difference between the Class II price and Class III

price;

(c) Add or subtract, as appropriate, the amount that results from

multiplying the pounds of producer milk in Class III-A by the amount

that the Class III-A price is more or less, respectively, than the

Class III price;

(d) Multiply the pounds of skim milk in Class I producer milk

pursuant to Sec. 1124.44 by the skim milk price for the month;

(e) Multiply the nonfat milk solids price for the month by the

pounds of nonfat milk solids associated with the pounds of producer

skim milk in Class II and Class III during the month. The pounds of

nonfat milk solids shall be computed by multiplying the producer skim

milk pounds so assigned by the percentage of nonfat milk solids in the

handler's receipts of producer skim milk during the month for each

report filed separately;

(f) With respect to skim milk and butterfat overages assigned

pursuant to Sec. 1124.44(a)(15), (b), and paragraph (f)(6) of this

section:

(1) Multiply the total pounds of butterfat by the butterfat price;

(2) Multiply the skim milk pounds assigned to Class I by the skim

milk price;

(3) Multiply the pounds of nonfat milk solids associated with the

skim milk pounds assigned to Class II and III by the nonfat milk solids

price;

(4) Multiply the combined skim milk and butterfat pounds assigned

to Class I by the difference between the Class I price, adjusted for

location, and the Class III price;

(5) Multiply the combined skim milk and butterfat pounds assigned

to Class II by the difference between the Class II price and the Class

III price; and

(6) Overage at a nonpool plant that is located on the same premises

as a pool plant shall be prorated between the quantity of skim and

butterfat received by transfer from the pool plant and other source

milk received at the nonpool plant. The pool plant operator's

obligation to the pool with respect to such overage will be computed by

adding the prorated pounds of skim milk and butterfat to the amounts

assigned pursuant to Sec. 1124.44(a)(15) and (b);

(g) With respect to skim milk and butterfat assigned to shrinkage

pursuant to Sec. 1124.44(a)(10) and (b):

(1) Multiply the total pounds of butterfat by the butterfat price;

(2) Multiply the skim milk pounds assigned to Class I by the skim

milk price;

(3) Multiply the pounds of nonfat milk solids associated with the

skim milk pounds assigned to Class II and III by the nonfat milk solids

price;

(4) Multiply the combined skim milk and butterfat pounds assigned

to Class I by the difference between the Class I price, adjusted for

location, and the Class III price;

(5) Multiply the combined skim milk and butterfat pounds assigned

to Class II by the difference between the Class II price and the Class

III price; and

(6) Subtract the Class III value of the milk at the previous

month's nonfat milk solids and butterfat prices;

(h) Multiply the difference between the Class I price, adjusted for

the location of the pool plant, and the Class III price by the combined

pounds of skim milk and butterfat assigned to Class I pursuant to

Sec. 1124.43(f) and subtracted from Class I pursuant to

Sec. 1124.44(a)(8) (i) through (iv), (vii), and Sec. 1124.44(b),

excluding:

(1) Receipts of bulk fluid cream products from an other order

plant;

(2) Receipts of bulk concentrated fluid milk products from pool

plants, other order plants, and unregulated supply plants; and

(3) Receipts of nonfluid milk products that are distributed as

labeled reconstituted milk for which payments are made to the producer-

settlement fund of another order under Sec. 1124.75 (b)(4) or (c);

(i) Multiply the combined pounds of skim milk and butterfat

subtracted from Class I pursuant to Sec. 1124.44(a)(8) (v) and (vi) and

Sec. 1124.44(b) by the difference between the Class I price at the

transferor plant and the Class III price;

(j) Multiply the difference between the Class I and Class III

prices, applicable at the location of the nearest nonpool plant(s) from

which an equivalent volume was received, with respect to skim milk and

butterfat in receipts of concentrated fluid milk products assigned to

Class I pursuant to Sec. 1124.43(f) and Sec. 1124.44(a)(8)(v) and the

combined pounds of skim milk and butterfat in receipts from an

unregulated supply plant assigned pursuant to Sec. 1124.44 (a)(12) and

(b), excluding such skim milk or butterfat in receipts of bulk fluid

milk products from an unregulated supply plant to the extent that an

equivalent quantity disposed of to such plant by handlers fully

regulated by any Federal order is classified and priced as Class I milk

and is not used as an offset for any other payment obligation under any

order;

(k) Subtract, for reconstituted milk made from receipts of nonfluid

milk products, an amount computed by multiplying $1.00 (but not more

than the difference between the Class I price applicable at the

location of the pool plant and the Class III price) by the combined

pounds of skim milk and butterfat contained in receipts of nonfluid

milk products that are allocated to Class I use pursuant to

Sec. 1124.43(f);

(l) Add or subtract, as appropriate, the amount necessary to

correct errors disclosed by the verification of the handler's receipts

and utilization of skim milk and butterfat as reported for previous

months; and

(m) For pool plants that transfer bulk concentrated fluid milk

products to other pool plants and other order plants, add or subtract

the amount per hundredweight of any class price change from the

previous month that results from any inventory reclassification of bulk

concentrated fluid milk products that occurs at the transferee plant.

Any applicable class price change shall be applied to the plant that

used the concentrated milk in the event that the concentrated fluid

milk products were made from bulk unconcentrated fluid milk products

received at the plant during the prior month.

17. Section 1124.61 is revised to read as follows:

Sec. 1124.61 Computation of weighted average differential price.

A weighted average differential price for each month shall be

computed by the market administrator as follows:

(a) Combine into one total the value computed pursuant to

Sec. 1124.60 (a) through (c) and (f) through (m) for all handlers who

filed the reports prescribed by Sec. 1124.30 for the month and who made

the payments pursuant to Sec. 1124.71 for the preceding month;

(b) Add an amount equal to the total value of the location

adjustments computed pursuant to Sec. 1124.74;

(c) Add an amount equal to not less than one-half of the

unobligated balance in the producer settlement fund;

(d) Divide the resulting amount by the sum, for all handlers, of

the total hundredweight of producer milk and the total hundredweight

for which a value is computed pursuant to Sec. 1124.60(j); and

(e) Subtract not less than 4 cents per hundredweight nor more than

5 cents per hundredweight. The result shall be the weighted average

differential price.

18. Section 1124.62 is redesignated as Sec. 1124.63 and revised to

read as follows:

Sec. 1124.63 Announcement of the weighted average differential price,

the producer nonfat milk solids price, and an estimated uniform price.

The market administrator shall announce on or before the 14th day

after the end of each month, the following prices for such month:

(a) The weighted average differential price;

(b) The producer nonfat milk solids price; and

(c) An estimated uniform price per hundredweight of milk which is

computed by adding the weighted average differential price to the basic

formula price.

19. A new Sec. 1124.62 is added to read as follows:

Sec. 1124.62 Computation of producer nonfat milk solids price.

The producer nonfat milk solids price shall be computed by the

market administrator each month as follows:

(a) Combine into one total the values computed pursuant to

Sec. 1124.60 (d) and (e) for all handlers who filed reports pursuant to

Sec. 1124.30 and who made payments pursuant to Sec. 1124.71 for the

preceding month;

(b) Divide the resulting amount by the total pounds of nonfat milk

solids in producer milk; and

(c) Round to the nearest whole cent.

20. Section 1124.70 is revised to read as follows:

Sec. 1124.70 Producer-settlement fund.

The market administrator shall establish and maintain a separate

fund known as the ``producer-settlement'' fund into which shall be

deposited all payments made by handlers pursuant to Secs. 1124.71 and

1124.75 and out of which shall be made all payments to handlers

pursuant to Sec. 1124.72. Payments due a handler from the fund shall be

offset against payments due from such handler.

21. Section 1124.71 is revised to read as follows:

Sec. 1124.71 Payments to the producer-settlement fund.

On or before the 16th day after the end of the month, each handler

shall pay to the market administrator the amount, if any, which results

from subtracting the sum computed pursuant to paragraph (a) of this

section from the sum computed pursuant to paragraph (b) of this

section:

(a) The sum of:

(1) The total obligation of the handler for such month as

determined pursuant to Sec. 1124.60; and

(2) For a cooperative association handler, the amount due from

other handlers pursuant to Sec. 1124.73(d);

(b) The sum of:

(1) The value of milk received by the handler from producers at the

applicable prices pursuant to Sec. 1124.73(a)(2) (i), (ii), and (iii);

(2) The amount to be paid by the handler to cooperative

associations pursuant to Sec. 1124.73(d); and

(3) The value at the weighted average differential price adjusted

for the location of the plant(s) at which received (not to be less than

zero) with respect to the total hundredweight of skim milk and

butterfat in other source milk for which a value was computed for such

handler pursuant to Sec. 1124.60(j); and

(c) On or before the 25th day after the end of the month, each

handler operating a plant specified in Sec. 1124.7(d) (2) and (3), if

such plant is subject to the classification and pricing provisions of

another order which provides for individual handler pooling, shall pay

to the market administrator for the producer-settlement fund an amount

computed as follows:

(1) Determine the quantity of reconstituted skim milk in filled

milk disposed of as route disposition in the marketing area which was

allocated to Class I at such other order plant. If reconstituted skim

milk in filled milk is disposed of from such plant as route disposition

in the marketing areas regulated by two or more market pool orders, the

reconstituted skim milk assigned to Class I shall be prorated according

to such disposition in each area.

(2) Compute the value of the quantity assigned in paragraph (c)(1)

of this section to Class I disposition in this area, at the Class I

price under this part applicable at the location of the other order

plant (but not to be less than the Class III price) and subtract its

value at the Class III price.

22. Section 1124.72 is revised to read as follows:

Sec. 1124.72 Payments from the producer-settlement fund.

On or before the 18th day after the end of the month, the market

administrator shall pay to each handler the amount, if any, by which

the amount computed pursuant to Sec. 1124.71(b) exceeds the amount

computed pursuant to Sec. 1124.71(a), less any unpaid obligations of

such handler to the market administrator pursuant to Secs. 1124.71,

1124.75, 1124.85, and 1124.86. However, if the balance in the producer-

settlement fund is insufficient to make all payments pursuant to this

section, the market administrator shall reduce uniformly such payments

and shall complete such payments as soon as the necessary funds are

available.

23. Section 1124.73 is revised to read as follows:

Sec. 1124.73 Payments to producers and to cooperative associations.

(a) Each handler shall make payment pursuant to this paragraph or

paragraph (b) of this section to each producer from whom milk is

received during the month:

(1) On or before the last day of the month, to each producer who

did not discontinue shipping milk to such handler before the 18th day

of the month at not less than the Class III price for the preceding

month per hundredweight of milk received from the producer during the

first 15 days of the month, subject to adjustment for proper deductions

authorized in writing by the producer;

(2) On or before the 19th day after the end of each month, an

amount computed as follows:

(i) Multiply the butterfat price for the month by the total pounds

of butterfat in milk received from the producer;

(ii) Add the amount that results from multiplying the producer

nonfat milk solids price for the month by the total pounds of nonfat

milk solids in the milk received from the producer;

(iii) Add the amount that results from multiplying the total

hundredweight of milk received from the producer by the weighted

average differential price for the month as adjusted pursuant to

Sec. 1124.74(a);

(iv) Subtract payments made to the producer pursuant to paragraph

(a)(1) of this section;

(v) Subtract proper deductions authorized in writing by the

producer; and

(vi) Subtract any deduction required pursuant to statute; and

(3) If by the 19th day after the end of the month, a handler has

not received full payment from the market administrator pursuant to

Sec. 1124.72, the payments to producers required pursuant to paragraph

(a)(2) of this section may be reduced uniformly as a percentage of the

amount due each producer by a total sum not in excess of the remainder

due from the market administrator. The handler shall pay the balance

due producers on or before the date for making payments pursuant to

such paragraph next following receipt of the full payment from the

market administrator.

(b) The payments required in paragraph (a) of this section shall,

upon the request of a cooperative association qualified under

Sec. 1124.18, be made to the association or its duly authorized agent

for milk received from each producer who has given such association

authorization by contract or other written instrument to collect the

proceeds from the sale of the producer's milk. All payments required

pursuant to this paragraph shall be made on or before the second day

prior to the dates specified for such payment in paragraph (a)(2) of

this section.

(c) Each handler shall pay to each cooperative association which

operates a pool plant, or the cooperative's duly authorized agent, for

butterfat and nonfat milk solids received from such plant in the form

of fluid milk products as follows:

(1) On or before the second day prior to the date specified in

paragraph (a)(1) of this section, for butterfat and nonfat milk solids

received during the first 15 days of the month at not less than the

butterfat and nonfat milk solids prices, respectively, for the

preceding month; and

(2) On or before the 15th day after the end of the month, an amount

of money determined in accordance with computations made on the same

basis as those specified in paragraph (a)(2) (i) through (iii) of this

section, minus any payment made pursuant to paragraph (c)(1) of this

section.

(d) Each handler pursuant to Sec. 1124.9(a) that received milk from

a cooperative association that was a handler pursuant to Sec. 1124.9(c)

shall pay the cooperative association for such milk as follows:

(1) On or before the second day prior to the date specified in

paragraph (a)(1) of this section, for milk received during the first 15

days of the month at not less than the Class III price for the

preceding month; and

(2) On or before the 17th day after the end of each month, for milk

received during the month an amount of money determined in accordance

with the computations specified in paragraphs (a)(2) (i) through (iii)

of this section, minus any payment made pursuant to paragraph (d)(1) of

this section.

(e) None of the provisions of this section shall be construed to

restrict any cooperative association qualified under section 8c(5)(F)

of the Act from making payment for milk to its producers in accordance

with such provision of the Act.

(f) In making payments to producers pursuant to this section, each

handler shall provide each producer, on or before the 19th day of each

month, with a supporting statement for milk received from the producer

during the previous month in such form that it may be retained by the

producer, which shall show:

(1) The identity of the handler and the producer;

(2) The total pounds of milk delivered by the producer, the pounds

of butterfat and nonfat milk solids contained therein, and, unless

previously provided, the pounds of milk in each delivery;

(3) The minimum rates at which payment to the producer is required

under the provisions of this section;

(4) The rate and amount of any premiums or of payments made in

excess of the minimums required under this order;

(5) The amount or rate of each deduction claimed by the handler,

together with an explanation of each such deduction; and

(6) The net amount of payment to the producer.

(g) In making payments to a cooperative association in aggregate

pursuant to this section, each handler shall, upon request, provide the

cooperative association, with respect to each producer for whom such

payment is made, any or all of the information specified in paragraph

(f) of this section.

Sec. 1124.74 [Removed]

24. Section 1124.74 is removed.

Sec. 1124.75 [Redesignated as Sec. 1124.74]

25. Section 1124.75 is redesignated as Sec. 1124.74, and paragraph

(c) is revised to read as follows:

Sec. 1124.74 Plant location adjustments for producers and on nonpool

milk.

* * * * *

(c) For purposes of the computations pursuant to

Sec. Sec. 1124.71(a) and 1124.72, the weighted average differential

price for all milk shall be adjusted at the rates set forth in

Sec. 1124.52 for Class I milk applicable at the location of the nonpool

plant from which the milk or filled milk was received, except that the

adjusted weighted average differential price shall not be less than

zero.

Sec. 1124.76 [Redesignated as Sec. 1124.75 and Amended]

26. Section 1124.76 is redesignated as Sec. 1124.75. In the newly

designated Sec. 1124.75(a)(1)(i), in the second sentence the words ``or

estimated uniform price'' are inserted after the words ``uniform

price''; and in the last sentence the reference ``Sec. 1124.60(f)'' is

changed to read ``Sec. 1124.60(j)'' and the reference

``Sec. 1124.71(a)(2)(iii)'' is changed to read ``Sec. 1124.71(b)(3)''.

In Sec. 1124.75(a)(2)(i), the reference ``Sec. 1124.74'' is changed to

read ``Sec. 1124.19(e)''. In Sec. 1124.75(b)(4), the word ``estimated''

is inserted before the words ``uniform price''.

Sec. 1124.77 [Redesignated as Sec. 1124.76]

27. Section 1124.77 is redesignated as Sec. 1124.76.

Sec. 1124.78 [Redesignated as Sec. 1124.77 and Amended]

28. Section 1124.78 is redesignated as Sec. 1124.77, and the

reference in paragraph (a) introductory text to ``Sec. 1124.77'' is

changed to read ``Sec. 1124.75''.

Sec. 1124.85 [Amended]

29. In Sec. 1124.85(b), the reference ``Sec. 1124.60(f)'' is

changed to read ``Sec. 1124.60(h) and (j)'' and in Sec. 1124.85(c)(2),

the reference ``Sec. 1124.76(b)(2)(ii)'' is changed to read

``Sec. 1124.75(b)(2)(ii)''.

PART 1135--MILK IN THE SOUTHWESTERN IDAHO-EASTERN OREGON MARKETING

AREA

1. The authority citation for part 1135 continues to read as

follows:

Authority: Secs. 1-19, 48 Stat. 31, as amended; 7 U.S.C. 601-

674.

Sec. 1135.9 [Amended]

1a. In Sec. 1135.9(c), the words ``and protein tests'' are added

following the word ``butterfat''.

2. Section 1135.19 is revised to read as follows:

Sec. 1135.19 Product prices and butterfat differential.

The prices specified in this section, which are computed by the

Director of the Dairy Division, Agricultural Marketing Service, shall

be used, where specified, in calculating the basic formula prices

pursuant to Sec. 1135.51. The term ``workday'' as used in this section

shall mean each Monday through Friday that is not a national holiday.

(a) Butter price means the simple average, for the first 15 days of

the month, of the daily prices per pound of Grade A (92-score) butter

on the Chicago Mercantile Exchange, using the price reported each week

as the price for the day of the report, and for each following workday

until the next price is reported.

(b) Cheddar cheese price means the simple average, for the first 15

days of the month, of the daily prices per pound of cheddar cheese in

40-pound blocks. The prices used shall be those of the National Cheese

Exchange (Green Bay, WI), using the price reported each week as the

price for the day of the report and for each following workday until

the next price is reported.

(c) Nonfat dry milk price means the simple average of the prices

per pound of nonfat dry milk for the first 15 days of the month

computed as follows:

(1) The prices used shall be the prices (using the midpoint of any

price range as one price) of high heat, low heat, and Grade A nonfat

dry milk, respectively, for the Central States production area;

(2) For each week, determine the simple average of the prices

reported for the three types of nonfat dry milk. Such average shall be

the daily price for the day that such prices are reported and for each

preceding workday until the day such prices were previously reported;

and

(3) Add the prices determined in paragraph (c)(2) of this section

for the first 15 days of the month and divide by the number of days for

which there is a daily price.

(d) Edible whey price means the simple average, for the first 15

days of the month, of the daily prices per pound of edible whey powder

(nonhygroscopic). The prices used shall be the prices (using the

midpoint of any price range as one price) of edible whey powder for the

Central States production area. The average shall be computed using the

price reported each week as the daily price for that day and for each

preceding workday until the day such price was previously reported.

(e) The butterfat differential is the number that results from

subtracting the computation in paragraph (e)(2) of this section from

the computation in paragraph (e)(1) of this section and rounding to the

nearest one-tenth cent:

(1) Multiply 0.138 times the monthly average Chicago Mercantile

Exchange Grade A (92-score) butter price, as reported and published by

the Dairy Division;

(2) Multiply 0.0028 times the average price per hundredweight, at

test, for manufacturing grade milk, f.o.b. plants in Minnesota and

Wisconsin, as reported by the Department for the month.

3. In Sec. 1135.30, paragraphs (b) and (d) are redesignated as

paragraphs (d) and (e), respectively, and the introductory text of the

section and paragraphs (a) and (c) are revised and a new paragraph (b)

is added to read as follows:

Sec. 1135.30 Reports of receipts and utilization.

On or before the 9th day after the end of the month, each handler

shall report to the market administrator, in the detail and on forms

prescribed by the market administrator, the following information for

such month:

(a) Each handler qualified pursuant to Sec. 1135.9(a) shall report

for each pool plant operated by the handler the quantities of skim milk

and butterfat contained in or represented by:

(1) Producer milk received at such plants or diverted by the

handler to other plants, and the protein content of such milk;

(2) Producer milk received at such plants from handlers qualified

pursuant to Sec. 1135.9 (c) and (d), and the protein content of such

milk; and

(3) Fluid milk products and bulk fluid cream products from other

pool plants and other source milk received at such plants.

(b) Each handler qualified pursuant to Sec. 1135.9 (b), (c), or (d)

shall report the quantities of producer milk received and the butterfat

and protein contained therein.

(c) Each handler submitting reports pursuant to paragraphs (a) and

(b) of this section shall report the utilization or disposition of all

milk, filled milk, and milk products required to be reported, and

inventories on hand at the beginning and end of each month in the form

of fluid milk products and products specified in Sec. 1135.40(b)(1).

* * * * *

4. In Sec. 1135.31(a), the word ``20th'' is changed to ``22nd'',

the semicolon at the end of paragraph (a) introductory text is changed

to a colon, and paragraph (a)(4) is revised to read as follows:

Sec. 1135.31 Payroll reports.

(a) * * *

(4) The average butterfat and protein content of his/her milk;

* * * * *

5. In Sec. 1135.41, the colon at the end of paragraph (b)(3) is

changed to a semicolon and paragraph (c) is revised to read as follows:

Sec. 1135.41 Shrinkage.

* * * * *

(c) The quantity of skim milk and butterfat, respectively, in

shrinkage of milk from producers for which a cooperative association is

the handler pursuant to Sec. 1135.9 (b) or (c) or a proprietary bulk

tank handler is the handler pursuant to Sec. 1135.9(d), but not in

excess of 0.5 percent of the skim milk and butterfat, respectively, in

such milk. If the operator of the plant to which the milk is delivered

purchases such milk on the basis of weights determined from its

measurement at the farm and protein and butterfat tests determined from

farm bulk tank samples, the applicable percentage for the cooperative

association or the proprietary bulk tank handler shall be zero.

6. The center heading preceding Sec. 1135.50 is revised to read

``Class and Component Prices''.

7. In Sec. 1135.50, in paragraph (b) introductory text the

reference ``Sec. 1135.51a'' is revised to read ``Sec. 1135.51(b)''; in

paragraph (b)(1), the reference ``Sec. 1135.51'' is revised to read

``Sec. 1135.51(a)''; in paragraph (b)(2), the reference

``Sec. 1135.51a'' is revised to read ``Sec. 1135.51(b)''; the section

heading and paragraph (a) are revised; and new paragraphs (e), (f), and

(g) are added to read as follows:

Sec. 1135.50 Class and component prices.

* * * * *

(a) The Class I price shall be the basic formula price pursuant to

Sec. 1135.51(a) for the second preceding month plus $1.50.

* * * * *

(e) The skim milk price per hundredweight shall be the basic

formula price for the month pursuant to Sec. 1135.51(a) less an amount

computed by multiplying the butterfat differential computed pursuant to

Sec. 1135.19(e) by 35.

(f) The butterfat price per pound shall be the total of:

(1) The skim price computed in paragraph (e) of this section

divided by 100; and

(2) The butterfat differential computed pursuant to Sec. 1135.19(e)

multiplied by 10.

(g) The milk protein price per pound shall be computed by

subtracting the butterfat price, multiplied by 3.5, from the basic

formula price and dividing the result by the percentage of protein in

the milk on which the basic formula price is based, as announced by the

Dairy Division. The resulting price shall be rounded to the nearest

whole cent.

8. Section 1135.51 is revised to read as follows:

Sec. 1135.51 Basic formula prices.

(a) The basic formula price shall be the average price per

hundredweight for manufacturing grade milk, f.o.b. plants in Minnesota

and Wisconsin, as reported by the Department for the month, adjusted to

a 3.5 percent butterfat basis and rounded to the nearest cent using the

butterfat differential computed pursuant to Sec. 1135.19(e).

(b) The basic Class II formula price for the month shall be the

basic formula price determined pursuant to Sec. 1135.51(a) for the

second preceding month plus or minus the amount computed pursuant to

paragraphs (b)(1) through (4) of this section:

(1) The gross values per hundredweight of milk used to manufacture

cheddar cheese and butter-nonfat dry milk shall be computed, using

price data determined pursuant to Sec. 1135.19 and yield factors in

effect under the Dairy Price Support Program authorized by the

Agricultural Act of 1949, as amended, for the first 15 days of the

preceding month and, separately, for the first 15 days of the second

preceding month as follows:

(i) The gross value of milk used to manufacture cheddar cheese

shall be the sum of the following computations:

(A) Multiply the cheddar cheese price by the yield factor used

under the Price Support Program for cheddar cheese;

(B) Multiply the butter price by the yield factor used under the

Price Support Program for determining the butterfat component of the

whey value in the cheese price computation; and

(C) Subtract from the edible whey price the processing cost used

under the Price Support Program for edible whey and multiply any

positive difference by the yield factor used under the Price Support

Program for edible whey.

(ii) The gross value of milk used to manufacture butter-nonfat dry

milk shall be the sum of the following computations:

(A) Multiply the butter price by the yield factor used under the

Price Support Program for butter; and

(B) Multiply the nonfat dry milk price by the yield factor used

under the Price Support Program for nonfat dry milk.

(2) Determine the amounts by which the gross value per

hundredweight of milk used to manufacture cheddar cheese and the gross

value per hundredweight of milk used to manufacture butter-nonfat dry

milk for the first 15 days of the preceding month exceed or are less

than the respective gross values for the first 15 days of the second

preceding month.

(3) Compute weighting factors to be applied to the changes in gross

values determined pursuant to paragraph (b)(2) of this section by

determining the relative proportion that the data included in each of

the following paragraphs is of the total of the data represented in

paragraphs (b)(3) (i) and (ii) of this section:

(i) Combine the total American cheese production for the States of

Minnesota and Wisconsin, as reported by the Statistical Reporting

Service of the Department for the most recent preceding period, and

divide by the yield factor used under the Price Support Program for

cheddar cheese to determine the quantity of milk used in the production

of American cheddar cheese; and

(ii) Combine the total nonfat dry milk production for the States of

Minnesota and Wisconsin, as reported by the Statistical Reporting

Service of the Department for the most recent preceding period, and

divide by the yield factor used under the Price Support Program for

nonfat dry milk to determine the quantity of milk used in the

production of butter-nonfat dry milk.

(4) Compute a weighted average of the changes in gross values per

hundredweight of milk determined pursuant to paragraph (b)(2) of this

section in accordance with the relative proportions of milk determined

pursuant to paragraph (b)(3) of this section.

Sec. 1135.51a [Removed]

9. Section 1135.51a is removed.

10. Section 1135.53 is revised to read as follows:

Sec. 1135.53 Announcement of class and component prices.

The market administrator shall announce publicly:

(a) On or before the 5th day of each month, the Class I price for

the following month and the Class III and Class III-A prices for the

preceding month;

(b) On or before the 15th day of each month, the Class II price for

the following month; and

(c) On or before the 5th day after the end of each month, the basic

formula price, the prices for skim milk and butterfat, and the milk

protein price.

11. A center heading preceding Sec. 1135.60 is added to read

``Differential Pool and Handler Obligations''.

12. Section 1135.60 is revised to read as follows:

Sec. 1135.60 Computation of handlers' obligations to pool.

The market administrator shall compute each month for each handler

described in Sec. 1135.9(a) with respect to each of the handler's pool

plants and for each handler qualified pursuant to Sec. 1135.9 (b), (c),

or (d) an obligation to the pool by combining the amounts computed as

follows:

(a) Multiply the hundredweight of producer milk assigned to Class I

milk pursuant to Sec. 1135.44(c) by the difference between the Class I

price and the Class III price;

(b) Multiply the hundredweight of producer milk assigned to Class

II milk pursuant to Sec. 1135.44(c) by the difference between the Class

II price and the Class III price;

(c) Add or subtract, as appropriate, the amount that results from

multiplying the pounds of producer milk in Class III-A by the amount

that the Class III-A price is more or less, respectively, than the

Class III price;

(d) Multiply the skim milk price by the hundredweight of producer

skim milk assigned to Class I milk pursuant to Sec. 1135.44(a);

(e) Multiply the milk protein price by the pounds of protein in

producer skim milk assigned to Class II and Class III pursuant to

Sec. 1135.44(a). The pounds of protein shall be computed by multiplying

the hundredweight of skim milk so assigned by the average percentage of

protein in all producer skim milk received by the handler during the

month;

(f) With respect to skim milk and butterfat overages assigned

pursuant to Sec. 1135.44(a)(14) and (b):

(1) Multiply the total pounds of butterfat by the butterfat price;

(2) Multiply the skim milk pounds assigned to Class I by the skim

milk price;

(3) Multiply the protein pounds associated with the skim milk

pounds assigned to Class II and III by the milk protein price;

(4) Multiply the combined skim milk and butterfat pounds assigned

to Class I by the difference between the Class I price and the Class

III price; and

(5) Multiply the combined skim milk and butterfat pounds assigned

to Class II by the difference between the Class II price and the Class

III price;

(g) With respect to skim milk and butterfat assigned to shrinkage

pursuant to Sec. 1135.44(a)(9) and (b):

(1) Multiply the total pounds of butterfat by the butterfat price;

(2) Multiply the skim milk pounds assigned to Class I by the skim

milk price;

(3) Multiply the protein pounds associated with the skim milk

pounds assigned to Class II and III by the milk protein price;

(4) Multiply the combined skim milk and butterfat pounds assigned

to Class I by the difference between the Class I price and the Class

III price;

(5) Multiply the combined skim milk and butterfat pounds assigned

to Class II by the difference between the Class II price and the Class

III price; and

(6) Subtract the Class III value of the milk at the previous

month's protein and butterfat prices;

(h) Multiply the difference between the Class I price and the Class

III price by the combined pounds of skim milk and butterfat assigned to

Class I pursuant to Sec. 1135.43(d) and subtracted from Class I

pursuant to Sec. 1135.44(a)(7)(i) through (iv) and (b), excluding:

(1) Receipts of bulk fluid cream products from an other order

plant;

(2) Receipts of bulk concentrated fluid milk products from pool

plants, other order plants, and unregulated supply plants; and

(3) Receipts of nonfluid milk products that are distributed as

labeled reconstituted milk for which payments are made to the producer-

settlement fund of another order under Sec. 1135.76(a)(5) or (c);

(i) Multiply the difference between the Class I price and the Class

III price by the combined pounds of skim milk and butterfat subtracted

from Class I pursuant to Sec. 1135.44(a)(7)(v) and (vi) and

Sec. 1135.44(b);

(j) Multiply the difference between the Class I price and the Class

III price by the combined pounds of skim milk and butterfat in receipts

of concentrated fluid milk products assigned to Class I pursuant to

Sec. 1135.43(d) and Sec. 1135.44(a)(7)(i) and by the pounds of skim and

butterfat subtracted from Class I pursuant to Sec. 1135.44(a)(11) and

(b), excluding the skim milk and butterfat in receipts of bulk fluid

milk products from unregulated supply plants to the extent an

equivalent quantity of skim milk and butterfat disposed of to any such

plant by handlers fully regulated under any Federal milk order is

classified and priced as Class I milk and is not used as an offset for

any other payment obligation under any order;

(k) Subtract, for reconstituted milk made from receipts of nonfluid

milk products, an amount computed by multiplying $1.00 (but not more

than the difference between the Class I price and the Class III price)

by the combined pounds of skim milk and butterfat contained in receipts

of nonfluid milk products that are allocated to Class I use pursuant to

Sec. 1135.43(d); and

(l) For pool plants that transfer bulk concentrated fluid milk

products to other pool plants and other order plants, add or subtract

the amount per hundredweight of any class price change from the

previous month that results from any inventory reclassification of bulk

concentrated fluid milk products that occurs at the transferee plant.

Any applicable class price change shall be applied to the plant that

used the concentrated milk in the event that the concentrated fluid

milk products were made from bulk unconcentrated fluid milk products

received at the plant during the prior month.

13. Section 1135.61 is revised to read as follows:

Sec. 1135.61 Computation of weighted average differential price.

A weighted average differential price for all milk received from

producers shall be computed by the market administrator as follows:

(a) Combine into one total the values computed pursuant to

Sec. 1135.60 (a) through (c) and (f) through (l) for all handlers who

filed reports pursuant to Sec. 1135.30 for the month, and who made the

payments pursuant to Sec. 1135.71 for the preceding month;

(b) Add an amount equal to not less than one-half of the

unobligated balance in the producer-settlement fund;

(c) Divide the resulting amount by the sum, for all handlers, of

the total hundredweight of producer milk and the total hundredweight

for which values were computed pursuant to Sec. 1135.60(j); and

(d) Subtract not less than 4 cents nor more than 5 cents per

hundredweight of milk included under paragraph (c) of this section. The

result shall be the weighted average differential price.

Sec. 1135.62 [Redesignated as Sec. 1135.63]

14. Section 1135.62 is redesignated as Sec. 1135.63 and revised to

read as follows:

Sec. 1135.63 Announcement of the weighted average differential price,

the producer protein price, and an estimated uniform price.

The market administrator shall announce on or before the 14th day

after the end of each month the following prices for such month:

(a) The weighted average differential price;

(b) The producer protein price; and

(c) An estimated uniform price per hundredweight of milk computed

by adding the weighted average differential price to the basic formula

price.

15. A new Sec. 1135.62 is added to read as follows:

Sec. 1135.62 Computation of producer protein price.

A producer protein price shall be computed by the market

administrator each month as follows:

(a) Combine into one total the values computed pursuant to

Sec. 1135.60(d) and (e) for all handlers who filed reports pursuant to

Sec. 1135.30 and who made payments pursuant to Sec. 1135.71 for the

preceding month;

(b) Divide the resulting amount by the total pounds or protein

contained in producer milk; and

(c) Round to the nearest whole cent. The result shall be the

producer protein price.

16. Section 1135.70 is revised to read as follows:

Sec. 1135.70 Producer-settlement fund.

The market administrator shall establish and maintain a separate

fund known as the ``producer-settlement fund'' into which he shall

deposit the appropriate payments made by handlers pursuant to

Secs. 1135.71, 1135.74, 1135.75, and 1135.76 and out of which he shall

make all payments due handlers pursuant to Secs. 1135.72, and 1135.75.

17. Section 1135.71 is revised to read as follows:

Sec. 1135.71 Payments to the producer-settlement fund.

On or before the 16th day after the end of the month, each handler

shall pay to the market administrator the amount, if any, by which the

amount as specified in paragraph (a) of this section exceeds the amount

specified in paragraph (b) of this section:

(a) The total obligation of the handler for such month as

determined pursuant to Sec. 1135.60.

(b) The sum of:

(1) The value computed by multiplying the weighted average

differential price by the hundredweight of producer milk received from

handlers qualified pursuant to Sec. 1135.9(c) and from producers during

the month;

(2) The value computed for the protein contained in the producer

milk included under paragraph (b)(1) of this section at the producer

protein price; and

(3) The value at the weighted average differential price of the

hundredweight of skim milk and butterfat for which a value is computed

pursuant to Sec. 1135.60(j).

18. Section 1135.72 is revised to read as follows:

Sec. 1135.72 Payments from the producer-settlement fund.

On or before the 18th day after the end of the month, the market

administrator shall pay to each handler the amount, if any, by which

the amount computed for such handler pursuant to Sec. 1135.71(b)

exceeds the amount computed pursuant to Sec. 1135.71(a). If at such

time the balance in the producer-settlement fund is insufficient to

make all of the payments pursuant to this section, the market

administrator shall reduce uniformly such payment and shall complete

such payment as soon as the necessary funds become available.

19. In 1135.73, paragraphs (b), (d), and (e) (2) through (6) are

revised to read as follows:

Sec. 1135.73 Payments to producers and to cooperative associations.

* * * * *

(b) On or before the 19th day after the end of each month, each

handler shall pay to each producer from whom milk was received during

the month, a sum computed as follows:

(1) Multiply the butterfat price for the month by the total pounds

of butterfat in milk received from the producer;

(2) Multiply the producer protein price for the month by the total

pounds of protein in such milk;

(3) Multiply the weighted average differential price for the month

multiplied by the hundredweight of such milk;

(4) Subtract payments made to the producer pursuant to paragraph

(a) of this section;

(5) Subtract deductions for marketing services pursuant to

Sec. 1135.86; and

(6) Subtract proper deductions authorized in writing by such

producer.

* * * * *

(d) In the event a handler has not received full payment from the

market administrator pursuant to Sec. 1135.72 by the 19th day of the

month, the handler may reduce pro rata the payments to producers

pursuant to paragraphs (b) and (c) of this section by not more than the

amount of such underpayment. Following receipt of the balance due from

the market administrator, the handler shall complete payments to

producers not later than the next payment date provided under this

paragraph.

(e) * * *

(2) The total pounds of milk received from the producer and the

pounds of butterfat and protein contained therein;

(3) The minimum rates at which payment is required pursuant to this

section;

(4) The rates used in making payment, if such rates are other than

the required applicable minimums;

(5) The amount (or rate per hundredweight) of each deduction

claimed by the handler, including any deduction claimed under

Sec. 1135.86, together with an explanation of each deduction; and

(6) The net amount of the payment to the producer.

Sec. 1135.74 [Removed]

20. Section 1135.74 is removed.

Sec. 1135.75 [Removed]

21. Section 1135.75 is removed.

Sec. 1135.76 [Redesignated as Sec. 1135.74 and Amended]

22. Section 1135.76 is redesignated as Sec. 1135.74 and the

following changes are made in that section:

a. In newly designated Sec. 1135.74(a)(4), the word ``estimated''

is inserted before the words ``uniform price'';

b. In Sec. 1135.74(b)(1)(ii), the words ``or estimated uniform

price'' are added following the words ``uniform price'' everywhere it

appears;

c. In Sec. 1135.74 (b)(1)(iii) introductory text, the reference

``Sec. 1135.60(f)'' is changed to read ``Sec. 1135.60(j)'', the

reference ``Sec. 1135.71(a)(2)(ii)'' is changed to read

``Sec. 1135.71(b)(2)''.

d. In Sec. 1135.74, paragraphs (b)(1)(iii) (a) through (c) are

redesignated as (b)(1)(iii) (A) through (C); and

e. In Sec. 1135.74(b)(2) (i) and (ii), the reference

``Sec. 1135.74'' is changed to read ``Sec. 1135.19(e)''.

Sec. 1135.77 [Redesignated as Sec. 1135.75]

23. Section 1135.77 is redesignated as Sec. 1135.75.

Sec. 1135.78 [Redesignated as Sec. 1135.76 and Amended]

24. Section 1135.78 is redesignated as Sec. 1135.76, and the

references ``1135.76, 1135.77, 1135.78'' are changed to read ``1135.74,

1135.75, 1135.76'', respectively.

Sec. 1135.85 [Amended]

25. In Sec. 1135.85(b), the reference ``Sec. 1135.60 (d) and (f)''

is changed to read ``Sec. 1135.60 (h) and (j)''; and in

Sec. 1135.85(c), the reference ``Sec. 1135.76(a)(2)'' is changed to

read ``Sec. 1135.74(a)(2)''.

Marketing Agreement Regulating the Handling of Milk in the Pacific

Northwest (or Southwestern Idaho-Eastern Oregon) Marketing Areas

The parties hereto, in order to effectuate the declared policy

of the Act, and in accordance with the rules of practice and

procedure effective thereunder (7 CFR Part 900), desire to enter

into this marketing agreement and do hereby agree that the

provisions referred to in paragraph I hereof, as augmented by the

provisions specified in paragraph II hereof, shall be and are the

provisions of this marketing agreement as if set out in full herein.

I. The findings and determinations, order relative to handling,

and the provisions of Sec. Sec. 1124.1 to 1124.86 (or

Sec. Sec. 1135.1 to 1135.86, respectively), all inclusive, of the

order regulating the handling of milk in the Pacific Northwest or

Southwestern Idaho-Eastern Oregon marketing areas (7 CFR PARTS 1124

or 1135, as applicable), which is annexed hereto; and

II. The following provisions:

Sec. 1124.87 (or Sec. 1135.87, as the case may be). Record of

milk handled and authorization to correct typographical errors.

(a) Record of milk handled. The undersigned certifies that he or

she handled during the month of September 1993 ______ hundredweight

of milk covered by this marketing agreement.

(b) Authorization to correct typographical errors. The

undersigned hereby authorizes the Director, or Acting Director,

Dairy Division, Agricultural Marketing Service, to correct any

typographical errors which may have been made in this marketing

agreement.

Sec. 1124.88 (or Sec. 1135.88, as the case may be). Effective

date.

This marketing agreement shall become effective upon the

execution of a counterpart hereof by the Secretary in accordance

with Section 900.14(a) of the aforesaid rules of practice and

procedure.

In Witness Whereof, The contracting handlers, acting under the

provisions of the Act, for the purposes and subject to the

limitations herein contained and not otherwise, have hereunto set

their respective hands and seals.

(Signature)------------------------------------------------------------

(Seal)

By (Name)--------------------------------------------------------------

(Title)----------------------------------------------------------------

(Address)--------------------------------------------------------------

Attest

[FR Doc. 94-3502 Filed 2-22-94; 8:45 am]

BILLING CODE 3410-02-P