Extension of Dairy Forward Pricing Program

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

EFFECTIVE DATE: Effective March 24, 2014.

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

SUPPLEMENTARY INFORMATION: This final rule extends the Dairy Forward Pricing Program (DFPP) in accordance with the 2014 Farm Bill. The 2008 Food, Conservation and Energy Act (2008 Farm Bill) (Pub. L. 110-246) initially established the DFPP, which prohibited new forward contracts from being entered into after September 30, 2012, and no forward contracts entered into under the program extending beyond September 30, 2015 (7 U.S.C. 8772(e)). Passage of the "American Taxpayer Relief Act of 2012," (ATRA) (Pub. L. 112-240), signed into law on January 2, 2013, revised the program to allow new contracts to be entered into until September 30, 2013. New contracts have been prohibited since then.

The DFPP (7 U.S.C. 8772, 7 CFR 1145) allows handlers, under the Agricultural Marketing Agreement Act of 1937, (AMAA) (7 U.S.C. 601-612), to pay producers or cooperative associations of producers a negotiated price, rather than the Federal order minimum blend price for producer milk if subject to conditions and terms of a forward contract, provided the volume of such milk does not exceed the handler's Class II, III, and IV utilization for the month on the order that regulates the milk. The program applies to producer milk regulated under Federal milk marketing orders that is not classified as Class I milk or milk otherwise intended for fluid use and that is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects interstate or foreign commerce of Federally regulated milk. The Federal milk marketing order program consists of 10 Federal milk marketing orders (7 CFR parts 1001-1135).

This document provides notice that producers and cooperative associations of producers may now enter into forward price contracts under the DFPP through September 30, 2018, and that all terms of the forward contract must expire prior to September 30, 2021. All other provisions and requirements of the program as provided for in the final rule published October 31, 2008 (73 FR 64868) are still in effect.

Discussion of Rules Applicable to Program

Section 1502 of the 2008 Farm Bill required the Secretary of Agriculture to establish a Dairy Forward Pricing Program. Authorization for this program expired on September 30, 2013, under the provisions of the ATRA. The DFPP allows a handler to forward contract for an amount of milk up to the volume of Class II, III, and IV milk pooled on the order by the handler under the AMAA, as amended, during a month and be exempt from the minimum Federal order blend price provisions for that milk. USDA, including Market Administrator personnel, does not determine the terms of forward contracts or enforce negotiated prices.

For producers who consider forward contracting as a risk-management tool, the "benchmark" price for milk is the minimum Federal order blend price that they would receive in the absence of a forward contract. It is reasonable to expect a producer to negotiate a forward contract that would approximate the minimum blend price plus applicable premiums averaged over the forward contract period. Over time, it is reasonable to expect to see forward contract prices paid to producers below the applicable minimum order blend price in some months and above the minimum order blend price in others.

Participation in the dairy forward pricing program is voluntary for dairy farmers, dairy farmer cooperatives, and handlers. Handlers may not require producer participation in a forward pricing program as a condition for accepting milk. A producer or cooperative association may continue to have its milk priced under the minimum payment provisions of the applicable milk order.

Any "handler" defined in 7 CFR SEC 1000.9 is eligible to enter into a forward contract(s) with producers or cooperatives of producers. As defined in that section, "handler" includes not only the operator of a pool plant or nonpool plant, but also a broker serving as a handler as provided in SEC 1000.9(b), a proprietary handler, and a cooperative association acting as a handler with respect to non-member milk delivered to a pool plant or diverted to a nonpool plant. Nothing in this regulation affects any contractual arrangements between a cooperative association and its members.

A handler's combined Class II, III, and IV producer milk utilization is defined in 7 CFR part 1145 as the handler's "eligible milk." In the case of a multi-plant handler, the handler's Class II, III, and IV producer milk utilization will be combined together for all of the handler's milk regulated under one milk marketing order. A handler will only be exempt from paying the milk marketing order's minimum blend price on its volume of "eligible milk." If a handler enters into forward contracts for more than the eligible milk volume ("over-contract" milk), the handler must notify the Market Administrator. If the handler fails to notify the Market Administrator of payment adjustments, the Market Administrator will prorate the over-contract milk to each producer and cooperative association having a contract with the handler.

Although handlers participating in the program will not be required to pay producers and cooperative associations the minimum uniform blend or component prices for contract milk, they must continue to account to the pool for all milk they receive at the respective milk marketing order's minimum class prices. In the case of milk received by a transfer from a cooperative association's pool plant, a handler may forward contract for all such transferred milk that is not used in Class I.

In many milk markets, nonpool plants regularly receive pooled milk from milk producers who are not members of a cooperative association. This milk is actually pooled by a pool plant operator or by a cooperative association through its deliveries to a pool plant. The non-member milk delivered to a nonpool plant is reported under the milk marketing order program as producer milk diverted to a nonpool plant by the cooperative association on its monthly report of receipts and utilization to the Market Administrator. Alternatively, if a cooperative association is not involved in the transaction, such milk could be reported by a pool plant operator on its monthly report of receipts and utilization.

Many nonpool plant operators who receive non-member milk that is pooled through another handler issue checks to the nonpool plant's non-member producers. They submit their payrolls showing these payments to the Market Administrator. Nevertheless, these nonpool plant operators are not responsible under the milk marketing order program for paying their non-member producers the minimum Federal milk marketing order price; it is the handler (either the cooperative association or pool plant operator) that pools the milk for such nonpool plants that is responsible for an underpayment under the milk marketing order program.

Accordingly, only producer milk that is subject to forward contracting with a handler in compliance with the DFPP will be exempt from the order's minimum blend price provisions. In the case of non-member milk that is reported as producer milk by a cooperative association handler or pool plant operator, but pay rolled by a nonpool plant operator, the cooperative association or pool plant operator, respectively, will be responsible for any underpayment to a non-member producer in the event that milk under contract becomes subject to minimum milk marketing order pricing (as in the case of over-contract milk). In this way, cooperative association handlers, pool plant operators, and nonpool plant operators may continue the arrangements that have evolved to pool milk under the Federal milk marketing order program and all will be permitted to participate in the forward contracting program.

Any handler participating in the program will continue to file all of the reports that are required under the applicable Federal milk marketing order. This includes reports of receipts and utilization of milk and monthly payroll reports that show all information required by the orders. The notable difference, however, for handlers participating in the DFPP are that they must also provide more detailed accounting in their monthly payroll reports to the Market Administrator and remittance information provided to participating producers (7 CFR 1__.31, 1001.73(e), 1005.73(e), 1006.73(e), 1007.73(e), 1030.73(f), 1032.73(f), 1033.73(e), 1124.73(f), 1126.73(e), 1131.73(e)). In accordance with these provisions, the monthly payroll report of participating handlers is required to contain detailed accounting that distinguishes gross values paid for applicable volumes of contract versus non-contract milk for each producer. Remittance information from participating handlers to participating producers must clearly distinguish gross values and volumes for contract versus non-contract milk. These distinctions avoid any questions concerning compliance with Federal order minimum price requirements for participant milk not under contract.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "7 CFR Part 1145"

Citation: "79 FR 15633"

Document Number: "Doc. No. AMS-DA-14-0018"

Federal Register Page Number: "15633"

"Rules and Regulations"