Milk in the Northeast and Other Marketing Areas; Uniform Pricing Formula Provisions

<RULE> DEPARTMENT OF AGRICULTURE <SUBAGY>Agricultural Marketing Service</SUBAGY> <CFR>7 CFR Parts 1000, 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1051, 1124, 1126, 1131, and 1170</CFR> <DEPDOC>[Doc. No. AMS-DA-23-0031]</DEPDOC> <SUBJECT>Milk in the Northeast and Other Marketing Areas; Uniform Pricing Formula Provisions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Agricultural Marketing Service, USDA. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This final rule amends the pricing provisions in the 11 Federal Milk Marketing Orders (FMMOs). Separate producer referenda held in each of the 11 FMMOs obtained the necessary two-thirds vote in favor of adoption of the amendments as proposed. Accordingly, the Agricultural Marketing Service (AMS) is issuing this final rule amending all 11 FMMOs in accordance with the Agricultural Marketing Agreement Act of 1937, as amended (AMAA). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective June 1, 2025, except for in amendatory instruction 3a (7 CFR 1000.50(f), (i), (k), and (q)(1) and (2)), which is effective December 1, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> To review the hearing record or obtain information on the amendments, please see <E T="03">https://www.ams.usda.gov/rules-regulations/moa/dairy/hearings/national-fmmo-pricing-hearing.</E> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Erin Taylor, USDA/AMS/Dairy Programs, Order Formulation and Enforcement Division, STOP 0231-Room 2530, 1400 Independence Avenue SW, Washington, DC 20250-0231, Telephone: (202) 720-4392, Email address: <E T="03">Erin.Taylor@usda.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> This rule, in accordance with 7 CFR 900.14(c), is the Secretary's final rule in this proceeding amending the pricing provisions applicable to milk regulated in the Northeast and other marketing areas as defined in 7 CFR 900.2(j) and issued under 7 CFR parts 1000, 1001, 1005, 1006, 1007, 1030, 1032, 1033, 1051, 1124, 1126, and 1131. This final rule adopts the amendments detailed in the proposed rule (89 FR 95466) (final decision), as follows: 1. <E T="03">Milk Composition Factors.</E> FMMO milk prices are based on three primary components: protein, other solids, and nonfat solids. Skim milk composition factors in the current price formulas codified in the FMMO regulations were adopted in 2000: 3.1 percent protein, 5.9 percent other solids, and 9 percent nonfat solids. This final rule increases the milk composition factors to 3.3 percent protein, 6.0 percent other solids, and 9.3 percent nonfat solids. Actual component tests of skim milk have increased since 2000, with more significant increases beginning in 2016. The amendments will more accurately represent component levels in milk produced. In the final decision, AMS proposed a 6-month implementation lag for the amended composition factors. As such, the amendments to the regulations at 7 CFR 1000.50(f), (i), (k), (q)(1) and (2) relative to skim milk composition factors, will be implemented on December 1, 2025. See the subsequent implementation section for further detail. 2. <E T="03">Surveyed Commodity Products.</E> Milk prices under FMMOs are related to wholesale prices for butter, cheese, nonfat dry milk, and dry whey. The formulas use U.S. Department of Agriculture (USDA)-surveyed average wholesale prices to calculate milk component prices (butterfat, protein, nonfat solids, and other solids) that are converted to Class III and IV milk prices. The protein value in cheese is a component of the Class III price. Currently, the prices of commodity cheddar cheese packaged in 40-lb blocks (“blocks”) and 500-lb barrels (“barrels”) are collected weekly by AMS through the Dairy Products Mandatory Reporting Program (DPMRP) survey. A monthly average of those prices is used to represent commodity cheese in the Class III price formula. The butterfat value in commodity salted butter is the driver of the butterfat price used in all classified prices. This final rule eliminates 500-lb barrels from the DPMRP survey. DPMRP will rely solely on the 40-pound block cheddar cheese price to determine the monthly average cheese price used in the formulas. The amendment will provide for more orderly marketing through a survey of only one product. These changes will be implemented on June 1, 2025. 3. <E T="03">Class III and Class IV Formula Factors.</E> Make allowances are a factor in the FMMO pricing formulas representing the cost of converting raw milk into the four manufactured dairy products surveyed by the USDA (butter, cheese, nonfat dry milk (NFDM), and dry whey). Make allowances were last updated in 2008 following a rulemaking proceeding in 2007. This final rule updates the make allowances in the FMMO Class III and IV formulas as follows: $0.2519 for cheese; $0.2272 for butter; $0.2393 for NFDM; and $0.2668 for dry whey. This final rule also updates the butterfat recovery factor in the Class III formula to 91 percent. The amendments will update the formula factors to be more representative of current costs and butterfat recovery observed in dairy product manufacturing. These changes will be implemented on June 1, 2025. 4. <E T="03">Base Class I Skim Milk Price (Class I mover).</E> The Class I mover is the base price for the skim milk portion of raw milk used in the production of Class I products. The Agriculture Improvement Act of 2018 (2018 Farm Bill) amended the Class I skim milk price mover from the “higher of” Class III or Class IV skim prices to a simple average of the two classes plus $0.74, referred to as the “average of” mover. This final rule returns the base Class I skim milk price calculation to the higher-of Class III or Class IV skim prices. This final rule also adopts a rolling monthly Class I ESL adjustment equating to a Class I price for all ESL products equal to the average-of the Class III and Class IV advance prices, plus a 24-month rolling average adjuster, with a 12-month lag. The monthly Class I ESL adjustment will be calculated as the average of the differences between the higher-of and the average-of calculations for the prior 13 to 36 months. The amendments will provide for more orderly marketing by returning to the higher-of mover; while the Class I ESL adjustment will provide better price equity for ESL products whose marketing characteristics are distinct from other Class I products. These changes will be implemented on June 1, 2025. 5. <E T="03">Class I and Class II differentials.</E> FMMO Class I prices are calculated as the average of the advanced Class III and Class IV prices, plus $0.74, plus a location-specific differential referred to as a Class I differential. As the value of milk varies by location, Class I differentials have been determined for every county in the continental U.S. Current Class I differential levels were implemented January 1, 2000, with updates to the differentials in the three southeastern orders taking effect May 1, 2008. This final rule retains the $1.60 base differential and adopts modified location-specific Class I differential values. The amendments recognize the evolution of the dairy industry since 2000 and the increased cost of servicing the Class I market given current transportation costs and plant and producer locations. These changes will be implemented on June 1, 2025. The amendments to the FMMOs are based on the record of a 49-day public hearing held August 23-October 11, 2023, November 27-December 8, 2023, January 16-19, 2024, and January 29- 31, 2024, in Carmel, Indiana. The hearing was held to receive evidence on 21 proposals in the 5 pricing subject areas submitted by dairy farmers, handlers, and other interested parties. Notice of this hearing was published in the <E T="04">Federal Register</E> on July 24, 2023 (88 FR 47396), pursuant to the provisions of the AMAA and the applicable rules of practice and procedure (7 CFR part 900). Notices of the reconvened hearing were subsequently published on November 6, 2023 (88 FR 76143) and December 29, 2023 (88 FR 90134). During the hearing, AMS received testimony from a total of 165 witnesses. Witnesses provided an overview of the complexity of the U.S. dairy industry and submitted 511 exhibits containing supporting data, analyses, and historical information. Considering record evidence, AMS published its recommended and final decisions in the <E T="04">Federal Register</E> on the proposed amendments to the milk pricing formulas on July 15, 2024 (89 FR 57580) and December 2, 2024 (89 FR 95466), respectively. AMS also considered proposed findings submitted in post-hearing briefs, officially noticed documents, and comments and exceptions filed in response to the recommended decision when preparing its recommended and final decisions. In conjunction with the final decision, AMS conducted a Regulatory Economic Impact Analysis to determine the potential impact of amending FMMO pricing formulas on producer revenue and marketwide pool values. The full Regulatory Economic Impact Analysis may be accessed at <E T="03">https://www.regulations.gov</E> or <E T="03">https://www.ams.usda.gov/rules-regulations/moa/dairy/hearings/national-fmmo-pricing-hearing.</E> Following publication of the final decision, AMS conducted separate producer referenda in each of the 11 FMMOs to determine support for or opposition to the proposed amendments to the milk pricing formulas. The referendum period ending December 31, 2024, confirmed support for the proposed amendments in all 11 FMMOs. More specifically, all referenda resulted in the necessary two-thirds approval of eligible producers participating in the referendum. As explained in the final decision, eligible producers were those engaged in the production of milk for sale, as defined under the terms of the ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 352k characters. 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