This section of the FEDERAL REGISTERcontains documents other than rules orproposed rules that are applicable to thepublic. Notices of hearings and investigations,committee meetings, agency decisions andrulings, delegations of authority, filing ofpetitions and applications and agencystatements of organization and functions areexamples of documents appearing in thissection.
Notices
Federal Register
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Vol. 65, No. 37Thursday, February 24, 2000
DEPARTMENT OF AGRICULTURERisk Management Agency
RIN 0563–AB77
Dairy Options Pilot Program
AGENCY
:
Risk Management Agency,USDA.
ACTION
:
Notice of availability.
SUMMARY
:
This notice supersedes theNotice of Availability published onNovember 6, 1998 (63FR 59930–59936),which announced the availability of anew Dairy Options Pilot Program(DOPP) to be administered by the RiskManagement Agency (RMA) inconjunction with the private sector.This notice extends the program to newstates and counties and changes severalof its provisions to enhance theeducational benefits of the program toproducers. The objective of DOPP is toascertain whether put options canprovide dairy producers with aneffective risk management tool byproviding reasonable protection fromvolatile dairy prices.
EFFECTIVE DATE
:
February 23, 2000.
FOR FURTHER INFORMATION CONTACT
:
Forfurther information contact Craig Witt,Director, Risk Management EducationDivision, Risk Management Agency,United States Department of Agriculture, 1400 IndependenceAvenue, S.W., Stop 0805, Room 6749–S, Washington, DC 20250–0805.
SUPPLEMENTARY INFORMATION
:
Executive Order 12866
The Office of Management and Budget(OMB) has determined this notice to besignificant for the purposes of ExecutiveOrder 12866 and, therefore, has beenreviewed by OMB.
Civil Rights Impact Analysis
RMA does not collect civil rights dataon the farmers/ranchers who participatein the programs, therefore, we cannotdetermine if this pilot program willnegatively or disproportionately affectminorities, women or persons withdisabilities who are program beneficiaries or applicants for program benefits in RMA assisted programs. If DOPP becomes a permanent program, aproposed and final rule with a completecivil rights impact analysis will besubmitted. For specific information onthe Civil Rights Impact Analysis,contact William Buchanan, Director,USDA/RMA, Office of Civil Rights,Room 3059, South Building,Washington, D.C. 20250–0801,telephone (202) 690–6068, e-mailaddress—William.Buchanan@wdc.usda.gov.
Cost-Benefit Analysis
The program is designed to increasethe level of understanding of optionscontracts as risk management toolsamong dairy producers and to exploretheir specific applicability to the dairyindustry. The costs to the Governmentof option premiums under the programare estimated to be about $10 millionannually. If successful, the program willhelp create liquid markets in basicformula price (BFP) futures and optionscontracts which would be sustained, inpart, by the on-going hedging of outputprice risk by dairy producers who have benefitted from the educational aspectsof the program. Under that scenario, the benefits of the program would includefurnishing producers with a viable pricerisk management alternative, exerting astabilizing influence on the dairyindustry, and contributing to theDepartment’s goal of supporting marketoriented reforms in the agriculturalsector.
Paperwork Reduction Act of 1995
In accordance with section 3507(j) of the Paperwork Reduction Act of 1995(44 U.S. C. 3501
et seq.
), the informationcollection and recordkeepingrequirements included in this notice of availability have been submitted foremergency approval to the Office of Management and Budget (OMB). OMBhas assigned control number 0563–0058to the information collection andrecordkeeping requirements.Notwithstanding any other provision of the law, no person is required torespond to, nor shall any person besubject to a penalty for failure to complywith a collection of information, subjectto the requirements of the PaperworkReduction Act, unless that collection of information displays a currently validOMB Control Number. Please sendwritten comments to the Office of Information and Regulatory Affairs,OMB, Attention: Desk Officer for RMA,Washington, DC 20503. Please state thatyour comments refer to the DairyOptions Pilot Program (DOPP), Round 2.The paperwork associated with theDairy Options Pilot Program willinclude information to be used by RMAin: (a) establishing producer eligibility by requiring their certification anddocumentation of the minimum level of milk production; (b) verifyingcompliance of participating producersand brokers, and (c) evaluating theeffectiveness of dairy put options as arisk management tool for dairy farmers.In addition, the response to voluntarysurveys will allow RMA to obtain theparticipants’ perspective on theprogram, and valuable information fromproducers who attended informationpresentations but elected not toparticipate as to why the program didnot fit their needs. We are solicitingcomments from the public (as well asaffected agencies) concerning theprogram’s information collection andrecordkeeping requirements. We needthis outside input to help us accomplishthe following:(1) Evaluate whether the collection of information is necessary for the properperformance of our agency’s functions,including whether the information willhave practical utility;(2) Evaluate the accuracy of ourestimate of the burden of the collectionof information, including the validity of the methodology and assumptions used;(3) Enhance the quality, utility, andclarity of the information to becollected; and(4) Minimize the burden of theinformation collection on those who areto respond (such as through the use of appropriate automated, electronic,mechanical, or other technologicalcollection techniques or other forms of information technology, e.g., permittingelectronic submission responses).
Estimate of burden:
31,701 hours.
Respondents:
6,150.
Estimated number of responses:
42,825.
Estimated number of responses per respondent:
1.1.
Estimated total annual burden onrespondents:
$285,607.76.
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Copies of this information collectioncan be obtained from:
InformationCollection Clearance Officer, OCIO,USDA, Stop 7602, 1400 IndependenceAvenue SW, Washington, DC 20250.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded MandatesReform Act of 1995 (UMRA), establishesrequirements for Federal agencies toassess the effects of their regulatoryactions on State, local, and tribalgovernments and the private sector.This notice contains no Federalmandates (under the regulatoryprovisions of title II of UMRA) for State,local, and tribal governments or theprivate sector. Therefore, this notice isnot subject to the requirements of sections 202 and 205 of UMRA.
Executive Order 13132
It has been determined under section1(a) of Executive Order 13132,Federalism, that this rule does not havesufficient implications to warrantconsultation with the states. Theprovisions contained in this rule willnot have a substantial direct effect onStates, or on the relationship betweenthe national government and the States,or on the distribution of power andresponsibilities among the variouslevels of government.
Regulatory Flexibility Act
This notice will not have a significantimpact on a substantial number of smallentities. The provisions included in thisnotice will not impact small entities toa greater extent than large entities. Theamount of work required of brokers willonly increase slightly because theinformation to determine the eligibilityof producers and trading activities isalready collected by brokers specializingin hedge positions and the onlyadditional burden is the electronictransmittal of this information.Therefore, this action is determined to be exempt from the provisions of theRegulatory Flexibility Act (5 U.S.C. 605)and no Regulatory Flexibility Analysiswas prepared.
Federal Assistance Program
This program is listed in the Catalogof Federal Domestic Assistance underNo. 10.450.
Executive Order 12372
This program is not subject to theprovisions of Executive Order 12372which require intergovernmentalconsultation with State and localofficials. See the Notice related to 7 CFRpart 3015, subpart V, published at 48 FR29115, June 24, 1983.
Executive Order 12988
This notice has been reviewed inaccordance with Executive Order 12988on civil justice reform. The provisionsof this notice will not have a retroactiveeffect. The provisions of this notice willnot preempt State and local laws. Theadministrative appeal provisionspublished at 7 CFR part 11 must beexhausted before any action for judicialreview of any determination made byRMA may be brought.
Environmental Evaluation
This action is not expected to haveany significant impact on the quality of the human environment, health, andsafety. Therefore, neither anEnvironmental Assessment nor anEnvironmental Impact Statement isneeded.
Background
Section 191 of the Federal AgricultureImprovement and Reform Act of 1996authorizes the Secretary of Agriculture(Secretary) to conduct a pilot programfor one or more agriculturalcommodities to determine the feasibilityof the use of futures and options as riskmanagement tools to protect producersfrom fluctuations in price, yield andincome. Accordingly, the Secretarydirected RMA to develop DOPP.The purpose of this notice is toannounce the availability of DOPP innew States and counties and provide thenew terms and conditions of theprogram.DOPP is intended to offer aneducational experience to dairyproducers whose need for riskmanagement tools has risen sharply asa result of unprecedented pricevolatility, the elimination of pricesupports, and the current unavailabilityof production insurance.The program represents a jointinitiative between RMA and the privatesector. DOPP procedures were firstproposed to RMA by the Coffee, Sugar& Cocoa Exchange (CSCE), now the NewYork Board of Trade (NYBOT). Duringthe development of this program, theChicago Mercantile Exchange (CME)provided additional recommendations.If successful, the educational benefits of DOPP will prepare producers to managetheir price risk independently throughthe milk futures and options markets.In the November 6, 1998, Notice of Availability (63 FR 59930–59936),DOPP was offered in 42 counties.However, DOPP did not operate inOrleans County of Vermont; andCommanche, Erath, and Van Zandtcounties of Texas because no producerin those counties elected to participate by purchasing put options. DOPP willno longer be available in any of the 42counties included in the notice of November 6, 1998.The program will be available in thefollowing States and counties: MaricopaCounty, Arizona; Marin and Sonomacounties, California; Weld County,Colorado; Gilchrist and Okeechobeecounties, Florida; Morgan and Putnamcounties, Georgia; Gooding, Jerome, andTwin Falls counties, Idaho; Clinton andWashington counties, Illinois; Elkhartand Marshall counties, Indiana; Clayton,Dubuque, and Winneshiek counties,Iowa; Nemaha County, Kansas; Adairand Barren counties, Kentucky; Carrolland Frederick counties, Maryland;Franklin County, Massachusetts;Allegan, Clinton, and Sanilac counties,Michigan; Fillmore and Wabashacounties, Minnesota; Webster andWright counties, Missouri; Gage County,Nebraska; Chaves, Lea, and Rooseveltcounties, New Mexico; Madison andWyoming counties, New York; IredellCounty, North Carolina; Ashtabula,Mercer, and Wayne counties, Ohio;Adair and Mayes counties, Oklahoma;Marion and Washington counties,Oregon; Lebanon and Tioga counties,Pennsylvania; Deuel and Grant counties,South Dakota; McMinn County,Tennessee; Archer County, Texas; Cacheand Utah counties, Utah; WashingtonCounty, Vermont; Franklin andRockingham counties, Virginia; Skagit,Snohomish, and Whatcom counties,Washington; Barron and Shawanocounties, Wisconsin. At the discretionof the Secretary, States and counties aresubject to change throughout theduration of this pilot program.The participation limit per county isset at 100 producers, subject toadjustments as described below.Counties with a higher number of participants signing-up will haveparticipants selected through a lottery.When a county has fewer than themaximum number of participants, theexcess program vacancies will be pooledand distributed among counties wheremore than the maximum number hassigned up. Producers wishing toparticipate in the program must fill outand sign an application (Form CCC–320)and a release of information from their broker to RMA (CCC–321).The program will last a maximum of 12 months for each participatingproducer , commencing at the date of training through the close-out of DOPPoptions positions. After registration andtraining, producers will have up to 4months to purchase DOPP options andall DOPP options must expire within 12months from the month the producerattends the training session. Producers
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are required to buy ‘‘put options’’ atleast two months in the future in orderto allow time for the educational benefits of the program to be realized.For the same reason, producers will berequired to hold their options until thefour week period immediately prior tothe expiration date.In order to introduce the new tradingvolume onto the markets slowly, eachround of participants will commencetrading at different times by state. Thetwo exchanges where the BFP futuresand put options are currently availableare NYBOT and CME. The contracts onthe two exchanges differ with regard toquantity. Under the program, aparticipating producer will be permittedto purchase contracts to hedge between100,000 and 600,000 pounds of milkover a period extending from aminimum of 2 months to a maximum of 12 months following the date theproducer attends DOPP training.Producers will be required to submitdocumentation supporting their farm’sproduction of at least 100,000 pounds of milk over a six-month period.On November 6, 1998, RMApublished a Notice of Availability in the
Federal Register
at 63 FR 215 in whichDOPP was offered as a pilot in selectedcounties in the states of California,Minnesota, New York, Pennsylvania,Texas, Wisconsin, and Vermont. A totalof 428 dairy producers from 38 countiesparticipated in the program by buying atotal of 1,701 put options.An assessment of the first round of the program revealed that some changeswere warranted. In addition to minorreformatting and word changes forclarity, RMA has made the followingchanges to DOPP:1. In section 1 of the producercontract and section 1 of the brokercontract, RMA added a definition for‘‘abandonment’’ to recognize thisalternative which is available to a buyerof an option for resolving contractualrights and obligations associated withan option that will expire worthless;added a definition for ‘‘contract month’’and deleted the definition for ‘‘strikemonth’’ to conform to the more commonterminology used by brokers andhedgers; changed the definition of ‘‘futures contract’’ to avoid confusionregarding contract markets, whereinobligations of performance are created,and cash commodity markets, whereinthe actual commodity is transferred;added a definition for ‘‘NYBOT’’ (theNew York Board of Trade) and changedthe definition of the ‘‘CSCE’’ to reflectthe name change by that futuresexchange (also, all references to theCSCE were changed to the NYBOT in both the producer and broker contracts);changed the definition of ‘‘expirationdate’’ to reflect the possibility of selling before expiration; changed thedefinition for ‘‘premium’’ to eliminatepossible confusion between the value of the option and strike price for an option;changed the definition of ‘‘round turn’’to reflect the alternative of abandonmentas a method of liquidating a put positionand also to clarify RMA’sresponsibilities in the event a put buyerunder DOPP wishes to exercise a put;and changed the definition of ‘‘sale’’ toavoid confusion between optioncontract markets, wherein obligations of performance are created, and assetmarkets, wherein titles of property aretransferred.2. In section 3(a)(1) of the producercontract and section 3(a)(1) of the brokercontract, the time in which producerhas to buy options in the program waschanged from 2 to 4 months from thedate the producer attends the trainingand information session. In the firstround of the program, many participantsindicated that 2 months did not providesufficient time to observe the marketand to implement a sound buyingstrategy.3. In section 3(a)(1) of the producercontract, a phrase was added that allowsproducers to not fulfill their obligationto buy put options in the program if market conditions fail to provide priceprotection that exceeds productioncosts. This provision was added toensure that producers will not berequired to buy puts during periodswhen that strategy may not be in theproducer’s economic interest.4. In section 3(a)(8) of the producercontract and section 3(a)(7) of the brokercontract, the requirement that alloptions purchased in the program willexpire no more than 6 months after themonth of purchase was changed to 12months from the month the producerattended the DOPP training session.Some participants in the first round of the program indicated that the 6 monthforward limitation prevented producersfrom considering more favorableopportunities in contract months morethan 6 months forward.5. Section 3(a)(9) was added to theproducer contract to ensure thatproducers are aware of their financialresponsibility for any losses and brokerage commissions if they choose toexercise any put options beforeexpiration.6. In section 3(c) of the producercontract, the deadline for submitting aproperly completed and executedapplication was changed from within 14days after receiving notification andapplication materials from RMAthrough the mail to within 14 calendardays after attending a DOPP trainingsession. An application postmarkedwithin the deadline will be consideredvalid. Participants in the first round of the program indicated that requiringproducers to execute the application before having the opportunity to learnabout the program in the trainingsession discouraged many prospectiveparticipants.7. In section 6(d) of the producercontract and 5(b) of the broker contract,the description of possible programchanges was revised to reflect currentinformation regarding Federal MilkMarketing Order reform.8. In section 3(b)(3) of the brokercontract, the requirement to report thestrike price, contract type, and exchangewas added. This change was made toreflect that this additional informationis needed to assess the program and thatthis information was collected duringthe first round of the program.9. Section 4(d) of the broker contractwas added. This change makes thefinancial responsibilities of theproducer for futures transactionsexplicit, in the event a put option isexercised.
Notice:
The terms and provisions forthe DOPP Producer Contract are asfollows: United States Department of Agriculture, Risk Management Agency,Dairy Options Pilot Program Contract.Participation in the Dairy OptionsPilot Program is voluntary. Neither theUnited States, the Commodity CreditCorporation, the Federal Crop InsuranceCorporation, the Risk ManagementAgency, the Department of Agriculture,nor any other Federal agency isauthorized to guarantee that participantsin this pilot program will be better orworse off financially as a result of participation in the pilot program thanthe producer would have been if theproducer had not participated in thepilot program.
1. Definitions
Abandonment.
The surrender of theright possessed by an option buyer, analternative available to an option buyerwhose option is to expire worthless.
Application.
Form CCC–320 that isrequired to be completed and signed bythe producer before the producer iseligible to participate in this program.
Basic formula price (BFP).
The priceestablished by USDA, and provided tothe USDA marketing orderadministrators to be used to set regionalminimum prices.
Broker.
A broker or brokerage firmregistered under the CommoditiesExchange Act that has entered into anagreement with RMA to participate inthe program.
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