To require the Secretary of Agriculture to use the Department of Agriculture's preferred Option 1B as the price structure for Class I fluid milk under Federal milk marketing orders, to provide emergency market loss payments to dairy producers for any calendar year quarter in which the national average price for Class III milk under Federal milk marketing orders is less than a target price of $11.50 per hundredweight, and for other purposes.

To require the Secretary of Agriculture to use the Department of Agriculture's preferred Option 1B as the price structure for Class I fluid milk under Federal milk marketing orders, to provide emergency market loss payments to dairy producers for any calendar year quarter in which the national average price for Class III milk under Federal milk marketing orders is less than a target price of $11.50 per hundredweight, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `National Dairy Policy Act of 2003'.

SEC. 2. USE OF DEPARTMENT OF AGRICULTURE'S PREFERRED OPTION 1B AS PRICE STRUCTURE FOR CLASS I MILK UNDER FEDERAL MILK MARKETING ORDERS.

Section 1 of H.R. 3428 of the 106th Congress, as enacted into law by section 1000(a)(8) of Public Law 106-113 (Appendix H; 113 Stat. 1501A-517; 7 U.S.C. 7253 note), is amended--

(1) in subsection (b), by striking `this Act' and inserting `the National Dairy Policy Act of 2003'; and

(2) by striking subsection (c) and inserting the following new subsection (c):

`(c) USE OF OPTION 1B FOR PRICING CLASS I MILK- As specified in the final rule, the Secretary of Agriculture shall price fluid or Class I milk under the Federal milk marketing orders using the Class I price differentials known as Option 1B.'.

SEC. 3. EMERGENCY MARKET LOSS PAYMENTS TO DAIRY PRODUCERS.

(a) DEFINITIONS- In this section:

(1) FEDERAL MILK MARKETING ORDER- The term `Federal milk marketing order' means a milk marketing order issued under section 8c of the Agricultural Adjustment Act (7 U.S.C. 608c), reenacted with amendments by the Agricultural Marketing Agreement Act of 1937.

(2) CLASS III MILK- The term `Class III milk' means milk classified as Class III milk (milk used to produce cheese) under a Federal milk marketing order.

(3) SECRETARY- The term `Secretary' means the Secretary of Agriculture, acting through the Farm Service Agency.

(b) PAYMENTS REQUIRED- Using the funds, facilities, and authorities of the Commodity Credit Corporation, the Secretary shall make an emergency market loss payment under this section to dairy producers on a farm in the 48 contiguous States, including producers on farms not covered by a Federal milk marketing order, whenever the national average price for Class III milk under Federal milk marketing orders for a calendar year quarter is less than a target price of $11.50 per hundredweight for milk containing 3.5 percent butterfat.

(c) PAYMENT AMOUNTS-

(1) BASIS FOR PAYMENT- Subject to paragraph (2), payments under subsection (b) to dairy producers on a farm for a calendar year quarter shall be based on the total quantity of milk marketed by the producers during that quarter and designed to ensure that the producers receive not less than the target price for that milk.

(2) PAYMENT AND VOLUME LIMITATIONS- The Secretary may impose maximum payments per farm or volume limitations on the quantity of the producers' quarterly production on which payments will be made under this section.

(d) TIME FOR PAYMENTS- Payments required under this section for a month shall be made not later than the 21st day after the end of a calendar year quarter for which payments are required.

(e) FARM RECONSTITUTION- The Secretary shall carry out this section in such a manner that there are no additional outlays under this section as a result of the reconstitution of a farm that the Secretary determines occurred in whole or in part for the purpose of increasing the amounts received as payments under this section.