7302 1 2 3 4 5 6 7 8 9 NATIONAL FEDERAL MILK MARKETING ORDER 10 PRICING FORMULA HEARING 11 12 DOCKET NO.: 23-J-0067; AMS-DA-23-0031 13 14 Before the Honorable Jill Clifton, Judge 15 16 ---o0o--- 17 18 Carmel, Indiana 19 October 6, 2023 20 21 ---o0o--- 22 23 24 25 26 Reported by: 27 MYRA A. PISH, RPR, C.S.R. Certificate No. 11613 28 7303 1 A P P E A R A N C E S: 2 FOR THE USDA ORDER FORMULATION AND ENFORCEMENT DIVISION, USDA-AMS DAIRY PROGRAM: 3 Erin Taylor 4 Todd Wilson Brian Hill 5 Michelle McMurtray 6 FOR THE AMERICAN FARM BUREAU FEDERATION: 7 Roger Cryan 8 FOR THE MILK INNOVATION GROUP: 9 Ashley Vulin (Remotely) Charles "Chip" English 10 Grace Bulger 11 FOR THE NATIONAL MILK PRODUCERS FEDERATION: 12 Nicole Hancock Brad Prowant 13 FOR SELECT MILK PRODUCERS, INC.: 14 Ryan Miltner 15 16 FOR INTERNATIONAL DAIRY FOODS ASSOCIATION: 17 Steve Rosenbaum 18 FOR DAIRY FARMERS OF AMERICA: 19 Jill Lombard 20 ---o0o--- 21 22 23 (Please note: Appearances for all parties are subject to 24 change daily, and may not be reported or listed on 25 subsequent days' transcripts.) 26 27 ---o0o--- 28 7304 1 M A S T E R I N D E X 2 SESSIONS 3 FRIDAY, OCTOBER 6, 2023 PAGE 4 MORNING SESSION 7307 AFTERNOON SESSION 7420 5 6 ---o0o--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7305 1 M A S T E R I N D E X 2 WITNESSES IN CHRONOLOGICAL ORDER 3 WITNESSES: PAGE 4 Rick Podtburg: 5 Direct Examination by Ms. Lombard 7309 Cross-Examination by Ms. Hancock 7313 6 Cross-Examination by Mr. Miltner 7314 Cross-Examination by Ms. Taylor 7318 7 Jeffrey Sims: 8 (Continued) 9 Cross-Examination by Mr. English 7324 10 Lauren Perkins: 11 Direct Examination by Ms. Bulger 7421 Cross-Examination by Ms. Hancock 7427 12 Cross-Examination by Mr. Miltner 7428 Cross-Examination by Ms. Taylor 7430 13 Dave Daniels: 14 Testimony given 7433 15 Cross-Examination by Dr. Cryan 7439 Cross-Examination by Ms. Taylor 7442 16 John Painter: 17 Statement Read into the Record 7446 18 Cross-Examination by Mr. English 7454 Cross-Examination by Ms. Hancock 7455 19 Cross-Examination by Dr. Cryan 7456 Cross-Examination by Mr. Wilson 7458 20 Marty Hallock: 21 Direct Examination by Mr. Prowant 7461 22 Cross-Examination by Dr. Cryan 7468 Cross-Examination by Mr. Wilson 7474 23 George teVelde: 24 Statement Read into the Record 7479 25 Cross-Examination by Dr. Cryan 7484 Cross-Examination by Mr. Wilson 7485 26 Mark McAfee: 27 Testimony given 7492 28 Cross-Examination by Mr. Wilson 7506 7306 1 M A S T E R I N D E X 2 INDEX OF EXHIBITS 3 IN CHRONOLOGICAL ORDER: 4 NO. DESCRIPTION I.D. EVD. 5 320 Notes 7308 7322 6 321 Notes 7308 7322 7 322 MIG-30 7338 8 323 MIG-31 7378 9 324 MIG-32 7420 7432 10 325 Testimony of John Painter 7446 7478 11 326 Testimony of Marty Hallock 7461 7477 12 327 McAfee-DF1 7492 13 328 McAfee-DF2 7492 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7307 1 FRIDAY, OCTOBER 6, 2023 - - MORNING SESSION 2 THE COURT: Let's go on record. We're back on 3 record at 8:00 a.m. on October 6, 2023. It's Friday and 4 we have a full program for today. We'll review in just a 5 moment what we expect. 6 And today we conclude this week at 3:00 p.m. and 7 begin again Monday at 8:00 a.m. 8 So I would need Dr. Sims in the chair for 9 cross-examination. 10 Oh, we're going to have a farmer witness? First 11 thing? Good. 12 Then acquaint us with -- and then it would be 13 Dr. Sims? 14 MS. TAYLOR: Yes. 15 THE COURT: Excellent. I welcome our first 16 witness of the day to be seated in the witness chair to my 17 left. 18 Welcome. I'll have you sit down. I swear people 19 in in a seated position. 20 Now, you have to position the mic fairly close to 21 your mouth, and you are very tall, so it will be a 22 challenge. That helps. And scooting toward me sometimes 23 helps. 24 Please state and spell your name. 25 THE WITNESS: Rick Podtburg, R-I-C-K, 26 P-O-D-T-B-U-R-G. 27 THE COURT: Thank you. 28 And have you testified in this proceeding before? 7308 1 THE WITNESS: No. 2 THE COURT: I'll swear you in now. 3 RICK PODTBURG, 4 Being first duly sworn, was examined and 5 testified as follows: 6 THE COURT: I notice you have some notes. Will 7 those assist you in presenting your testimony today? 8 THE WITNESS: Yes. 9 THE COURT: And have they been reproduced or 10 distributed? 11 THE WITNESS: Yes. 12 THE COURT: So we'll mark them as an exhibit, next 13 Exhibit Number 320. This will be marked as Exhibit 320. 14 (Exhibit Number 320 was marked for 15 identification.) 16 THE COURT: And 321. Thank you. 17 So the one with more pages is the first one, 18 correct? 19 MS. LOMBARD: Yes. 20 THE COURT: All right. Good. 21 (Exhibit Number 321 was marked for 22 identification.) 23 THE COURT: Excellent. All right. Would you 24 identify yourself, please? 25 MS. LOMBARD: Yes, good morning, Your Honor. 26 I'm Jill Lombard, counsel for Dairy Farmers of 27 America, and I'm here today to introduce Mr. Podtburg, 28 who's already stated his name for the record. 7309 1 THE COURT: Excellent. Thank you. 2 You may proceed. 3 MS. LOMBARD: Thank you. 4 DIRECT EXAMINATION 5 BY MS. LOMBARD: 6 Q. Mr. Podtburg, can you please state your business 7 address for the record? 8 A. 1405 North 98th Street, Kansas City, Kansas. 9 Q. Thank you. 10 I understand that you have prepared a written 11 statement for your testimony today. Would you please read 12 that statement at this time? 13 A. Okay. Thank you. 14 First of all, my name is Rick Podtburg. I'm here 15 today representing Dairy Farmers of America and the 16 Colorado dairy farm families. I currently serve as first 17 Vice Chairman of the Mountain Council of DFA, and I am on 18 the corporate board of DFA. 19 A little bit about my history is my father started 20 dairying with 40 cows 55 years ago. Upon graduating from 21 high school two years later, I made the decision to make 22 dairy farming my lifelong passion. We grew slowly for 40 23 years to 1500 cows. 24 Today with my wife, four sons, two grandchildren, 25 and 150 employees, we milk 9,500 cows at two locations 26 near Greeley, Colorado. We also have 4500 acres of crop 27 land and 4,000 head feedlot to finish our steer calves to 28 the beef market. 7310 1 In 2008, Leprino Foods, which has always been 2 headquartered in Colorado, committed to building an 3 8-million-pound-a-day cheese plant in Greeley, in addition 4 to their 2-million-per-day plant in Fort Morgan, Colorado. 5 The building of this new plant created demand 6 opportunities for Colorado. To fulfill the new milk 7 demand, it required Colorado to grow from 100,000 cows to 8 200,000 cows. The plant was built in three phases 9 starting in 2011 and reached capacity in 2020. This new 10 opportunity encouraged growth in the existing Colorado 11 dairy -- with the existing Colorado dairies and allowed 12 new members to move to the area. Without this large 13 plant, Colorado wouldn't have developed to the level it is 14 today. 15 I am here to support the National Milk Producers 16 Federation proposed changes to the Federal Milk Marketing 17 system, with the exception of the price surface 18 adjustments. Colorado is on the western edge of the 19 Central Federal Order Number 32. Currently, the location 20 differential for Weld County, Colorado, where Greeley is 21 located, is $0.45 per hundredweight positive. 22 The University of Wisconsin model puts Weld 23 County, Colorado -- 24 THE COURT: Let me just make sure. So you had 25 some more words in that sentence. And are they important? 26 You said $0.45 per hundredweight, "more than" -- 27 THE WITNESS: Jackson County, Missouri. 28 THE COURT: All right. Thank you. 7311 1 THE WITNESS: That's the base point, I'm sorry. 2 THE COURT: Thank you. 3 THE WITNESS: The University of Wisconsin model 4 puts Weld County, Colorado at a disadvantage compared to 5 Jackson County, Missouri with a negative differential of 6 $1 per hundredweight between the two locations. The 7 National Milk Producers Federation proposal is better, but 8 still puts Weld County at minus $0.15 hundredweight lower 9 than Jackson County. We need to maintain the $0.45 per 10 hundredweight positive relationship Greeley currently has. 11 The reasoning for this is that we have the highest 12 cost of production for any location in Federal Order 32. 13 A significant amount of feed such as corn, soybean meal, 14 and cottonseed must be trucked or railed into Colorado. 15 As with many other industries, the cost of this has 16 increased significantly over the last three years. As an 17 example, corn in Colorado previously was 30 to $0.50 over 18 the CME price. Last year, with the high cost of 19 transportation and the short corn crop, that became $1 to 20 $1.50 per bushel over the CME. That also makes our corn 21 silage cost much higher as it is based on the value of 22 grain corn. 23 Colorado's population is growing rapidly making it 24 a high cost of living state. This is also creating even 25 greater competition for employees, housing, and water, 26 which is a major cost increase for the Colorado dairies. 27 I have included a summary of the advantage cost to produce 28 milk in Colorado -- 7312 1 THE COURT: Let me have you read that sentence 2 again, please. 3 THE WITNESS: Starting with what, "I have 4 included," or the one before? 5 THE COURT: Yes, "I have included." 6 THE WITNESS: I have included a summary of the 7 average cost to produce milk in Colorado. This is an 8 accountant-prepared summary of about 20 dairies showing 9 the dramatic increase in cost of production. 10 And do we want to present the attachment? 11 THE COURT: Let's have you finish this exhibit, 12 then we'll go to Exhibit 321. 13 THE WITNESS: Okay. For these reasons, the plus 14 $0.45 per hundredweight differential needs to be -- 15 between Jackson County, Missouri and Weld County, Colorado 16 needs to be maintained. I believe we have the highest 17 cost of production in Federal Order 32. If the Federal 18 Order price for Colorado is less or equal to Jackson 19 County and we have the highest cost, we will obviously go 20 negative cash flow sooner than other areas in the order 21 when milk prices drop. With this change and the $0.50 per 22 hundredweight potential reduction from the Make Allowance 23 change, this could be devastating to the Colorado dairy 24 farm families. 25 Thank you for allowing me to testify today. 26 And the exhibit I have, it's Genske Mulder, a 27 large accounting firm for dairy farms, out of California. 28 They summarized 20 dairies in Colorado the last five years 7313 1 on what the cost of production has done. It does show a 2 nice profit last year, but if you take the last five years 3 and average it, it's about $1.00. So with this change, 4 there would be no profit. And this year is going to be 5 substantially negative. 6 That would complete my comments, and I guess I'm 7 available for questions. 8 MS. LOMBARD: Thank you, Mr. Podtburg. 9 Your Honor, at this time I'll tender the witness 10 for cross-examination. 11 THE COURT: All right. I would like you to spell 12 the name of the firm that prepared Exhibit 321. Or anyone 13 can do that for us. I just want it -- 14 THE WITNESS: I'm not sure Genske. Mulder is 15 M-U-L-D-E-R. Genske is -- 16 THE COURT: G-E-N-S-K-E, does that sound right? 17 THE WITNESS: Yes. That sounds right. Slash 18 Mulder, M-U-L-D-E-R. 19 THE COURT: Thank you. 20 THE WITNESS: And my accountant is one of their 21 employees. 22 THE COURT: Excellent. All right. Thank you. 23 I would invite cross-examination. 24 CROSS-EXAMINATION 25 BY MS. HANCOCK: 26 Q. Good morning, Mr. Podtburg. I just wanted to ask 27 you a couple of questions on Exhibit 321. 28 This is a document that one of your agents at the 7314 1 accounting firm prepared for you and on your behalf? 2 A. Yes. 3 Q. And this is an accounting firm that you have used 4 in the ordinary course of your business operations? 5 A. Yes. 6 Q. And you asked him to provide this information to 7 you for your -- to support your testimony today? 8 A. Yes. 9 Q. And your data is included in this spreadsheet as 10 well? 11 A. Yes. 12 Q. Okay. 13 MS. HANCOCK: Your Honor, I just wanted to make 14 sure that we had the proper foundation laid for that. 15 Thank you so much for being here today. 16 THE WITNESS: Thank you. 17 CROSS-EXAMINATION 18 BY MR. MILTNER: 19 Q. Good morning, Mr. Podtburg. 20 A. Good morning. 21 Q. My name is Ryan Miltner, and I represent Select 22 Milk Producers. 23 I appreciate the time you have taken to come and 24 help us with information about, well, dairying in your 25 part of the world. 26 To follow up on what Ms. Hancock asked, the 27 reports that Genske and Mulder prepares, in addition to 28 the answers you have already given, those summaries are 7315 1 shared within the industry among dairy farmers quite a 2 bit, aren't they? 3 A. Yes. 4 Q. And I'm looking at Genske and Mulder's website to 5 see if they are there, and I think you can request access, 6 but they post this information on their website as well, 7 correct? 8 A. I have never been on their website. 9 Q. Okay. Do they get you the printed copy of these 10 reports, then? 11 A. Yes. What I presented, they e-mailed to me a few 12 days ago at my request, and he's aware that I was going to 13 present it here. 14 Q. Right. 15 I just wanted to -- I wanted to make the record 16 clear that -- that this is something that not only is it 17 prepared for a bunch of different dairies in Colorado, but 18 it's something that most farmers, especially in the West, 19 they are aware of the Genske Mulder reports and something 20 that you all rely upon when benchmarking your dairies, 21 correct? 22 A. Yes. 23 Q. Great. 24 I had a couple of questions about your written 25 testimony and what you are asking as far as a change for 26 Weld County. And it's great that you are here today. 27 We're -- at least I'm -- we haven't gotten through all the 28 testimony from National Milk on how they came up with 7316 1 their surface, and so without having them presented 2 everything about what they have put together in their 3 numbers, it's hard for me to understand why you are 4 looking for a change from what they have done. 5 And so I guess I'm wondering if you could help me 6 understand a little more about what you saw in what 7 National Milk has proposed and why you have -- why you -- 8 why you think that needs to change. 9 A. Well, as the -- the thing about my testimony is, 10 if we have the highest cost of production in the order, it 11 seems illogical that we should be a negative differential 12 to the base point of the order when we have been positive 13 for the last 25 years. 14 Q. And when you refer to the base point of the order, 15 how do you -- how have you determined what the base point 16 is? 17 A. Well, my understanding is that the base point of 18 the Central Order is Jackson County, Missouri. 19 Q. Okay. Is that from your previous knowledge about 20 the current differentials? 21 A. Well, I think so. I think it's -- that's always 22 been the -- the relative base point has always been 23 Jackson County, Missouri, hasn't it? 24 Q. Okay. 25 A. My understanding is it's Jackson County, Missouri, 26 and then every county has a location differential from 27 there. 28 Q. Okay. So you are referring to the announced 7317 1 uniform price -- 2 A. Yes. 3 Q. -- at that base point? 4 A. Yes. 5 Q. I was -- see, that's where I'm a little 6 discombobulated, not because of anything you have done. 7 Yesterday, when we started hearing from National Milk 8 about how they came up with their -- their proposed 9 changes, they were talking about anchor points. And so 10 now you have clarified my misunderstanding, so thank you. 11 So I would wonder if -- I represent Select Milk 12 Producers, and you are aware of where their farms are for 13 the most part, correct? 14 A. Yes. 15 Q. And so Order 126 in the Southwest order, Dallas is 16 the base point, and the differentials in Clovis, New 17 Mexico, are like right now $0.70 less than Dallas. And I 18 don't have right in front of me what the proposed change 19 would be. 20 If you were a farmer in Clovis as opposed to 21 Greeley, would you have those same concerns about the 22 Southwest order? 23 A. I would think so. I think if you look at what's 24 happening in the U.S., New Mexico is losing more cows and 25 more milk than any state in the country, which is 26 economically driven. 27 Q. It is. 28 A. My fear is that in five years we'll be on that 7318 1 same line if this doesn't get fixed. 2 MR. MILTNER: I don't think I have any other 3 questions. I really do appreciate your testimony today. 4 Thank you. 5 THE WITNESS: Thank you. 6 THE COURT: Does anyone else have questions of 7 this witness before I turn to the Agricultural Marketing 8 Service for their questions? 9 I see none. I invite the Agricultural Marketing 10 Service to ask questions. 11 CROSS-EXAMINATION 12 BY MS. TAYLOR: 13 Q. Good morning. 14 A. Good morning. 15 Q. Thank you very much for coming to testify today. 16 A. Thank you for listening to me. 17 Q. I wanted to ask you a few questions about your 18 farm. You said you grew slowly at first to 1500 cows, and 19 now you have 9500 cows. 20 Could you talk a little bit about how fast that 21 growth was, from 1500 to 9500? 22 A. In 2000, we formed a partnership with another 23 dairy farm family, and that caused us to grow, to do some 24 of the growth. And then with the demand for the Leprino 25 plant, we had the opportunity to grow and add new cows, 26 and we just built a new robot dairy and added some more 27 cows. And most of our cows lately have come from retiring 28 dairy farmers who want to exit the business, we buy their 7319 1 cows and put them in our new robot dairy. 2 Q. Okay. And you talked about Leprino. 3 Is that where your milk goes? 4 A. Yes. It doesn't have to, but it does. 5 Q. It's mostly where it goes? 6 A. It's a co-op. It can go to Denver to fluid 7 plants. But where we are located, 95% of it goes to -- 8 98% of it goes to Leprino. 9 Q. And so how far is it to the Leprino plant? 10 A. 18 miles from one dairy and 16 from the other 11 dairy. 12 Q. And when it goes to Denver, how far is that? 13 A. Oh, that would be another 50, so like 68. But it 14 would -- it would rarely go to Denver because there's milk 15 south of Greeley, closer -- there's milk much closer to 16 Denver. If it goes somewhere else, it would go to Fort 17 Morgan. 18 Q. Okay. And it's not in here. We have had -- in 19 these past few weeks of hearing, there's discussions of 20 component levels, so that's why I'm asking you this 21 question, even though it's not in your testimony. 22 Do you know what your component levels are in your 23 milk? 24 A. For the year, our butterfat is about 4.05, and our 25 protein would be about 3.28 for the year. 26 Q. Thank you. 27 And when you are talking about differentials, I 28 looked them up. So it looks like currently in Weld County 7320 1 it's in the 2.45 differential zone; is that correct? 2 A. Yes. 3 Q. And then so Jackson is in the $2.00 zone? 4 A. Jackson is exactly $2.00. 5 Q. Okay. And I see as National Milk's proposed, Weld 6 would be $3.20? 7 A. I believe so, yes. 8 Q. Okay. And Jackson would be $3.35. It looks like 9 that's where you get your $0.15. 10 A. Yes. 11 Q. And so I think throughout your testimony what I 12 gather is you would like those to be changed so at least 13 it gave you the $0.45 difference that you currently have? 14 A. Yes. 15 Q. Okay. On the Exhibit 321, which is the cost data 16 you provided, is your farm in this -- is your farm one of 17 the 20 farms in this data? 18 A. Yes. 19 Q. And so when you look at the 2022 cost, do you kind 20 of see those representative of what you are -- you 21 experienced during that year? 22 A. Yes. 23 Q. I do have a question, and you might not be able to 24 answer this, and that's fine, I just thought I'd ask. 25 There's a line there that says "industry assessments." 26 Do you know what is in that? 27 A. I believe that would be the DFA, the promotion 28 checkoff, administration checkoff. 7321 1 Q. Okay. 2 A. It would be co-op charges, including that 3 promotion, which just goes through the co-op to -- to the 4 National Dairy Board. 5 Q. Right. Okay. 6 And then I was wondering if you could talk a 7 little bit about your hauling charge, you know, your 8 experience on transportation costs. There's been a lot of 9 talk about how that has really has increased. That's one 10 of the reasons National Milk is putting forth for why 11 these differentials should be changed in the first place. 12 So I was wondering if you could talk about, in 13 recent years, how have your transportation costs been 14 affected? Have they stayed the same? Gone up? Gone 15 down? 16 A. Well, our transportation cost has gone up. It's 17 48 -- 48 to $0.49 right now as the fuel bounces around. 18 But there's -- but that's because we are very close to the 19 market. 20 Dairies -- there's dairies that are paying $1.00, 21 $1.50 that are, you know, further from the market. I 22 think it takes $4.00 to move milk from Colorado -- in from 23 Idaho to Colorado as an example. 24 Q. Uh-huh. Okay. 25 MS. TAYLOR: I think that's it from AMS. Thank 26 you for your time today. 27 THE WITNESS: Thank you. 28 MS. LOMBARD: Your Honor, I'd move to admit 7322 1 Exhibit 320 and 321. 2 THE COURT: Is there any objection? 3 There is none. I admit into evidence Exhibit 320. 4 (Exhibit Number 320 was received into 5 evidence.) 6 THE COURT: Is there any objection to 321? 7 No? I admit into evidence Exhibit 321. 8 (Exhibit Number 321 was received into 9 evidence.) 10 MS. LOMBARD: Thank you. 11 THE COURT: Thank you so much. This was very 12 helpful. 13 THE WITNESS: Thank you. 14 THE COURT: And I thank you for appearing in 15 person. You are a long way from Colorado. 16 THE WITNESS: Yes. Thank you. 17 THE COURT: Mr. English, we're doing a little 18 technical work with the witness, and I'll hear from you 19 now. 20 MR. ENGLISH: I thought while we were doing that 21 it would be more efficient, I think, if we could get 22 copies of Exhibit 300 and 301 for the witness so we don't 23 have to interrupt. 24 THE COURT: I'm so sorry to hear that. 25 MR. ENGLISH: What, that we're going to have 300 26 and 301? 27 THE COURT: Yeah. 28 MR. ENGLISH: Wait till you see the rest. 7323 1 THE COURT: All right. We will tee those up. I 2 still have an extra copy of those, if they are needed by 3 anyone. 4 Would the witness please identify himself, and 5 again spell his name for the record? 6 THE WITNESS: Jeffrey Sims, J-E-F-F-R-E-Y, 7 S-I-M-S. 8 THE COURT: I have been calling you Dr. Sims. Did 9 I give you a promotion? 10 THE WITNESS: Yes, ma'am. 11 THE COURT: So -- 12 MR. ENGLISH: It depends on your perspective. 13 THE WITNESS: And I appreciate it. Actually, I 14 think I do have a Ph.D. I bought it for $600 online. 15 THE COURT: So your master's degree -- 16 THE WITNESS: Yes, ma'am. 17 THE COURT: -- is augmented by years of 18 experience. And I -- I won't call you "Dr." anymore, but 19 I still regard you as an expert. 20 THE WITNESS: Thank you. 21 THE COURT: All right. Mr. English, I interrupted 22 your cross-examination of this witness. Is that what 23 happened? 24 MR. ENGLISH: Yes, Your Honor. 25 THE COURT: And that was because we needed to get 26 another witness in and out. 27 MR. ENGLISH: No, we ran out of time. It was 28 5:00. 7324 1 THE COURT: Oh, we ran out of time. 2 You may resume, Mr. English. 3 MR. ENGLISH: Thank you. 4 Good morning, Your Honor. 5 CROSS-EXAMINATION (Continued) 6 MR. MR. ENGLISH: 7 Q. Good morning, Mr. Sims. 8 A. Good morning. 9 Q. My name is Chip English for the Milk Innovation 10 Group. 11 So I want to go back just a little bit to 12 yesterday afternoon. And I was struck by our conversation 13 with respect to how you characterized and how I 14 characterized the $2.20. 15 A. Yes. 16 Q. So I want to go back, and I'm going to quote now 17 from page 40 of National Milk Producers' proposal 18 submitted to the United States Department of Agriculture 19 back in May. And I note, I think not coincidently, that 20 it is word for word, as I read it, identical to the 21 testimony by Dr. Vitaliano earlier this week. 22 So let me read that. "The Federal Order base 23 Class I differential has historically recognized that 24 there has been a difference in the cost of producing milk 25 solely for manufacturing use and the cost of producing for 26 daily delivery to the Class I market over time. And with 27 the Federal Order reform changes in manufacturing class 28 use prices eliminating any competitive milk procurement 7325 1 factor in a base milk price, the Class I differential base 2 price now represents a modest nod to production costs at 3 the producer level. Since 2000, those costs have risen 4 far more than the limited increase in the base Class I 5 differential from $1.60 per hundredweight to $2.20 per 6 hundredweight embedded in the National Milk Producers 7 Federation proposal." 8 As I heard your testimony yesterday afternoon just 9 before 5:00 p.m., you said that at least what was done in 10 the Southeast and the Southwest was that the proposed 11 increase to the $2.20 is found in the minimum Class I 12 differential; is that correct? 13 A. I think I understand after replaying our 14 conversation yesterday afternoon why there could be some 15 confusion. I think it would be helpful if we went through 16 the process and how we did what it is we did and how we 17 came up with these values, and some of -- somewhat the 18 chronology, because I think that's important. 19 The -- and I will say this to start: Every one of 20 the four regional working -- sub-working groups, the 21 Class I working groups, used the model when it was run at 22 the minimum differential of $1.60. We all started with 23 that model. It -- if I -- if I -- if I failed to answer 24 that properly yesterday, then I'm correcting it today. 25 But every -- everyone worked off the same run of the 26 model. 27 The first step in this process was, after we got, 28 I believe the second run, and which was only -- the third 7326 1 run was very, very lightly changed actually from the 2 second one. But we actually met in person, and a group of 3 a dozen of us or so from around the country took that 4 model run and developed what we then termed the anchor 5 cities. 6 Some tentative agreement across, I believe it was 7 19 cities, where we said, okay, let's start here. And 8 those anchor cities are cities that kind of where if you 9 think about our four regions, those are kind of border 10 cities between regions, or places where the regions more 11 or less touch, or abut, whichever description that works 12 for you. 13 So we all were working off the same model run, and 14 we were all working off the same set of anchor cities. So 15 each, then we divvied up the work to take those -- 16 those -- that data, that information, the information from 17 the -- from the Wisconsin model, and set about doing 18 exactly what USDA did 25 years ago and said, okay, now we 19 have got the science, let's apply the art. 20 And we used people across each of these regions 21 who understand the milk movements in those regions, 22 understand where the plants are, understand why the model 23 may or may not reflect the full reality of the 24 marketplace, and then began working through, using again, 25 all -- you know, we were all working off the same model, 26 we were all working off the same anchor cities. 27 And so I can discuss what we did, in general, if 28 you would -- 7327 1 Q. If you want to keep doing that, I'm going to cover 2 that later, but I would like to cut you off. I just 3 wonder whether we want to do that narrative and then I -- 4 because -- 5 A. Okay. Let me -- let me -- 6 Q. Yeah. 7 A. -- just simply say, briefly, that we took the 8 anchor cities and the model information and worked through 9 our process in the Southeast and Southwest. We'll get to 10 the detail later. 11 But, again, each one of these four regions was 12 doing the same work all at the same time. Again, working 13 off the same common set of information, but applying their 14 local information to this. 15 During this process, we were also going through a 16 couple of other issues or a couple of other, I guess you 17 can almost say academic questions that we needed to -- you 18 know, when we ran the -- or had UW run the model at the 19 $1.60, we said, okay, that's what we have today, let's run 20 at $1.60. 21 Then, again, there were two or three other, maybe 22 perhaps call them lines of inquiry which were occurring at 23 the same time. We had gone back to the proposed rule and 24 the final rule and, you know, dug out the justification 25 for the current $1.60 minimum differential, or base if you 26 prefer to call it that, and said, okay, can we through 27 research, academic or not, or, you know, our own data or 28 whatever, mirror or redo, re-evaluate those -- that 7328 1 three-step, three-piece formula that arrived at the $1.60: 2 The $0.40 plus the $0.60 plus the $0.60. 3 And so we were working on that. We had one set of 4 folks who were working on the Grade A/Grade B piece. We 5 talked seriously how do we evaluate in a reasonable and 6 appropriate way, defensible way, what the cost of 7 balancing is. And I -- and we pretty quickly realized 8 that balancing is a plant-specific question and probably a 9 regional-specific question. That's a difficult question 10 to answer, and whatever number you came up with would be 11 some average, which may or may not reflect reality in any 12 one part of the world. 13 So -- and then the other part is, what does it 14 take to shake milk out of manufacturing, and that one's a 15 hard one, too. Particularly, you know, that one's subject 16 to regional supplies and demands. 17 So, again, we were working through this more or 18 less all the time. We were working on the regional, what 19 we call the colored pencil crews, you know, using that 20 same method that the USDA used 25 years ago, to take the 21 model results and -- and tweak it where we needed to. 22 As each region worked through the -- well, we 23 were -- as we worked through the Grade A/Grade B piece, we 24 found that that one -- that number approached or exceeded 25 $2 per hundredweight. We'll hear extensive testimony on 26 how that work was done later. 27 And so we already had a number that was higher 28 than the $1.60 just from one element of that previous 7329 1 $0.40 plus $0.60 plus $0.60 recipe. 2 And then so as the western group worked through -- 3 and that low point, that one spot in Ada County, Idaho, 4 was covered by the western group, or the colored pencil 5 crew. And for some reason, for reasons that they will 6 explain at some point, they realized they actually needed 7 2.20 at that low point instead of $1.60. 8 Now, we didn't change the base, if you will, for 9 zoning out the country because the rest of us were working 10 off of our anchor cities. So when we defined the anchor 11 cities off the $1.60, that means we were all working off 12 $1.60. The western group came up with a -- said 2.20 is 13 what they need for whatever price alignment reasons, blend 14 price alignment reasons, they said that the $1.60 doesn't 15 really work there, and they said, we need 2.20. 16 Well, we already had Grade A/Grade B cost 17 difference, production difference data, which supported a 18 number at or around $2. And then we take a look and say, 19 well, as I was saying yesterday, what is it that we -- you 20 know, that the Agricultural Marketing Agreement Act is 21 designed to do and how can we help that work? And the 22 incentive to supply Class I is certainly the -- one of the 23 cruxes of the AMAA. 24 So we -- at the same time, we said, okay, how do 25 we do that? And if we -- and if we can't replicate those 26 40 plus 60 plus 60, with new numbers, how do we go about 27 finding a justification for our minimum level of 28 differential. 7330 1 Well, that's -- number one, the western group said 2 they needed 2.20 for price alignment. We ran the analysis 3 that says 2.20 works quite well in terms of minimizing 4 class price inversions, which are a measure that say -- 5 you know, if you get rid of -- or minimize class price 6 inversions, then you have Class I at the highest price 7 class. That's the way you incentivize milk to move to 8 Class I. That's how we arrived at the 2.20. It worked in 9 three different levels: It worked on the Grade A/Grade B 10 piece; it worked for price alignment in that western area, 11 which they will describe later; and it does what we need 12 to do in terms of providing an incentive to move milk to 13 Class I, which is make the Class I price the highest price 14 class. 15 That serves the story. We did pretty much -- 16 we -- we very much, through gillions of meetings, Zooms 17 and calls and you name it, 40-some-odd people working on 18 this in various spots either in groups or multiple groups 19 or multiple regions working together to -- to make all 20 this fit, we came up with a -- what we believe is a 21 reasonable and reasoned Class I price surface based on the 22 precepts that we provided, which was to come up with a 23 reasonable and reasoned Class I price surface based on the 24 model science and the local knowledge art. That serves 25 the story. 26 Q. Are you done? 27 A. Yes, sir. 28 Q. Thank you. Let me go back to my question. 7331 1 You have described what you did or what somebody 2 did in Ada County, Idaho, which may or may not match up 3 with reality. Did you in the Southeast/Southwest add that 4 specific $0.60 to the University of Wisconsin model 5 output? 6 A. No. We -- they -- the anchor city numbers were 7 based off of the 1.60 run model. And so we started at the 8 anchor cities. And so we did not add 60 more cents 9 because that one piece of geography in Idaho was raised 10 from 1.60 to 2.20, or the model -- I think it may even be 11 wrong to characterize this raised from 1.60. The model 12 said it was 1.60, if you plug in $1.60 -- but they said 13 they needed 60 more cents than that to make things work up 14 there. 15 But, no, we did not then go back and say, we need 16 to put 60 more cents in the Southeast and Southwest. I 17 think I -- I'm -- I can say with some safety that some of 18 the -- most of the other regions probably did not also add 19 $0.60 after that was -- determination was made. But the 20 2.20 works. It works on several levels, and it was 21 retained. 22 Q. Are you done? 23 You acknowledged yourself -- 24 MS. HANCOCK: I don't know what the "are you done" 25 thing is -- 26 THE COURT: I like it. Mr. English is giving 27 Mr. Sims an opportunity to explain, and he's not 28 interrupting him. And before he tries to get his 7332 1 questions answered, he's making sure that Mr. Sims has had 2 an opportunity to complete his explanation of that part of 3 the process. I like it, myself. 4 MS. HANCOCK: Your Honor, I think that you are 5 very generously describing what it is. I think it's very 6 clear that Mr. -- that Mr. Sims has paused at the end of 7 his answer to signal that he's done. And I think it is a 8 snarky way that Mr. English is -- is trying to -- to 9 battle with the witness. 10 I just think it's really important for this 11 process that we remain respectful of one another, and I 12 don't think it -- I don't think it signals respect for 13 Mr. Sims and what he's trying to explain. 14 THE COURT: Understood your viewpoint. However, I 15 prefer this to them talking over each other. 16 Mr. Sims is so dynamic and has so much information 17 that I like this as an orderly method. I don't see it as 18 snarky at all. These two can handle each other just fine. 19 And you may proceed, Mr. English. 20 MR. ENGLISH: Thank you, Your Honor. 21 BY MR. ENGLISH: 22 Q. So, now, as you discussed in response to my first 23 question, I think I thought I heard you say you went back 24 to what USDA did 25 years ago, and you did exactly what 25 USDA did 25 years ago; is that correct? 26 A. What I said was -- or what I think I said -- was 27 that we used the same methodology that USDA used 25 years 28 ago. That's, take the results of the -- what then was the 7333 1 Cornell model, and then use that as a -- the backbone or 2 the structure, and then apply local knowledge, and tweak 3 those -- those differentials, applying the local 4 knowledge. 5 It's our understanding that that was the procedure 6 USDA used 25 years ago, and we have every reason to 7 believe that was -- that is still appropriate today, and 8 that's the process we used. 9 Q. In that event, I'm going to read one paragraph 10 from the proposed rule dated April 2, 1999, 64 Federal 11 Register, page 16110. 12 Before I do, you recall back then there was a -- 13 two separate options that USDA put up? 14 A. I do recall that. 15 Q. Option 1A and Option 1B, correct? 16 A. Correct. 17 Q. And USDA, in the proposed rule, selected 18 Option 1B, correct? 19 A. That's my recollection, yes. 20 Q. And Congress intervened at the end of the year 21 after some lawsuits and said, no, put in Option 1A, 22 correct? 23 A. I don't recall the lawsuit question, but I can say 24 with certainty that Congress told the Secretary to use 25 Option 1A. 26 Q. Okay. So I'm going to avoid reading Option 1B 27 because, for this purpose, it's my view that it is 28 irrelevant. So I'm going to read: Option 1A, 7334 1 Location-Specific Differentials. 2 "Option 1A establishes a $1.60 per hundredweight 3 fixed differential for three surplus zones (Upper Midwest, 4 West, and Southwest) within a nine-zone national price 5 surface, and for the other six zones, an added location 6 component that reflects regional differences in the value 7 of fluid and manufacturing milk. This option emphasized 8 current supply and demand conditions with the USDSS model 9 output." 10 Isn't it true, sir, that in simple math, what USDA 11 did is it first said, we're going to have $1.60, every 12 county in the United States, and to that we will add the 13 model output? Two components, one final number. 14 A. I don't know that that's what I interpret from 15 there. If you could read that again, I'll try to listen 16 quite -- as -- more closely than I did last time, although 17 I was trying to listen closely. But please read that to 18 me again. 19 Q. Location-Specific Differentials. "Option 1A 20 establishes a $1.60 per hundredweight fixed differential 21 for three surplus zones (Upper Midwest, West, and 22 Southwest) within a nine-zone national price surface" -- I 23 repeat, national price surface -- "and for the other six 24 zones, an added component that reflects regional 25 differences in the value of fluid and manufacturing milk. 26 This option emphasized current supply and demand 27 conditions with the USDSS model output." 28 A. In my hearing of that, I don't think that's any 7335 1 different than what we did. The -- when -- when -- when 2 we talked to the now University of Wisconsin USDSS 3 operators, they simply asked us: This model will create 4 some place with a zero zone, but we need a base level or 5 minimum level to apply to that to generate then the model 6 output that is usable as a base for a Class I 7 differential. 8 We did what they asked us to do. They explained 9 what they needed from us. We provided the $1.60 because 10 that's what exists today. We then went through our 11 process. 12 I believe that you could interpret that statement, 13 I don't -- I don't know exactly what they meant by base, I 14 don't know, but I think we did exactly what they did. Or 15 if not exactly, certainly a process that 25 years later 16 with substantially better computing power and a 17 substantially different marketplace, we did procedurally 18 exactly what was done 25 years ago or -- 19 Q. I guess USDA will know better than any of us what 20 they did 25 years ago. But I'm trying to understand what 21 the point of language is that say, hey, we started with 22 $1.60 fixed differential and that -- that would establish 23 a national price surface, and then have you say well, no, 24 that $1.60 was somehow flexible throughout the system. 25 A. Sir, I didn't say it was flexible. 26 Q. Well, isn't that what you have done with the 27 $0.60? It's flexible. 28 A. I beg your pardon? 7336 1 Q. You have admitted -- 2 A. Okay. 3 Q. -- the $0.60 was applied in Ada County where 4 there's tons of milk, but you didn't apply the $0.60 in 5 the Southeast where we have heard weeks and weeks and 6 weeks of testimony that there's not enough milk in the 7 Southeast. 8 A. You are going to need to slow down. 9 Q. Okay. I will. Thank you. 10 I heard you say that the $1.60 was the base before 11 the anchor cities analysis was done. And then, basically, 12 the various groups, and we'll hear from the western group, 13 some of them, in the case of the western, added $0.60, 14 correct? Ada -- in Ada County, they added $0.60? 15 A. They added $0.60 to the -- yes. For that county, 16 they determined that -- that the appropriate -- 17 appropriate Class I differential at that point was 2.20. 18 THE COURT: I need your help, Mr. Sims. 19 THE WITNESS: Yes, ma'am. 20 THE COURT: When a witness says "they," the 21 witness knows -- 22 THE WITNESS: Ah, yes, ma'am. The western Class I 23 differential working group. 24 BY MR. ENGLISH: 25 Q. I also heard you testify that $0.60 was not added 26 in your working group in the Southeast and Southwest, 27 correct? 28 A. We worked off the anchor cities which were built 7337 1 off the $1.60. The need for something above the 1.60 in 2 that area, that could be any number of reasons they 3 determined that. But as I said, when we start looking at 4 the objectives of that low minimum -- or that minimum 5 number, it -- the 2.20 makes a great lot of sense. It 6 solves three problems simultaneously. 7 THE COURT: Thank you. And now answer his 8 question. 9 THE WITNESS: I thought I did. 10 THE COURT: Ask it again. 11 MR. ENGLISH: Thank you very much, Your Honor. 12 BY MR. ENGLISH: 13 Q. My question, sir, was notwithstanding what was 14 done up in Idaho, where $0.60 was added, your group in the 15 Southeast decided, we're not going to add that $0.60, 16 correct? 17 A. Our -- our work was off the -- the anchor cities, 18 which were built off the model at 1.60 as the low point. 19 Q. And then my question, sir, is given the weeks of 20 testimony that we have heard about the need for milk in 21 the Southeast, why would you say, we'll not add that 60 to 22 go to 2.20 in the Southeast? 23 A. I -- we followed the model generally in the 24 Southeast based on the 1.60. If -- 25 Q. And other parts of the country they deviated from 26 the model to add $0.60, correct? 27 A. I think that's a reasonable statement. Yes. 28 Q. Okay. Thank you. 7338 1 THE COURT: Let me ask. 2 THE WITNESS: Yes, ma'am. 3 THE COURT: Mr. Sims, do you know why the working 4 part of your organization chose what it chose with regard 5 to that area of the country given the anchor cities? 6 THE WITNESS: They have -- they are going to 7 present their own testimony, Your Honor, about how they 8 derived at the differentials that they developed in their 9 region, and that decision on why they felt 2.20 at that 10 area was appropriate, they will explain. They certainly 11 can explain it better than I can. 12 THE COURT: Understood. 13 MR. ENGLISH: Your Honor, I have an exhibit to be 14 marked and distributed that was submitted to USDA around 15 6:00 a.m. this morning, that is entitled Exhibit MIG-30. 16 So it may make sense to both distribute it and have it 17 marked. If you want to go off the record to do that, I'm 18 prepared to do that. 19 THE COURT: And right now it's identified as 20 MIG-30? 21 MR. ENGLISH: Yes, MIG-30. 22 THE COURT: And it's number will be 322. 23 So let's go off record while the marking and 24 distribution is done. 25 We're off record at 8:54. 26 (An off-the-record discussion took place.) 27 (Exhibit Number 322 was marked for 28 identification.) 7339 1 THE COURT: Let's go back on record. We're back 2 on record at 8:56. 3 Mr. English. 4 MR. ENGLISH: Your Honor, what we have had 5 distributed, that was Exhibit MIG-30, and I think off 6 record was marked as Exhibit 322 -- 7 THE COURT: Correct. 8 MR. ENGLISH: -- is a version -- a modified 9 version of Exhibit 301, which was the June submission by 10 National Milk Producers Federation, that ran through 11 Column O. 12 And we have created -- and I'll run through what 13 they are -- additional columns. 14 First, just for convenience purposes, we have 15 repeated, in Column Q, the University of Wisconsin average 16 for three years but added $0.60. So that is to say we 17 have taken Column L and we have added $0.60. 18 And then Column R is if you take the final 19 submission -- and because this is the spreadsheet, 20 therefore, it has not been modified for the couple of 21 Texas counties that I believe we were told have changed -- 22 but otherwise, it is what was submitted by National Milk 23 Producers Federation, plus $0.60. 24 THE COURT: I heard you and I'm looking, but I 25 need you to say again exactly what you said. 26 MR. ENGLISH: I'm sorry. 27 THE COURT: No, don't be sorry. 28 MR. ENGLISH: I got -- well, actually, I -- my own 7340 1 copy is not as clear as I thought it was going to be. 2 There's a minus sign. 3 So I'm advised that maybe one of the Texas 4 counties had already been fixed in this, so -- but that's 5 not the point of the spreadsheet, but I think one of the 6 Texas counties had already been fixed. 7 THE COURT: One of the Texas counties had 8 already -- 9 MR. ENGLISH: One of the Texas counties had 10 already been fixed, I think. 11 THE COURT: Have been fixed? 12 MR. ENGLISH: In the submission that was made in 13 June. I'm just going to leave the two Texas counties out, 14 because otherwise I'll spend a long time on that. 15 So let me go back to Column Q. 16 THE COURT: Column Q. 17 MR. ENGLISH: Is the University of Wisconsin 18 three-year average from Column L plus $0.60. 19 Column R is the as-submitted proposed by National 20 Milk, minus -- there's a little minus sign there -- the 21 University of Wisconsin three-year average plus $0.60. 22 Column S -- 23 THE COURT: Okay. That's what I don't understand. 24 MR. ENGLISH: Okay. 25 THE COURT: I mean, there's a lot I don't 26 understand. But when you say it's their minus plus $0.60, 27 I -- I don't follow. 28 MR. ENGLISH: More simply, Your Honor, Column R is 7341 1 Column O minus Column Q. Column O is what was proposed; 2 Column Q is the three-year average plus $0.60; and 3 therefore, Column R is simply the difference between 4 Column O and Column Q. 5 Does that help? 6 THE COURT: Perfectly. Thank you. 7 MR. ENGLISH: Thank you, Your Honor. 8 Column S is the May '21 -- so that is to say 9 Column F -- model run plus $0.60. 10 And Column T is Column O minus Column S. That is 11 to say it's the as-submitted proposed minus Column S. 12 Column U is the October 2021 model estimate. That 13 is Column G. 14 THE COURT: Your voice dropped off on estimate. 15 Say it again. 16 MR. ENGLISH: Column U is the October '21 model 17 estimate, which is Column G plus $0.60. 18 And finally, Column V, like the others, is 19 Column O minus Column V; that is to say, it was 20 as-submitted proposed minus the October model estimate 21 plus $0.60. 22 THE COURT: Okay. Say it again? Because you're 23 telling us that Column V, like Victor, and then again you 24 used V. So tell me again? 25 MR. ENGLISH: Column V -- 26 THE COURT: Like Victor? 27 MR. ENGLISH: -- like Victor, is Column O minus 28 Column U. If I said V, it was a mistake. Minus Column U. 7342 1 THE COURT: I'm with you. 2 MR. ENGLISH: Thank you. 3 THE COURT: Thank you. And you still need to go 4 very slowly. This is very complicated to me. 5 MR. ENGLISH: I can tell you in big capital 6 letters it says "repeat very slowly." Apparently I did 7 not do it slowly enough. All right. 8 BY MR. ENGLISH: 9 Q. Do you understand that, Mr. Sims? 10 A. I think I do. 11 Q. Okay. Now, as a predicate question, I want you to 12 pull up Exhibit 300 that you also have. 13 And in 300, you -- National Milk has provided in 14 Column Q a column entitled "Proposed Versus Model 15 Average." 16 Do you see that? 17 A. I do. 18 Q. Do you recall this document? 19 A. Actually, I don't recall this document, but I 20 don't question its existence. 21 Q. Okay. 22 A. But it looks like something that we might have 23 done at that time, yes. 24 Q. And would you agree that if it says "Proposed 25 Versus Model Average," that is simply a plus or minus from 26 your adjustments from what the model put out for the 27 average, which was Column L, plus or minus, those were 28 your adjustments, correct? 7343 1 A. Depending on whether you consider the average or 2 the low point -- or the low side, the -- or the high side, 3 if you make the presum- -- mathematically, that number in 4 Q would represent the average -- the difference between 5 our proposal and the average of the two months of the 6 model results. 7 Q. And I didn't create this document. So somebody at 8 National Milk thought that would be appropriate, correct? 9 A. Apparently. 10 Q. Okay. Do you recall in the discussion of Federal 11 Order reform, whether USDA, in discussing the use of the 12 USDSS, said it was going to use the average? 13 A. I do not recall that. 14 Q. Okay. If they did, would that make sense as a 15 predicate for why Column Q was put in? 16 A. Please ask me that again. 17 Q. Since you said that National Milk was following 18 exactly the methodology that USDA used 25 years ago, if it 19 turns out that USDA, 25 years ago, used the average of the 20 USDSS runs, doesn't that connect up? 21 A. Number one, I believe we followed the procedure 22 that USDA used. To say that we followed it exactly 23 probably would be a misstatement. But if the -- if indeed 24 they -- they used the average, I can -- I can agree that Q 25 represents the difference between our recommendation and 26 the average -- the model average. 27 Q. And I'm sorry if I misheard, but I wrote down as 28 you said it, you used the word "exactly." 7344 1 A. Well -- oh, then I should have used the process is 2 virtually the same. 3 Q. Thank you. 4 So I'm certainly not going to make you go through 5 the exercise, but if you leaf through Column Q, I think 6 you will quickly see that there are very, very few 7 instances in which Column Q does not have a plus or minus 8 number, correct? 9 A. There seems to be more numerals that are different 10 than zero, than zero. 11 Q. Would you accept my representation that there's 12 over 2,900 that are other than zero? 13 A. Sure. 14 Q. So the red pencil crews, if you used the model 15 average, adjusted from the model average 2,900 times if 16 you accept my representation, correct? 17 A. Yes. If that number is correct, yes. 18 Q. Okay. So now let's go to what's been marked as 19 Exhibit 322. And I really want to focus just on the 20 average as we just did, so that is Columns Q and R. And I 21 have made this a little easier, because this is in color, 22 to the extent it modifies. So Column R is only 23 highlighted in what I would call light green if it is 24 zero. 25 So if you look at the second page, page 2. 26 A. Oh, I'm sorry. 27 Q. I'm now on 322. 28 A. Yes. You didn't say to look at page 2. 7345 1 Q. I'm sorry. 2 So if you look at Row 76, which is Maricopa, 3 Arizona, also known as Phoenix. 4 (Court Reporter clarification.) 5 BY MR. ENGLISH: 6 Q. You know that's Phoenix because you live in 7 Arizona? 8 A. Maricopa County is within the Phoenix metro area. 9 Q. Okay. So if you look across, on line 76, to 10 Column R, that has a zero, which means that, in the 11 instance of Phoenix, that the proposed number from 12 National Milk minus the University of Wisconsin average 13 for Column L plus $0.60 is zero. 14 All right? Do you see that? 15 A. Let me -- 16 Q. Yeah, sure. Absolutely. Take your time. 17 A. -- take a second. 18 Yes. 19 Q. So you can leaf through and see how many times 20 there's a green, or we can go to the last page, page 58, 21 where an additional modification to the document has been 22 made, including descriptions of columns so we have a 23 secret decoder ring here now, not so secret, for how the 24 columns are developed. 25 And if you look across, from 3111 and -- Rows 3111 26 and 3112, you will see difference equals zero, 82. And 27 that is simply adding up the number of times it was zero 28 was 82. Okay? 7346 1 A. Okay. 2 Q. So -- 3 THE COURT: So that -- I'm looking at Exhibit 322, 4 page 5F, and the "diff" does not here mean differential? 5 MR. ENGLISH: No. It means the difference between 6 O and Q was zero. 7 THE COURT: Thank you. 8 MR. ENGLISH: Thank you for that clarity, Your 9 Honor. This is a difference, not differential. And that 10 was, you know, lines 3111 and 3112. 11 BY MR. ENGLISH: 12 Q. And so since there are 3,108 counties, that means 13 that in over 3,000 times, assuming $0.60 had been added to 14 the model run, that that was also not the final number for 15 National Milk in over 3,000 instances, correct? 16 MS. HANCOCK: Excuse me. Your Honor, I would 17 object to the extent that this isn't this witness's 18 document. He's -- I mean, this is 58 pages of Excel 19 spreadsheets, that if he was going to do the math, he 20 could do it. I have no doubt that the information is 21 likely correct, but MIG could put on their own witness to 22 talk about their own spreadsheet. I don't know that 23 spending our time with this witness on things that he 24 can't independently verify is -- is worthwhile for us. 25 THE COURT: I disagree. I have appreciated how 26 Mr. English has been trying to get to the bottom of 27 things, and every time he's promised "next witness." We 28 have got to understand what this data is before we can 7347 1 appreciate the testimony of the witnesses. 2 So I disagree. What his questions of this witness 3 is accomplishing is it's giving us all an opportunity to 4 look at what these numbers purport to show. Mr. Sims can 5 catch on a lot quicker than the rest of us. 6 I think this is a good way to proceed myself. 7 MS. HANCOCK: Your Honor, I agree with you if we 8 were -- if what we're asking Mr. Sims about is to verify 9 if there was a change from the modelling and that if 10 there's a -- and $0.60 added or if there's no change at 11 all. But what we're asking him to do is verify their math 12 of their formulas and their spreadsheet, which is 58 pages 13 of 55 lines per page, and whether that 82 times of there 14 being zero change is accurate or not. I don't think that 15 this witness has that knowledge. I don't think he did 16 this calculation of the spreadsheet. So this isn't 17 getting to the bottom of this witness's knowledge, this 18 question in particular that I'm objecting to is getting to 19 whether MIG properly formulated their cells to calculate 20 zero. 21 THE COURT: That objection I honor. I agree with 22 you. I'm not expecting Mr. Sims to vouch for the accuracy 23 of this document. 24 And you would have no way to do that, Mr. Sims. 25 But as far as trying to understand what the comparisons of 26 the columns purports to show, I would like you to assume 27 that the information you were shown was accurately 28 calculated. That's still to be determined. All right. 7348 1 So -- and thank you. You are absolutely right, 2 Ms. Hancock. It might appear that he's being asked to 3 verify these numbers. And, no, he can't, he didn't 4 produce them. 5 But by the same token, he didn't produce the 6 proposal about which he is testifying either. He had a 7 part of it, and until we get through all of your 8 witnesses, we won't have all the parts, so... 9 MR. ENGLISH: Your Honor, I appreciate your 10 ruling, and I appreciate the comments of Ms. Hancock, and 11 I appreciate your clarification. 12 I think I need to make clear, however, that the 13 spreadsheet really isn't ours. As I represented very 14 clearly, everything through -- up through Column O is what 15 National Milk Producers Federation submitted to USDA in 16 June, and it is the predicate for the proposal. 17 And ironically, as far as I can tell, National 18 Milk apparently had no intention of putting this document 19 in, so I'm not sure how USDA could have made any decision 20 without understanding where the numbers came from. 21 I have represented -- and, yes, people can 22 check -- that all we have done in 322 is take 301 and 23 create six new columns. And I have distinctly described 24 how they were created. 25 And I can say -- and I think people would take 26 this on faith -- that if you look at just the very first 27 row of Row 1, one can do the math and see that my 28 representation of what was done in Columns Q, R, S, T, U, 7349 1 V is correct. 2 If anybody thinks that in the last 24 hours we had 3 time to enter individual cells for 3,107 other rows, as 4 opposed to do what you do in Excel spreadsheets, which is 5 copy a function and bring it down, I think one can say 6 that the chance of that is as close to zero as you can 7 get. 8 THE COURT: Thank you. 9 So for the purpose of the remainder of 10 Mr. English's questions about Exhibit 322, I'm just going 11 to ask you, Mr. Sims, to assume that Columns Q, R, S, T, 12 U, V accurately represent what is claimed. Just assume 13 that. 14 THE WITNESS: Yes, Your Honor. 15 THE COURT: All right. 16 BY MR. ENGLISH: 17 Q. So I'll go back to my question now. And assuming 18 that we haven't altered the functions, and assuming that 19 someone could do a quick calculation of zero, which is 20 another Excel function and, therefore, assuming that the 21 difference, not the differential, as represented in 22 line 3111 and the number "82" in 3112, if you will accept 23 that, sir, that means that in over 3,000 cases, with 3,108 24 total counties, what National Milk Producers Federation 25 has proposed does not take the model output for the 26 average and add $0.60, correct? 27 A. You are -- I think I disagree with what you just 28 said mathematically. Perhaps you should say it again. 7350 1 Q. There are 3,108 counties, correct? 2 A. Counties, parishes, and cities. 3 Q. Thank you. Counties, parishes, and cities. Thank 4 you for the correction. 5 There are 82, according to Column R, where if you 6 take the proposal and you subtract the University of 7 Wisconsin three-year average plus $0.60, you get to zero, 8 if you assume that our calculation is correct. 9 All right? You got that? 10 A. Yes. 11 Q. So by simple math, if you subtract 82 from 3,108, 12 that means that in over 3,000 counties, parishes, and 13 cities, the National Milk submitted proposal does not 14 equal the University of Wisconsin average plus $0.60, 15 correct? 16 A. Yes. 17 Q. Thank you. 18 MR. ENGLISH: Taking your Honor's comment very 19 seriously, I will move very slowly. 20 THE COURT: Yes, but you haven't -- looking where 21 we are, you haven't yet taught us what the next number 22 purports to mean, the one that says diff equals zero, 154 23 times. 24 MR. ENGLISH: And I was going to spare -- unless 25 everybody really wanted me to do that analysis -- I was 26 going to spare that analysis because I was going to focus 27 on the three-year average. 28 If we want to go do the May and October or -- 7351 1 because that's basically what the Columns T and V are, I 2 could do that. But, candidly, I made a determination last 3 night that I was trying to move along -- although I'm now 4 up to page 4 of a 40-page outline -- and I was going to 5 try to move along. So unless someone really wants to hear 6 that analysis, I was prepared to skip it. 7 THE COURT: Well, I think you just told me what I 8 needed to know. So you are not trying to separate out the 9 May, you are not trying to separate out the October, 10 because you have already averaged those two. 11 MR. ENGLISH: One could do that math, and one 12 could see what those numbers, and one could argue it on 13 brief. But I'm not prepared, unless someone wants me to, 14 to go down that analysis and do that again. 15 THE COURT: Understood. 16 MR. ENGLISH: Your Honor, I could proceed. I'm 17 going to move through a number of examples -- 18 THE COURT: Mr. English? 19 MR. ENGLISH: Yes. 20 THE COURT: It's time for a break. 21 MR. ENGLISH: That's what I thought. That's 22 exactly where I was going. 23 THE COURT: Please be back and ready to go at 24 9:30. 25 We go off record at 9:20. 26 (Whereupon, a break was taken.) 27 THE COURT: Let's go back on record. 28 We're back on record at 9:31. 7352 1 Mr. English. 2 MR. ENGLISH: Thank you, Your Honor. 3 BY MR. ENGLISH: 4 Q. So during the break -- first, I need to correct 5 something I was saying. I'm -- my experience with Excel 6 started and ended with the Mac many decades ago, and so I 7 have some trouble sometimes seeing what I'm reading. And 8 so apparently a number of times I have referred to the 9 University of Wisconsin three-year average, when in fact 10 what that means is the version 3, or iteration 3, average. 11 So there is no three-year average. It's all May, 12 October 2021, and the "v3" that shows up in Column Q, to 13 the extent I apparently did, and I accept the 14 representation, said three-year average, it is not 15 three-year average, it is Version 3, and we have heard 16 that there were three model iterations. 17 Does that make sense to you, Mr. Sims? 18 A. Yes. 19 Q. Thank you. 20 I have also received more than one request from 21 participants that I do go through Columns S, T, U, and V, 22 as opposed to what I had intended to do. 23 So since Your Honor raised the issue, I will do 24 so, although I will try to do so relatively quickly, and 25 am mindful of Ms. Hancock's comment for Mr. Sims to accept 26 that we didn't mess up the spreadsheet in some way. 27 So similar to what was done in Q and R, but now 28 for Columns S and T, if you go similarly through the 7353 1 document, you will see items that are labeled in green. 2 So, for instance, I'm probably going to 3 mispronounce it, Row 80, Pinal County, Arizona. 4 A. That is how it's pronounced, Pinal. 5 Q. I have been there just often enough, so thank you. 6 So that also is green, which is zero. That is to 7 say that if you take Column O, proposed, and subtract 8 Column S, which is the May model estimate plus $0.60, that 9 in Column T the difference is zero. 10 Do you see that? 11 A. A moment. 12 Q. Sure. Absolutely. 13 THE COURT: So for people who might not have 14 access to a color-coded sheet, what Mr. English has done 15 is he's picked the first page of 322 that has green on it, 16 and that's what he's using to show us here. He's on 17 page 2 of Exhibit 322. 18 MR. ENGLISH: And, Your Honor, I thank you. In 19 this instance, we did make color copies available to 20 everybody. 21 THE COURT: Excellent. 22 MR. ENGLISH: And of course, online it will show 23 up in color as well. 24 BY MR. ENGLISH: 25 Q. So now if we go to the last page again, and for 26 those online, to the same row, which is 3111 and 3112, and 27 recognizing the caveat that -- about the math, the 28 difference of zero is 154 counties, correct? 7354 1 A. Yes. 2 Q. So in something like 2,950 counties, to the extent 3 National Milk could have, or did, look at the May number 4 and add $0.60, there are adjustments of over 2,900, 5 correct? 6 A. Please restate that again. 7 Q. To the extent one could use -- would determine to 8 use the minimum, maybe because it's the minimum pricing 9 system, but use the May, with the exception of Ada County 10 which was higher in October, the difference -- the number 11 of times that National Milk effectively adjusted from May 12 is over 2,900 times, correct? 13 THE COURT: Say your number more slowly, just the 14 3,000 number. 15 BY MR. ENGLISH: 16 Q. Okay. There's 3,108 counties. According to 17 Column T, line 3112, there's 154 instances in which if you 18 take Column O and subtract Column S, it is zero. 19 And so if someone were to say, oh, National Milk 20 didn't use the average, National Milk used the May plus 21 $0.60, then in that instance National Milk made some 2,930 22 adjustments, correct? 23 A. Presuming the $0.60 you presumed? 24 Q. Yes. 25 A. Yes. 26 Q. Okay. And so going now to Column U and 27 Column V -- 28 THE COURT: V like Victor. 7355 1 BY MR. ENGLISH: 2 Q. -- V as in Victor, which again, in this case is 3 the October model, Column G, minus -- I'm sorry -- plus 4 $0.60 -- I'm sorry -- yes, plus $0.60 -- and if you take 5 that Column U and you subtract Column O -- I'm sorry, you 6 subtract it from Column O, you end up with Column V. 7 And similarly, if you look through the document, 8 and I'll go to the first one again, looks like 9 everything's Arizona. If you look at line 79 -- I'm 10 sorry, row, not line, Row 79, which is Pima County, 11 Arizona, and you look over to Column V, that's zero, 12 correct? 13 A. Yes. 14 Q. Okay. And so similarly, going now to Column V, 15 line 3111 and line 3112, assuming our math is correct, the 16 total number of instances in which -- if you took the 17 October model estimate and added $0.60, matched the 18 proposal, was 95, correct? 19 A. Yes. 20 Q. And so, again, assuming that someone says, aha, 21 National Milk didn't use the average plus 60, National 22 Milk didn't use the May plus 60, but instead used the 23 October plus 60, then, in over 3,000 instances, National 24 Milk made adjustments, correct? 25 A. Yes. 26 Q. Thank you. 27 So in summary, from our conversation going back 28 also to 320, National Milk could have used the model 7356 1 average, but it didn't, correct? 2 A. I'm sorry, you said 320? 3 Q. Yeah, Exhibit -- I'm sorry, 302. Thank you very 4 much. I was doing my -- I was comparing -- first going 5 back to -- actually, 300. 6 Going back to our conversation about Exhibit 300 7 and Column Q. National Milk, from our conversation 8 earlier and accepting my representation that there are 9 fewer than 200 instances in which the proposed matches the 10 model, National Milk could have used the model average, 11 but if it did, it adjusted over 2,900 times, correct? 12 A. Please repeat your question. 13 Q. National Milk Producers, in submitting its 14 proposal, could have used the model average, but given the 15 fact it -- that when you look at Column Q, there are over 16 2,900, by my representation, changes in which it's either 17 negative or positive and not zero, that National Milk 18 didn't actually use the model average, correct? 19 A. I don't see that data anywhere. 20 Q. It didn't use the model average without adjusting, 21 correct? 22 A. I beg your pardon? 23 Q. From our conversation about Column Q maybe 30, 24 45 minutes ago, National Milk Producers Federation, if it 25 used the model average, made over 2,900 adjustments, 26 correct? 27 A. I think I accepted your representation on that 28 earlier, and I will continue to accept that 7357 1 representation. 2 Q. Okay. And as we have just discussed, in 3 Columns R, T, and V, National Milk could have used -- 4 THE COURT: On what document? 5 MR. ENGLISH: I'm sorry, 322. Thank you very 6 much, Your Honor. 7 And thank you, Mr. Sims. 8 BY MR. ENGLISH: 9 Q. As we have just finished discussing about 10 Exhibit 322, Columns R, T, and V, and recognizing 11 Ms. Hancock's caveat, and that you are assuming our 12 calculations are correct, National Milk could have used 13 the average from University of Wisconsin plus $0.60, but 14 given the number of instances in which it didn't, you 15 didn't use that? 16 A. Correct. 17 Q. And similarly, National Milk could have used the 18 May numbers plus $0.60, but given the number of instances 19 National Milk didn't, you didn't do that, correct? 20 A. Correct. 21 Q. And finally, in Column V, National Milk could have 22 used the October model estimates plus $0.60, but given the 23 number of instances in which it didn't, it didn't do that, 24 correct? 25 A. Correct. 26 Q. Thank you. 27 All right. I'm going to stay on Exhibit 322. And 28 I want to you find Row 1250, Marquette County, Michigan. 7358 1 THE COURT: Your voice dropped off. What? 2 MR. ENGLISH: Marquette County, Michigan. 3 You're absolutely right, Your Honor. The size of 4 the spreadsheet I try to leaf through causes me to move 5 away from the microphone. 6 THE WITNESS: Did you say 1250? 7 MR. ENGLISH: 1250, yes. 8 THE WITNESS: Yes. 9 MR. ENGLISH: Which is Marquette, Michigan. 10 THE COURT: I know it was explained yesterday, 11 Mr. English, but I can't recall why it looks like this is 12 line 1250, but then the next number says 1249? 13 MR. ENGLISH: Yes, Your Honor. That -- that -- I 14 will explain. 15 First of all, I am advised -- is the polite 16 word -- by someone much more familiar, that it's called 17 row, not line. 18 THE COURT: Ah. 19 MR. ENGLISH: So I will just say that -- that I 20 think I got Mr. Rosenbaum using the wrong term, and now 21 have you using the wrong term, and I take full 22 responsibility because that is on me. 23 So -- but it is Row 1250, because when the 24 spreadsheet -- it has going up and down, row numbers, and 25 as it turns out on the very first page, the first row is 26 the heading row, you know, ID, County, State, Full State. 27 THE COURT: Ah. 28 MR. ENGLISH: And so when you get to Column A, 7359 1 because the first row is the headings, then Column A is 2 always one number off. 3 THE COURT: Thank you. 4 MR. ENGLISH: Well, believe me, when I was first 5 dealing with the spreadsheets over the weekend, I had the 6 absolute identical issue. So actually I think it's good 7 for the record. And I'm trying very hard, I have a big 8 note that says "row, column." 9 BY MR. ENGLISH: 10 Q. So Row 1250, Marquette, Michigan, which is FIPS 11 code 26103. 12 And do you know, sir, whether there is a Dairy 13 Farmers of America plant called Country Fresh there? 14 A. I do not know that. 15 Q. So in Column L, the average from the University of 16 Wisconsin third run, third run, under Column L, is $3.05, 17 correct? 18 A. Yes. 19 Q. If you go to O, the proposed number is $2.80, 20 correct? 21 A. Yes. 22 Q. And if you took -- if one were to take the average 23 under Column L, which is 3.05, and add the $0.60, which is 24 Column Q, it would actually have been $3.65, correct? 25 A. 3.05 plus .6 is 365 -- 3.65, yes. 26 Q. Okay. And so National Milk Producers' proposal 27 for a county that I represent has a cooperative-owned 28 plant owned by Dairy Farmers of America, is if you compare 7360 1 Column O to Column Q, as represented in Column R, $0.85 2 less than that number, correct? 3 A. 3.65 minus 2.8 equals negative -- or -- excuse me, 4 2.8 minus 3.65 would equal negative .85, yes. 5 Q. And moreover, whether or not one looks at May or 6 October, or the average, the proposal for this particular 7 location at 2.80 is lower than all of those numbers, 8 correct? 9 A. I would agree that 2.80 -- 2.80 is less than 3.6 10 and is also less than 3.7. 11 Q. Thank you. 12 So now let's go to row 1335, Norman County, 13 Minnesota, FIPS code 27107, which is on the next page, 14 conveniently. 15 A. Say that again, please. 16 Q. Of course. 17 A. That row number? 18 Q. I'm getting there. I'm sorry. I was moving my 19 document. 20 It's Row 1335, Norman County, Minnesota, FIPS code 21 27107. 22 Do you see that? 23 A. I do. 24 Q. And if we go to the Column L, that shows $2.20 25 from the model average, correct? 26 A. Yes. 27 Q. And in this instance, the proposal under Column O 28 is 2.80, correct? 7361 1 A. Yes. 2 Q. And so as it happens, pursuant to my conversation 3 earlier, under Column R this is one of those instances, 4 because it's colored at zero, that the proposal, if you 5 take the model plus $0.60, actually is the same as 6 proposed, correct? 7 A. 2.2 plus .6 would equal 2.8. 8 Q. And that is the same as proposed, correct? 9 A. Yes. 10 THE COURT: You know, this is very helpful for 11 those of us who are looking at the spreadsheet. If 12 someone is reading the transcript, they don't know you are 13 talking dollars and cents. 14 I don't know, maybe it's just not worth saying 15 dollars and cents every time, but I just want you to be 16 aware, I do not know how 280 types, but it probably does 17 not look like $2.80. 18 MR. ENGLISH: It's a fair correction, Your Honor, 19 and my own outline has the dollar sign in it, so I'm 20 shortcutting. 21 So I think you would agree, for the last two 22 examples, we have been talking about dollars, correct? 23 THE WITNESS: I would further state, dollars per 24 hundredweight. 25 MR. ENGLISH: Thank you. Dollars per 26 hundredweight. I will, as with row, try to act 27 accordingly. 28 And thank you, Your Honor. 7362 1 BY MR. ENGLISH: 2 Q. All right. Now, I'd like to look at Row 2181, 3 Coos County, Oregon, FIPS code 41011. 4 A. I'm sorry, you are going to have to go slower than 5 that, sir. 21- -- 6 Q. Yes, 2181. 7 A. Okay. 8 THE COURT: So you have a page number handy, 9 right? 10 MR. ENGLISH: Well, I will in a second, Your 11 Honor. 12 Yes, it's page 41. 13 THE COURT: Thank you. 14 BY MR. ENGLISH: 15 Q. And so I said it was Coos County, Oregon, FIPS 16 code 41011. 17 And, sir, if you look at Column L -- 18 A. Yes. 19 Q. -- the average, we're looking at $1.90 per 20 hundredweight, correct? 21 A. Yes. 22 Q. And if you look at the proposed in Column O, we're 23 at $3 per hundredweight, correct? 24 A. Yes. 25 Q. And if you took -- if you look at Column Q, and 26 you took the model average and added $0.60 per 27 hundredweight, you end up at $2.50 per hundredweight, 28 correct? 7363 1 A. If you are adding $1.90 per hundredweight and 2 $0.60 per hundredweight and coming up with $2.50 per 3 hundredweight? 4 Q. Yes. 5 A. I agree. 6 Q. And that happens to be Column Q, correct? The 7 same number that's in Column Q? 8 A. Yes. 9 Q. And if you then compare that Column Q to Column O, 10 if you look at Column R, the proposal is $0.50 more than 11 the University of Wisconsin average plus $0.60, correct? 12 A. Correct. 13 Q. And if we go now -- and I will slow down, because 14 I've got to back up -- Row 942. Row 942 is Sedgwick, 15 S-E-D-G-W-I-C-K, Kansas, FIPS code 20173. 16 Do you see that? 17 A. I do. 18 Q. And if you look at Column O -- sorry -- Column L, 19 for Sedgwick, Kansas, the University of Wisconsin average 20 would be $2.95, correct? 21 A. Per hundredweight, yes. 22 Q. Yes, per hundredweight. Thank you very much. 23 $2.95 per hundredweight, correct? 24 A. Yes. 25 Q. And the proposal is $3.85 per hundredweight, 26 correct? 27 A. Correct. 28 Q. Which means if you look at Column R, the proposed 7364 1 is $0.30 more than the University of Wisconsin average 2 plus $0.60, correct? 3 A. Correct. 4 Q. I am, for now, done with Exhibit -- 5 THE COURT: Don't make noise on the podium because 6 it's magnified by the microphone. 7 MR. ENGLISH: I apologize, Your Honor. I was 8 trying to put the document -- 9 THE COURT: Understood. I know we don't give you 10 the space, and we don't give you the surface. 11 MR. ENGLISH: I am temporarily putting aside 12 Exhibit 322, and I'm going now back to Exhibit 300. 13 BY MR. ENGLISH: 14 Q. And maybe I will need to shortcut this a little 15 bit because I think -- have you said you haven't really 16 reviewed this document before, sir? 17 A. I do not recall having seen this document. 18 Q. Do you know who produced Exhibits 300 and 301? 19 A. If I haven't seen it, I certainly don't know who 20 created it. 21 Q. But it was produced by National Milk Producers 22 Federation, correct? 23 A. Apparently. 24 Q. And as described in earlier testimony, you were 25 the chair of the colored pencil crews? 26 A. I was chair of the Class I differential 27 development -- 28 Q. Okay. 7365 1 A. -- working group. 2 Q. All right. So you were chair of the working 3 group, and you are telling me that until today -- or 4 earlier, maybe yesterday -- you had not seen Exhibits 300 5 or 301? 6 A. I said I don't recall seeing it. 7 Q. All right. 8 A. There were -- I don't recall seeing this one. 9 Q. Okay. And yet you were the chair of the Class I 10 working group, correct? 11 A. As I just testified. 12 THE COURT: Mr. English, you are more familiar 13 with this document than the rest of us. Is there a date 14 that is on it? 15 MR. ENGLISH: Well, we only know, Your Honor, that 16 it showed up on the website in May, the USDA website in 17 May, so I don't know -- 18 THE COURT: In May of 2023? 19 MR. ENGLISH: May of 2023. 20 THE COURT: Thank you. 21 MR. ENGLISH: Yes. It was submitted, I believe, 22 some time after the actual proposal was submitted. But I 23 do not know what day. You know, we -- we know because we 24 checked the website fairly frequently, but I cannot tell 25 you what day either Exhibit 300 showed up or Exhibit 301. 26 THE COURT: Thank you. 27 MR. ENGLISH: I simply do not know. 28 BY MR. ENGLISH: 7366 1 Q. If I represented to you, without going through 2 every instance, but let's look at Row 1643. 3 This is an example, look at 1643, which is Dakota, 4 Nebraska, and you look at Column O, you see $3.00 per 5 hundredweight under Column O. 6 A. It would be L6 -- 1643? 7 Q. Yes. 8 A. Yes. It says $3.00. 9 Q. And that column is labeled "Proposed Class I," 10 correct? 11 A. Yes. 12 Q. Can you explain, if you go to Column S, it says 13 "New Proposal," and it says $2.80. 14 Do you see the $2.80? 15 A. I do. 16 Q. Can you explain the difference between Column O 17 and Column S? 18 A. That's $0.20 per hundredweight. 19 Q. Can you explain -- I'm sorry, I was imprecise. 20 Why is there a difference? 21 A. Apparently there was, at one point -- again, this 22 would have been a region other than the Southeast and 23 Southwest -- there must have been some discussion that 24 resulted in a $0.20 reduction from a previous proposal. 25 Q. You said that there were joint meetings at some 26 point. 27 Do you recall any discussion about these changes 28 in other regions? 7367 1 A. I do not recall this specific discussion, and I 2 don't -- I don't recall any regarding Nebraska, 3 personally. 4 Q. And I am for now going to put aside Exhibit 300. 5 THE COURT: Yay. 6 BY MR. ENGLISH: 7 Q. So looking now at Exhibit 318, which was your 8 PowerPoint presentation yesterday. 9 A. Yes. 10 Q. And looking at page 44, which, as you said the 11 slides got taken out of order, so it's before page 42, but 12 page 44, which is the "Class I Differential Development 13 Process"? 14 A. Yes. 15 Q. Who, precisely, were the members of the 16 Northeast/Mideast/Middle Atlantic colored pencil crew? 17 A. I don't recall the -- each individual that was -- 18 that's worked on these processes of each of these 19 committees. Other than probably the Southeast/Southwest, 20 I could probably name them. But the rest of them, no. 21 Q. Even yet though you were the chair of the Class I 22 working group, you don't remember the names? 23 A. I don't remember all their names. 24 Q. Well, what names do you remember for the persons 25 who were members of the regional colored pencil crew for 26 the Northeast, Mideast, and Middle Atlantic? 27 A. I have to pause a moment. Certainly Mr. Erba was 28 involved in the Northeast and the Mideast -- excuse me -- 7368 1 the Mideast. Mr. John in the Middle Atlantic. Ms. Reel 2 in the Northeast. Mr. Gallagher in the Northeast. 3 Probably Mr. Alexander, Ms. Krazinsky (sic). 4 Q. I'm sorry, who? 5 A. Jodi, I don't -- 6 Q. Okay. 7 A. I won't be able to spell her last name. 8 Q. She's with Ayahuasca -- or Upstate Niagara, 9 correct? 10 A. Yes. I believe, yes. I believe she would have 11 been involved. 12 THE COURT: Would you pronounce her last name 13 again? 14 THE WITNESS: I believe it's pronounced Krazinsky, 15 but I may be -- 16 THE COURT: That's starting with a "G" you think? 17 THE WITNESS: With a K. 18 MS. HANCOCK: K-R-Z-S-I-A-K (sic). 19 THE COURT: K-R-Z-S -- 20 MS. HANCOCK: -- I-A-K. 21 THE WITNESS: I really messed that up. That 22 doesn't come out Krazinsky, does it? 23 THE COURT: And which area was she associated in? 24 THE WITNESS: Northeast. 25 THE COURT: Thank you. 26 BY MR. ENGLISH: 27 Q. Anyone else you can recall? 28 A. I believe Mr. Smith would have been involved in 7369 1 the Middle Atlantic area. 2 Q. First name? 3 A. Jason. 4 Q. Thank you. 5 And who is he with? 6 A. Maryland Virginia Milk Producers Cooperative 7 Association. 8 Q. Anyone else you can recall? 9 A. I think that's the limit of my recollection. 10 Q. Thank you, sir. 11 So turning to the Upper Midwest and Central 12 orders, to the extent you can recall, who was involved? 13 A. Mr. Hoeger. For the moment I'm drawing a blank. 14 Q. All right. Okay. Southeast/Southwest? 15 A. I was involved. Mr. John from -- that we 16 mentioned earlier. We had people who served on more than 17 one, particularly where there was overlap. This is a 18 group of well over 40 people across all four of them, 19 so -- 20 Q. Well, I understand. But, again, for the record, 21 I'm trying to understand who was involved. 22 A. Yes. Mr. Yates. 23 Q. Mr. Who? 24 A. Yates. 25 Q. Ernie Yates? 26 A. Yes. Mr. Hoeger, Mr. Covington. Let me think. 27 That's all I can recall at the moment. 28 Q. Okay. And what about the West, if you can recall? 7370 1 A. Well, let me pause a moment. Mr. Butcher. 2 Q. I'm sorry? 3 A. Butcher. And I'll pause. Give me a moment. 4 I'm -- some names are escaping me. 5 THE COURT: And, Mr. Sims, at any time you 6 remember additional people, you are welcome -- 7 THE WITNESS: Thank you. 8 THE COURT: -- upon remembering -- that's how our 9 minds work. If you weren't focused on this, things will 10 float up. And I would like you to, when you recall, to 11 just state what you have recalled, no matter what we're 12 talking about. 13 THE WITNESS: I will. Thank you. 14 THE COURT: Thank you. 15 BY MR. ENGLISH: 16 Q. I don't want to spend a lot of time on it, but 17 each regional colored pencil crew also had areas of 18 unregulated territory to develop. 19 Would it be fair to say that would be sort of like 20 the unregulated territory closest or more linked -- 21 A. Yes. 22 Q. -- to an area? 23 A. That would be correct. 24 Q. So, for instance, Idaho would have been the West, 25 correct? 26 A. Yes, sir. 27 Q. So was there a central meeting of this group prior 28 to people going off and doing their own work? 7371 1 A. A smaller subset of this group. 2 Q. Okay. Fine. 3 A. The central meeting would have been when we 4 established the anchor cities process. 5 Q. So I'm intrigued by the anchor cities concept. 6 Those are points of demand, correct? 7 A. Generally, I believe, yes. 8 Q. Haven't -- hasn't USDA in the past, when it's done 9 this analysis, started with points of supply? 10 A. I don't know that that's apples and oranges. 11 We -- we developed these anchor cities because of 12 their location. They represent cities along the border, 13 more or less, where these regions begin or abut with each 14 other. 15 Q. Did you, when looking at the anchor cities, say, 16 we also want to compare where the reserve supply comes 17 from for those locations? 18 A. We might have considered that at the time, yes, in 19 developing the anchor city recommendation. 20 Q. Do you recall actually doing that? 21 A. I believe we did make some mention to where -- how 22 the milk moves for some of those. 23 Q. So other than the anchor cities, what other sort 24 of principles, if any, were agreed to for the groups to 25 follow? 26 A. Generally, we certainly agreed that our Class I 27 differential surface should represent a traditional 28 Class I differential surface. It should represent some 7372 1 slope from reserve supply areas to areas of need. It 2 needed to represent a sufficient level of price to 3 encourage the milk to move, those kinds of principles. 4 Q. Other central principles? 5 A. That we -- 6 Q. As a group. 7 A. As a group? That we tried to mirror -- I won't 8 say exactly, that was -- if I said that, it was a mistake 9 earlier -- we would try to mirror USDA's process from 10 order reform. Take the model, use the model, and then 11 tweak it as appropriate. 12 Mr. Vandenheuvel in the West. 13 Q. Thank you. 14 THE WITNESS: And you're right, Your Honor, it 15 just popped in my head. 16 THE COURT: I understand. 17 BY MR. ENGLISH: 18 Q. Is your definition of tweaking the model making 19 changes to over 2,900 model results? 20 A. We tweaked the model. 21 Q. So I don't want to dwell on it, but I do want to 22 go back briefly to the conversation we had about the $2.20 23 base differential, and this question really comes and 24 springs from probably my own confusion looking at the 25 testimonies. And I believe the answer to this question is 26 going to be no, but what I believe doesn't matter. 27 When you discussed $2.20 base differential, the 28 $0.60 increase, is hauling included in that in any way? 7373 1 A. Again, sir, you are mischaracterizing the base 2 differential. 3 Q. Okay, the fixed differential. Let's use the term 4 fixed -- 5 A. You are mischaracterizing fixed differential. We 6 established the differentials off the 1.60, and then after 7 that, in that area, we raised the differential from 1.60 8 to 2.20 for the reasons we described earlier. 9 Q. And did those reasons you described earlier 10 include hauling in any way? 11 A. No. They were the Grade A/Grade B, the -- well, 12 I'm going to pause. I can't speak to how or why the -- 13 that -- the entirety of the reasons for that area feeling 14 like they needed to increase that differential in that 15 area from 1.60 to 2.20. But certainly the 2.20 matches 16 our need to eliminate or certainly minimize inversions. 17 It also represents the Grade A/Grade B difference in -- 18 THE COURT: In what? 19 THE WITNESS: In production cost. I did slur my 20 words. Milk production cost. 21 BY MR. ENGLISH: 22 Q. Okay. So as far as you know, at least as I have 23 read -- that's why I assumed the answer was no, and again, 24 I could be confused. But as far as you know, and the 25 justifications you gave me earlier -- and we apparently 26 disagree on what this thing is called -- hauling costs 27 were not part of that calculation, correct? 28 A. I can't speak -- it would be wrong for me to say 7374 1 yes or no. 2 Q. Well, my question was as far as you know. 3 A. As far as I know, no. 4 Q. Thank you. All right. Let's talk about the 5 anchor cities. 6 Partly on page -- well, 42 is the heading, and 7 then page 43 on Exhibit 318 -- sorry, Exhibit 318, 8 page 43, the map. So slightly ahead of myself. 9 But on page 22 of your testimony, 310, you 10 describe the selection of the 19 anchor cities, and I 11 believe Dr. Erba, in his testimony, described it as a 12 spine. Is that a fair characterization? 13 A. I wouldn't disagree with that characterization. 14 Q. And these anchor cities establish the relative 15 level from which regional subgroups could branch out and 16 discuss increasing or decreasing the USDSS generated 17 Class I values using their knowledge plus the specific 18 local conditions? 19 A. Tweaking would include both increases and 20 decreases, yes. 21 Q. Has this approach of using a spine of anchor 22 cities been used to adjust the USDSS model in the past? 23 A. I don't know. 24 Q. I realize we're going to hear from you later on 25 part 3, but in the Southeast hearing, which is the only 26 time since Federal Order reform the Class I differentials 27 have been modified, were anchor cities used in that 28 instance? 7375 1 A. In a manner, yes. 2 Q. In the same manner, sir? 3 A. Probably not. 4 Q. Isn't it true that you used reserve supply 5 locations in that instance? 6 A. We used reserve supply areas and destination 7 cities, processing cities, distances between those two. 8 Q. But you started off in discussing with USDA, as 9 noting at that time, as I recall, five potential reserve 10 supply centers, correct? 11 A. Yes. And associated destination centers. 12 Q. We'll get back to that in a moment. 13 Who was it who decided to use anchor cities 14 approach? 15 A. The group found that that probably -- as we were 16 meeting, I guess we kind of came to a collective decision 17 that we needed someplace to start in each region, and 18 this -- and since each region was responsible for its 19 own -- developing its own differential surface, of course, 20 coordinated nationally at the -- to make sure we had a -- 21 a proper location adjustment structure, we decided this 22 was a good way to do it. It would have been a collective 23 decision. 24 Q. Did you have written parameters for how these were 25 set up? 26 A. No, not that I recall. There -- the premise 27 was -- is just as I described, they were cities along the 28 borders. 7376 1 Q. So looking at page 43 of Exhibit 318, what border 2 is Denver attached to? 3 A. I believe that is Order 32. Is that the question 4 you are asking? 5 Q. What -- I was asking in terms of a border. I said 6 border. 7 A. Oh, I'm sorry. I thought you said order. 8 Q. And I can understand. I said border. 9 A. That was somewhere -- Denver would represent a 10 place where the Midwest and the West got kind of close. 11 Q. "Close" meaning? How many miles given the fact 12 that there's, you know, a whole row of states with the 13 Great Plains in between? 14 A. I don't think we -- I don't recall us using a 15 ruler and -- and defining a particular mileage limit or 16 parameter. 17 Q. So there's no anchor city west and north of 18 Denver, correct? 19 A. Well, it depends on whether you call San Francisco 20 west of Denver. You say west and north? 21 Q. West and north, yes. 22 A. Then, no. 23 Q. So since there were no anchor cities in the 24 Pacific Northwest, what was their assignment? 25 A. To develop a Class I price surface based on the 26 supply and demand circumstances, milk movement 27 circumstances, and the methodology results. 28 Q. Without an anchor city, correct? 7377 1 A. They would have used -- probably could have used 2 Denver. They could have used -- they may have developed 3 their own anchor city. 4 Q. Because each committee was assigned its own 5 process and its own result, correct? 6 A. They were -- they were autonomous except for the 7 obvious need for national -- a rational national Class I 8 price surface. 9 Q. And a rational national Class I price surface 10 included adding $0.60 in the West, such as Ada County, 11 Idaho, but not adding it in the Southeast, correct? 12 A. We developed the price surface that you see. 13 Q. So leaving aside the West -- I'm sorry -- the 14 Pacific Northwest, the 19 anchor cities were the basis 15 then for the rest of the proposed differentials and 16 adjustments; is that correct? 17 A. They were the starting point. 18 Q. Okay. How did National Milk Producers Federation 19 determine the differentials for the 19 anchor cities? 20 A. We reviewed the model results. We had it all in 21 front of us. I believe at that point we had version 2. 22 Used that heavily and worked through the process. 23 Q. I think it is time for another exhibit. 24 MR. ENGLISH: Your Honor, this is -- it's only one 25 page this time. It's not -- I mean, it has been submitted 26 as an Excel spreadsheet as MIG-31. 27 THE COURT: So you say this is MIG? 28 MR. ENGLISH: 31. 7378 1 THE COURT: 31. 2 MR. ENGLISH: Also submitted first thing this 3 morning. 4 THE COURT: You slept well, didn't you? 5 MR. ENGLISH: I think the facial expression on the 6 person who just walked by expresses who really worked on 7 this. 8 THE COURT: I believe this will be Exhibit 323. 9 (Exhibit Number 323 was marked for 10 identification.) 11 THE COURT: Exhibit 323, also MIG-31, is being 12 marked. I note that it's about 10:23. I'm looking now at 13 Exhibit 323. It is one page. It is also known as 14 Exhibit MIG-31. 15 Mr. English, you may proceed. 16 MR. ENGLISH: Thank you. 17 BY MR. ENGLISH: 18 Q. So first, I'm -- as discussed by Your Honor, as 19 much sleep as I have had, I'm a little confused. Did I 20 hear correctly there are 19 anchor cities? 21 A. I think we may have dropped one or added one. 22 It's 19 or 18. 23 Q. All right. Because I was looking at this exhibit, 24 sir, and I said, oh, there's only 18; what did I leave 25 out? 26 A. I think we eliminated one at some point that 27 wasn't -- it wasn't necessary. 28 Q. Okay. Well, which one did you eliminate, if you 7379 1 recall? 2 A. One in the Midwest, and I now don't remember. 3 Q. All right. That's fine. If -- if -- if it comes 4 to you, again, like the others -- 5 A. I will. 6 Q. All right. Thank you. 7 All right. So what has been marked as 8 Exhibit 323 -- and I did count, by the way, 318, page 43, 9 and I came up with 18, which made my head hurt a little 10 less. So this is -- using the spreadsheet again, I 11 represent, and I represent to you, again, you can assume 12 that the -- what's on here is accurate for the purposes of 13 these questions, and if it is wrong, it is wrong, but we 14 can always compare. This is the 18 anchor cities that 15 appear on Exhibit 318, page 43, listed from the 16 spreadsheet. 17 MR. ENGLISH: So this is just my way of 18 explanation, Your Honor, for the -- for everybody in room. 19 THE COURT: Listed from which spreadsheet? 20 MR. ENGLISH: I believe it is 301. I am correct. 21 So it's the June submission, Your Honor. 22 THE COURT: Thank you. 23 MR. ENGLISH: What was known as MIG-29, 24 Exhibit 301, which is the -- so I'm -- it is pointed out 25 to me that there's a legend in the bottom left. And so 26 the legend has -- 27 THE COURT: Ah, it shows us -- 28 MR. ENGLISH: -- a column and the source. 7380 1 THE COURT: -- the source. 2 MR. ENGLISH: And so we know that for the row of 3 this document, the reference is Exhibit 301. 4 The anchor city, as I have just indicated, the 5 source is Exhibit 318, page 43. 6 The county is Exhibit 301, Column B. 7 The state is Exhibit 301, Column C. 8 The FIPS code, F-I-P-S, is Exhibit 301, Column E. 9 FMO, Federal Marketing order, is Exhibit 301, 10 Column N. 11 Current is Exhibit 301, Column I. 12 University of Wisconsin version 3 average is 13 Exhibit 301, Column L. 14 Proposal Number 19 is Exhibit 301, Column O. 15 And then the difference is the only calculated 16 number on this document, and that is the difference 17 calculated Proposal Number 19 minus the University of 18 Wisconsin average for the third iteration. 19 THE COURT: That is very useful. All exhibits 20 should show their source like this. 21 MR. ENGLISH: I thank my very hard working team, 22 or in this particular instance, one person, Ms. Keefe. 23 BY MR. ENGLISH: 24 Q. So would you agree that -- have you had a chance 25 to look at this, Mr. Sims, while I went through it, and 26 can you confirm that the 18 anchor cities that we have 27 listed on Exhibit 323 is the -- are the same as 28 Exhibit 318, page 43? 7381 1 A. Without going place by place, they certainly look 2 familiar. 3 Q. Okay. So what I tried to do here is a similar 4 process that we went through a little earlier, and I was 5 trying to see what would happen if you took the University 6 of Wisconsin average and the proposal. And the difference 7 was intended to see, not just what those differences were, 8 but whether and how in any instance what would happen if 9 you added $0.60. 10 And so would you agree with me that if you look at 11 the difference, which is the last column, the only 12 location, there's an anchor city, Phoenix, Maricopa, 13 Arizona, where the difference is $0.60? 14 A. Positive 60. 15 Q. Yes. 16 A. I believe that. Yes. 17 Q. Okay. Thank you for positive 60, because there's 18 a negative 60 for Chicago, correct? 19 A. Yes. 20 Q. Since these are the anchor cities, how come so 21 much deviation was necessary even when you did the 22 start -- 23 A. I beg your pardon? 24 (Court Reporter clarification.) 25 BY MR. ENGLISH: 26 Q. How much deviation was necessary at the starting 27 gate with the anchor city numbers? 28 A. I'm sorry. 7382 1 Q. Didn't you say -- and maybe if -- if I missed it, 2 I apologize -- but didn't you say that the group got 3 together and agreed not only the anchor cities, but the 4 anchor city numbers? 5 A. Yes. 6 Q. Okay. So since the group got together and decided 7 what the anchor city numbers were, what led the group to 8 conclude that there would be a variation from, for 9 instance, minus $0.60 from the model versus the proposal 10 to a plus $0.80 from the model to the proposal? 11 A. You are comparing here the Proposal 19 number to 12 the UW version 3 average, correct? 13 Q. Yes. 14 A. One of the reasons would be that the group that 15 established the anchor cities recommendations -- and I 16 would call them tentative recommendations -- was a small 17 subset of the individuals who actually worked on the price 18 surfaces in the various regions. That itself would 19 represent a possibility of adjustment. 20 Q. Can you tell me today the specific reasons why the 21 deviation in the difference column ranges from a minus 22 $0.60 cents for Chicago, Illinois, to a positive $0.80 in 23 San Francisco, California? 24 A. The Proposal 19 numbers represent the work of the 25 regional committees. 26 Q. Well, I thought you also said that this was a 27 starting point that you as a group made when you set up 28 the anchor cities. 7383 1 A. Yes, but this doesn't include the anchor city 2 number. 3 Q. What do you mean "doesn't include" -- isn't the 4 Proposal 19 the anchor city number? 5 A. No. We made some adjustments from the -- some 6 adjustments from those -- from the model, and I believe it 7 was model version 2 at that time. But again, version 2 8 and version 3 were -- were remarkably similar. 9 Q. So you are saying the anchor city group made their 10 decisions at the version 2 base? 11 A. Yes. Again, we shouldn't -- we shouldn't take 12 anchor as it's immovable. 13 Q. Well, what exactly was anchor? 14 A. It just -- that was a word we just chose. I 15 couldn't find another one that I liked. How's that? 16 Q. Just like the numbers were just what you chose? 17 THE COURT: We need a break. Let's come back at 18 10:45. We go off record at 10:33. 19 And you need not answer that last question. 20 (Whereupon, a break was taken.) 21 THE COURT: Let's go back on record. 22 We're back on record at 10:47. 23 Mr. English. 24 MR. ENGLISH: Thank you, Your Honor. 25 BY MR. ENGLISH: 26 Q. Mr. Sims, going back to Exhibit 323, which was 27 derived from Exhibit 318, page 43. 28 In determining -- first of all, let me back up. 7384 1 When we look at 323, will you agree with me that 2 if you go to the last column, difference, and assuming 3 that our math is correct, which there isn't a whole lot of 4 it on there, that of the 18 anchor cities, only two, 5 Charleston and Nashville, had no deviations -- sorry, 6 three, I can't even read anymore -- so Charleston, 7 Winchester, and Nashville, would you agree that only three 8 have no deviation? 9 A. No deviation from the -- 10 Q. From the -- 11 A. -- Wisconsin version 3 average? 12 Q. Yes. 13 A. The Proposal 19 final proposal number does not 14 deviate from the University of Wisconsin version 3 average 15 in three cities. 16 Q. Okay. Was there an algorithm to determine what 17 these variations would be in these 18 anchor cities? 18 A. An algorithm? You mean a mathematical algorithm? 19 Q. Yes. 20 A. No. 21 Q. Absent a mathematical algorithm, what principles 22 applied? 23 A. Again, the local knowledge of the -- in the 24 marketplace, the way milk moves, the limitations to the 25 way milk moves, the knowledge of the plants and the 26 supplies, and where reserve supplies are. 27 Q. So let's start with Dubuque County, Iowa, which is 28 in the middle of the page -- 7385 1 THE COURT: All right. We're on Exhibit 323, and 2 you want to us look at Row -- 3 MR. ENGLISH: Well, it's labeled Row 787, even 4 though it's -- but that's from the spreadsheet. Dubuque, 5 Iowa, and I want to look at the fact that if you look at 6 the University of Wisconsin average at 315 -- 7 THE COURT: $3.15? 8 MR. ENGLISH: $3.15, thank you very much, Your 9 Honor -- not only does it not go up to 3.75, which would 10 mean adding $0.60, it goes down $0.15, correct? 11 THE WITNESS: $3.00 per hundredweight is $0.15 12 less than $3.15 per hundredweight. 13 BY MR. ENGLISH: 14 Q. So National Milk Producers Federation proposes a 15 modification for Dubuque to the model by subtracting $0.15 16 from the model, correct? 17 A. Yes. 18 Q. Thank you. 19 Are you aware there's a cooperative Class I 20 processing plant there owned by Prairie Farms Dairies? 21 A. I -- I think I'm -- I'm vaguely aware of that, 22 yes. 23 Q. Prairie Farms is a member of National Milk, 24 correct? 25 A. Yes. 26 Q. If I look at Davison County, Tennessee -- 27 THE COURT: So what row number? 28 MR. ENGLISH: I'm sorry, it's labeled -- it's 7386 1 really Nashville. 2 THE WITNESS: It's Nashville. 3 MR. ENGLISH: Thank you. Row 2414. 4 THE COURT: Yes, I see it now. 5 BY MR. ENGLISH: 6 Q. Anchor city's Nashville. 7 In that instance, the model average and the 8 proposal are the same, correct? 9 A. Yes. 10 Q. And do you know that Dairy Farmers of America owns 11 a Class I facility known as DFA Prairie Dairies there? 12 A. Yes. 13 Q. If we look at Winchester, Kentucky, which I 14 believe is Clark County -- 15 A. Yes. 16 Q. -- the model average was 4.45, and the proposal is 17 4.60, correct? 18 A. Yes. 19 Q. And there's an increase of $0.15, correct? 20 A. The proposal exceeded the average of the two-month 21 model runs by $0.15, yes. 22 Q. And you know that Kroger owns a Class I processing 23 plant in Clark County, which is that location, correct? 24 A. I'm aware. 25 Q. And if I go down to Phoenix, as we have already 26 discussed is Maricopa County, line -- I'm sorry, row -- 27 Row 76, Your Honor -- the University of Wisconsin average 28 is $2.40. 7387 1 And in this instance, as we have already 2 discussed, it happens that $0.60 was added, and so the 3 proposal is $3.00, correct? 4 A. Yes. 5 Q. And are you aware that there are a number of 6 proprietary operators of Class I plants in Maricopa 7 County? 8 A. I don't know the number off the top of my head, 9 but there are a number of plants in Maricopa County. 10 Q. Do you know if Fairlife has a plant there? 11 A. I don't know if it's Maricopa or the next one 12 over, but it is in that -- it is in -- I will say -- I 13 will confirm that I believe the Fairlife plant is in -- in 14 or around the Phoenix metro area. 15 Q. And what about Shamrock? 16 A. I know that they are in Maricopa County. 17 Q. And what about Albertsons? 18 A. I cannot say for sure. 19 Q. And what about Kroger? 20 A. I believe that that is true, but I can't say it 21 with certainty. 22 Q. Are there any -- are you aware of any cooperative 23 owned Class I plants in Maricopa County? 24 A. I am not aware. 25 Q. And if we look at Potter County, Texas -- 26 A. Yes. 27 Q. -- where Amarillo is, correct? 28 A. Yes. 7388 1 Q. The average price is $2.25 in the model, correct? 2 A. Yes. 3 Q. And the proposal is $3.00, correct? 4 A. Yes. 5 Q. Which means that in that location you have 6 increased the price by $0.75 per hundredweight, correct? 7 A. The National Milk Producers Federation Proposal 8 Number 19 is $0.75 higher than the average of the two 9 model runs from version 3. 10 Q. And $0.75, you would agree, is $0.15 more than 11 $0.60, correct? 12 A. I will agree that $0.75 per hundredweight is $0.15 13 more than $0.60 per hundredweight. 14 Q. And do you know whether there's a proprietary 15 operator, IDFA member, Plains Dairy Products, owning a 16 plant in Potter County? 17 A. I am aware of Plains Dairy Products, yes. 18 Q. And you know it is in that location? 19 A. It is in Amarillo, yes. 20 Q. Doesn't the model already carefully consider using 21 literally millions of data points, the amount -- the 22 difference in the value needed to attract and retain a 23 supply of milk in those areas? 24 A. The model has millions of variables. But as you 25 heard Dr. Nicholson provide in clear, I thought, language, 26 that the model is only a starting spot, that it requires 27 the use of local knowledge, local market conditions to 28 adjust those model results to make a usable and reasonable 7389 1 Class I price surface. 2 Q. Going back to Exhibit 310. 3 THE COURT: So going back to Exhibit 310. 4 MR. ENGLISH: This is the testimony that he 5 summarized with his PowerPoint presentation, which is 318, 6 Your Honor. 7 So I'm looking at the fourth full paragraph, the 8 fifth paragraph counting the carryover. 9 THE COURT: What page? 10 MR. ENGLISH: I'm sorry, I thought I said that, 11 Your Honor. Page 23. 12 THE COURT: Thank you. 13 All right. I am on Exhibit 310, page 23 -- 22? 14 MR. ENGLISH: Page 23. 15 THE COURT: 23. All right. 16 THE WITNESS: Which paragraph again, please? 17 BY MR. ENGLISH: 18 Q. It's the fifth paragraph if you count the 19 carryover paragraph, or the fourth full paragraph. "It 20 should be noted" -- 21 A. "It should be noted," yes. 22 Q. -- "that the number of adjustments which 23 eventually were made to satisfy price alignment criteria 24 inter-regionally were actually quite small. 25 How many were there? 26 A. To align the regions? 27 Q. No -- yes, to align the regions. You said -- 28 A. I do not have a count. 7390 1 Q. Okay. How many of the more than 2,900 adjustments 2 to the model were the alignment? 3 A. I beg your pardon? 4 Q. How many of the -- what we discussed, more than 5 2,900 adjustments from the model were for alignment? 6 A. I can't answer that. 7 Q. Can you -- since the number was quite small, can 8 you at least tell me where they were? 9 A. Well, the testimony here -- or the statement here 10 is talking about alignments -- I believe we were talking 11 about alignments between the regions. So all those 12 alignment issues would have been on the borders of the -- 13 where the -- where more than one -- or where one or 14 more -- I guess I need -- that's really poorly said -- 15 where two regions abutted or maybe even where three 16 regions abutted, since that's the context of the 17 statement. 18 Q. So we have discussed anchor cities, and we have 19 discussed bordering areas. 20 Other than bordering areas and anchor cities, what 21 other adjustments were made? 22 A. I beg your pardon? I'm sorry. 23 Q. We discussed -- 24 A. So every city, every -- well, I can't speak for 25 the other regional committees, but in the 26 Southeast/Southwest we evaluated every city that had a 27 distributing plant or a notable partially-regulated plant. 28 And some of them were adjusted from the model, and you can 7391 1 see what we did. 2 Q. So I guess what I'm asking is -- and if you have 3 to narrow it down -- and if you want me to wait until you 4 give the testimony, tell me you want me to wait until you 5 give the testimony, but -- 6 MR. ENGLISH: So maybe this is where I prepared my 7 cross-examination before this witness, when I looked at 8 the entirety of Exhibit 310, Your Honor. And I understand 9 the decision to divide, and I asked the very first 10 questions yesterday, Parts 1 and 2. And I'm struggling a 11 little bit, but I want to recognize that the witness has 12 not testified about Part 3 yet, so I'm not sure whether 13 Ms. Hancock wants to help me or not. 14 But if I go into the Southeast, I think 15 effectively I'm going into Part 3, and if you want me to 16 wait, I can wait. 17 MS. HANCOCK: It is up to you, whatever you want. 18 THE COURT: Gosh. What happened during the break? 19 (An off-the-record discussion took place.) 20 THE COURT: Ms. Hancock, the bottom line of what 21 Ms. Hancock said was that this witness is coming back, but 22 it's entirely up to Mr. English as to whether he wants to 23 go into this next paragraph on page 23 now or wait, or he 24 could do both now and then if he wants. 25 MR. ENGLISH: Well, I don't want to do it twice. 26 I don't think anybody in the room wants me to do it twice. 27 So I'm going to, if you bear with me for a moment, Your 28 Honor, mark where I am and save that. 7392 1 THE WITNESS: I'm willing, if we can get done with 2 the whole thing in the next hour, I'm good. 3 MR. ENGLISH: I'm up to page 17 of 38. 4 THE WITNESS: Wow. Almost halfway. 5 BY MR. ENGLISH: 6 Q. On the other hand, I don't think I'm spending a 7 lot more time on spreadsheets. 8 But, actually, you are coming back, correct? 9 A. Yes. 10 Q. Would that be sooner rather than later? I don't 11 want to lose track. If it's going to be next week, that's 12 one thing. If it's going to be -- 13 A. Well, I will be at the hearing, physically, the 14 three days next week, and I'm sure I will be back when the 15 when the recess through Thanksgiving is over. So I will 16 be in and out the whole time, from here on, I think. I 17 can't say any one day when I will be here, but generally I 18 will be present. 19 Q. I am going to move along and mark these questions 20 for later because I think it's more pertinent when you 21 have already testified. And so I am going to move along. 22 Although, I do want to discuss Miami? 23 A. Yes. 24 Q. And to do that, I need to go back to Exhibit 301, 25 line 335, found on page 6. 26 A. Yes. 27 Q. So in the case of Miami -- 28 A. Yes. 7393 1 Q. -- it is one of those examples where the 2 University of Wisconsin average at $7.90 matches the 3 proposal at $7.90. 4 A. Yes. 5 Q. And yet, Dr. Vitaliano and you -- 6 A. Dr. Whom? 7 Q. Sorry, I can't pronounce -- 8 A. Vitaliano? 9 Q. Yes. I apologize. Yes. My tongue just trips 10 sometimes. And I am a little tired. 11 You and he testified that there used to be lots of 12 orange juice backhauls, correct? 13 A. That's my understanding, yes. 14 Q. And there are no longer -- that's no longer 15 available, correct? 16 A. I don't know about "no," but the availability I 17 believe has -- as we both testified, that backhaul 18 possibility is substantially less than it used to be. 19 Q. And we have heard significant testimony since the 20 very early days of this hearing that the Southeast is a 21 huge deficit market, correct? 22 A. Well, I can't state about the quantity of 23 testimony, but I will agree the Southeast is quite 24 deficit. 25 Q. You have been here for a lot of hearing, correct? 26 A. A fair chunk. 27 Q. And we have heard about the Southeast when it came 28 to, for instance, the components issue, correct? 7394 1 A. I was not here with that, but I understand that 2 that was a topic. 3 Q. And we heard it with respect to the Class I price 4 mover, correct? 5 A. Again, I wasn't here for that per se, but I 6 understand that issue. 7 Q. Okay. So given that the Southeast is such a 8 deficit market, and given Miami's location, I'm trying to 9 figure out why of all the locations that we have talked 10 about today, and I'm sure there's a couple of others, but 11 why does that match the model when instead in -- like, 12 Minneapolis is raised from the model? 13 A. I can't speak to Minneapolis. You will have to 14 talk with the regional witnesses from there. 15 It was our determination in the 16 Southeast/Southwest regional committee that the model 17 results of -- at Miami were appropriate, or the average of 18 them. So we adopted 7.90, which was the average of the 19 model -- version 3 model runs, that we thought that was 20 reasonable. 21 Q. So going back to our conversation about whether 22 how or not $0.60 was included, if you -- and yesterday's 23 statement when you said the 2.20 is part of the minimum 24 price. If you subtract -- 25 A. I don't know that I said -- 26 Q. Well, part of the minimum Class I differential, 27 I'm sorry. 28 A. It is "the" minimum Class I differential in our 7395 1 proposal. 2 Q. All right. So if it's "the" minimum Class I 3 differential in your proposal. 4 If you subtract that from the 7.90 proposed for 5 Miami, would you agree that you get $5.70 per 6 hundredweight? 7 A. The mathematical difference between $7.90 per 8 hundredweight and $2.20 per hundredweight is indeed $5.70 9 per hundredweight. So, yes, I agree. 10 Q. And how far away now is the reserve supply to 11 supply Miami? 12 A. Which reserve supply? 13 Q. Well, you tell me. What's the reserve supply for 14 Miami, sir? 15 A. Generally, the first reserve for supply for Miami 16 is South Georgia. 17 Q. And where's the ultimate reserve supply? 18 A. The ultimate reserve supply for there is either 19 the Middle Atlantic area or the Upper Midwest. 20 Q. Can you move that needed reserve supply to Miami 21 for that $5.70? 22 A. No. I'm -- let me qualify that. For each -- if 23 you move it for that distance from the Upper Midwest or 24 Middle Atlantic all the way, $5.70 is not -- does not 25 cover the entirety of the haul. How's that? 26 Q. So you were here for Dr. Nicholson's testimony, 27 correct? 28 A. I was. 7396 1 Q. And you were here for his statement that the slope 2 has become steeper, correct, from the north? 3 A. Correct. 4 Q. Okay. Why haven't you broadened that slope from 5 the Upper Midwest to Miami more than the model? 6 A. We felt the model results were appropriate for 7 Miami. 8 Q. But you just said the Upper Midwest was the 9 ultimate source for reserve supply -- 10 A. I said it was -- I mean, if I used "ultimate," 11 that was probably improper. It is one of the potential 12 sources of reserve supply for Florida. 13 Q. But if say in Minneapolis you added to the model 14 value, and in Miami you didn't add to the Miami value, 15 haven't you actually reduced the financial incentive to 16 move that reserve supply to Miami? 17 A. No. I'm sorry, I was doing some quick math. What 18 did you say the Upper Midwest number was? Was it 2.20? 19 Q. Just a second, let me -- let me -- I don't want to 20 guess. And if you want to get 301 -- Exhibit 301 in front 21 of you so you can check me. I would say that the 22 Column L, University of Wisconsin -- 23 THE COURT: Where are you? 24 MR. ENGLISH: Okay. I'm on page -- I'm sorry. 25 Thank you very much, Your Honor. I am on Row 1308, 26 page 23, of Exhibit 301. 27 THE WITNESS: So we're back to Hennepin County? 28 /// 7397 1 BY MR. ENGLISH: 2 Q. We're back to Hennepin County, which is where 3 Minneapolis is, correct? 4 Do you know if that's where Minneapolis is, sir? 5 A. I believe that's correct, yes. 6 Q. I can confess I have learned probably 85% of my 7 U.S. geography coming to Federal Order hearings. 8 A. It does not narrow the difference. 9 Q. Well, excuse me. So Column L, the model, had a 10 $2.65 result, correct? Look at Column L. 11 A. No, sir. You -- I don't think that was the 12 question you asked me. You asked me if we have narrowed 13 the difference between our proposal and the 7.90 at Miami 14 versus the current. I'm comparing it to the current 15 difference between the Upper Midwest and Miami. 16 Q. Well, but if you are comparing -- I mean, I'm 17 saying haven't you -- I apologize. My question was, 18 between the model and your proposal, haven't you narrowed 19 it? I apologize if I either got it wrong or confused or 20 whatever. I will take the responsibility. 21 A. Yes. 22 Q. Okay. And that's because the model in Column L 23 for Row 1308 had a $2.65 result, and your proposal was up 24 $0.35 to $3.00, correct? 25 A. Yes. 26 THE COURT: Mr. English, his first answer said 27 that the milk comes to Miami from Southern Georgia. Is 28 there a reason why you leaped into Minneapolis? 7398 1 MR. ENGLISH: He did say -- and he -- he then 2 modified it, but he had -- he said that -- 3 THE COURT: When you then asked him "ultimate," I 4 thought you meant how far out could that milk come from. 5 That's what I thought you asked. 6 MR. ENGLISH: Well, and I -- maybe we'll just have 7 to clarify it now. I had understood him to say that 8 Florida needs to reach into the Upper Midwest to receive 9 reserve supplies at some point. I'll take the word 10 "ultimate" out of it. 11 THE WITNESS: I would say the -- if I -- I will 12 use this: In the worst case scenario, the Upper Midwest 13 would be the source of last resort for Florida if there's 14 nothing closer. 15 MR. ENGLISH: I'm changing subjects, Your Honor. 16 THE WITNESS: Does that mean I can put the big one 17 away for the moment, 301? 18 MR. ENGLISH: I believe. I'm not going to stand 19 on it and say forever, but I think we by and large are 20 past that, at least until the end. 21 Part of what I'm doing, Your Honor, is because we 22 saw 318 for the first time yesterday morning, I'm trying 23 to adjust to that from 300. So I -- I'm trying to be 24 efficient. And not succeeding, sorry. 25 BY MR. ENGLISH: 26 Q. I realize you have said that there will be another 27 witness to testify about the details of the calculation 28 with respect to the Grade A milk issue within the fixed 7399 1 differential, correct? 2 A. The minimum differential, yes. 3 Q. Well, when before today -- or actually yesterday 4 has the phrase "minimum differential" ever appeared in any 5 literature? 6 A. I don't know. 7 Q. When before your testimony yesterday afternoon in 8 response to my questions between 4:30 and 5:00 has USDA 9 ever used the term "minimum differential"? 10 A. I don't know. 11 Q. When before your testimony yesterday afternoon has 12 National Milk Producers Federation ever used the term 13 "minimal differential"? 14 A. I have used it for quite some time. 15 THE COURT: Now, I don't mean to quibble, but the 16 first series of questions called it "minimum 17 differential," and the last question called it "minimal 18 differential." 19 MR. ENGLISH: It's not my term, so I'll have to 20 ask: Which is it? 21 THE WITNESS: Minimum. 22 MR. ENGLISH: Okay. So I thank you, Your Honor. 23 I need some water apparently. 24 BY MR. ENGLISH: 25 Q. When you say you have used the term "minimum 26 differential," have you ever submitted that term to USDA? 27 A. I don't believe so. 28 Q. What, in your view, is the difference between 7400 1 USDA's use of the term in Federal Order reform "fixed 2 differential" and your term "minimum differential"? 3 A. We discussed earlier the -- that the 2.20, where 4 it comes from -- I'm sorry, Your Honor -- $2.20 per 5 hundredweight, and that we decided that, based on three 6 very important factors, three reasons, would be the 7 minimum differential. But as you have pointed out so 8 often, that the model was run off of 1.60. So I would 9 consider those two different issues. 10 Q. So with respect to the -- and you've talked about 11 it a little bit today, but I want to come back to it in 12 greater detail. And this is about Grade A versus Grade B 13 milk. 14 And I -- I think what I heard you say this morning 15 is that -- and I realize there's going to be another 16 witness, but I'm going to try to stick to Parts 1 and 2 of 17 your testimony today, and when you come back stick to 18 Part 3, so this is my chance, in my view, to ask you about 19 Parts 1 and 2. 20 I think what you said is that when you did your 21 calculations, you concluded that you took some element 22 more that justified Grade A, and I thought you said $2. 23 Is that -- 24 A. I used that term loose -- that number loosely. I 25 think I said something north of 2 or around 2. Again, 26 that -- that testimony will come later to describe exactly 27 what that number is. 28 Q. So let's -- let's talk a little bit about how we 7401 1 got where we are today. And for that purpose, I'm 2 perfectly willing to hand out copies. I'm not looking to 3 make an exhibit, but I am going to take official notice of 4 some pages from Federal Order reform, the proposed rule, 5 and so I just thought out of fairness I would provide 6 copies to people, and then we can talk about it. 7 And so I'm going to be looking at 63 Fed Reg, the 8 document starts at 4802, but the particular pages we're 9 going to be looking at are 4876 and 4877. This is dated 10 January 30th, 1998. And I have copies. If you want to go 11 off the record for a minute, I will hand them out. 12 THE COURT: I would like to go off record. I am 13 very grateful that you brought those. And I agree, you 14 don't have to make that an exhibit, because we do of 15 course take official notice of it. But thank you. 16 We'll go off record at 11:23 for distribution. 17 (An off-the-record discussion took place.) 18 THE COURT: Let's go back on record. We're back 19 on record at 11:25. 20 Mr. English. 21 MR. ENGLISH: So we have passed out copies 22 63 Federal Register, the start page is 4802, and then I 23 have got pages 4876 and 4877. And for some reason there's 24 another page at the end that I'm not sure what I intended 25 to do with that, but at the end there's page 11205. We'll 26 see if I had a reason for that later. 27 BY MR. ENGLISH: 28 Q. So what I want to focus on, and I'll try to point 7402 1 you to specific sections, but maybe we can do this more 2 generally, and I'm starting on 4876. 3 In the background section on the bottom of 4 column 2, over to column 3 on 4876 -- and I'll see if -- 5 because you and I think know what was going on, shortcut 6 it a little bit, but if we have to read, we can read. 7 Okay, Mr. Sims? 8 A. Okay. 9 Q. It's fair to say that in the 1960s Minnesota and 10 Wisconsin had basically 50% of the Nation's Grade B and 11 was the largest area of reserve supply, correct? 12 A. Yes. 13 Q. And then -- so let me actually -- I apologize. I 14 started in the middle. 15 Federal Order reform included a number of 16 subjects, including the amendments that led to product 17 price formulas and Make Allowances for the establishment 18 of prices for Class III and Class IV, correct? 19 A. Yes. 20 Q. Okay. And prior to that -- prior to Federal Order 21 reform, and immediately prior to Federal Order reform, we 22 relied on what's called the basic formula price, correct? 23 A. Yes. 24 Q. And prior to that we relied on what was called the 25 Minnesota-Wisconsin price series, correct? 26 A. Yes. 27 Q. It was the Minnesota-Wisconsin price series that 28 relied on Grade B milk from Minnesota, Wisconsin to 7403 1 establish minimum class prices for the manufactured 2 products, correct? 3 A. Yes. 4 Q. And that's why -- that's a -- but at some point in 5 time, that being the 1990 hearing, with the decision in 6 1993 -- I'm sorry, I have the wrong hearing date. It was 7 the 1992 hearing, which resulted in a 1993 decision -- 8 that there was a national hearing to consider changes to 9 the Minnesota-Wisconsin price series because the volume of 10 Grade B milk had shrunk, correct? 11 A. I cannot confirm the dates. My memory is not that 12 good. But I'll accept that -- that that hearing did 13 occur. 14 Q. Okay. So on the bottom of page 3 -- I'm sorry -- 15 column 3 of page 4876, there is discussion that I just 16 summarized, if you see the very bottom paragraph. The 17 national hearing was held in 1992, and there was a 18 replacement with the basic formula price. 19 A. Yes. 20 Q. Okay. And in the paragraph immediately above 21 that, USDA recites that in 1970, 46% of Wisconsin Milk 22 Marketings and 71% of Minnesota was still Grade A -- I'm 23 sorry, I'm sorry -- was still Grade B, correct? 24 THE COURT: So you have gone to the paragraph 25 above -- 26 MR. ENGLISH: Yes, I have gone to the paragraph 27 above. In 1970, 46% of Wisconsin Milk Marketings and 71% 28 of Minnesota Milkings were Grade B. 7404 1 BY MR. ENGLISH: 2 Q. Do you see that, sir? 3 A. I do. 4 Q. And you accept that? 5 A. It's -- it's in the decision. 6 Q. Okay. So by 1989, the decision recites, that 7 those shares had declined to 17 and 26%, correct? 8 A. Yes. 9 Q. And then it references that there was some 10 statistically reliable -- there was issues about the 11 statistical reliability as a result of that decline, 12 correct? 13 A. That's what it says, yes. 14 Q. And then if you flip the page, USDA recites in 15 that second paragraph that Grade B was now below 5%, and 16 the Minnesota-Wisconsin accounted for 42% of that, but 17 that was under 2% of all milk, correct? 18 A. I'm sorry, I need to read that. 19 THE COURT: And, Mr. English -- 20 THE WITNESS: Yes. 21 THE COURT: -- are you now on page 4877? 22 MR. ENGLISH: Yes. 23 And you read it and said "yes" now, sir? 24 THE WITNESS: I see the citation, this was less 25 than 2% of all milk, yes. 26 MR. ENGLISH: Your Honor, I next have two other 27 documents. Again, I'd prefer to take official notice, 28 that I intend to hand out. I will tell you what they are 7405 1 ahead of time. 2 They are both USDA publications from the National 3 Agricultural Statistic Service entitled "Milk Production 4 Disposition and Income." The first one is a 2003 summary, 5 and the issue date is April 2004. And the second is the 6 exact same title, National Agricultural Statistic Service, 7 April 2023. And again, I have courtesy copies, and I will 8 pass them out if you want to go off the record for a 9 moment so we can do that. 10 THE COURT: Yes. And, again, I thank you for your 11 courtesy. And, yes, of course we will take official 12 notice of these -- what are they, reports? 13 MR. ENGLISH: It's the United States Department of 14 Agricultural -- Agriculture -- National Agricultural 15 Statistic Service, "Milk Production Disposition and 16 Income, 2022 Summary," dated April 2023, and 2003 summary, 17 April 2004, and they have watermarks that say "USDA" on 18 them. 19 THE COURT: Thank you. 20 We'll go off record for the distribution of those 21 documents. 11:33. 22 (An off-the-record discussion took place.) 23 THE COURT: All right. Let's go back on record. 24 We're back on record at 11:35. 25 Just before we went off record, I thought I heard 26 you, Mr. English, say "2024," and I thought, is this a 27 forecast, but -- 28 MR. ENGLISH: If I said that, Your Honor, it 7406 1 was -- it was sort of maybe wishful thinking of when I'll 2 be somewhere. So if -- let me restate what I have handed 3 out. 4 THE COURT: Please. 5 And would you also include, not just the cover 6 sheet, but go to the bottom of the next page and just read 7 into the record also the words at the very bottom of each 8 of those on the second page. So start as you did, and 9 then include -- 10 MR. ENGLISH: I'll be delighted to. And for the 11 benefit of those not in the room, I am going to also give 12 what appears to be a changing, but there's an 13 identification number of some kind. 14 So let me start with the 2003 summary issued 15 April 2004. And it's the United States Department of 16 Agriculture, National Agricultural Statistic Service, and 17 there's a number called DA1-2(04), and the title is "Milk 18 Production Disposition and Income." And, again, 2003 19 summary, issued April 2004. 20 And I have only included one other page, which is 21 page 9. And the page 9 heading at the top is "Quantity of 22 Milk Used and Marketed By Producers By State in the United 23 States 2003." And at the bottom it does, again, says, 24 "Milk Production Disposition and Income, 2003 Summary, 25 Agricultural Statistics Board, April 2004, NASS USDA." 26 And for the second document, the title is the same 27 except for the fact that it says 2002 Summary, issued -- 28 THE COURT: 2000 what? 7407 1 MR. ENGLISH: Oh, wow. Okay. As we can tell, 2 it's -- I'm going to get there, Your Honor. 3 THE COURT: You know, I saw a phrase that I think 4 applies to everyone in this room, and it is "tired and 5 wired." And I appreciate all of this work you have done, 6 and I thank you for it. 7 So, resume. 8 MR. ENGLISH: Thank you, Your Honor. And yes to 9 both. 10 2022 summary -- 2022 summary issued April 2023. 11 The other difference on this page is, for whatever federal 12 agency reason, and I think it has to do with the Office of 13 Management Budget, there is now a number called 14 ISSN:1949-1506. 15 And then the next page, this time it's page 11, 16 "Milk Used and Marketed by Producers States in the United 17 States, 2022," and the bottom it says, "Milk Production 18 Disposition and Income, 2022 summary, April 2023, United 19 States Department of Agriculture, National Agricultural 20 Statistic Service." 21 And, yes, I'll ask for official notice, Your 22 Honor, so we don't have to burden the record with another 23 exhibit. 24 THE COURT: Granted. 25 BY MR. ENGLISH: 26 Q. So just before I -- I handed those out we were 27 talking about that -- a proposed rule issued in 1998 28 referenced statistics from 1995 that nationwide Grade B 7408 1 was below 5%. 2 So I want to look at, first, the 2004 summary, 3 sir, and I will note -- 4 THE WITNESS: Are we back on the record? 5 THE COURT: Yes. 6 BY MR. ENGLISH: 7 Q. Thanks for asking. 8 So other than the fact these documents are 9 different pages, different years, let me just describe 10 that the left-hand column is the state, and then there are 11 three columns "Milk Used Or Produced," and then "Milk 12 Marketed By Producers" in the last two columns. And those 13 last two columns are the ones I want to focus on for both 14 of these documents. 15 And so "Milk Marketed By Producers," there is a 16 total quantity in the next to the last column, and then 17 there is fluid grade. And if you -- there's a footnote 18 for fluid grade, 3: "Percentage of milk sold that is 19 eligible for fluid use, Grade A in most states; includes 20 fluid grade milk used in manufacturing dairy products." 21 Do you see that, sir? 22 A. I do. 23 Q. Okay. So let's just focus on the total for a 24 moment. It says -- and it's rounded, so -- but it says 25 98% fluid grade, which would mean that Grade B would be 26 2%, correct? 27 A. Yes. 28 Q. Okay. So in the nine years from Federal Order 7409 1 reform to 2004, Grade B had fallen from under 5% to 2%, 2 correct? 3 A. Yes. 4 Q. And then if we can turn to the next document, the 5 second document, which is the 2022 summary issued in April 6 of 2023, the same, bottom, United States is 99%, 7 correct -- 8 A. Yes. 9 Q. -- Grade A? 10 So we're down to 1% Grade B, correct? 11 A. Yes. 12 Q. And it may actually be only .8% if you do all the 13 math. 14 A. I don't have that in front of me, but 99 from 15 versus 100 is 1. 16 Q. Okay. Now, on page 4 of Exhibit 310, you mention 17 a risk of reversion to Grade B. 18 A. Yes. 19 Q. Do you recall that? 20 A. I do. 21 Q. Do you have any evidence that that has occurred? 22 A. Yes. 23 Q. Other than California? 24 A. Yes. 25 Q. To any significant amount? 26 A. I can't speak to significance or the -- or what 27 your definition of significance is, but it has occurred. 28 Q. Do you know of any state other than California 7410 1 where the numbers have gone anywhere other than up, on 2 Grade A? 3 A. I can't speak to that. 4 Q. Do you know if California has any unique issues 5 with respect to the Grade A/Grade B issue? 6 A. I do not. I don't know what the story there would 7 be. 8 Q. Do you know, for instance, that California had a 9 state order prior to November 1st of 1998? 10 A. I am aware of that. 11 Q. And it had a quota system? 12 A. I am aware of that. 13 Q. And you are aware that because of the quota system 14 there were producers who would elect Grade B status in 15 order not to have to pay into the quota system? 16 A. I was not aware of that. 17 Q. And do you know that when the Federal Order came 18 in in November of 2018, that in that Federal Order, USDA 19 recognized in the sense that it permitted California to 20 continue to operate its quota system, and that payments 21 would be made basically to recognize quota? 22 A. I am aware of that. 23 Q. And do you know whether producers in California, 24 in order not to pay into the quota system, in the Federal 25 Order have elected not to be Grade A? 26 A. I'm unaware. 27 Q. Okay. So in terms of the risk of reversion, I 28 would like to look at some specific states and statistics. 7411 1 And so maybe this will explain why I picked 2003, 2004. 2 So let's look at Utah. 3 A. Which year? 4 Q. I'm looking at -- I'm going to look at both years. 5 A. Okay. 6 Q. So let's -- we can get both in front of us. They 7 have changed the columns a little bit, or at least the way 8 they laid them out. But if we look at Utah, and we look 9 at the last column for the 2003 report issued in 2004, it 10 was 98% Grade A, which means 2% Grade B, correct? 11 A. Did you say 98? 12 Q. 98% Grade A in Utah, which would be 2% Grade B, 13 correct? 14 A. Yes. 15 Q. Okay. And if you look at the 2022 document issued 16 this year, 2023, you would say that Utah -- you would see 17 that Utah is now 100% Grade A, correct? 18 A. Yes. 19 Q. Now, in 2003 there was a Federal Order that 20 covered Utah, correct? 21 A. You're testing my memory, Mr. English. I believe 22 that would be correct. 23 Q. And then there was a Federal Order hearing after 24 that, I don't know the exact date, because we don't -- but 25 shortly thereafter there was a Federal Order hearing, and 26 after that Federal Order hearing the dairy farmers decided 27 to vote "no" on the amendment and ultimately the order was 28 terminated, correct? 7412 1 A. I am aware that that -- that order was terminated 2 in and around that period. How's that? The dates are 3 beyond my memory. 4 Q. Okay. So with Federal Order regulation and with a 5 Class I differential, Utah had 2% Grade B, and today, 6 without Federal Order regulation, it has 0% Grade B? 7 A. That's -- I don't -- I don't know that I agree 8 with those as the related or the reason. But I will agree 9 that, in Utah, it was 98% Grade A in the previous period, 10 100% in the most recent period. I don't know -- I don't 11 know why that happened, but I would agree that that is the 12 statistic reported here. 13 Q. And if we look at Nevada for both time periods, 14 Nevada is 100% Grade A in both cases, correct? 15 Absolutely, please -- 16 A. If I'm reading the lines across correctly, yes. 17 Q. And are you aware that as a result of something 18 called the Milk Regulatory Equity Act, in about 2006, I 19 believe, Congress passed a statute that said no county in 20 the state of Nevada can be part of the Federal Milk 21 Marketing Order. 22 A. I'm aware that there is some unusual rule 23 regarding Nevada in that vain, but I can't -- I believe 24 that your statement is principally correct. 25 Q. Without a Federal Order, there's not been 26 reversion to Grade B in Nevada since that time, correct? 27 A. Again, I don't know the -- I don't know that you 28 can -- can link those two occurrences, but it went -- it 7413 1 stayed 100% either year. 2 Q. Okay. Let's look at Montana. Montana in both 3 reports -- and certainly take your time to confirm -- it's 4 100% Class I in both instances, correct? 5 A. Again, I'm straining to make sure the lines go all 6 the way across. 7 Q. Please take your time. 8 THE COURT: You should hand out rulers. 9 MR. ENGLISH: I will bring some for when we 10 return. 11 THE WITNESS: Yes. Was the question 100% both 12 periods? 13 BY MR. ENGLISH: 14 Q. Yes. 15 A. Then I agree. 16 Q. And you are aware that Montana does not have any 17 Federal Order regulation, correct? 18 A. Correct. 19 Q. It does have state regulation, correct? 20 A. Yes, I'm aware. 21 Q. But there's no pooling requirements, correct? 22 A. I cannot speak with any knowledge whatsoever as to 23 the rules and regulations regarding the Montana state 24 order. I know it exists, and that's as far as my 25 knowledge goes. 26 Q. Let's look at Idaho. And let's compare Idaho for 27 the earlier time period, 2003 summary, issued in 28 April 2004, and take your time, but I'm looking at 99%. 7414 1 A. Yes. 2 Q. Then I'm looking at Idaho for the current time 3 period. And I'll make it a little easier to do, it is 4 under Hawaii, and Hawaii has a withheld information, so 5 there's a D, so it's 100%. 6 A. Yes. 7 Q. Okay. And similar -- although with slightly 8 different territorial issues -- to Utah, to the extent 9 that there was federal regulation of a territory in Idaho 10 that, too, was as a result of the Western Order hearing, 11 and a vote by producers to say no, it was voted out, 12 correct? 13 A. I recall the voting out of the Western Order. I 14 don't recall the territory that the Western Order covered. 15 Q. Okay. 16 A. I could not begin to cite the marketing area. 17 Q. All right. Well, I'm not testifying, so I won't 18 say it, but the record will reflect whether it was. 19 So nonetheless, Idaho has gone from 99% to 100%; 20 is that -- 21 A. Yes. 22 Q. -- correct? 23 Let's turn to South Dakota. 24 THE COURT: I want to just make sure that that 25 "yes" is after he had finished asking his question. 26 THE WITNESS: I agree that if we -- did we just do 27 Idaho? 28 MR. ENGLISH: Yes. 7415 1 THE WITNESS: That it was 99% in 2003; it reported 2 to be 100% in 2022. If that was your question, I agree. 3 MR. ENGLISH: Thank you. All right. 4 BY MR. ENGLISH: 5 Q. I actually want to go to North Dakota because I'm 6 trying to go in some alphabetical order occasionally. 7 So North Dakota, prior to -- so -- so we -- in the 8 earlier report of 2003, issued in 2004, North Dakota was 9 76% Grade A, which would mean 24% Grade B, correct? 10 A. Yes. 11 Q. If we look at North Dakota today, you would see 12 it's 99%, correct? 13 A. Yes. The -- that -- this would indicate that 14 there is Grade B milk still in North Dakota, and somebody 15 is presumably buying it. 16 Q. But it's dropped from 24% to 1%, correct? 17 A. Yes. 18 Q. There's no Federal Order regulation in North 19 Dakota, correct? 20 A. I -- yes. I -- I -- I don't -- I don't know how 21 far westward the Order 30 goes. Does it go into the 22 Dakotas? I don't know. 23 Q. So let's go to South Dakota. And South Dakota in 24 the earlier data, 2003, issued in 2004 was 93%, correct? 25 A. Correct. 26 Q. And today, South Dakota is 100% Grade A, correct? 27 A. Correct. 28 Q. And do you know whether South Dakota is a part of 7416 1 any Federal Order? 2 A. That I would refer to my previous question 3 regarding whether Order 30 extends that far west or not. 4 I cannot remember, or whether -- into part of the Dakotas. 5 Q. Would you agree there's lots of cheese production 6 in many of those unregulated areas like Idaho and South 7 Dakota? 8 A. I don't know about a lot, but I can -- I think we 9 can agree that there's cheese production in those areas, 10 yes. 11 Q. So -- but to the extent there's no Class I in 12 Federal Order pricing, that has nothing to do with those 13 states having increased to 100%, or close, 100% Grade A, 14 does it? 15 A. Again, I don't know that we can link causally 16 whether there's federal regulation or not as the reason 17 this is. The issue here before us is that, number one, I 18 just did the math. If I did it right, in 2022, at 1% of 19 the milk production in the United States, that's 20 2.25 billion pounds of milk of Grade B. I hesitate to 21 call that insignificant. That's more I think than a whole 22 lot of states. And somebody -- somebody's producing that 23 Grade B milk, and somebody is buying it. 24 The fear, I believe, the true threat to Class I, 25 because of the high quality standards of today's pool 26 distributing plants, or Class I plants -- that would be a 27 better way to say it -- is that it's -- what we have 28 deemed Grade A plus -- if there is insufficient Class I 7417 1 price, you may see people drop back -- who remain Grade A, 2 but they are unwilling to spend the money to maintain the 3 high quality standards required by Class I plants, and 4 that is, while it may still be Grade A, is definitely a 5 threat to the supply of milk to Class I because those 6 farms say, we'll stay Grade A, but we'll only ship to a 7 cheese plant even -- and forego the order pool. 8 Q. So I'm trying to be mindful of the need to have 9 some time to talk about scheduling, and I was really 10 close, until you said that, to closing out. But I will 11 hold a discussion of that piece of it for one moment -- or 12 not for a moment, until I think another day. 13 At what rate of decline, or what point of decline, 14 in Grade A, given the fact that we're now down to less 15 than 1%, and jurisdictions without Federal Orders, people 16 go to Grade A, at what point in your opinion does Grade B 17 become inconsequential, zero? 18 A. I would agree that at some number greater than 19 zero it becomes inconsequential. I don't believe we're 20 there yet. At 2.25 billion pounds of milk produced in 21 2022 of Grade B, I have a hard time calling that 22 inconsequential. It's more than a lot of the production 23 in the Southeast, a lot of the states. 24 Q. But we have got 2.25 trillion pounds of milk, and 25 only 18% of that is Class I, correct? 26 A. No. I think you did your math wrong. It is 27 225 billion, isn't it, not trillion? It's not trillion. 28 It's 225 billion. 7418 1 Q. 225 billion. Okay. 2 A. So -- 3 Q. But 18% -- at 18% Class I, with 225 billion, and 4 that's still not enough for you? 5 A. I'm saying that at 2.25 billion pounds, that is 6 still consequential. 7 MR ENGLISH: Your Honor, I would like to reserve 8 because I -- even before I got the note, I was trying to 9 get to a break. It is a breaking point for me. So I 10 would like to reserve for when Mr. Sims returns. I trust 11 Monday. And I know Ms. Taylor wanted to discuss schedule 12 before the lunch break. 13 THE COURT: Mr. English, thank you. 14 And I would now hear from Agricultural Marketing 15 Service. 16 THE WITNESS: Your Honor, do I need to be up here 17 for this? 18 THE COURT: Oh, no, you may step down. Thank you. 19 THE WITNESS: Thank you, Your Honor. 20 THE COURT: To the extent we took the record copy 21 for any of this, let us get that back to Agricultural 22 Marketing Service. 23 All right. Thank you. Now we go to Agricultural 24 Marketing Service. 25 MS. TAYLOR: Thank you, Your Honor. 26 The plan is to start at 1:00 this afternoon with 27 our dairy farmers who will be testifying virtually, and 28 there will be six of them. There are three exhibits. 7419 1 Three of them have exhibits, and three do not, I believe, 2 just so everyone knows. 3 And if -- if counsel has exhibits for any of their 4 producers testifying, if you could bring them over at the 5 lunch break so we can kind of get that organized and 6 distributed so 1:00 can be efficient. 7 As for next week, Mr. Sims will return for 8 cross-examination. 9 On Monday I'm also expecting Mr. Mark Lamers to be 10 here to testify, and I have indicated to him that he would 11 be able to go on Monday, so maybe we can put him on first. 12 He does have a statement and exhibits, and they are up 13 online if anyone would like to look at them in advance. 14 On my list then, after Mr. Sims is done, would be 15 Dr. Eric Erba. 16 And that is all I have. And I don't know if 17 National Milk -- we will have at some point next week 18 Dr. Vitaliano will be here and can go back on the stand to 19 finish his cross-examination. 20 THE COURT: Good. Thank you, all. Please be back 21 and ready to go on record at 1:00 p.m. We now go off 22 record at 11:58. 23 (Whereupon, the lunch recess was taken.) 24 ---o0o--- 25 26 27 28 7420 1 FRIDAY, OCTOBER 6, 2023 - - AFTERNOON SESSION 2 THE COURT: Let's go back on record. We're back 3 on record at 1:02 p.m. 4 Who will be our first virtual witness today? Do 5 we know yet? 6 MS. TAYLOR: We do, Your Honor. We're getting 7 ready to pull the first one up on the screen. Our first 8 producer today is Dave Daniels, and let's just give us a 9 second to get it on our own screen. 10 (Off-the-record discussion took place regarding 11 Mr. Daniels. A representative from AMS was unable to 12 reach Mr. Daniels and Witness Lauren Perkins was called.) 13 THE COURT: This is Judge Clifton. I do have a 14 written statement from Lauren Perkins, so I would now 15 assign it the next number, Exhibit 324. I'm going to mark 16 this as Exhibit 324. And it's also noted as 17 Exhibit MIG-32. 18 (Exhibit Number 324 was marked for 19 identification.) 20 MS. TAYLOR: Thank you, Your Honor. 21 And I see Ms. Perkins has her video on, so 22 that's -- we're moving in the right direction. And I 23 believe she has counsel here in the room, so I will turn 24 it over to them. 25 My apologies. We didn't have a lot of extra 26 copies, but it is online as MIG-32 for those watching and 27 in the room. 28 THE COURT: Ms. Perkins, this is Judge Clifton. 7421 1 You can't see me, but I can see you. I see your Organic 2 Valley shirt. 3 THE WITNESS: Yes, ma'am. 4 THE COURT: Very good. What I'd like you to do 5 now is state and spell your name. 6 THE WITNESS: Lauren Perkins, L-A-U-R-E-N, 7 P-E-R-K-I-N-S. 8 THE COURT: Have you testified previously in this 9 hearing? 10 THE WITNESS: No, ma'am, I have not. 11 THE COURT: Then I'd like to swear you in. Would 12 you raise your right hand, please. 13 LAUREN PERKINS, 14 Being first duly sworn, was examined and 15 testified as follows: 16 THE COURT: And now I would like the person who is 17 here with me in Carmel, Indiana, at the podium, to 18 identify herself. 19 MS. BULGER: Good afternoon, Your Honor. My name 20 is Grace Bulger, B as in boy, U-L-G-E-R, representing MIG. 21 THE COURT: Thank you. 22 You may proceed. 23 DIRECT EXAMINATION 24 BY MS. BULGER: 25 Q. Good afternoon, Lauren. 26 Could you please read your business address? 27 A. 1010 Boggs, B-O-G-G-S, Road, Frankford, West 28 Virginia, 24938. 7422 1 Q. Thank you. 2 And I understand you have prepared some written 3 testimony? 4 A. I have, yes. 5 Q. Whenever you are ready, you can go ahead and start 6 reading that. 7 A. Sure. I really want to thank you guys for 8 allowing me to offer testimony today about how the Federal 9 Milk Marketing Order changes will impact me as a dairy 10 farmer and the cooperative we have been a member of for 11 over the past decade. While I have never testified over 12 Zoom before, I hope that my passion and commitment to the 13 dairy industry comes through in the virtual format. 14 We're getting into our busy season here on the 15 farm and chopping corn and (technical issue) calving 16 season, and it's always good to get everybody -- 17 THE COURT: Ms. Perkins, the connection is 18 intermittently slower, and then faster, and it's not a 19 problem so long as you speak extraordinarily slowly, so 20 that we don't miss any part of your testimony. 21 THE WITNESS: I apologize. I'll talk slower. 22 THE COURT: Please. 23 THE WITNESS: Continuing on. 24 I farm with my family on my great grandfather's 25 homestead, which dates back to 1942. I represent the 26 fourth generation on the farm, and I came back to our 27 diversified operation in 2019 after I finished college at 28 North Carolina State University, where I studied 7423 1 agribusiness. 2 MS. BULGER: Lauren, sorry, this is Grace. We 3 think it might help your connection if you turn off your 4 video if you wouldn't mind. Is that fine with you? 5 THE WITNESS: I can do that. Give me one second. 6 Is that any better? 7 THE COURT: Yes, so far. 8 Ms. Perkins, I just want to make sure that we get 9 this. So I want you to go to your first paragraph where 10 you say, "We're getting into our busy season here on the 11 farm." 12 THE WITNESS: Yes, ma'am. I can do that. 13 THE COURT: Please start there. 14 THE WITNESS: We're getting into our busy season 15 here on the farm with chopping and starting to go into 16 fall calving season, which always gets everyone excited 17 about getting into fall here. 18 I farm with my family on my great grandfather's 19 homestead, which dates back to 1942. I represent the 20 fourth generation on the farm, and came back to our 21 diversified operation in 2019 after I finished college at 22 North Carolina State University, where I studied ag 23 business. 24 On the farm we manage 300 organic milking cows and 25 crop 1500 acres. We have sought to diversify the farm, 26 and in 2018, established two poultry barns for broiler 27 production, and are in the process of building a bigger 28 beef business. 7424 1 Like many dairy farmers, we practice beef on dairy 2 breeding and genetics. 3 THE COURT: That last word, Ms. Perkins, it didn't 4 come through clearly. Breeding and what? 5 THE WITNESS: Genetics. 6 THE COURT: Thank you. 7 THE WITNESS: Additionally, in 2022, we 8 established an Air B&B on our farm, and I have come to 9 find out that while I have always loved farm life, 10 apparently so do a lot of other people. People want to 11 stay at our organic dairy farm and actually pay us for 12 that opportunity. Now, if they'd just pay me for the 13 opportunity to do the farm work, then we would have 14 something. 15 THE COURT: That's great. 16 THE WITNESS: Our farm employs ten people, and we 17 sustain five households as their main income. For the 18 dairy, my primary role falls under herd manager, and also 19 working with employees. My father focuses on cropping and 20 other general duties, but it's really all hands on deck 21 much of the time. 22 We are a small farm business. We became certified 23 organic in 2009, and we are currently active members of 24 CROPP Cooperative, which is also better known as Organic 25 Valley. I serve on two membership committees for Organic 26 Valley, one called GenO, which is for beginning organic 27 farmers, and the other is Farmers Advocating For Organic, 28 which provides organizations with grant resources for 7425 1 research and promotion of organic agriculture. 2 As long as we have been farming, our family has 3 also been involved in the industry. Beyond my organic 4 commitments, I was appointed to the West Virginia Farm 5 Service Agency State Executive Committee in 2022, and both 6 my dad and grandfather served on that same committee in 7 the past. Our family also proudly manages the birthing 8 center every year at the West Virginia State Fair, which 9 is such a great way to connect the public to animal 10 agriculture. 11 As the USDA considers how to modify the Federal 12 Milk Marketing Orders, I want to share a worry that 13 challenges to the pricing for Organic Valley farmers like 14 myself that may not be addressed appropriately. 15 Organic milk is produced under strict USDA 16 standard requirements, and it must be segregated from all 17 non-organic milk and dairy products. In my co-op, we also 18 strive for stable pay price that has never since -- that 19 has never changed since we have been farming organic -- 20 has been below conventional milk prices. Our co-op has a 21 quota system, and all members must adhere so that it 22 ensures that we balance our milk needs with customers and 23 consumer demands. 24 But what happens is my cooperative ends up in a 25 scenario where it's required to pay a significant 26 multimillion dollar pool obligations every year. For me, 27 the FMMOs feel much like taxation without any benefit. 28 The co-op that I have ownership in pays those pool 7426 1 obligations, but those resources never come back to the 2 farmers like me. We are stuck in an old system that has 3 requirements and voting rules where a minority like 4 organic farmers and co-op partners cannot get a fair 5 treatment. This is an oppressive system that organic milk 6 is wrongfully stuck in. 7 Our certified organic Grade A farm milk goes to 8 Winchester, Virginia, for fluid bottling and consumers at 9 retail that are willing to pay for organic milk that 10 ensures our higher pay price and stability. 11 Our farm actually just built a new parlor for the 12 farm back in 2014, and we're always investing in our 13 organic land. For those financial resources to leave our 14 co-op, and for new proposals that you all are reviewing, 15 that could increase that drain to the FMMO system is 16 wrong. Please do not create conditions at the end of this 17 hearing that take more funds away from my cooperative and 18 my family's organic dairy farm. 19 Thank you so incredibly much for the opportunity 20 to testify, and I'm open to any questions from USDA. 21 THE COURT: Ms. Perkins, thank you so much. 22 Now, I'm going to ask if we think that her 23 removing the video helped enough to leave us not being 24 able to see her. 25 Okay. We think it did, Ms. Perkins. So, again, 26 as you answer questions, just remember to speak abnormally 27 slowly so we catch all the words. 28 THE WITNESS: Yes, ma'am. 7427 1 CROSS-EXAMINATION 2 BY MS. HANCOCK: 3 Q. Good afternoon, Ms. Perkins. My name is Nicole 4 Hancock, and I represent National Milk. I just had a 5 couple of questions for you. 6 Do you sell your milk under a fixed price 7 agreement to your cooperative? 8 A. That's a great question. I have to refer you to 9 people at Organic Valley. I'm not quite sure on that. 10 Q. Okay. Do you know if you have a set amount of 11 milk that you sell to the cooperative? 12 A. Yes, ma'am. 13 Q. Okay. 14 A. So we are under a quota system through Organic 15 Valley, which basically ensures that we do our best not to 16 go over that amount. But the people at Organic Valley 17 could better answer the quota system that we have set up. 18 Q. Okay. I'm going to ask just a couple more, but if 19 you don't know, that's fine, I can check with someone 20 else. 21 Do you know if under that quota system, what 22 happens if you produce milk that is in excess of your 23 quota amount? 24 A. So I'm not sure on that. You would have to refer 25 to Organic Valley. But our top goal at Organic Valley is 26 to make sure that as much milk as we have goes to organic 27 production for organic utilization. 28 Q. Okay. And if you don't have that as an outlet, 7428 1 meaning if you produce more than what they can take, does 2 it then go into the conventional milk channel? 3 A. Like I said, that's a better question for people 4 at Organic Valley. But at Organic Valley we do talk a lot 5 about the organic utilization. I assume there is line -- 6 some line loss at plants, but Organic Valley could help 7 you out better with that question. 8 MS. HANCOCK: Okay. Thank you so much for your 9 time. Appreciate it. 10 THE WITNESS: Thank you. 11 THE COURT: Stand by, Ms. Perkins, we have another 12 questioner coming to the podium here in Indiana. 13 THE WITNESS: Yes, ma'am. 14 CROSS-EXAMINATION 15 BY MR. MILTNER: 16 Q. Good afternoon, Ms. Perkins. My name is Ryan 17 Miltner, and I represent Select Milk Producers, a 18 cooperative. Thank you for your testimony today. 19 You mentioned in your statement that your milk 20 goes to a plant in Winchester, Virginia. 21 Do you know, is that a plant that Organic Valley 22 operates? 23 A. I don't know that. That would be a question for 24 Organic Valley. But I do know that our milk goes into the 25 fluid -- the fluid milk operation. 26 Q. Are you fortunate enough to know whether you could 27 go to your local grocery store and pick up a carton of 28 milk that came from your farm? 7429 1 A. Actually, I could tell you that I was a few years 2 ago. So in West Virginia where I'm located at, our milk 3 mostly can be found in the Stonyfield label in Krogers 4 locally. And we were fortunate enough to find the BIN 5 (phonetic) number from Winchester was on one of the 6 Stonyfield fluid milk cartons. 7 Q. Okay. Is -- I don't think it is, but maybe you 8 know. Is Stonyfield an Organic Valley brand or is that a 9 different brand? 10 A. I have to refer you to Organic Valley on that 11 question. I know they have made a lot of changes that 12 happened with Stonyfield and other organic companies. 13 But, yeah, that would be a better question for Organic 14 Valley. 15 Q. Okay. Now, the cooperative that I represent, 16 there's some organic milk in that co-op, and that milk is 17 sold to other companies who bottle it, and therefore, our 18 cooperative does not have to make the payment to the 19 system on that milk that you describe in your statement. 20 And I was wondering if -- if you know whether the 21 milk from your farm is sold to somebody else to be bottled 22 or if Organic Valley does? But I understand that that's 23 something we would have to ask Organic Valley about 24 because you don't know the answer today; is that right? 25 A. That's correct. Being a dairy farmer, I'm really 26 proud to have Organic Valley collect our milk, because 27 they could answer those questions and then allow me to 28 enjoy what I do on the farm. 7430 1 Q. I understand that. I have got -- where I live in 2 Ohio, there are some friends of ours that are Organic 3 Valley producers, and they are very happy with them as 4 well, so I understand your pride in your co-op. 5 MR. MILTNER: Thank you very much for answering my 6 questions today. 7 THE WITNESS: Thank you. 8 THE COURT: Are there any other questions before I 9 ask for Agricultural Marketing Service questions? 10 There are none. I turn to the Agricultural 11 Marketing Service. 12 CROSS-EXAMINATION 13 BY MS. TAYLOR: 14 Q. Good afternoon, Ms. Perkins. 15 A. Hello. 16 Q. Thank you for taking the time out of your day to 17 join us today and offer your testimony. I just have a few 18 questions for you. 19 I know you stated in your testimony that you are a 20 small farm business, but I do ask all our dairy farmer 21 producers if they meet the definition of a Small Business 22 as defined by the Small Business Administration, which for 23 dairy farms is those making $3.75 million or less in gross 24 receipts on an annual whole farm basis. 25 Would your farm meet that? 26 A. Yes, we would be considered a Small Business. 27 Q. Thank you. 28 And your milk goes to Winchester. About how far 7431 1 is that from your farm? 2 A. A little over two hours. 3 Q. And I was wondering if you could talk a little bit 4 about the transportation costs to get it there. 5 Do you pay that cost? Have you seen those costs 6 change over recent years? And if so, in what direction? 7 A. That's not a question that I can answer today. My 8 father deals largely with that. That would be a better 9 question for him to answer that question. 10 Q. And the other question I had for you, there's been 11 discussion at the hearing about changing in milk component 12 levels over the past 20 years. 13 I was curious, do you happen to know what the 14 annual average component levels are in your milk? 15 A. I don't off the top of my head. Ours fluctuate 16 throughout the year depending on a lot of variables. But 17 we are paid on the components, and as you probably already 18 know, butterfat is sort of the key in that space, so other 19 solids and proteins are more important for some of our 20 non-fluid products like cheese. But I'm not a dairy 21 ingredient specialist. That would be a better question 22 for those that work at the co-op. 23 Q. Okay. 24 MS. TAYLOR: Thank you for your time today. I 25 appreciate it. 26 THE WITNESS: Thank you. 27 MS. BULGER: My name's Grace Bulger representing 28 MIG. 7432 1 Thank you so much, Ms. Perkins, for your time and 2 for your testimony. 3 Your Honor, I would like to offer Exhibit 324 into 4 admission. 5 THE COURT: Is there any objection to the 6 admission into evidence of Exhibit 324, also marked 7 Exhibit MIG-32? 8 There is none. Exhibit 324 is admitted into 9 evidence. 10 (Exhibit Number 324 was received into 11 evidence.) 12 THE COURT: And, Ms. Perkins, thank you so much 13 for taking the time to prepare the statement and to appear 14 before us today. We appreciate it. 15 Oh, good, I have your picture back. Thank you. 16 THE WITNESS: Thank you so much. I appreciate it. 17 MS. TAYLOR: Okay, Your Honor, our next producer, 18 we're going to give Mr. Daniels another try. Hopefully we 19 can get his camera working. So let's bring him on. And 20 he does not have a pre-submitted testimony. 21 THE WITNESS: The second time is a charm the way 22 it looks. 23 THE COURT: Oh, excellent. Mr. Daniels, my name 24 is Jill Clifton. I'm the Administrative Law Judge who is 25 presiding. I'd like you now to state and spell your name. 26 THE WITNESS: Good afternoon. My name is Dave 27 Daniels, D-A-V-E, D-A-N-I-E-L-S. 28 THE COURT: Thank you. 7433 1 Have you testified previously in this hearing? 2 THE WITNESS: I have not. 3 THE COURT: I'd like to swear you in. Would you 4 raise your right hand, please. 5 DAVE DANIELS, 6 Being first duly sworn, was examined and 7 testified as follows: 8 THE COURT: Thank you. Please start with your 9 business address. 10 THE WITNESS: Business address is 22811 18th 11 Street, Union Grove, Wisconsin, the zip code is 53182. 12 THE COURT: Thank you. 13 You may proceed with your testimony. 14 THE WITNESS: Again, good afternoon. My name is 15 Dave Daniels, and I am a member of Wisconsin Farm Bureau. 16 Along with my business partners, I run Mighty Grand Dairy. 17 We milk about 575 cows in Southeastern Wisconsin. 18 First I want to thank USDA for agreeing to hearing 19 these proposals on Federal Milk Marketing Order reform. 20 These changes are long overdue. Midwest dairy farmers are 21 in need of urgent reform, and the proposals supported by 22 American Farm Bureau will go a long way to restoring 23 balance to a system that has moved away from 24 sustainability supporting producers. 25 I have a deep-rooted connection to the dairy 26 industry. My grandfather originally purchased our farm in 27 1933, with my parents taking over in 1956. I farmed with 28 my dad starting in 1977, which makes me the third 7434 1 generation. 2 Dairy farmers throughout the state who work 3 tirelessly day in and day out, not only -- not only 4 provide us with fresh and nutritious dairy products but 5 also stimulate economic growth in our local economy. Our 6 farmers create jobs, support local businesses, and 7 generate tax revenue that funds essential community 8 services. When dairy farming thrives, so does our 9 communities. 10 However, it is evident that our dairy farmers face 11 numerous challenges, including fluctuating milk prices, 12 rising operational costs, and unpredictable market 13 conditions, which compromise risk management tools 14 available to them. These challenges not only affect the 15 livelihoods of our farmers, but also have a ripple effect 16 through our local community. 17 I strongly believe that fair and stable milk 18 pricing mechanisms and milk check transparencies are 19 essential to ensure the sustainability of our local dairy 20 industry. It is imperative that the Federal Milk 21 Marketing Order takes into account the unique 22 circumstances of local economies and ensures that dairy 23 farmers receive fair compensation for their hard work and 24 dedication. Wisconsin Farm Bureau and American Farm 25 Bureau are supporting several changes that could 26 positively impact dairy farmers. 27 Wisconsin Farm Bureau is proud to support the 28 following provisions, Federal Milk Marketing Order reform 7435 1 for Federal Order 30: Reform the dairy pricing formula 2 back to the higher-of as of opposed to the average-of. 3 The changes made during the 2018 Farm Bill at the 4 request of stakeholders, the Class I mover based on the 5 average of Class III or IV has had terrible impacts on 6 dairy farmers and dairy markets. Changes in the market 7 could lead to similar price misalignments between Class I 8 and Class IV in the near future as cheese-making capacity 9 grows and cheese prices fall. This change is being 10 supported by the American Farm Bureau. 11 We need to reduce economic incentives for 12 depooling. Depooling has had several negative effects for 13 farmers. Handlers of Class II, III, and IV can depool; 14 Class I handlers cannot. In some cases the manufacturer 15 doesn't pay into the pool and keeps the money, taking 16 money out the pockets of dairy farmers. Even when 17 manufacturers do pay the full class price value to their 18 depooled farmers, that creates winners and losers. Some 19 farmers get more, and some get less, which defeat the 20 purpose of the Federal Milk Marketing Orders to assure 21 farmers in a market get roughly the same price for their 22 milk, regardless of what it's used for. 23 Depooling also introduces uncertainty into dairy 24 farming. Farmers who have their milk under contract with 25 processors that frequently depool are at risk of 26 experiencing sudden and severe price fluctuations, making 27 it challenging to plan for the future. Dairy farmers that 28 use risk management tools on their own also saw the effect 7436 1 of depooling when the negative PPDs took away the margins 2 that they planned for. The practice of depooling can also 3 exasperate consolidation pressures in the dairy industry. 4 Smaller and mid-size farms may be particularly vulnerable 5 as they lack the bargaining power of larger operations. 6 We need to address negative producer price 7 differentials. Over the past several years, negative PPDs 8 have emerged as a pressing issue within the Federal Milk 9 Marketing Orders system. Failure to address this problem 10 not only jeopardizes the livelihoods of dairy farmers, but 11 also threatens the long-term viability of the dairy 12 industry. 13 Negative PPDs and depooling create huge risks for 14 farmers who try to hedge on futures contracts. That is, 15 the relationship between futures settlement prices and 16 actual market blend prices is so volatile that it can 17 increase a farmer's risk rather than manage it. This 18 penalized farmers for trying to do the right thing in 19 managing their risk, which I have stated before. 20 The 2018 Farm Bill switched from the higher-of to 21 the average-of plus $0.74, further exasperating these 22 disruptions and made milk checks more confusing. In 2020 23 alone, over $700 million was lost in the revenue pool, 24 partly due to the formula was switched, decreasing the 25 payments many farmers received, as well as manufacturer 26 depooling behavior. 27 On our own particular farm, that equated to a loss 28 of $1.05 a hundredweight, which impacted my margins. At 7437 1 first, this imbalance was linked to COVID-19 forces. 2 However, the losses in the pool value have continued 3 through 2023. As Class IV prices, or butter, prices have 4 become the driver of the dairy market, cumulative pool 5 losses have reached nearly $920 million since the formula 6 went into effect in May of 2019. 7 Eliminate advanced pricing of Class I milk and 8 Class II skim milk. Under the current Class I and 9 Class II pricing formulas, weighted average dairy product 10 prices from the first two weeks of one month are used to 11 calculate advanced prices used to price Class I and 12 Class II products for the following month. 13 This arrangement creates a long lag between when 14 the advanced prices and current prices as announced for 15 that same month. That means that the advanced prices can 16 be based on weekly data that is 25 to 40 days older on 17 average than the basis for the current price. This means 18 when market prices rally, current prices can be much 19 higher than advanced prices, leading to low and negative 20 PPDs. This creates an opportunity to depool milk from the 21 order to benefit from the non-pooled value of the recently 22 elevated prices, without sharing that value with the pool, 23 and further depress the PPD. This is something that 24 happened in 2020 which really exasperated the negative 25 PPDs. 26 By removing advanced pricing, all commodity prices 27 would be announced during the same month using the same 28 data, removing any lag time within the pricing system. 7438 1 Combining this adjustment with a switch back to the 2 higher-of Class I mover would further reduce price spreads 3 that contribute to a higher probably of handlers depooling 4 from the marketplace. 5 Elimination of advanced pricing would not be 6 expected to have a substantial impact on the average 7 Class I or overall producer prices, but it would increase 8 average uniform prices in the Federal Milk Marketing 9 Orders because, periodically, high manufacturing milk 10 values would not be removed through depooling. 11 During 2020, avoiding depooling would have 12 retained billions of dollars in the Federal Milk Marketing 13 Order pools, helping better maintain uniform prices among 14 producers, rather than large differences between pooled 15 and depooled milk values. 16 Going back to our farm we lost $1.05 per 17 hundredweight, but some farms bore the total brunt of the 18 negative PPDs, and those added up to $1.79 per 19 hundredweight. This is why we are saying that some are 20 winners and some are losers. 21 The changes were -- when made -- during the 20- -- 22 no, wait, next page. 23 Failure to address these problems not only 24 jeopardizes the livelihoods of dairy farmers, but also 25 threatens the long-term viability of the dairy industry. 26 I urge USDA to work collaboratively to find solutions that 27 ensure fair compensation for dairy producers, transparency 28 for farmers' milk checks, and the continued availability 7439 1 of high-quality dairy products for consumers. By 2 supporting fair pricing and the overall wellbeing of our 3 local dairy industry, we can promote economic resilience 4 and job security in our community. 5 It is my hope that USDA will carefully consider 6 the local economic impact when making formula changes 7 moving forward. 8 Thank you. And I'll receive any questions if 9 needed. 10 THE COURT: Thank you, Mr. Daniels. That is 11 excellent, solid information that you provided. I'm 12 certain there will be questions. 13 CROSS-EXAMINATION 14 BY DR. CRYAN: 15 Q. Hello, Mr. Daniels. I'm Roger Cryan with the 16 American Farm Bureau Federation. It's nice to see you 17 again, and thank you for your testimony. 18 A. You're welcome. 19 Q. You stated clearly you're a member of the Farm 20 Bureau. I thank you for that. 21 I also understand you attended our Federal Order 22 forum last October to consider these issues. 23 A. Yes, in Kansas City. 24 Q. With a wide range of folks from all kinds of 25 organizations, including processors and co-ops, and a lot 26 of farmers. 27 What -- what were your takeaways from that? 28 A. The takeaways that I took home with that is that 7440 1 we did meet and we tried to get together to find 2 commonality, not only within producers but also within the 3 co-ops and the structure of the processors that were 4 there. And I thought we had some very good and unique 5 things that we wanted to bring back to try to change the 6 Federal Milk Marketing Orders and basically bring them up 7 to date, as I would say. 8 Q. Which is -- which is the primary purpose of this 9 proceeding is to bring things up to date. 10 Was there a clear consensus on returning to the 11 higher-of? 12 A. I think there was a clear consensus, not only from 13 producers but also processors, that that should be done. 14 Q. And was there also a clear consensus that any 15 Make Allowance changes should be based on audited 16 mandatory survey data? 17 A. That's my premonition is that we -- we need to 18 have those mandatory numbers involved. There was a study 19 by Mark Stephenson from the University of Wisconsin 20 Madison that used voluntary numbers, but I think he was 21 only using like 30% of the manufacturers that were out 22 there. So it was my opinion as a producer that we should 23 have those mandatory numbers, along with the mandatory 24 numbers that are -- are brought forward on production and 25 stuff like that for the processors. 26 Q. Is there anything else you would like to add 27 about, for example, the maybe proportional impacts of you 28 and your neighbors from depooling? I mean, you talked 7441 1 about it a good bit, but was there anything else -- 2 anything else you wanted to add on that? 3 A. One of the things I see as a producer is that we 4 do need to have a trusting relationship with processors. 5 But in the same token, we need to trust them, and having 6 common and standard milk checks to the farmers would be 7 very, very helpful for us to know where those dollars are 8 coming from and stuff like that. 9 As we -- as we as a producer are out here, we 10 have -- we have little control of what our import -- what 11 our inputs are to a certain extent. But we can control on 12 how our cows and what they produce, and by using component 13 values we can increase the -- either the butterfat or the 14 protein, depending on what things are being paid for. So 15 we can increase our income that way. 16 So I think milk check transparency is -- would be 17 very much a benefit to farmers and dairy farmers and 18 producers. 19 Q. Fantastic. 20 Is there anything else you would like to say? 21 A. Not at this time. Thank you. 22 DR. CRYAN: Thank you very much for testifying. I 23 appreciate your signing up early and logging in and 24 getting through your technical difficulties. Thank you. 25 Thank you all. 26 THE COURT: Are there other questions before I 27 turn to the Agricultural Marketing Service for their 28 questions? 7442 1 No. So I do turn to the Agricultural Marketing 2 Service. 3 MS. TAYLOR: Thank you, Your Honor. 4 CROSS-EXAMINATION 5 BY MS. TAYLOR: 6 Q. Good afternoon, Mr. Daniels. 7 A. Good afternoon. 8 Q. Thank you for taking time out of your day to 9 testify today. I have a few questions. I'm not sure if 10 you heard my question of the previous witness on whether 11 they met the Small Business definition. I was wondering 12 if your farm meets that definition, and I can repeat it if 13 you need me to. 14 A. No. Our entity would have more than -- I think 15 you had -- what's, again, the -- 16 Q. $3.75 million or less in gross receipts. 17 A. 3.7 million? Well, there are some years that we 18 are over that, but most years we're pretty close to being 19 under that. 20 Q. Okay. Thank you. 21 And you're in Southeast Wisconsin. Do you know 22 where your milk goes to be processed? 23 A. Yes. It's purchased by a cheese company, and it 24 either goes to Brownsville, Wisconsin, or Juneau, 25 Wisconsin. 26 Q. And how far are those locations from your farm? 27 A. They are pretty close to about 100 miles away, so 28 about an hour and a half. 7443 1 Q. And can you talk a little bit about how you have 2 been impacted by changes in transportation costs of recent 3 years? There's been testimony to that effect previously 4 by other farmers, so I would like to get your take on 5 that. 6 A. We had the opportunity to have our own trucking 7 business for a little while. And so when we just decided 8 to discontinue that, we put our -- our transportation 9 costs out for bid, and we have seen that rise up maybe 10 less than 10% at this point. But we were paying for 11 pretty much all of our trucking costs all the time, unlike 12 other farms in the area that may have been subsidized in 13 the past. But now are taking the total brunt of that 14 transportation cost. 15 Q. And am I correct then to -- I will ask if you are 16 a cooperative member or a direct ship -- an independent 17 producer? 18 A. We do have to be a member of a cooperative in 19 order for the cooperative to check on the testing 20 procedures of the private cheese company. So we're a 21 member of Edge Cooperative. 22 Q. Okay. Thank you. 23 And I want to make sure we're clear, since I 24 don't -- we don't have a written statement in the -- in 25 the record. But you're supporting, specifically of the 26 proposals in front of us today, the higher-of proposal? 27 A. That is correct. 28 Q. And the proposal that would eliminate advanced 7444 1 pricing? 2 A. Yes, that is correct, also. 3 Q. Okay. 4 A. Because the lag time that is -- that is developed 5 because of that advanced pricing. 6 Q. And I also took from your testimony that you 7 support just generally changes that would reduce depooling 8 incentives? 9 A. That is correct, also. 10 Q. Okay. My last question is about risk management. 11 Curious if you use any risk management tools, and if so, 12 what they are? 13 A. Yes, we signed up when the DMC program came into 14 play in 2018. We signed up for the five years. So this 15 is the fifth year, and in 2024 that will have to be 16 revisited. 17 We also do the DRP insurance. We have used that 18 pretty much for -- since it's been -- inception. And we 19 feel that's -- that really is a good way of putting a base 20 underneath our milk production -- what would be for our 21 milk production. 22 Q. And when you use DRP, on average, how far out do 23 you lock in a contract? 24 A. On the average, it's probably six to nine months 25 at the most. 26 Q. Okay. Thank you. 27 MS. TAYLOR: I think that's all the questions from 28 AMS. 7445 1 THE COURT: Is there anything in addition, 2 Mr. Daniels, that you would like to say before we thank 3 you and move to our next farmer witness? 4 THE WITNESS: Again, I appreciate USDA taking up 5 these hearings. I know there are several proposals, more 6 than I think close to 17 different proposals. But I -- as 7 a producer, we do need to update these, and I appreciate 8 the value that is being done here in the last few weeks. 9 THE COURT: Thank you. I, too, as a presiding 10 officer, am in awe of the work that's been going on here 11 and the enormity of the task before the Secretary. And so 12 I particularly thank you for taking your time, and all of 13 those who have participated in any way, in acquainting the 14 Secretary with the different points of view from all 15 around the country, all different types of activity. 16 THE WITNESS: Well, maybe we'll just have to do 17 this a lot more sooner than we did the last time. 18 THE COURT: Thank you so much. 19 THE WITNESS: You're welcome. 20 MS. TAYLOR: Okay, Your Honor, I believe the next 21 dairy producer in the line will be Johnny Painter, so we 22 will try and bring him to the screen. 23 He does have a statement, and we accidently didn't 24 print a lot of paper copies, but we do have enough so you 25 can have one and the record can have its copy. 26 For those in the room or listening online, it is 27 posted on the website, and it's posted as -- down towards 28 the bottom, there is a heading "Dairy Farmers," and it's 7446 1 Painter-DF. 2 And I do see Mr. Painter online, and we will 3 spotlight him so he shows up. There we go. 4 THE COURT: Good. I can see -- I'm Judge Clifton. 5 I can see you even though you cannot see those of us who 6 are in the room in Indiana. I'm looking at your written 7 testimony dated October 6, 2023, and I'm marking it as 8 Exhibit 325. 9 (Exhibit Number 325 was marked for 10 identification.) 11 THE WITNESS: Thank you. 12 THE COURT: And for those that don't have a 13 printed copy, you can find it as Painter-DF. 14 All right. Good. Please state and spell your 15 name for us. 16 THE WITNESS: John P. Painter, II, J-O-H-N, P, 17 P-A-I-N-T-E-R, Roman numeral II. 18 THE COURT: Have you previously testified in this 19 hearing? 20 THE WITNESS: I have not. 21 THE COURT: I'd like to swear you in. Would you 22 raise your right hand, please. 23 JOHN P. PAINTER, II, 24 Being first duly sworn, was examined and 25 testified as follows: 26 THE COURT: Thank you. Now, some people like to 27 read their statement verbatim and then make comments. 28 Some people like to begin to read the statement, and as 7447 1 you are prompted to explain further as you go along. Both 2 those are perfectly fine. You may proceed however you 3 wish. 4 THE WITNESS: Okay. I'm going to give my whole 5 written statement, and then I'll take questions at the 6 end. 7 THE COURT: Excellent. 8 THE WITNESS: First of all, let me start off by 9 thanking USDA for holding this long overdue hearing to 10 update our Federal Milk Marketing Orders. My name is 11 Johnny Painter. I operate Painterland Farms, a 400-head 12 organic dairy and 5,000-acre crop farm in partnership with 13 my two brothers in Tioga County, Pennsylvania. 14 Our milk is processed by Organic Valley. You may 15 have heard of our operation through my nieces' famous 16 yogurt business, Painterland Sisters. 17 I will be transparent before I -- before I begin 18 my testimony, that I understand some of my testimony will 19 contradict with my cooperative's asks, but I'm here today 20 representing Pennsylvania Farm Bureau members. 21 I currently serve on PFB's Board of Directors and 22 am the dairy and farm policy committee chairman. 23 MR. HILL: Mr. Painter? 24 THE WITNESS: Yes. 25 MR. HILL: This is Brian Hill from USDA. We need 26 you to slow down just a bit for the court reporter, 27 please. Thank you. 28 THE WITNESS: Okay. Okay. Thank you. 7448 1 I currently serve on Pennsylvania Farm Bureau's 2 Board of Directors and am the dairy and farm policy 3 committee chairman. I offer these remarks on behalf of 4 Pennsylvania Farm Bureau and our over 28,000 members who 5 primarily are small- to mid-sized family farms. 6 To provide some background on the Pennsylvania 7 dairy industry, we have roughly 5,000 dairy farmers which 8 produce nearly 10 billion pounds of milk annually. 9 I would like to start off this testimony by 10 recognizing the importance of this hearing. The last time 11 our industry saw a comprehensive revision was in 2000. 12 Clearly, the economy has changed over the past two 13 decades. Farm Bureau is concerned about the large 14 imbalances in the pricing and pooling of milk which have 15 recently cost dairy farms hundreds of millions of dollars. 16 COVID-19 caused unprecedented vitality (sic) in 17 milk markets and highlighted the urgent need for the 18 industry to consider ways to modernize the Federal Milk 19 Marketing Order system. 20 THE COURT: Let me have you read that sentence 21 again. When you said "vitality," I don't think that's 22 what you meant. 23 THE WITNESS: Volatility. Sorry about that. 24 THE COURT: Yes. What a difference, right? 25 THE WITNESS: A huge difference. Thank you for 26 the catch. 27 THE COURT: Just read that whole sentence again. 28 THE WITNESS: Farm Bureau is concerned over the 7449 1 large imbalances of pricing and pooling of milk which have 2 recently cost dairy farmers hundreds of millions of 3 dollars. COVID-19 caused unprecedented volatility in milk 4 markets and highlighted the urgent need for the industry 5 to consider ways to modernize the Federal Milk Marketing 6 Order. Let me be clear, though, Farm Bureau does not want 7 to recreate the system; rather modernizing will fix the 8 major problems without eliminating what is currently 9 working. 10 While there are multiple factors leading dairy 11 farmers to sell their herds, one of the main reasons is 12 pricing. In Pennsylvania, our milk pricing is twice as 13 complicated due to the Commonwealth's high over-order 14 premium, but the outdated FMMO system certainly do not 15 help. Unfortunately -- 16 THE COURT: Let me stop you again. 17 THE WITNESS: Okay. 18 THE COURT: For just a moment you slowed down as 19 Mr. Hill requested, and I know that it's nerve racking to 20 be testifying. And so just breathe and relax, and slow 21 down a bit more. 22 THE WITNESS: All right. Thank you. 23 Unfortunately, our state, like many others, is 24 experiencing a trend in declining licensed herds. In 25 2022, Pennsylvania averaged 468,000 cows, which is 6,000 26 cows less than in 2021. I can attest that farmers are 27 leaving the dairy industry, especially Class I producers, 28 simply because the money and labor is just not there. We 7450 1 have the chance to change that narrative by amending the 2 antiquated Federal Milk Marketing Order system to meet the 3 economic needs of our farmers. 4 Pennsylvania Farm Bureau supports National Milk 5 Producers Federation's Proposal 13, to return to the 6 higher-of Class I mover. 7 In the 2018 Farm Bill we changed the way Class I 8 milk is priced to be calculated using the simple average 9 of the Advanced Class III and IV skim milk prices plus 10 $0.74. While the intention of this change was good, it 11 logistically did not make more money for our farmers. 12 According to market tell -- Market Intel, published by 13 American Farm Bureau Federation in 2020, nearly 40% of the 14 time the spread between the Advanced Class III and 15 Class IV price was larger than $1.48. This is concerning 16 because dairy farmers would then have to swallow the cost 17 of a lower Class I milk price rather than receiving the 18 higher-of. 19 Pennsylvania Farm Bureau's dairy and farm policy 20 committee has had recent discussions on the number of 21 farmers expanding to other classes of milk to balance out 22 the profit loss usually seen with fluid milk. The current 23 pricing formula does not support an affluent Class I 24 market in addition to the decreasing trend of consumption 25 of fluid milk. USDA must act upon this upsetting trend, 26 listen to the stakeholders in the hearing, and return to 27 the higher-of Class I milk. 28 Second, we are supporting National Milk Producers 7451 1 Federation Proposal 19 to increase Class I differentials 2 in all locations. For Pennsylvania, the Class I 3 differential ranges from $2 to $3.50. The problem here is 4 supply and demand change frequently, so the differential 5 must adapt to reflect those changes within the market. It 6 simply is not fair for our farmers to get paid on fixed 7 prices and adjustments when milk supply and market demands 8 change daily. 9 We strongly encourage USDA to amend the Class I 10 differential to adapt to supply and demand needs so that 11 our farmers and processors have a more accurate and 12 balanced system. Moreover, I will reiterate Proposal 21 13 from AFBF that asks for the Class II differential to be 14 increased to $1.56. These updates and increases are a 15 result of our system not being able to adapt with economic 16 and consumer market changes over time. 17 PFB's fourth recommendation supports AFBF's 18 proposal to adjust yields and Make Allowance based on 19 mandatory and audited survey. As AFBF raised in their 20 proposal, we, too, understand the administrative costs 21 behind the survey, but it is a necessary step to ensuring 22 the price and value of milk is precise. 23 Make Allowances must be adjusted, and by using the 24 mandatory cost survey, USDA will determine the exact and 25 appropriate adjustment. There should be no Make Allowance 26 changes without a mandatory audited survey. Since there 27 is no such survey available, we oppose a Make Allowance 28 change. It is unfair for us as farmers to have more of 7452 1 the profits going to processors without the necessary 2 evidence. 3 Finally, I understand PFB's last request must be 4 enacted by Congress, but since it would impact the Federal 5 Milk Marketing Orders system, I would like to mention it. 6 During my time at PFB, the two biggest complaints I have 7 heard from farmers is about Class I milk pricing and bloc 8 voting. Farm Bureau believes that dairy farmers should 9 have an opportunity to directly vote on Federal Milk 10 Marketing Order order issues as they impact milk prices 11 and farm profitability. 12 Currently, only dairy farmers who are independent 13 and not members of a cooperative may cast individual 14 ballots. Cooperatives may allow their members to vote 15 independently, but then lose their ability to bloc vote on 16 behalf of their non-participating members. Modified bloc 17 voting would allow for co-op members to be able to vote 18 independently and confidentially, while allowing 19 cooperatives to cast ballots for farmers who choose not to 20 vote individually. 21 Again, I recognize this is not something that USDA 22 can adopt, but we would encourage any Congressional 23 offices listening today to bring about this much needed 24 legislative change to the system. 25 I appreciate USDA's time and consideration of 26 PFB's recommendations for the Federal Milk Marketing Order 27 system. It should be noted that any proposal I did not 28 explicitly mention in my testimony but has been proposed 7453 1 by AFBF we support as well. The recommendations I laid 2 out today were a result of what our staff hears the most 3 about from PFB's dairy farmers. 4 As I said in the beginning of my testimony, USDA 5 must act upon stakeholders' proposals in modernizing the 6 system in a timely manner for the sake of the future dairy 7 farmers. We must improve pricing formulas for all classes 8 of milk, but especially for Class I, as fluid milk is 9 supposed to be the most profitable, but the current system 10 does not allow for that to happen. Most importantly, 11 though, it is crucial for producers and processors to be 12 able to be at the table discussing how to best modernize 13 the system together. 14 Again, I thank USDA for your time. I'll be happy 15 to answer any questions. 16 THE COURT: Mr. Painter, I thank you. That's very 17 comprehensive. Very thorough. Very well thought through. 18 THE WITNESS: Thank you. 19 THE COURT: You're welcome. I should have asked 20 at the beginning your business address, please. 21 THE WITNESS: 571 Howland Hill Road, Westfield, 22 Pennsylvania 16950. 23 THE COURT: And how do you spell the name of that 24 road? 25 THE WITNESS: H-O-W-L-A-N-D, H-I-L-L. 26 THE COURT: Very fine. 27 We do have our first questioner at the podium. 28 THE WITNESS: Okay. 7454 1 CROSS-EXAMINATION 2 BY MR. ENGLISH: 3 Q. Good afternoon, Mr. Painter. My name is Chip 4 English. I represent the Milk Innovation Group. I know 5 you can't see me. Organic Valley is a member of the Milk 6 Innovation Group. 7 A. Good afternoon. 8 Q. Yes, good afternoon. 9 Sir, in your testimony you said you were a member 10 of Organic Valley and ship your milk -- your organic farm 11 milk with them? 12 A. That's correct. 13 Q. The organic milk co-op has made it known that they 14 have been challenged with large annual pooling obligations 15 with no perceived benefit. 16 Do you think organic milk is being fairly treated 17 within the orders? 18 A. Absolutely not. And the reason why I say that is 19 we have to pay that fee in, and Organic Valley and other 20 organic dairy companies have a supply management system. 21 And so we are controlling our own, so it's very unfair 22 that we have to pay in if we're not putting milk, spot 23 milk, into the -- into the market. 24 MR. ENGLISH: Thank you, sir. That's all I have. 25 I hope you have a greet day. There may be other 26 questions. 27 THE WITNESS: Thank you. 28 /// 7455 1 CROSS-EXAMINATION 2 BY MS. HANCOCK: 3 Q. Good afternoon, Mr. Painter. This is Nicole 4 Hancock with National Milk. 5 I just wanted to first start off by extending 6 National Milk's gratitude for supporting their proposal on 7 higher-of in the Class I differentials. We really 8 appreciate your support there. 9 A. You're welcome. 10 Q. I just had a couple of questions pertaining to 11 your quota system within Organic Valley. 12 Do you participate -- do you have a quota for the 13 milk that you deliver to Organic Valley? 14 A. We have a quota system or supply management 15 system, yes. 16 Q. Okay. And does that -- do you sell your milk to 17 Organic Valley under a fixed price agreement? 18 A. Well, we get component pricing, but we kind of 19 have base prices, yes. 20 Q. Okay. And then if you produce more milk than what 21 is allowed or accepted under the quota system, what 22 happens with that milk? 23 A. There is a penalty for that. For example, if my 24 quota is 500,000 pounds a month and I ship over that, they 25 take the milk, but there's a $20.00 a hundredweight 26 penalty for taking that milk. But the milk gets blended 27 with everybody else's, and Organic Valley has been pretty 28 fortunate under -- because of good management that we have 7456 1 98% utilization of our milk within the co-op. 2 Q. Okay. And then that other 2%, do you know where 3 that goes? 4 A. I'm guessing most -- I don't know exactly, but 5 some of it is line loss. I'm sure, you know, between the 6 bulk tank and it's getting processed and all that, you 7 know, so... 8 Q. Okay. And do you have any milk that ever makes it 9 into conventional milk fluid systems? 10 A. Not that I am aware of. None of it. 11 Q. Okay. All right. 12 MS. HANCOCK: Again, thank you for your time 13 today. I appreciate it. 14 THE WITNESS: You're welcome. Thank you. 15 THE COURT: Even though you cannot see us, it is 16 very fun for me to watch as people who are talking to you 17 look up at your screen here and -- 18 THE WITNESS: Thank you. 19 DR. CRYAN: In fact, I'm going to take a picture. 20 THE WITNESS: Awesome. 21 DR. CRYAN: So I can -- so I can send it to you 22 and other folks. I'll send it to you as well. 23 THE WITNESS: Thank you. 24 CROSS-EXAMINATION 25 BY DR. CRYAN: 26 Q. Mr. Painter, I'm Roger Cryan with the American 27 Farm Bureau Federation. It's nice to see you. 28 A. Nice to see you again, Roger. I met you a couple 7457 1 years ago in Hershey, I believe. 2 Q. Oh, very good. When I was with -- I don't know 3 when that was. 4 A. You were there in November explaining some milk 5 issues. 6 Q. Okay. Very good. I think I remember that. I 7 hope I remember that. 8 So you have established you are with the Farm 9 Bureau. I appreciate that. You are -- and you support 10 the Federal Order system on behalf of Farm Bureau. 11 You support the Federal Order system overall; is 12 that correct? 13 A. Absolutely. 14 Q. And you also support the increase in the Class II 15 differentials? 16 A. Uh-huh. Yes. 17 Q. And you support taking steps to -- taking steps 18 generally to eliminate and reduce negative PPDs in the 19 order pool? 20 A. Absolutely. That's been a huge issue in the 21 Northeast, probably everywhere. 22 Q. Can you talk about that? Talk about what an issue 23 the negative PPDs have been, both generally and with 24 respect to perhaps you and your neighbors and the impacts 25 that's had? 26 A. I can a little bit generally. Because we're 27 organic, we haven't seen that negative PPD on our milk 28 checks. But depending on where the milk goes and the 7458 1 price that I have seen neighbors that get differences in 2 milk check prices of -- there could be 2 or $3 spread, so 3 we need to come to some -- some formula that is simple and 4 fair and causes equality across the board I guess would be 5 the right word. 6 Q. Very good. I really do appreciate your 7 participation, and thank you very much. 8 A. You're welcome. 9 DR. CRYAN: And I'm done. Thank you. 10 THE COURT: Are there any other questions before I 11 turn to the Agricultural Marketing Service for its 12 questions? 13 There are none other, so I turn to the 14 Agricultural Marketing Service. 15 CROSS-EXAMINATION 16 BY MR. WILSON: 17 Q. Good afternoon, Mr. Painter. 18 A. Good afternoon. 19 Q. This is Todd Wilson. I'm with the Agricultural 20 Marketing Service, and I've got a couple of questions. 21 Have you heard Ms. Taylor question previous 22 witnesses about if they meet the Small Business? 23 A. Unfortunately, I'm under 3.75 million. 24 Q. Thank you. 25 Also, we have asked other producers for the past 26 several, many days maybe, about their usage of risk 27 management tools, and wanted to know if you utilize any 28 such. 7459 1 A. I do. And I haven't -- I have used the Dairy 2 Revenue Protection insurance at different times, and I 3 have -- it's kind of been a wash for me. I guess I'm a 4 firm believer in those programs that you have to be in, 5 it's kind of like college education, if you paid a little 6 something for it, you understand it better. So I've used 7 that. I am signed up for the dairy market loss coverage. 8 And then part of our risk, being in the supply management, 9 is you try to manage your milk so you don't go over your 10 production, and then you can also manage for your 11 components and stuff. 12 Q. Thank you for that answer. 13 Also, on the DRP, how far out do you look to lock 14 in any prices? 15 A. Most of them have been in the six to nine months. 16 Q. Okay. Thank you very much. 17 A. You're welcome. 18 Q. In your testimony, I know we have talked a lot 19 about Class I and PPDs and different things. You 20 mentioned at the top of page 2 something about Class I 21 producers, and I just wanted to understand more of what 22 you -- what does that mean to you. As I read the 23 sentence: "I can attest that farmers are leaving the 24 dairy industry, especially Class I producers, simply 25 because the money and labor just is not there." 26 A. Well, I think Class I kind of meant Grade A, but 27 then in Pennsylvania, I went on to say about our 28 over-order pricing system. And some of that has to do -- 7460 1 we were in a time of couple years ago where the lower -- 2 the other classes paid more than the fluid class was 3 paying, so people were looking for ways to change their 4 market, where we ought to be looking for everybody to get 5 paid a fair price across the board and have some kind of 6 uniformity to it. 7 MR. WILSON: Okay. Thank you, Mr. Painter. 8 That's all I have. And I just want to thank you for the 9 time that you took out today to, be here with us. 10 THE WITNESS: You're welcome. My pleasure. 11 THE COURT: Mr. Painter, is there anything else 12 you would like to add before we thank you and turn to our 13 next producer witness? 14 THE WITNESS: Thank you very much. I'm sorry you 15 had to stop me, slow me down a couple of times, but it was 16 a privilege to be able to participate, so thank you. 17 THE COURT: Thank you. 18 Let's take a five-minute break before we go on to 19 our next farmer witness. You'll have room to stretch a 20 little bit. Don't go too far, but you are welcome to 21 leave the room if you'd like. 22 (Whereupon, a break was taken.) 23 THE COURT: We're back on record. It is 2:17. 24 I have an image on my screen. I'm Judge Jill 25 Clifton. Pleased to see you. 26 Would you state and spell your name for us. 27 THE WITNESS: My name is Martin Hallock, 28 M-A-R-T-I-N, H-A-L-L-O-C-K. 7461 1 THE COURT: Mr. Hallock, I have here at my 2 fingertips a written statement, and I'm going to mark that 3 as Exhibit Number 326. 4 (Exhibit Number 326 was marked for 5 identification.) 6 THE COURT: And at the right-hand top of that 7 statement there's also a designation that it is Exhibit 8 NMPF-66. I'd like to swear you in unless you have 9 previously testified in this proceeding. 10 THE WITNESS: No, I have not. 11 THE COURT: All right. Please raise your right 12 hand. 13 MARTIN HALLOCK, 14 Being first duly sworn, was examined and 15 testified as follows: 16 THE COURT: Thank you. 17 DIRECT EXAMINATION 18 BY MR. PROWANT: 19 Q. Good afternoon. Bradley Prowant on behalf of 20 National Milk. 21 Mr. Hallock, could you please provide your 22 business address for the record. 23 A. Yeah. It's W962 County Road NN, like Nancy Nancy, 24 Mondovi, M-O-N-D-O-V-I, Wisconsin, 54755. 25 Q. And, Mr. Hallock, did you prepare Exhibit NMPF-66, 26 which has now been marked Hearing Exhibit 326? 27 A. Yes, I did. 28 Q. All right. And would you proceed with reading 7462 1 that. 2 A. Okay. 3 My name is Marty Hallock, and I'm a first 4 generation dairy farmer from Mondovi, Wisconsin. I milk 5 1100 cows with my wife and son as partners. Our farm name 6 is Mar-Bec Dairies. I have been farming for 33 years, 7 30 years as a member of the Ellsworth Cooperative 8 Creamery. I have attended River Falls -- UW River Falls, 9 received a Bachelor's degree in animal science, a minor 10 farm management and dairy emphasis. 11 I have been a member of the Ellsworth Cooperative 12 board for 16 years, serving as vice chair. I have served 13 on the Professional Dairy Producers Board -- 14 THE COURT: Mr. Hallock, I'm sorry, this is Judge 15 Clifton. 16 THE WITNESS: I'm sorry. 17 THE COURT: This is excellent, but I want you to 18 slow down your testimony. 19 THE WITNESS: I'm sorry about that. 20 THE COURT: Start with -- where I would really 21 like you to start is, "I have been a member of." 22 THE WITNESS: Okay. I have been a member of the 23 Ellsworth Cooperative Creamery board for 16 of those years 24 serving as vice chairman. I have served on the 25 Professional Dairy Producers of Wisconsin board, which is 26 a national program based in Wisconsin. I have served on 27 the Executive (sic) as Vice President for two of those two 28 years, and president as one. I have also sat on the Dairy 7463 1 Sustainability Council of Wisconsin for two years. I have 2 served on our local Gilmanton School Board for 19, ten as 3 president. I have also served on the CESA, Cooperative 4 Education Service Agency 10 Board, for ten years, 5 including three as president. 6 I am usually the numbers farmer on our board, and 7 recent departures of block and barrel has been -- the 8 barrel -- let me start over. 9 The recent departure of the block and barrel 10 pricing has had and continues to have a great impact on my 11 livelihood and for those of our member owners. I, as a 12 farmer, and as a farmer of the Ellsworth Cooperative 13 Creamery, are being harmed by this widening of the barrel 14 block split. This is detrimental to the members of the 15 Ellsworth Cooperative Creamery as we have a barrel plant. 16 It is within the power of the Federal Order system to make 17 it equitable and by providing order marketing. 18 I'm here to support National Milk's proposals in 19 total to amend and modernize Federal Milk Marketing Order 20 as it will provide a holistic approach to having all 21 farmers benefit from an equitable milk marketing order. 22 In particular, I am here to support the 23 elimination of barrels in the calculation Class III milk 24 prices. By eliminating the calculations, we have a better 25 ability as barrel manufacturers at Ellsworth Cooperative 26 Creamery to work with the industry to create a more fair 27 and equitable pricing system, whereas if it stays where it 28 is, we do not. 7464 1 Our income as a cooperative only has the potential 2 to increase with the elimination of barrels from the 3 calculations of our income derived from the sale of 4 products. In the worst case scenario, we will still get 5 the same income as barrels were included in the 6 calculation. We have the potential to gain more value in 7 pooling in the milk and the order system by including only 8 blocks in the calculation. 9 Far too long there's been freeloaders in the 10 system that have been using the barrel in the price of 11 Class III -- no, I'm going to start over. 12 Far too long there's been freeloaders in the 13 system that have been using barrels in the price of 14 Class III protein to subsidize their own operations. We 15 can no longer tolerate as individual cooperative members 16 or as a collective group. We need to stop having 17 freeloaders into the system and have an equitable system 18 where farmers are paid fairly so that we can continue to 19 have orderly marketing in the system. 20 As a member of the Ellsworth Cooperative Board of 21 Directors, we continue to look over ways to increase our 22 members' value, including a stopping of barrel productions 23 which we -- which would greatly make the problem for the 24 industry worse. Should the cooperative stop making barrel 25 cheese, there's no barrels in the Federal Milk Marketing 26 Order system to include in the calculations. 27 We're at a critical point in the Federal Milk 28 Marketing system that we need to fix the problem that had 7465 1 unintended consequences that include using barrels as 2 proxy for block cheese is one of those. My understanding 3 that fellow cooperative members are concerned about the 4 unknown of how to price barrel cheese and processed 5 cheese, but it's far better to work with the future where 6 you can designate and guide a more equitable future than 7 stay with the misery of the current system we have. 8 At present, using our cooperative's numbers of 9 $0.95 for barrels and blocks differential from historical 10 values, my farm has lost $1.9 million since 2017, or about 11 $0.95 had barrels been properly priced to proxy for block 12 cheese. See Table 1. 13 THE COURT: Let me stop you. I just want you to 14 read that again, and when you give the price, just add 15 "per hundredweight," if you will. So just read that 16 sentence again, but make sure that we know what that $0.95 17 is about. 18 THE WITNESS: Okay. At present, using our 19 cooperative numbers of $0.95 per hundredweight for block 20 and barrel differentials -- difference from historical 21 values, my farm has lost $1.9 million since 2017, or about 22 $0.95 per hundredweight had barrels have been properly 23 priced proxy to block cheese. 24 So what I'm saying here -- this isn't on the 25 script -- but what I'm saying is the barrel-block spread 26 would have continued at $0.03 -- $0.03 to $0.04 was 27 historical. That's the difference that some of these ups 28 and downs have cost us. 7466 1 We need to view all of the proposals in National 2 Milk in its entirety so that equitability to all members 3 that pool their milk and not pick and choose winners and 4 losers, or as the unintended consequences of change in the 5 market since 2017 have made losers out of barrel 6 producers. 7 THE COURT: Now, your Table 1 comes next, and it's 8 hard to read into the record a table, and I'm not going to 9 ask you to do that. But in general, describe for me what 10 this table signifies. 11 THE WITNESS: So what the table really signifies 12 is if you look on, it has the years. The second column is 13 the pounds of milk that our farm produced. And I would 14 note that 2023, it's only the first four months. When I 15 put this project together, it was quite a while ago to get 16 in here. I used a spread of what it would have been if it 17 was $0.03, what the variation is. And then the total 18 dollars are in the far right column, with the totals being 19 added up at the bottom. 20 THE COURT: Are you telling me that in the first 21 four months of 2023 the current pricing mechanism cost 22 your farm $460,509? 23 THE WITNESS: I would tell you that it cost my 24 farm and every farm that -- that's making a barrel plant, 25 it did. 26 When you have a discrepancy of $0.45, when it 27 should have been -- historical means would be 3 to 4, I 28 used 3 in my calculations here, you know, that's -- that's 7467 1 real money, you know. And that's not just -- that's not 2 just a little bit, that's -- you will see -- you will see 3 less barrels if this continues, because farmers can't 4 continue to make barrel cheese and get paid that much 5 less. 6 I have been dairy farming since I graduated from 7 college, and I have never seen -- up until 2017, there was 8 not much fluctuation. Since then, you can see 30, $0.40 9 in a heartbeat. 10 You know, if you look at it, in '22, believe it or 11 not, we were actually higher. Barrels were actually 12 higher than blocks. So that's why there's a positive 13 29,643 in 2022. 14 THE COURT: And that was the only year in your 15 table where you were advantaged, all the others are 16 disadvantaged? 17 THE WITNESS: Correct. 18 THE COURT: And you may continue to read the end 19 of your statement. 20 THE WITNESS: I just want to thank the USDA for 21 taking time to listen to farmers and their concerns. I'm 22 sure they are quite aware that there's a lot of pressure 23 on farms to be profitable as we try to continue to grow 24 and deliver the best quality of milk in the world. 25 THE COURT: Your statement is a cry for help and, 26 nevertheless, inspiring. 27 THE WITNESS: Thank you. 28 THE COURT: I thank you. 7468 1 And now you invited the opportunity to be 2 questioned, and we will allow that to occur. 3 MR. PROWANT: Your Honor, I don't have any more 4 questions for Mr. Hallock. He's available for 5 cross-examination. 6 THE COURT: All right. Thank you. 7 And if you will just sit tight, Mr. Hallock, 8 people have to come up to the podium here in Indiana 9 before they speak into the microphone to ask you 10 questions. 11 THE WITNESS: That's fine. 12 CROSS-EXAMINATION 13 BY DR. CRYAN: 14 Q. Good afternoon, Mr. Hallock. My name is Roger 15 Cryan. I'm here with the American Farm Bureau Federation. 16 I'm impressed with the extent of your involvement 17 with your local community and farm organization. 18 It's my understanding you are also a member of 19 Farm Bureau; is that correct? 20 A. I am. 21 Q. You serve as a delegate and voting member? 22 A. Yeah. I'm on -- I'm going to leave the community 23 in a better place when I'm gone, so I'm -- I know that's 24 our goal. 25 Q. That's a -- that's a common thread with farmers. 26 I appreciate that. And I appreciate your being here to 27 testify. 28 Could you elaborate on the kind of impacts that 7469 1 negative PPDs and depooling have had on you and your 2 neighbors? 3 A. Well, you know what, it just seems that -- 4 probably my number one problem is with this barrel-block 5 spread and some of these negative PPDs, is it directly 6 affects my cash flow, number one. 7 But probably the biggest problem that I have with 8 this whole barrel-block spread is -- first of all, I want 9 to commend for us getting -- farmers being able to carry 10 DMC coverage, LGM coverage, DRP coverage. Okay? That's 11 crucial in trying to make, you know, somewhat of a stable 12 income. Okay? 13 But the problem is, is when I can't lock in that 14 barrel-block spread, there's nowhere in the formula that I 15 can say, if I contract milk at $18 -- I'm going to use 16 that as an example, and you pick whatever number you 17 want -- if I make a contract $18, but the barrel-block 18 spread happens to be $0.20, that's going to cost me $2 19 under our where I contracted. So I didn't really 20 contract -- my contract says $18, but my plant says $16, 21 and I -- there's no way I can buy that insurance or get 22 that coverage on that barrel-block spread. 23 I think as the cheese buyers have to come back and 24 say, we're going to use one in the formula and, you know, 25 if you are producing barrels, we'll have to have whatever 26 that Make Allowance or not -- I wouldn't say 27 Make Allowance -- whatever premium we set between the two 28 of us, if it's a minus $0.03 or if it's a minus $0.04, 7470 1 maybe it's a minus $0.08, but at least it's locked. 2 This variation of being higher or lower, you know, 3 it -- I can't contract and sleep good at night to know 4 that I'm protected. 5 Do you understand what I'm trying to say? Because 6 I -- 7 Q. I do. 8 A. -- I don't know how to explain it. 9 Q. There's one other thing I guess I would like you 10 to explain for the benefit of the folks who are going to 11 be making the decisions here. 12 When you shared the losses you have because of the 13 block barrel spread, that's because -- because your co-op 14 is dependent on the value of barrels, correct? So when 15 there's a spread, you can't -- your co-op cannot capture 16 that value for you; is that right? 17 A. Correct. And, you know, it -- you know, for a 18 long time there was a $0.04 spread, or $0.03 to $0.04 19 spread between barrels and blocks, and now I don't know 20 what it will be tomorrow. It was almost even two months 21 ago, and now it's -- then it got up to $0.30, and now I 22 don't -- I didn't look at the market today, sorry. 23 But that -- that spread is -- is huge, because it 24 directly impacts me. You know, it's the old adage of ten 25 pounds of cheese per hundred pounds of milk is still true 26 pretty much today, and so when something is up or down 27 $0.20, that's $2 when you compare the pounds per 28 hundredweight. 7471 1 Q. And so you support -- you generally support taking 2 steps to eliminate or reduce the negative PPDs as well? 3 A. I do. 4 Q. And it's been the position of American Farm Bureau 5 and National Milk and IDFA that in the long run we would 6 like to see Make Allowances set based on mandatory audited 7 surveys of costs and yields. 8 Do you -- do you support that as well in the long 9 run? 10 A. I would have to -- me personally, I would. I'm 11 not going to be -- I don't want people to take this out of 12 context. I'm not speaking for the creamery or for the 13 board or anything of that, but myself, we got to get rid 14 of these negative PPDs and get some transparency in how 15 we're going to get paid. 16 Q. Very good. I appreciate that. 17 Is there anything else you would like to add? 18 A. I do appreciate that people are going through this 19 effort. And I know it's -- I mean, it is a momentous task 20 to take on, but we got to get this right. You know, it -- 21 you are better off to take time and do it and do it right 22 and get it fixed right. 23 I do think that reviewing it a little more often 24 than we have in the past, times are changing faster and 25 quicker in operations, and individuals are changing faster 26 and quicker, and maybe that's something we should keep in 27 mind going down the road. 28 Q. So you would suggest some of these hearings maybe 7472 1 should happen more often than every 23 years? 2 A. Well, you know, I'm just -- 23 years ago I was a 3 young man, so I'm just saying, you know, I'd like to see 4 it done before I die I guess is what I'm getting at. So, 5 you know, all kidding aside, you know, where else do you 6 go back and look at how people are paid or how things are 7 calculated every 20-some years? That's, you know -- yeah, 8 we're just in -- we're in a world where it's turning 9 faster. I think people have to be more willing to open up 10 and look at changes faster. 11 I mean, I'm sure glad I don't have my old cell 12 phone when it first came out. I think everybody else 13 would agree. I don't know, we've probably had ten 14 versions since then. 15 Q. Yeah. 16 A. So I'm not saying to do it that often, but I'm 17 just saying that, you know, farmers can't be looked at 18 as -- in a way -- and sometimes I think of everybody wants 19 to look back at that farm and remember generations from 20 past. They have to realize that the farmers of the future 21 are always going forward. They are always moving ahead. 22 They are always looking at new technical advances, new 23 challenges, be it environmental, be it regulatory, be it 24 pricing. 25 I think we have to get onboard with that guy, 26 because that's the guy that's farming today, not grandpa 27 that they remember on the farm. And I'm not -- by no 28 means am I criticizing the older gentleman or the farmer 7473 1 that stayed the same for the last 30, 40 years. But we 2 also have progressive farms out there that we have to look 3 after, too. 4 Q. I appreciate that. I thank you again for your 5 involvement in your community and your farmer 6 organizations, and I thank you for your testimony today. 7 DR. CRYAN: I'm finished. Thank you. 8 THE COURT: Mr. Hallock, I want you to pause for 9 just a moment. There will be others who will ask you 10 questions. 11 I would like to move your body so that I can see 12 that Mar-Bec logo. Yeah, and go -- there you go. Mar-Bec 13 Dairy, and you have the most gorgeous cow. That's 14 beautiful. And I thank you for that. 15 THE WITNESS: Well, that's -- that's Marty and 16 Becky, that's me and my wife, and we're first generation 17 farmers. And we've worked hard at it and had to be 18 aggressive. I didn't get here without a lot of help. And 19 I -- that's what I look forward to as -- you know, the 20 next generation has to have some transparency and some 21 help, especially in this pricing. We got to fix that 22 pricing so the guy knows what he's going to get paid so he 23 can do some budgeting. 24 You know, you look at the money that I lost or 25 made or whatever, when you look at that 1.9, you go, well, 26 I can see why I couldn't expand, I can see why this farmer 27 or that farmer could do what they did in their region. I 28 would just like some equality there. 7474 1 THE COURT: Who else has questions for 2 Mr. Hallock? 3 I'm going to turn to the Agricultural Marketing 4 Service for questions. 5 CROSS-EXAMINATION 6 BY MR. WILSON: 7 Q. Good afternoon, Mr. Hallock. 8 A. Good afternoon. 9 Q. Hi. I'm Todd Wilson. I'm with the Agricultural 10 Marketing Service. 11 I'd like to ask you a couple questions. We have 12 asked several producers in the past, or all producers in 13 the past, if they meet the Small Business Administration 14 definition of a Small Business. 15 Have you heard that question before? 16 A. Yeah. Only clarity is, my gross revenue is 17 greater than that, but mine by far is not even close to 18 that. 19 Does that question -- I -- I didn't quite hear all 20 the definition but -- 21 Q. Yes. The threshold is $3.75 million -- 22 A. Gross. 23 Q. -- gross. 24 A. Yeah. I'm over that. 25 Q. Okay. 26 A. I want to stress we. That's my son, my wife, and 27 myself. 28 Q. Yes. 7475 1 A. Okay. 2 Q. Thank you. 3 The other question I had, we have had a couple of 4 I think -- or at least one producer from Ellsworth as 5 well, and we asked him about their delivery of milk and 6 where their milk was delivered to and how far. 7 I was wondering if you might be able to speak to 8 your particular dairy and where it is delivered to? 9 A. So I'm located in Mondovi, Wisconsin. Ellsworth 10 has multiple plants, a couple of different plants. The 11 main plant is in Ellsworth. It's 57 miles from my 12 driveway to their doorstop. And if it went to Menominee, 13 it's actually a little closer. But Menominee is not a 14 full running and they don't need as much milk, so 15 sometimes the milk will go there, but mainly it goes to 16 Ellsworth. And if we go to Menominee, it's 46 miles or 17 something like that. 44, 46. 18 Q. Okay. So we have also asked other producers about 19 how they have seen the impact of different things 20 affecting your fuel or affecting your hauling costs. 21 Have you also experienced that? 22 A. Oh, yeah. Well, I'm fortunate -- well, fortunate 23 or unfortunate -- the farmer does pay for trucking one way 24 or the other, be it the co-op pays for it and takes it out 25 of base price or if they pay for it direct. And, yes, 26 there's been a direct correlation between, labor, fuel, 27 equipment, it's gone up. I mean, there's -- my guess is 28 in the last two years, probably 10%. 7476 1 I'd have to go back and look at the numbers, sir, 2 but off my head, you know, it's -- it's getting -- it's 3 just not a cheap deal. There's a shortage of truck 4 drivers around here, and unfortunately we have to haul 5 seven days a week. So I mean, you know, you start to add 6 in overtime or you start to add in weekend pay, it's not a 7 cheap deal. 8 Q. Right. The last question I have is on risk 9 management tools. Just wondering if you utilize any tools 10 in your dairy? 11 A. Yes, I do. We -- we are on a dairy margin 12 coverage up to the maximum amount. And then we do use -- 13 we have used DRP in the past. We now use, I would say in 14 the last couple years a lot more LGM, Livestock Gross 15 Margin program. And we typically are booking six to 16 eight months out -- or six to nine months out. Usually, 17 LGM, I'm almost always seven months out plus. About a 18 week or two ago, because I was worried about the 19 government shutdown, I did lock in May's milk of 24 20 already. 21 Q. Well, thank you very much. It's amazing how Zoom, 22 you can read my mind, because that was my next question. 23 A. Well, I listened to previous ones too, so that's 24 fine. 25 DR. CRYAN: Thank you, Mr. Hallock. Appreciate 26 your time here and taking time out today. 27 THE COURT: Mr. Hallock, I have a couple spelling 28 questions. 7477 1 The other place you sometimes ship, Menominee, how 2 do you spell that? 3 THE WITNESS: It's "me-no-money," so M-E -- 4 M-O-N -- I'd have to sit down and look at it. Menominee 5 is how they say it, but it's spelled like "me-no-money." 6 THE COURT: Me-no-money. That's great. So -- 7 THE WITNESS: That's how I remember it. I'm not a 8 perfect speller. I can quickly look it up if you need. 9 THE COURT: Okay. Yeah. So I think we can find 10 it based on that. 11 And then I didn't catch, when you told me the name 12 of the street for your business, I didn't quite get that 13 down. 14 THE WITNESS: W962 County Road NN, as in Nancy 15 Nancy. 16 THE COURT: County Road NN. 17 THE WITNESS: Yep. 18 THE COURT: Okay. Good. 19 MR. PROWANT: Thank you, Mr. Hallock. 20 Your Honor, we move for admission of Exhibit 326. 21 THE COURT: Is there any objection to the 22 admission into evidence of Exhibit 326? 23 There is none. Exhibit 326 is admitted into 24 evidence. 25 (Exhibit Number 326 was received into 26 evidence.) 27 MR. HILL: And while we are discussing that, Your 28 Honor, I think Exhibit 324, Ms. Perkins, I'm not sure that 7478 1 was admitted, and Exhibit 325 by Mr. Painter. 2 THE COURT: It doesn't hurt to admit them twice. 3 I admit into evidence Exhibit 324. 4 (Exhibit Number 324 was received into 5 evidence.) 6 THE COURT: I admit into evidence Exhibit 325. 7 (Exhibit Number 325 was received into 8 evidence.) 9 THE COURT: All right. Thank you so much, 10 Mr. Hallock, and we will now call producer number five of 11 this afternoon session. 12 MR. WILSON: Your Honor, number five is George 13 te Velde. And I might have pronounced that wrong. I 14 apologize, Mr. te Velde. 15 Maybe it's te Velde. Is that correct? 16 THE WITNESS: Yes. Can you hear me okay? 17 te Velde is the pronunciation. 18 MR. WILSON: Thank you, Mr. te Velde. Appreciate 19 you being here. 20 Your Honor. 21 THE COURT: All right. Now. Let me make sure I 22 can spell that. Your name was up a minute ago -- there it 23 is. It's the small T-E and then a capital V-E-L-D-E. 24 THE WITNESS: That's correct. 25 THE COURT: And it is pronounced te Velde? 26 THE WITNESS: te Velde, yes. It is a Dutch name. 27 THE COURT: Ah, it is Dutch. Wonderful. 28 And I'd like you now -- now that I have got it 7479 1 written down -- I want you to state and spell your name. 2 THE WITNESS: George te Velde, G-E-O-R-G-E, T-E, 3 V-E-L-D-E. 4 THE COURT: Have you previously testified in this 5 hearing? 6 THE WITNESS: No, I have not. 7 THE COURT: I'd like to swear you in. 8 GEORGE TE VELDE, 9 Being first duly sworn, was examined and 10 testified as follows: 11 THE COURT: Would you state for us your business 12 address? 13 THE WITNESS: Yes. It is 27815 Dodds Road, that's 14 D-O-D-D-S, in Escalon, spelled E-S-C-L-O-N -- I'm sorry, I 15 misspelled my hometown name -- it's E-S-C-A-L-O-N, 16 California, 95320. 17 THE COURT: You are speaking with the perfect 18 tempo. Thank you. 19 THE WITNESS: Thank you. 20 THE COURT: You may proceed. 21 THE WITNESS: Yes. I'm a third generation dairy 22 farmer in California, located in Escalon. Escalon is a 23 small town right about in the middle of the Central 24 Valley. I have been milking cows for 30 years, and for a 25 majority of that period of time I was a shipper to a 26 Class I plant in Modesto nearby. And we were of course 27 during most of that time operating under the California 28 Milk Marketing Order up until November of 2018. 7480 1 The California order had some different cooling 2 rules. Of course, we had a quota system attached to it, 3 which was very contentious, which some people, if you know 4 about it, it is a Byzantine problem, and it probably is 5 not going to be solved right away. 6 But that's not what I'm really speaking about. 7 My -- I left my Class I plant in 2020, and it had to do 8 with the fact that under the new Federal Order, Class I 9 plants were forever and always part of the pool. We were 10 always getting paid pool price. Other classes could pool 11 and depool and repool at will in the new Federal Order, it 12 seemed, which left me at the Class I plant with either the 13 pool price or a price lower than other dairymen who were 14 shipping to a plant that had depooled. So we were either 15 being paid the price everyone else is or something less. 16 And to me that was not an acceptable way to market 17 milk. I approached my creamery about this, but our 18 Federal Order Administrator in the area assured us that 19 there was really no way around this situation. So in 20 early 2020, this was actually before the pandemic hit, I 21 approached my creamery and told them that I intended to 22 leave because of this issue. 23 In the spring of that year the Class I plant that 24 I was still shipping to, they hadn't been accepted at 25 another creamery yet, eliminated some of their premiums, 26 their shipper premiums that they had. We called it the 27 Sweet R premium. It was a $0.20 premium just to keep us 28 there. 7481 1 And they also eliminated their quality program. 2 They did these, I think, in response to marketing shocks 3 that they were experiencing in their fluid milk sales, and 4 that really gave me no reason at all to stay with them. 5 So I put out applications at a couple of different 6 cheese -- a local cheese company and another cooperative 7 that's heavily involved in the Class IV market at the 8 time. 9 But then when the summer of 2020 rolled around, 10 the problems with the lax pooling rules in the Federal 11 Order really hit home. This was when the government got 12 into the business of buying lots of cheese for the COVID 13 lunchbox program, and it drove the price of Class III 14 milk -- of course we all know this -- up into the mid 20s, 15 meanwhile our pool price was hovering around 13, $14. 16 It -- it was a terrible time for those of us who 17 were still stuck being paid pool prices with that high 18 value cheese milk out of the pool. 19 It wasn't until June of 2021, where I was finally 20 able to leave the -- that Class I plant and am now 21 shipping to a predominantly Class IV plant. They have a 22 position in Class III, and of course, they are attached to 23 the pool through their Class I sales with the creamery I 24 used to ship with. 25 Since then I have seen my own price occasionally 26 go up when Class IV depools since it's such a heavily 27 Class IV position, and they do pay somewhat of a premium 28 for that. Of course, since it is a cooperative, they are 7482 1 not obligated to pay at all, and that's not really the 2 issue with the Federal Order. 3 But I'm retelling this story, I was asked to tell 4 this -- my -- this story of events surrounding my leaving 5 them because of the penalty that a dairyman in the Federal 6 Order is being subject to by being at a Class I plant, 7 always and forever being in the pool or being paid less 8 than other depooled dairies. 9 During that time of the vast difference in the two 10 classes, the Class III depooled in the summer of 2020, 11 there was a lot of finger pointing, there was a lot of bad 12 feelings among dairymen. Some were making gobs of money, 13 and some were going broke. And happily that situation 14 rectified itself. Of course, we all know there's quite a 15 bit of government payments that came back in the form of 16 COVID payments and all the rest of it, which was helpful. 17 But coming off of the California pooling rules, it 18 was really -- one of the things that really gave people 19 pause in California to vote to join the order was these 20 lax pooling rules. It was -- in California our program 21 before that was dairies individually would depool, and if 22 you wanted to do that, you would go Grade B, and then you 23 were ineligible for rejoining the pool for a year. 24 This -- the risk of doing that kept people in the 25 pool. It really maintained the integrity of the pool. 26 And what we have seen since then in the Federal Order, I 27 don't think there's been more than an accumulated six 28 months since we joined five years ago where all classes 7483 1 have been utilized in the pool. We're either all III is 2 out or all IV is out. Currently I imagine IV will be 3 pooled with the butter prices going up. 4 But this -- this inability to -- to predict what 5 is going to happen with pooling and depooling and 6 repooling, like the other panelists who have spoken today, 7 it makes hedging against that sort of thing almost 8 impossible. I participate in the DRP as well. I buy at 9 DRP policies according to class, Class III or Class IV, at 10 about 50% each going forward. But during those depooling 11 periods, I find myself way overhedged on one class and way 12 under on another, and therefore we're not really doing the 13 job that the DRP needs to be doing. 14 I didn't provide a written statement today. I 15 also would have to defer to some of the former panelists 16 today with their expertise on the Federal Order and the 17 nuances of it. I think they have some very good points to 18 be made. 19 But my contention is that I think that it would be 20 wise for the USDA to take a look at these pooling rules, 21 and tighten them up some way or another, whether it is 22 through a larger Class I mover to incentivize 23 participation in the pool or go toward more the old 24 California model where if the creamery depools, it stays 25 out for a long enough period of time that the risk is too 26 high to do it. 27 So that's all my testimony is. It's not a written 28 statement. It's just a retelling of the events 7484 1 surrounding my leaving of the Class I plant and the 2 reasons I did it. 3 THE COURT: Mr. te Velde, that is very dynamic 4 impact testimony. And it's fine that you don't have a 5 written statement. Your evidence is preserved in the 6 transcript. 7 I'm going to invite now anyone who has questions 8 for Mr. te Velde to come to the podium here in Indiana. 9 And although you cannot see us, Mr. te Velde, we 10 have a very good picture of you -- 11 THE WITNESS: Okay. 12 THE COURT: -- right up on the screen, and the 13 people who come to the podium are looking right at your 14 picture on the screen. 15 CROSS-EXAMINATION 16 BY DR. CRYAN: 17 Q. Hello. My name is Roger Cryan with the American 18 Farm Bureau Federation. Thank you for your testimony. 19 I understand -- are you a Farm Bureau member? 20 A. Yes, I am. 21 Q. I appreciate that. And I appreciate your -- you 22 know, your overview of the -- some of these impacts. 23 Are there any thoughts that you have on remedies 24 beyond what you have already shared? 25 A. Not really. I -- I have to admit, after five 26 years of being in the Federal Order, marketing milk under 27 it, I haven't spent a lot of time studying the ways that 28 it could be repaired or changed or improved. It's a gripe 7485 1 among a lot of California dairymen that we experience this 2 depooling problem, so much so that it -- like I -- for the 3 reasons I mentioned, it makes operating so much more 4 difficult. Anything that can be done to tighten those 5 rules up to keep people in the pool, to keep III and IV in 6 the pool, would go a long way toward stabilizing our milk 7 prices, and also to allow us to kind of budget and also to 8 do our hedging that we need to do. 9 I can't say I have any specific remedies that I 10 would recommend. 11 Q. That is -- that points in a direction of some, and 12 I appreciate that. Thank you. 13 DR. CRYAN: That's all I have. Thank you. 14 THE COURT: Are there other questions before I 15 turn to the Agricultural Marketing Service? 16 I now turn to the Agricultural Marketing Service. 17 CROSS-EXAMINATION 18 BY MR. WILSON: 19 Q. I think it's still morning out there, 20 Mr. te Velde; am I correct? 21 A. For four more minutes, that's right. 22 Q. Good morning. 23 A. Good morning. 24 Q. This is Todd Wilson. I'm with the Agricultural 25 Marketing Service. I would like to ask you a few 26 questions that we have asked all of our dairy farmers, and 27 we do appreciate you being here to take the time out of 28 your busy day and testify for us. So it is a good to have 7486 1 you here. 2 So we have asked dairy farmers about their -- if 3 they meet the Small Business Administration's threshold 4 for Small Business. 5 Have you heard that question or do you know what 6 that is for you? 7 A. Yes. My gross revenue is above the limit. 8 Q. Okay. Yes. Thank you then. Appreciate that. 9 Also, you mentioned about your -- you talk a lot 10 about your supply in the past and -- or your supplier in 11 the past. You also mentioned that you changed to 12 another -- another processor. 13 Can you tell me how far your milk travels to get 14 to that plant for processing? 15 A. It's roughly 30 miles from my dairy to the -- to 16 the processing plant that -- that is accepting my milk. 17 Q. So this maybe an apples-and-oranges comparison, 18 but looking back over maybe the past time period, how have 19 you seen your transportation costs affected? And if maybe 20 it's sometimes the difference in processor, if you can 21 kind of note that. But what's your transportation cost 22 been? 23 A. Yeah. Well, I have been with -- my new Class IV 24 plant that I'm with since June of 2021, in that period of 25 time alone in California, I mean, we have seen costs 26 increase 40, 50% for hauling. It is not just a marginal 27 amount. Fuel prices, labor costs are huge. Equipment 28 costs have really increased that too. 7487 1 So where before the -- let me back up a second. 2 The previous fluid plant that I was shipping to was maybe 3 ten miles closer. That ten miles doesn't really make much 4 of a difference. It has more to do with all these other 5 costs I was talking about. Since probably 2016, '17 -- 6 2016, '17, and '18, until now, like I said, it's probably 7 gone up 40 or 50% for the reasons that I have stated. And 8 that's -- like I said, with not -- with just a small 9 difference in distance. Our transportation costs out here 10 in California are completely out of control, and it is 11 going to get worse. 12 Q. I can understand. 13 Last question I have is on risk management. You 14 mentioned a little bit about that in your testimony. But 15 if you could, kind of give us a feel about what you use if 16 you use risk management tools. 17 A. Yes. I sign up for the DMC of course every year. 18 But DRP, I buy -- I've heard some of the previous 19 questions. I'm buying DRP policies four or five quarters 20 in the future if I can. That seems to be the sweet spot, 21 I think. Sometimes it's not offered beyond that. There's 22 not enough liquidity, especially in the Class IV side, to 23 really establish a price. A lot of those are delayed 24 until like a year out. 25 I have found occasionally, and we're not sure what 26 goes on in the black box formulation for some of these DRP 27 premiums, occasionally you will find a really good deal 28 four or five quarters in the future, and we'll grab some 7488 1 of those if we can. 2 I cover about any 80% of my milk production 3 through the DRP for Class III and IV. I separate those, 4 like I mentioned, evenly. 5 And then also on the feed side, I'm buying corn 6 calls and soybean calls according to the dairy ration 7 formulations that we have. So we're hedging actually both 8 sides of the equation, which is the -- in my opinion, the 9 proper way to do it. It -- it -- it works out fine. 10 Like I said, when we establish these DRP 11 positions, and we don't see depooling, but if that does 12 happen, it throws a monkey wrench into the formulas, into 13 the plan. 14 Q. Can you talk any about your unique situation about 15 your maybe possible changes in your -- in your risk 16 management strategy as it relates to the Federal Order, as 17 it relates maybe to the state order prior to 2018, as it 18 relates to different people you are selling your milk to. 19 How has your strategy changed over time? 20 A. Well, I mean, like I mentioned in my testimony, 21 the first risk that I wanted to assuage some is the 22 problem of being stuck in the pool all the time with -- at 23 a Class I plant, and shipping to the Class IV plant that I 24 do now does provide somewhat of a premium. Like being a 25 co-op, of course, they are not required to pay us 26 anything, but they do pass some of that along to us out of 27 the co-op's coffers for this Class IV depooling that takes 28 place occasionally. 7489 1 I have been hedging milk since 2009. Back then, 2 of course, it was all done with milk puts. I rarely did 3 any sort of forward contracting on milk through 4 commodity -- through the CME or anything like that. The 5 options are I think a better way to go. 6 But since the DRP came along with its subsidized 7 premiums, it is foolish not to engage in that in my 8 opinion if you are a dairyman. It is a way to -- to allay 9 risk rather cheaply. 10 When it comes to the Federal Milk Marketing Order 11 I think -- I'll just have to restate that it loses -- the 12 DRP loses some of its -- its impact because of this lax 13 pooling that takes place. We have had before where 14 when -- like I said, like a class depools, like in 2020 15 when Class III milk depooled, I found myself way 16 overhedged on Class IV, simply because that was my only 17 hedges I had. 18 So it would be -- it would be helpful I think 19 to -- for the operation of the DRP, especially, if there 20 was a way to keep milk inside the pool. And I mention as 21 one of the specifics -- and I don't know if this is a 22 proposal that's been brought up, but to have some sort of 23 a time limit for rejoining the pool, for any class that 24 decides to depool. It would be better to have them stay 25 in. 26 Q. Okay. Well, thank you, Mr. te Velde. I 27 appreciate your being here and testifying for us. Thank 28 you very much. 7490 1 A. Okay. Thank you. Thank you for the USDA for 2 going through this process. I am hearing that this hasn't 3 been done for 23 years. I hope that it's more often than 4 that. Our industry is changing so fast with the different 5 risk management tools we have, like we have talked about, 6 and -- and different stresses on markets around the 7 country. This is something that probably should take 8 place more often than that than every generation. 9 THE COURT: Well said, Mr. te Velde. That's a 10 frequently expressed sentiment here. Thank you so much. 11 THE WITNESS: Thank you. 12 THE COURT: We now move to our final producer 13 testimony for the day. 14 MR. WILSON: Yes, I think we have Mr. McAfee on. 15 THE COURT: All right. And I see Mr. McAfee's 16 face, and how I see his face. Great. Good. 17 MR. WILSON: If you might speak, Mr. McAfee, I 18 think you will activate our video. 19 THE WITNESS: Can you hear me now? 20 MR. WILSON: There we go. 21 THE COURT: Excellent. 22 THE WITNESS: Excellent. 23 THE COURT: Before I ask you your name I'm going 24 to write down what I see on the screen. What I see is, 25 M-A-R-K, last name M-C, A-F-E-E. So -- 26 THE WITNESS: That's correct. That's correct. 27 THE COURT: I'm now going to ask you, 28 Mr. McAfee -- I'm Judge Clifton, by the way. I'm going to 7491 1 ask you to state and spell your name. 2 THE WITNESS: My name is Mark, M-A-R-K, McAfee, 3 M-C-A-F-E-E. 4 MR. WILSON: Your Honor, I have just noticed -- 5 and we have been having some technical difficulties -- but 6 on our website we do have two documents that just now got 7 posted. They are named McAfee-DF1 and McAfee-DF2. And 8 believe DF1 is his written testimony, and DF2 is a 9 PowerPoint presentation he will be going through. I just 10 wanted to let everybody know that that is available now. 11 THE COURT: Excellent. 12 Mr. McAfee, before we keep going, would you just 13 hold up your DF1 to the screen a little bit just so we can 14 get a -- just a quick look. 15 THE WITNESS: Well, I have this presentation right 16 here, which is in written form that's been submitted via 17 e-mail. 18 THE COURT: Good. Thank you. I see it. And 19 then -- 20 THE WITNESS: And then there's a PowerPoint, which 21 I have running in the background right now. If I had 22 share screen, I could bring that up. 23 THE COURT: No need. No need. But that's good 24 that you also prepared a PowerPoint. And these will 25 become part of the record. Right now I'm going to give 26 them exhibit numbers so that we will not lose our place on 27 those. 28 McAfee-DF1 will be Exhibit 327, and McAfee-DF2 7492 1 will be Exhibit 328. 2 (Exhibit Numbers 327 and 328 were marked for 3 identification.) 4 THE COURT: Very good. 5 Have you previously testified in this hearing? 6 THE WITNESS: Not in this hearing. I did testify 7 a couple years at the FMMO meeting in Clovis, California. 8 THE COURT: Very fine. I was there. 9 Would you raise your right hand, then I'll swear 10 you in. 11 MARK McAFEE, 12 Being first duly sworn, was examined and 13 testified as follows: 14 THE COURT: Thank you. 15 You may proceed. 16 THE WITNESS: If I can get share screen to be able 17 to have my PowerPoint ready, that would be great. 18 Do you see it there? 19 THE COURT: Yes. Excellent. 20 THE WITNESS: Very good. 21 Okay. I thought I would bring some color to the 22 conversation. And I really, really thank you for the 23 opportunity to speak on behalf of all dairymen here in 24 California that I represent as the Vice President of the 25 California Dairy Campaign here in California, which is the 26 home of the growth management proposal that's been sitting 27 around for years and we've talked about for a long time. 28 I'm also a member -- 7493 1 MR. HILL: Mr. McAfee? 2 THE WITNESS: Yes. 3 MR. HILL: This is Brian Hill from the USDA. You 4 are going to need to have to slow down here, sir. We have 5 a court reporter who is taking down your words, and we're 6 not going to be able to get it if you don't slow down. 7 Thank you. 8 THE WITNESS: Absolutely. I will slow it way 9 down. 10 I'm also a member and sponsor of the International 11 Milk Genomics Consortium, which is funded partially by 12 dairy checkoff dollars here in California, which is a 13 fascinating place to go get science about milk and raw 14 milk and breast milk and camel's milk and every kind of 15 milk. 16 That said -- 17 THE COURT: Now, I'm going to stop you. I am able 18 to look at this slide, and I see the logo for that. And I 19 would just like you slowly to read that logo into the 20 record. 21 THE WITNESS: International Milk Genomics 22 Consortium. And that was founded 20 years ago by 23 Dr. Bruce German at UC Davis in California. 24 THE COURT: And would you spell his last name if 25 you can? 26 THE WITNESS: G-E-R-M-A-N, Dr. Bruce German. 27 THE COURT: And its logo has the letters IMG? 28 THE WITNESS: IMGC. 7494 1 THE COURT: IMGC. Good. 2 All right. Continue, please. 3 THE WITNESS: Okay. Clicking to the next slide 4 here. 5 This is kind of late breaking, but last evening I 6 was contacted by our friends at Farm Bureau from Wisconsin 7 and others, Dairy Together, which I participate in, and 8 they said they were having a very hard time getting 9 dairymen to testify. 10 So my hat is off to those dairymen who have 11 testified today. When they searched far and wide to get 12 more testimony to come forward from dairymen, they could 13 find none because of the fear of retaliation by 14 processors. 15 So it's very clear that dairymen are scared and 16 they live in the fear of processors and the loss of 17 contracts, which are very hard to come by nowadays. So I 18 think that's very important to say that. 19 I also would like to say that I strongly support, 20 strongly support, the testimony of Lynne McBride and 21 Joaquin Contente of the California Dairy Campaign, and 22 they have already testified. The technical research and 23 data is very, very good there, and I strongly support 24 that. And I don't want to go through their pages of 25 testimony and have it just be reiterated again. 26 But one of the key takeaways to their 27 presentations is that we must include mozzarella cheese in 28 the Class III formula, the price formula. Mozzarella 7495 1 cheese is now exceeding 4.49 billion pounds, far more than 2 cheddar cheese, which is sitting at 3.96 billion pounds in 3 the U.S.A., but yet it is not used in the class formula. 4 The moisture levels are much, much higher in mozzarella, 5 and that if it's added to the pricing formula, farmers 6 would be paid a much higher price point, and that's being 7 ignored and overlooked. And it's really, really 8 important. It would give several dollars per 9 hundredweight to the farmers because they are not being 10 paid currently under the price formulas under Class III. 11 Super important to get this included in any changes going 12 forward. 13 THE COURT: Would you, for the benefit of those 14 who are not looking at the slide, spell the names of those 15 two, people who have already testified? 16 THE WITNESS: Joaquin Contente, J-O-A-Q-U-I-N, 17 C-O-N-T-E-N-T-E, is the president of California Dairy, the 18 CDC. And also, Lynne McBride that would be, L-Y-N-N-E, 19 M-C-B-R-I-D-E. She's the director of California Dairy 20 Campaign. They have already testified. 21 THE COURT: Thank you so much. And now -- 22 THE WITNESS: As -- yes. 23 THE COURT: We're looking at your next slide. 24 THE WITNESS: As a member of the International 25 Milk Genomics Consortium and a sponsor to it, and as a 26 dairyman, a Fresno County dairyman, the milk research 27 points to high value for dairy products, very high value 28 for -- for dairy products. 7496 1 I just got back from Cork, Ireland, attending my 2 12th annual International Milk Genomics Consortium 3 meeting, and I'm the only farmer in the room. There's 4 nobody else there. And I'm surrounded by Ph.D.s with all 5 kinds of information, that processors are not -- 6 processors are not using in their development of new 7 products. 8 There's a total disconnect, or almost total 9 disconnect, between the research being performed on behalf 10 of farmers and being funded by some farmers' checkoff 11 dollars, especially if you are here in California, but yet 12 that research is not being used in the development of new 13 innovative products. This is a very important problem. 14 Consumers, the market research is very clear, it 15 became clear just last week at the California Milk 16 Advisory Board Processor's meeting: Less process, easy to 17 digest, delicious, gut friendly, immune system building 18 dairy products. They want to keep -- the consumers want 19 to keep the bioactives in milk and keep them bioactive. 20 In fact, that saying -- Dairy Council of 21 California's top trending thing was, you see this, it is, 22 "food is medicine," top trending thing. Processors are 23 not doing that. 24 Processors respond by saying, highly processed, 25 "shelf stable ESL products" that are hard to digest, 26 gut-inflammatory, allergenic, have added sugars, with 27 cartoons on them. That's the concept of how to push more 28 milk into this market. That's the response that 7497 1 processors have in the background of the research. 2 The science says, we need to make more 3 easy-to-digest, bioactive, less processed, or 4 alternatively processed, very important, delicious dairy 5 products that are gut friendly, build the gut microbiome, 6 which is home to 80% of the human immune system. 7 And I have three pictures down below here. They 8 admit that per capita consumption of milk is shrinking. 9 They want to find more customers by exporting. We have 10 350 million people in America that are hungry for products 11 if we made them properly. So they are really saying 12 export to China, export someplace else to find new 13 customers because the ones we have don't like our 14 products. 15 In fact, the right-hand side shows, put the 16 cartoon on the caricature where the ESL ultra-pasteurized 17 products -- not just pasteurized -- ultra-pasteurized 18 products. But with 90- and 120-day shelf lives -- 19 THE COURT: Let me stop you, Mr. McAfee. You are 20 going great. You are very enthusiastic. And the court 21 reporter is struggling to catch all your words. So back 22 up and just repeat what you just told me more slowly. 23 THE WITNESS: Sure. The per capita consumption of 24 milk is shrinking. That's an admission by the data from 25 the consumers and the processors. So they're seeking new 26 places to sell their milk instead of securing more 27 interest in the 340 million, 350 million people we have in 28 America today, by innovation and making products that 7498 1 consumer market research says we should be making. 2 THE COURT: That was almost more slowly. 3 THE WITNESS: Oh, boy, I'll have to slow to way 4 down. 5 THE COURT: Yes. 6 THE WITNESS: The ESL or extended shelf life milk 7 opportunity is kind of being relied upon by processors who 8 can't sell more product in America and are being suggested 9 to perhaps go to China or some other place. 10 I'm not against export. What I'm against is 11 failure to innovate to provide products that will be 12 welcomed by customers at home. 13 The right-hand bottom corner shows cartoon 14 characters being added to ultra-high temperature processed 15 dairy products for children. And that is exactly the 16 opposite direction this science says, and consumers say, 17 we are supposed to go. 18 Science has the answers. We have invested greatly 19 in this science. But the processors don't listen, and 20 they are not innovating. 21 And I don't blame them solely. The FDA and the 22 NCIMS, the National Conference of Interstate Milk 23 Shippers, has blocked innovation by saying we don't want 24 to look at HPP, high pressure pascalization. We don't 25 want to look at UV, ultraviolet pasteurization. We don't 26 want to look to ultra-filtered milks like the French do. 27 We don't want to look at HACCP plus PCR and perhaps less 28 processed or unprocessed products. The only solution is 7499 1 pasteurization, which has some serious problems. 2 Look at this milk trend. 3 THE COURT: Now, on your slide I want you to go 4 through these innovations again, even though you just said 5 them, and make sure that the record is clear what capital 6 letters you just told us, so that all of that is captured. 7 THE WITNESS: We have the answers, but processors 8 don't listen and they are not innovating. 9 The latest IMGC study, presented in Cork, Ireland, 10 which I witnessed myself, said there's not really true 11 lactose intolerance. Instead, there's a loss of 12 biodiversity in dairy products, and the loss of that same 13 biodiversity in consumer's gut. 14 The Maasai, the Maasai, the King in Kenya in 15 Africa, and Mongolians in Outer Mongolia and Asia are 16 proof of this. Their milk products contain the bioactives 17 necessary to make lactase, therefore, they don't have 18 lactose, and none of them have the lactase persistence 19 gene. 20 So what's that point us to? Lactose intolerance 21 should be renamed pasteurization intolerance. It's a 22 processing problem, not a consumer gut problem. 23 THE COURT: Now -- 24 THE WITNESS: We need to produce products that 25 actually can be digested and absorbed, and the consumers 26 are saying it. The science is saying it. Processors are 27 not doing it. 28 So we really need to lift all the innovation 7500 1 barriers so we can look at these alternatives to 2 pasteurization and look at innovations that can take care 3 of our markets. Other countries in the world are doing 4 so. 5 THE COURT: Let me stop you, Mr. McAfee, spell 6 Maasai from your slide. 7 THE WITNESS: Yes. M-A-A-S-A-I. 8 THE COURT: Then down on the same slide, the 9 phrase, "where is the innovation," and for example, you 10 start, you have, capital H-P-P. You see that? 11 THE WITNESS: Yes, I do. 12 THE COURT: I want you to read each one of those, 13 state how it should look on the transcript page, and what 14 it stands for. 15 THE WITNESS: Innovation being looked at around 16 the world aggressively. Because the scientists are saying 17 that heat really damages bioactives and it changes all 18 these other things, the proteins, the whey protein for 19 instance, and destroys an incredible number of enzymes 20 found, including anti-inflammatory enzymes. The alkaline 21 phosphate enzyme has been found by French investigators to 22 be very anti-inflammatory and perhaps part of the French 23 paradox. 24 They are looking at alternatives to just heat for 25 pasteurization, including HPP, which is high pressure 26 pascalization, not pasteurization, but pascalization, 27 which is they're using high pressure of 50 to 28 80,000 pounds per square inch to destroy pathogens. But 7501 1 it has a different kind of effect on other bioactives, so 2 it can be used as an alternative to heat. It's just an 3 innovation that needs to be researched and perhaps 4 approached and thought of. 5 Ultra-filtra- -- excuse me -- UV, ultra light, 6 which is sunlight, used at higher levels, can be used to 7 inactivate or destroy pathogenic bacteria found in some 8 milk. And it causes different damage. It's not the same 9 damage, it's different damage. 10 Ultra-filtration which filters out bacteria, it 11 has its limitations as well. 12 HACCP, hazard analysis critical control points, 13 where you have a known source of milk. That milk is 14 collected from the cows, and they are very, very clean. 15 We achieve pasteurization standards without pasteurizing, 16 less than 10 coliforms, less than 15,000 standard plate 17 count without pasteurizing. 18 And using PCR testing -- 19 THE COURT: Now, before you go to PCR, what are 20 the capital letters for HACCP? 21 THE WITNESS: HACCP is hazard analysis critical 22 control points. It's a well-known food safety management 23 tool here in America. 24 THE COURT: And I'm going to read it for you. 25 What I'm looking for is H-A-C-C-P. 26 THE WITNESS: Correct. Hazard analysis critical 27 control points. It originally started in NASA for space 28 astronauts' risk management mitigation. It is used 7502 1 broadly in other food production systems besides milk. 2 PCR is polymerase chain reaction, which is a 3 system of detecting the genetics of whether a pathogen is 4 present or not in a sample. 5 THE COURT: Thank you. So again, I'm sorry, I'm 6 thinking of how the transcript will look. Capital P-C-R. 7 THE WITNESS: Correct. 8 THE COURT: Thank you. 9 THE WITNESS: These are examples of some 10 innovations. There are many more. But we are not looking 11 at these things, but we are riding on this downward curve 12 of plummeting milk production -- or I should say 13 consumption in America. 14 So why don't we change? Why don't we innovate? 15 There's some really important things to be considered here 16 as a background conversation about this whole thing. 17 Consolidation is a national food safety issue, not 18 only on the processor side, but also on the dairy side. 19 THE COURT: Slow down, please. 20 THE WITNESS: Consolidation is a national food 21 security issue. We are losing five dairies a day. I'll 22 get into that more in just a minute. 23 In the 2020 food chain stress test, we call it 24 COVID, it served as a big lesson. You look at the 25 pictures down below, and you see that dairies are dumping 26 milk in March, April, May of 2020, and you see a picture 27 of milk coming out of the silo tank being spilled onto the 28 ground, probably going into the milk -- or I should say 7503 1 the lagoon on the dairy. The processors could not adapt, 2 and the stores' shelves were empty off and on for months. 3 And you see pictures of store shelves that are empty. 4 Some local brands stepped up and were able to 5 serve the local stores, but that was a rare and kind of an 6 exception. And you can see in the right lower corner 7 there a local brand filled the entire shelf with their 8 space, but there were still empty shelves around it. 9 So if we don't learn or listen from prior lessons, 10 we are going to continue down a trend of building an even 11 more fragile food system which points right to 12 consolidation. The fewer dairies you have, the farther 13 they are from processors, the fewer processors we have, 14 the more fragile our food system, the more remote our food 15 is from those that consume it. That's what the stress 16 test of 2020 showed us clearly. 17 And we have Albert Einstein up here saying 18 basically, doing the same thing over and over and 19 expecting different results is insanity. So we don't want 20 to do that. We're smart. We want to change and adapt. 21 We have lost 103,000 dairies since 1992. We are 22 losing five dairies a day, every day. My neighbor who is 23 about 20 miles from here is having his dairy auctioned 24 this morning. Four more happening someplace in America. 25 We need to have resilience, the ability to adapt. 26 We have to be local and have regional milk sources. We 27 are creating a more fragile food system by doing more of 28 what we're doing. This impacts jobs and community tax 7504 1 base support. It's also building a more carbon-heavy 2 fragile long distance food chain. 3 So processors wanting a higher Make Allowance 4 subsidy with guaranteed profits is a reward for lack of 5 innovation and failing the American dairies, and 6 ultimately, and most importantly, American consumers. 7 We look at the curve on the right-hand top of 8 PowerPoint slide. You see the number of licensed dairy 9 operations dropping dramatically from 130,000, to today, 10 about 25,000, maybe 26. But five more dairies a day being 11 put out of business. 12 The things we can do to build a stronger dairy 13 system for America. These are the five things we can do 14 today. 15 We can listen to consumers, we can look at the 16 market data and where it points to for growth and success. 17 2: We can listen to the microbiome science and 18 innovate. The processors' Make Allowances assure more of 19 the same with a guaranteed payment. They don't have to 20 innovate. 21 We can, 3, fairly pay the farmers to match growth 22 in supply with growth in demand. Our three-legged milk 23 stool we have here at CDC explains that in detail. We can 24 no longer be robbing our farmers, paying less than the 25 cost of production. It's just not right. 26 4: We can teach about dairy products using 27 influencers on social platforms, but first, we need to 28 create the innovative, gut-friendly, delicious, bioactive 7505 1 products that influencers would want to associate 2 themselves with and would be excited about. 3 Lastly, today, we need to add mozzarella to the 4 Class III pricing formula and fairly give that return back 5 to the farmers. Currently farmers are being cheated 6 multiple dollars per hundredweight because mozzarella is 7 not included in the Class III pricing formula. 8 A stronger dairy system must serve the entire food 9 chain in America. The farmers, hard working, very hard 10 working, diligent, the people that have testified here 11 today, hard-working, multi-generation, resourceful, hard 12 working people, are not being paid fairly by the 13 processors because of the structural issues we have with 14 how our system is developed, that the FMMO is supposed to 15 protect us against, but it is not. 16 And ultimately, we must serve our customers and 17 our consumers with foods which they can digest, are 18 delicious in building the immune system, and are fantastic 19 to the health of their lives. 20 So that's my presentation for today. And I really 21 thank you for letting this kind of unusual voice speak. 22 I'm an unusual dairyman in that I own my own processing 23 plant and I make these products for customers here in 24 California. 25 I'm open to questions. But I think innovation is 26 absolutely critical if we want to see progress. The 27 scientists have the answers. The consumers are demanding 28 these products. Thank you. 7506 1 THE COURT: Mr. McAfee, I thank you. 2 I'm going to now invite questions. 3 THE WITNESS: Did I leave you speechless? 4 THE COURT: Not speechless, but we had told people 5 that we would be finished today at 3:00 p.m., and some of 6 them had planes to catch, so we lost some of the people 7 who would have been asking questions. 8 THE WITNESS: I understand. 9 THE COURT: However, all of this is captured, as 10 all of this is evidence which will be very valuable, as is 11 everyone's evidence. 12 And I would now turn to the Agricultural Marketing 13 Service. 14 CROSS-EXAMINATION 15 BY MR. WILSON: 16 Q. Good afternoon, Mr. McAfee. How are you doing? 17 A. I'm doing quite well. Thank you. It's an honor 18 to be here. 19 Q. Well, thank you for being here. This is Todd 20 Wilson. I'm with the Agricultural Marketing Service. 21 I do have a couple of questions I'd like to ask 22 pertaining to your dairy farm and your operation. Do 23 you -- considering the questions we have asked other dairy 24 farmers, maybe you have heard the questions relating to do 25 you qualify as a Small Business according to the Small 26 Business Administration? 27 A. I do not. I am far in excess of the 3.7 million. 28 Q. Okay. Thank you for that. 7507 1 The other question I'd like to ask is relating to 2 risk management tools that dairy farmers utilize and 3 wondered if you might speak to those in your own 4 operation. 5 A. We try to take advantage of whatever opportunities 6 there are to return something for our investment. We do 7 participate in the DMC program, but none others at this 8 time. 9 Q. Okay. Well, thank you very much. 10 MR. WILSON: I do thank you for taking the time 11 out today to be here with us and to share -- share your 12 thoughts, and look forward to another day. Thank you, 13 Mr. McAfee. 14 THE WITNESS: You're very welcome. Just remember, 15 five dairies every day. Thank you so much. 16 THE COURT: Thank you, Mr. McAfee. All right. 17 It is my job now to bring us to a close, and we 18 start again 8:00 a.m. Monday morning. And I look forward 19 to seeing you back at that time. 20 Thank you. We go off record at 3:32. 21 (Whereupon, the proceedings concluded.) 22 ---o0o--- 23 24 25 26 27 28 7508 1 STATE OF CALIFORNIA ) ) ss 2 COUNTY OF FRESNO ) 3 4 I, MYRA A. PISH, Certified Shorthand Reporter, do 5 hereby certify that the foregoing pages comprise a full, 6 true and correct transcript of my shorthand notes, and a 7 full, true and correct statement of the proceedings held 8 at the time and place heretofore stated. 9 10 DATED: December 7, 2023 11 FRESNO, CALIFORNIA 12 13 14 15 16 MYRA A. PISH, RPR CSR Certificate No. 11613 17 18 19 20 21 22 23 24 25 26 27 28