9562 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 Zionsville, Indiana 19 December 5, 2023 20 21 ---o0o--- 22 23 24 25 26 Reported by: 27 MYRA A. PISH, RPR, C.S.R. Certificate No. 11613 28 9563 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 MILK INNOVATION GROUP: 7 Charles "Chip" English Grace Bulger 8 Ashley Vulin 9 FOR THE NATIONAL MILK PRODUCERS FEDERATION: 10 Nicole Hancock Brad Prowant 11 FOR SELECT MILK PRODUCERS, INC.: 12 Ryan Miltner 13 FOR INTERNATIONAL DAIRY FOODS ASSOCIATION: 14 Steve Rosenbaum 15 FOR LAMERS DAIRY: 16 Mark Lamers 17 18 ---o0o--- 19 20 21 (Please note: Appearances for all parties are subject to 22 change daily, and may not be reported or listed on 23 subsequent days' transcripts.) 24 25 ---o0o--- 26 27 28 9564 1 M A S T E R I N D E X 2 SESSIONS 3 TUESDAY, DECEMBER 5, 2023 PAGE 4 MORNING SESSION 9567 AFTERNOON SESSION 9671 5 6 7 ---o0o--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9565 1 M A S T E R I N D E X 2 WITNESSES IN CHRONOLOGICAL ORDER 3 WITNESSES: PAGE 4 Steve Stout: 5 (Continued) Cross-Examination by Mr. English 9569 6 Cross-Examination by Mr. Miltner 9586 Cross-Examination by Ms. Taylor 9591 7 Redirect Examination by Ms. Hancock 9597 8 Edward Gallagher: 9 (Continued) 10 Cross-Examination by Mr. Miltner 9604 Redirect Examination by Ms. Hancock 9614 11 Recross-Examination by Ms. Vulin 9623 12 Dr. Peter Vitaliano: 13 (Continued) 14 Direct Examination by Ms. Hancock 9632 Cross-Examination by Mr. English 9637 15 Cross-Examination by Ms. Taylor 9662 16 Jeffrey Sims: 17 (Continued) 18 Direct Examination by Ms. Hancock 9671 Cross-Examination by Mr. English 9675 19 Cross-Examination by Mr. Miltner 9733 Cross-Examination by Ms. Taylor 9749 20 21 ---o0o--- 22 23 24 25 26 27 28 9566 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. 5 414 MIG-59 9568 9603 6 403 NMPF-53 9600 7 404 NMPF-53A 9602 8 405 MIG-60 9602 9 407 NMPF-54 9624 10 408 NMPF-54A 9624 11 409 NMPF-54B 9625 12 410 NMPF-54C 9625 13 411 NMPF-54D 9625 14 412 MIG-62 9629 15 413 MIG-63 9629 16 415 NMPF-109 9633 9636 17 416 MIG-44 9638 9638 18 299 NMPF-35 9670 19 417 NMPF-38 9692 9732 20 418 MIG-41 9692 9732 21 419 MIG-42 9692 9732 22 420 MIG-43 9713 9732 23 ---o0o--- 24 25 26 27 28 9567 1 TUESDAY, DECEMBER 5, 2023 -- MORNING SESSION 2 THE COURT: Let's go back on record. 3 We're back on record. It is 2023, December 5. 4 It's Tuesday. It's about 8:00 in the morning. 5 More importantly, this is Day 40 of this 6 proceeding. 7 Will Steve Stout resume the stand to begin? He's 8 welcome to return to the witness stand. 9 MS. TAYLOR: Your Honor, I have one administrative 10 thing, housekeeping item. 11 THE COURT: Yes, please. 12 MS. TAYLOR: Well, you just said this is Day 40. 13 The record is 43 days, so I guess we'll be breaking the 14 record of hearing length this week. I'm not sure if I'm 15 happy or sad about that. 16 THE COURT: Yeah, I know what you mean. 17 MS. TAYLOR: But the actual thing I wanted to 18 state, I had said last week we needed to end this Friday 19 at 3 o'clock. We have to be out of the building at 3:00. 20 So I would advocate maybe we end at 2:40-ish to give 21 everybody 20 minutes to exit the building with their 22 things, and I just wanted to give everyone the most 23 heads-up about that. 24 THE COURT: Excellent. 25 Would you state and spell your name? 26 THE WITNESS: Steve Stout. 27 S-T-E-V-E, last name S-T-O-U-T. 28 THE COURT: You remain sworn. I have in front of 9568 1 me Exhibit 403 and Exhibit 404. 2 We were in cross-examination by Mr. English, as I 3 recall. 4 Is that how we will resume? 5 MR. ENGLISH: This is Chip English for the Milk 6 Innovation Group. 7 With your permission, Your Honor, yes, that's how 8 we would proceed. Resume, I guess. 9 As we get started, Your Honor, if I may, I have 10 another exhibit. 11 THE COURT: Yes. 12 MR. ENGLISH: This is labeled MIG Exhibit 59, and 13 it is a map of Colorado with counties, but it also 14 actually has some highways on it. So I have got 15 copies 15 for USDA. It's marked MIG Exhibit 59. 16 THE COURT: I believe we will mark it as 414. Am 17 I correct? Yes. 18 So this is Exhibit 414, also MIG-59. 19 (Thereafter, Exhibit Number 414 was marked 20 for identification.) 21 THE COURT: And have they already been 22 distributed, Mr. English, or should we take a moment off 23 record? 24 MR. ENGLISH: They have not already been 25 distributed, Your Honor. If I may approach you and the 26 witness, I will bring one to each of you. 27 THE COURT: Yes, please approach us, and I will go 28 off record at 8:04. 9569 1 (An off-the-record discussion took place.) 2 THE COURT: Let's go back on record. 3 We're back on record at 8:05. 4 Exhibit 414, also MIG-59, is before me now and has 5 been distributed. 6 Mr. English. 7 MR. ENGLISH: Thank you, Your Honor. 8 STEVE STOUT, 9 Having been previously sworn, was examined 10 and testified as follows: 11 CROSS-EXAMINATION (Cont'd) 12 BY MR. ENGLISH: 13 Q. So, Mr. Stout, we have discussed some of these 14 issues, but now that we have the map in front of us, Weld 15 County is where the -- in the upper -- or northern east 16 central part of the state, is where this milk production 17 has really grown, correct? 18 A. Quite a bit of it, yes. 19 Q. Okay. Where else has it grown in Colorado, other 20 than Weld County? 21 A. Fort Morgan. Excuse me, Morgan County. 22 Q. And that's immediately sort of to the south and 23 east of Weld, correct? 24 A. Correct. 25 Q. And where is the cheese plant? It's in the -- 26 which county is the cheese plant located we have talked 27 about, the one that you have a full supply contract with? 28 A. There is two. 9570 1 Q. Okay. 2 A. There is one in Morgan County and one in Weld 3 County. 4 Q. Morgan County is a DFA plant, correct? 5 A. No, Leprino also has a -- 6 Q. Sorry. They are both Leprino plants. 7 A. Uh-huh. 8 Q. Sorry, that's a "yes" -- 9 A. Yes. 10 Q. -- for the court reporter? 11 MS. TAYLOR: Chip, can you please speak up? 12 MR. ENGLISH: Excuse me? 13 THE COURT: A little more microphone for the 14 questioner. Thank you. 15 MR. ENGLISH: I think today is the first day I 16 will adjust to this particular location. 17 Thank you, Ms. Taylor. 18 THE COURT: So that last answer -- so there is a 19 plant in Weld County and there is a plant in Morgan 20 County? 21 THE WITNESS: Correct. 22 THE COURT: And would you describe the nature of 23 those plants? 24 THE WITNESS: One is a cheese plant; the other one 25 is a cheese and nonfat dry milk plant. 26 There is also a small cheese plant as well in 27 Morgan County, in addition to Leprino. 28 /// 9571 1 BY MR. ENGLISH: 2 Q. And whose plant is that, the small plant? 3 A. It's a local processor there in Denver. 4 Q. So on page 10 of your testimony, you said, "The 5 growth of the milk supply in Colorado has not changed due 6 to the change in needs of the beverage demand, but due to 7 the change in demands of milk needs for manufacturing." 8 Correct? 9 A. That is correct. 10 Q. So if that's the case, why should Class I have to 11 pay more for its milk? 12 A. The nature of this hearing is regarding all milk 13 across the whole nation. It's not specifically 14 identifying just for the circumstances within Colorado. 15 Q. Has the demand for conventional milk in Colorado 16 increased since 2000? 17 A. You say "conventional milk," so that would be -- 18 Q. Not organic. Not organic milk. 19 A. Understood. Obviously, yes, based on all of our 20 milk sources, customers -- you know, not sources, but 21 dispositions of our milk, yes. 22 Q. We're talking about Class I. 23 Has the demand for Class I conventional milk gone 24 up since 2000? 25 A. No. 26 Q. So if the demand for conventional Class I milk has 27 not gone up, and there is growth in the milk supply, why, 28 then, does the fact that DFA has voluntarily made a 9572 1 rational economic decision to enter into a business 2 agreement with a cheese manufacturer require that Class I 3 prices increase from the model output by the amount that 4 National Milk proposes? 5 A. As I stated earlier, and as others have stated in 6 Ed Gallagher's testimony, we're not asking -- we're 7 actually not asking for additional increase, we're asking 8 for something less than what -- what the same slope 9 situation that occurs currently. So we are seeking 10 something, yes, higher than the model, but something far 11 from what is the current slope between varying cities. 12 Q. How does slope define the actual need for Class I 13 milk in Colorado? 14 A. I guess you could pose that question to USDA. 15 It's been around since -- for decades. 16 Q. My question remains, why is it necessary, in a 17 market that has not grown in conventional needs for 18 Class I, when there's the kind of growth we have in Weld 19 County and Colorado, to increase the Class I -- proposed 20 Class I differential over the model, by $0.85 a 21 hundredweight? 22 A. I guess I would ask you the question, why do we 23 need that growth in Florida, of the increase in the 24 Class I? 25 Q. I will repeat my question. I'm not on the witness 26 stand. 27 What is the justification, in a static 28 conventional Class I market, for increasing -- proposing 9573 1 increase the Class I differential by $0.85 a hundredweight 2 over the model results, given the growth of milk 3 production in Colorado? 4 A. We are looking at the whole industry in regards to 5 Colorado, and looking at the situation in which, that if 6 the model was enacted the way it is, that we would see a 7 potential, concerning, most likely drop in production, as 8 dairy farmers would probably exit the state and/or exit 9 the business, as their costs have increased significantly 10 in the last 20 years in relation to other neighboring 11 states. And they would choose to exit, and we would be in 12 a very ugly situation of being able to satisfy that 13 Class I milk if we don't have enough milk. 14 Q. Do you actually have an analysis that shows that 15 milk production would go down in Colorado if the proposed 16 Make Allowances were adopted and the model Class I 17 differentials as opposed to National Milk were adopted? 18 A. If all of -- we don't have a study, of course, 19 because there is so many parameters of what might happen. 20 But as the analysis came back from -- from Federal 21 Order 32's Market Administrator's office, that if we did 22 have -- with this particular case of the model retained 23 for Colorado, that there would be roughly 40 to $0.50 drop 24 in the blend price, coupled with the Make Allowance, 25 therefore approaching almost $1, that the word that we 26 have heard from our producers in the area has been that 27 they said what I just stated, that they might be having to 28 exit the business and/or go out of business. 9574 1 Q. Now, in questions -- I know you weren't here 2 yesterday, and I don't know if you were on travel and not 3 able to listen to the examination of Mr. Gallagher -- but 4 in the questions of Mr. Gallagher -- 5 A. Uh-huh. 6 Q. -- he acknowledged that leaving aside organic 7 milk, the DFA provides -- try not to characterize it -- 8 let me strike that. Let me start over. 9 If you leave out the organic milk in Colorado, 10 what percentage of the milk supply in Colorado is DFA 11 member milk? 12 A. I don't have that number for you. 13 Q. Is it very, very high, like 95%? 14 A. Yes, approaching that. 15 Q. Okay. So leaving out the organic milk, if DFA 16 were to believe that the Federal Order prices were too 17 low, and Mr. Gallagher said that they might depool the 18 milk, if you depooled milk for Class III purposes and you 19 have 95% of the milk, can't DFA protect itself by saying 20 to all the Class I processors in the conventional market 21 in Colorado, "You pay this price or you get no milk"? 22 A. That would not be our stance. Absolutely not. 23 Q. Going back to our conversation at the very end of 24 Friday about organic milk. 25 The proposed increase by National Milk of $0.85 a 26 hundredweight in Weld County, Colorado, that effectively 27 increases the pool obligation of an organic Class I 28 handler, correct? 9575 1 A. You're referring to the model versus the proposal? 2 Q. I'm referring to the proposal of 85 -- the $0.85 3 increase over the model. That $0.85 increase over the 4 model is going to tell a Class I processor, who is 5 organic, "Congratulations, your Class I price just went 6 up," correct? 7 A. I don't know the dealings of what Aurora -- how 8 their situation is. 9 Q. Well, I think you acknowledged, or at least other 10 witnesses acknowledged, that organic milk pays a price 11 higher than the Federal Order price to their dairy 12 farmers, correct? 13 A. Correct. 14 Q. Okay. If they are already paying at a price 15 higher than the Federal Order, if you increase the Class I 16 price by $0.85, you are basically saying that entire 17 difference goes into the pool, correct? 18 A. That would be my assumption without knowing what 19 Aurora's situation is. 20 Q. And so for this, according to Exhibit 405, percent 21 change, third to the -- second to the last column -- 22 THE COURT: What page? 23 MR. ENGLISH: Exhibit 405, Your Honor. It's only 24 one page. 25 THE COURT: Oh, oh, oh. 26 MR. ENGLISH: This is an exhibit from last Friday. 27 Does the witness have a copy with him? 28 THE WITNESS: Yes. 9576 1 MR. ENGLISH: Do you have a copy, Your Honor? 2 THE COURT: I do. I just need to see where I put 3 it. 4 You go ahead, Mr. English. I'm with you. 5 BY MR. ENGLISH: 6 Q. So if you look at Exhibit 405, and the column 7 labeled "Percent Change Proposal 19 versus University of 8 Wisconsin Average," that percent change is 36%, correct? 9 A. For that column, yes. 10 Q. Given that conventional milk cannot substitute for 11 organic milk, Aurora is going to pay that extra 36% on its 12 volume of milk into the pool, correct? 13 A. Depends on their Class I utilization. 14 Q. Depending on their Class I utilization, they pay 15 that money to the pool, they are already paying more money 16 to their dairy farmers, 100% of those dollars are going to 17 go to conventional milk, correct? 18 A. I can't answer that. I don't know their situation 19 with their pool draw and so on. 20 Q. If we're going to consider the special 21 circumstances of DFA's relationship with a cheese 22 manufacturer with plants in Weld and Morgan County for 23 impacting the needs for Class I, shouldn't USDA also 24 consider the special circumstances of an organic plant 25 that cannot receive conventional milk? 26 A. I'm struggling with the difference between your 27 isolating Aurora and we have other Class I processors that 28 would have the same situation. 9577 1 Q. Is there significant other organic milk in Class I 2 processors in Colorado? 3 A. I didn't say organic, no. 4 Q. So what do you mean when you say you are 5 "struggling"? 6 A. Because you are talking about, as you know, the 7 USDA doesn't treat organic differently than conventional, 8 so, therefore, the conventional plants in the Denver 9 geography would have the same situation as Aurora. 10 Q. So let me start by saying, when you say "USDA," 11 you mean AMS Dairy Programs doesn't treat conventional 12 different from organic, because, of course, there's a 13 different part of AMS that does treat organic different 14 from conventional, correct? The organic part, the 15 National Organic Program? 16 A. I'm not totally familiar with the policies. You 17 are correct, AMS. 18 Q. The difference between a Class I operation with 19 conventional milk and an organic operation is that if a 20 conventional operation in Colorado needs additional milk, 21 it can come to DFA and say, "Hey, I need more conventional 22 milk," correct? 23 A. Correct. 24 Q. But an organic operation can't do that, can it? 25 It has to go get organic milk, correct? 26 A. Correct. But it could satisfy additional needs by 27 doing conventional. 28 Q. It can't -- it can't do that for its organic 9578 1 needs, can it? 2 A. No. 3 Q. And it has to segregate -- you know, it would -- 4 the entire operation would then have to be reorganized 5 because it has to segregate organic from conventional, 6 correct? 7 A. That is correct. 8 Q. And that would impose costs on an organic 9 processor like Aurora in order to do so, correct? 10 A. Correct. 11 Q. And are you aware that Aurora receives organic 12 milk from outside Colorado? 13 A. I don't know any specifics about Aurora. I have 14 heard that, correct. 15 Q. So when you provide an analysis of the needs for 16 milk for Class I in Colorado, you do not include, assuming 17 it is true, the fact that milk at Aurora is received, for 18 instance, from Texas? 19 A. No. That was not part of our analysis. 20 Q. Leaving aside Colorado, if USDA accepts National 21 Milk Producers Federation proposed rationale for Colorado, 22 that is that there's this committed supply to Class III, 23 doesn't that mean that any cooperative in any other market 24 can channel its supply to a manufacturing plant, then 25 create an artificial shortage of milk for Class I and 26 argue the Class I differentials should be raised because 27 of that decision? 28 A. I can't answer that. I -- you are posing a 9579 1 question that -- that is a hypothetical and isn't reality. 2 Q. Well, it's not a hypothetical that National Milk 3 Producers Federation is proposing increasing Weld County 4 by $0.85 over the model because you say DFA has a 5 committed supply relationship with the manufacturer, which 6 then increases, in your view, the need to increase the 7 Class I differential, correct? 8 That's not hypothetical. 9 THE COURT: Mr. English, that's not fair. It may 10 be a factor. That is not this witness's explanation. 11 MR. ENGLISH: Well, Your Honor, I -- I take 12 exception to your telling me I can't ask that question. 13 THE COURT: Exception noted. 14 BY MR. ENGLISH: 15 Q. So let's -- let's now turn to more specific 16 decisions made in proposed testimony and some of your 17 conversations about other areas other than Colorado. 18 Would you agree with me that Salt Lake City is a 19 significantly larger city than Twin Falls, Idaho? 20 A. Yes, it is. Well, "significant" is subjective. 21 But, yes, it's much larger. 22 Q. Would you agree with me that the traffic in Twin 23 Falls, Idaho, is less than the traffic in Salt Lake City? 24 A. Yes. 25 Q. The model, if you look at Row 2762 in Exhibit 405, 26 proposed a $2.15 differential for Salt Lake City, correct? 27 A. Repeat the number, I'm sorry? 28 Q. Row 2762 in -- on Exhibit 405 proposed a $2.15 9580 1 Class I differential for Salt Lake City, correct? 2 A. On the model, correct. 3 Q. Okay. And Proposal 19 proposes $2.55, which is a 4 $0.40 increase, correct? 5 THE COURT: $0.40 what? 6 MR. ENGLISH: $0.40 per hundredweight increase. 7 BY MR. ENGLISH: 8 Q. Correct? 9 A. Correct. 10 Q. And I apologize, you are going to have to have 11 Exhibit 301 in front of you. 12 THE COURT: No worries. 13 BY MR. ENGLISH: 14 Q. So if you look at Row 561 -- I'm sorry -- Row 560, 15 the model would have set Twin Falls, Idaho, at $1.85, 16 correct? 17 A. Correct. The average would be $1.85. 18 Q. But your proposal in Column O is $2.55 for Twin 19 Falls, correct? 20 A. That is correct. 21 Q. So the model would have set Twin Falls $0.30 less 22 than Salt Lake, but your proposal is to set Salt Lake and 23 Twin Falls at the same level, correct? 24 A. That is correct. 25 Q. Does that spread make any -- that non-existent 26 spread in the proposal make any sense given the size of 27 the cities and the proximities to dairies? 28 A. As we looked at the situation between Idaho and 9581 1 Utah, the milk is moving on a daily basis from Idaho to 2 Utah, and so we felt that there wasn't a need for a slope 3 differential, that the attraction to Utah being $2.55 was 4 sufficient, and so we kept them the same just based on the 5 way milk movement occurs. 6 Q. But there is a slope today, isn't there? 7 A. Yes, there is. 8 Q. So why doesn't the slope difference argument 9 argued about Colorado east apply to the slope difference 10 between Idaho and Salt Lake? 11 A. We were -- again, we were looking at the way the 12 milk moves currently in the situation now. In Colorado, 13 the milk -- the differentials we're seeking is a $0.10 14 difference between Denver and Greeley, and then a $0.10 15 difference from Greeley to Fort Morgan, which, yes, is the 16 current slope differentials. 17 In Utah and Idaho, based on the way things have 18 changed over the last 20 years, we just felt the slope 19 differential wasn't as necessary. 20 Q. Even though you testified three minutes ago that 21 milk moves regularly from Idaho to Salt Lake? 22 A. Right. 23 Q. Given the fact that neither location is federally 24 regulated, what's the importance of establishing, in Twin 25 Falls, Idaho, a Class I differential at $2.55? 26 A. The significance is, again, just the slope across 27 the whole region between the Pacific Northwest, through 28 Montana, to Colorado, to South and North Dakota. It was 9582 1 just to kind of keep the slopes in congruency with each 2 other. 3 Q. And so I come back to my question. Why, then, not 4 maintain the $0.30 existing difference between Twin Falls 5 and Salt Lake and, instead, increase both of them so that 6 they are now at identical price at $2.55 per 7 hundredweight? 8 A. Again, as Monty from NDA, as he talked about the 9 situation with Washington and Oregon, we felt in talking 10 with him that the slope between that region and Idaho 11 seemed to make more sense to be similar to what Salt 12 Lake's is on the recommendation. 13 Q. So you indicate that the DFA map region invoices 14 Class I plants in the unregulated areas using the same 15 location differentials as administrated by USDA, correct? 16 A. That is correct. 17 Q. Again, if it's not federally regulated, is that 18 the point, that you want USDA, in a non-federally 19 regulated area, to help you establish your price? 20 A. No. What we are seeking, as USDA since day one 21 has always had differentials across every county in the 22 continental United States, we're not deviating from that. 23 So it does affect them. 24 Q. Well, you also propose changing the Las Vegas 25 differential for Clark County $0.10 above the model 26 average of $2.90, correct? 27 A. Correct. 28 Q. And you said that you do that on the basis of 9583 1 population growth in that city, correct? 2 A. Correct. 3 Q. But doesn't the USDSS model take that population 4 growth into account? 5 A. I honestly don't know the details of the model. I 6 assume so. 7 Q. You then discuss the differentials in Iron County, 8 where DFA has a Class I plant, and Beaver County, Utah, 9 where I believe DFA has a cheese and condensed milk plant, 10 correct? 11 A. Correct. 12 Q. And did you set the differentials for those 13 counties based on the relationship to the differential in 14 Las Vegas? 15 A. No, it's based on the differential to -- north to 16 Salt Lake, but still that same relationship in relation 17 where we set the differential for Las Vegas. 18 Q. And in that instance, the model result actually 19 was $2.55 for -- if you look at Row 2755 on Exhibit 405, 20 the model result was $2.55, correct? 21 A. Correct. 22 Q. And for the locations where DFA has plants, you 23 are not proposing increasing from the model, correct? 24 Zero increase, correct? 25 A. Concerning Iron County? 26 Q. Yes. 27 A. Correct. 28 Q. Going back to Salt Lake City. You said on page 19 9584 1 that "the result" -- "the model results do not make sense 2 to us, as they are lower than the University of Wisconsin 3 results for Iron and Beaver Counties." 4 Did you or anybody from National Milk ask 5 Dr. Nicholson or Dr. Stephenson what could have driven 6 those results? 7 A. I did not. I'm not sure if Ed Gallagher did ask. 8 I don't know. 9 Q. Do you have any specific reasons for concluding 10 those results do not make sense if you haven't actually 11 studied the results of the model? 12 A. Again, as we have -- numerous have given testimony 13 concerning the model. It definitely was the starting 14 point. And then as even Dr. Nicholson has testified, that 15 it's not an all-in model, and so we look at regional 16 differences. So that's, obviously, yes, the starting 17 point. In some cases, the model felt to be right on, and 18 in other cases it seemed to need to be tweaked. 19 Q. So why does National Milk have a desire for flat 20 pricing in Utah and up into Twin Falls, Idaho? 21 A. Again, as stated, we feel, based on the way the 22 milk moves, that -- that there wasn't a justification for 23 the $0.30 differential anymore. 24 Q. You also say, in that the same section, that you 25 "rely upon the cost of transporting milk from Salt Lake to 26 Denver as a reason for the increase in the difference 27 between prices," correct? 28 A. Correct. 9585 1 Q. Is milk typically produced in Salt Lake shipped to 2 Denver? 3 A. No, it is not. 4 Q. Why, then, that -- is that a relevant 5 justification for setting prices between Utah and 6 Colorado? 7 A. If Colorado was short of milk and it came from 8 Utah, then obviously it would have to be freighted there. 9 Very expensive freight. 10 Q. Turning to the issue of Grade A versus Grade B 11 milk. 12 Are you aware of any cheese manufacturers in 13 Colorado that accept Grade B milk? 14 A. No, I'm not. 15 Q. Does DFA have Grade B members in Colorado? 16 A. We do not. 17 Q. Just give me one moment, Your Honor. 18 MR. ENGLISH: Mr. Stout, thank you for your time. 19 That concludes my cross-examination. 20 THE COURT: Thank you, Mr. English. 21 MR. ENGLISH: And I will move the admission of 22 Exhibit 405 at an appropriate time. 23 THE COURT: Understood, 405 and 414. 24 I invite the next cross-examination. 25 Mr. English, are those your exhibits? 26 MR. ENGLISH: Thank you, Your Honor. It is. 27 THE COURT: You're welcome. 28 // 9586 1 CROSS-EXAMINATION 2 BY MR. MILTNER: 3 Q. Good morning, Mr. Stout. 4 A. Good morning. 5 Q. My name is Ryan Miltner. I represent Select Milk 6 Producers. 7 I think you can -- you can thank Mr. Gallagher for 8 taking away several of the questions that I might 9 otherwise have asked as he intervened yesterday for you. 10 A. Thank you, Mr. Gallagher. 11 Q. If I could summarize your -- your testimony. It 12 seems to me that there are three -- three issues with the 13 model results in the western region that -- that were of 14 concern, and I want to tell you what I think those are, 15 and let me know if you -- if you agree with me. 16 The first is that in some instances, the increase 17 in the model results over what we currently have was 18 insufficient for certain counties; is that correct? 19 A. That is correct. 20 Q. And that adding to that the relationship between 21 the base zone in Kansas City and the counties in Colorado 22 was askew; is that correct? 23 A. Based on the model, yes. 24 Q. And then thirdly, that those two issues, coupled 25 with the likely change in Make Allowances, would have an 26 unacceptably detrimental impact to your members in 27 Colorado? 28 A. To all dairy farmers in Colorado, correct. 9587 1 Q. Okay. Now, if I look at the changes from the 2 model that were made with respect to Colorado, I'm 3 wondering if, in reviewing the counties outside of the 4 Central Order, if you did that, you found any other 5 instances where there was a relationship between the base 6 zone and further out counties that needed to be rectified? 7 A. I did not do any analysis outside of my geography. 8 Q. Did you look at any of the border areas between 9 your geography and other areas? 10 A. We did look at, yes, neighboring states. Yes. 11 Q. So did you look at New Mexico? 12 A. No. 13 Q. That would border Colorado, correct? 14 A. I'm sorry. Excuse me? 15 Q. Mexico does border Colorado, correct? 16 A. That's correct. 17 Q. So which neighboring states did you look at? 18 A. Kansas, Nebraska, South Dakota, North Dakota, and 19 then our geography, of course, as well, with Wyoming and 20 Montana. 21 Q. That covers a lot of the border states, but you 22 did not look at New Mexico. 23 Any particular reason you did not look at New 24 Mexico? 25 A. Others in the Southwest region were looking at 26 that, so -- 27 Q. Who in the Southwest region would have been 28 looking at that? 9588 1 A. John Kang for DFA and others from the industry. 2 Q. You mentioned "others." 3 Who would those be? 4 A. Jeff Sims. I don't know all of them but -- 5 Q. I'm looking at page 8 of your written statement, 6 Exhibit 403, and you testified, "It seems that the 7 underlying basis of the University of Wisconsin model as 8 developed in 2000, and refreshed in 2021, is that if there 9 is more than an adequate supply of local milk to meet the 10 needs of the Class I market, then that transcribes that 11 the location differential would not have pressure to be 12 increased." 13 Wouldn't -- wouldn't the existence of a more than 14 adequate local milk supply be an important factor in 15 deciding how what level of differential should be? 16 A. Yes. Definitely one of the factors, yes. 17 Absolutely. 18 Q. And yet it seems that a lot of your efforts in 19 changing the model differential ignores that important 20 factor, isn't it? 21 A. I'm not stressing to ignore it. I'm stressing 22 that there's other factors that play into this. Meaning 23 that if that growth that occurred in Colorado was 24 purposefully and strategically grown to satisfy the needs 25 of a manufacturing, then that wasn't taken into account in 26 terms of the model. 27 Q. And yet, the model and the differentials are meant 28 to establish a minimum regulated price, correct? 9589 1 A. Can you restate that, please? 2 Q. The purpose of the differentials is to help 3 establish a minimum regulated price, correct? 4 A. Correct. 5 Q. And so DFA, or any other cooperative, any other 6 seller of milk, can negotiate over-order premiums over the 7 minimums, correct? 8 A. Yes. 9 Q. And so the milk that you say is strategically 10 grown, which I hope most co-ops and farmers are trying to 11 strategically locate their operations, if that's 12 strategically placed, there's no guarantee that that milk 13 will remain associated with its current plant into the 14 future, is there? 15 A. That is correct, there's no guarantee. 16 Q. And so if you are asking to increase a 17 differential based on a current business relationship, 18 would that not skew a regulated minimum price if the sales 19 transaction changes into the future? 20 A. You said there's no guarantee, and that is true. 21 But there's a contractual commitment that DFA has to 22 satisfy the needs of the manufacturing entity. 23 Q. Well, that contract presumably has a termination 24 date, does it not? 25 A. All contracts do. 26 Q. We have contracts that are breached or simply 27 modified all the time, don't we? 28 A. Yes. 9590 1 Q. I mean, doesn't it come down to a question of 2 whether businesses should respond to regulation or whether 3 business relationships should dictate what regulations 4 look like? That's really one of the questions we're 5 wrestling with, isn't it? 6 A. I don't know. That's a very generalist question 7 that is difficult to answer. 8 Q. I mean, you are asking for regulations to be 9 written to be tailored to DFA's business relationships, 10 aren't you? 11 A. We're asking for consideration for an increase 12 from what the model is stating because of the situation 13 that we have in Colorado that could exist -- anywhere else 14 in the United States, the same thing could happen. 15 Q. And to be clear, the situation in Colorado is a 16 contract that DFA entered into with a business partner 17 that is obviously very important to DFA, correct? 18 A. That's correct. 19 Q. Every cooperative in the country has contracts to 20 supply milk that are equally important to their members, 21 correct? 22 A. That is correct. 23 MR. MILTNER: Thank you. That's all I have. 24 THE COURT: Who next has cross-examination for 25 this witness before I invite questions from the 26 Agricultural Marketing Service? 27 I see no one. Agricultural Marketing Service, 28 your questions, please. 9591 1 MS. TAYLOR: Thank you, Your Honor. 2 CROSS-EXAMINATION 3 BY MS. TAYLOR: 4 Q. Good morning. 5 A. Good morning. 6 Q. Thanks for returning today. 7 A. You betcha. Anything for you, Erin. 8 Q. Believe it or not, I'm not really going to talk 9 about Colorado. I think we have beat that dead horse with 10 every question imaginable, so I would like to talk about a 11 few other things. 12 You were talking with Mr. English on the flat 13 differential you all have proposed between Twin Falls and 14 South Dakota. One of the things you said was, that 15 decision to -- to offer that proposal versus what the 16 model says is because things have changed a lot in the 17 last 20 years. 18 And my first hearing was the Western Order hearing 19 in 2004, so I do remember a bit about what happened, what 20 was going on back 20 years ago. 21 So I was wondering if you could illuminate for the 22 record why you think things are different than what it was 23 like back then? 24 A. Okay. To a large part, the production in the 25 state of Utah has continued to relatively decline. For 26 the most part, Northern Utah has seen a lot of urban 27 encroachment. So in the Cache Valley area where we've had 28 upwards of a hundred-plus producers has now dwindled down 9592 1 to less than half of that. No, there's not a lot of milk 2 there, but there is some, so that's been a very -- 3 Q. What county is that in as I look at this map? 4 A. Cache. 5 Q. Okay. 6 A. So north -- northeastern. 7 Q. Okay. 8 A. So Gossner has a plant up there and -- 9 Q. Okay. 10 A. -- Schreiber's has a plant, cheese plant, in that 11 area. 12 So a lot of that production that used to be 13 satisfying that Smithfield plant for DFA/Schreiber's over 14 the years, over the last 20 years, has come -- they're -- 15 locally, they're in that geography, that county, that -- 16 well, in upwards of -- it's called Cache Valley, which is 17 a valley that heads up and touches into Southeastern Idaho 18 as well. But as that production has declined, a lot of 19 that milk is now coming from clear up into Idaho, north of 20 even from Blackfoot and Idaho Falls. 21 South, we have had a lot of production that has 22 continued to move farther away from the market and/or gone 23 out of business. 24 And so Utah is in a very particular -- peculiar 25 situation in which they do -- we are expending a lot of 26 freight cost to get the milk to the Salt Lake Valley. And 27 what has changed is a lot of that milk to meet the needs 28 of Salt Lake is also coming from Magic Valley, from 9593 1 Treasure Valley -- excuse me -- from Twin Falls area, 2 which is Cache County and -- 3 Q. Okay. And so that milk is moving daily you 4 said -- 5 A. Yes. 6 Q. -- to satisfy that demand? 7 A. Yes. 8 Q. But despite that, in the freight cost you just 9 mentioned, you don't think there needs to be -- that 10 doesn't need to be accounted for in the slope that is 11 offered? 12 A. Well, honestly, Erin, we'd probably like Salt Lake 13 to be higher than the $2.55, but we just felt that that 14 was a comfortable area to not be much higher than the 15 geography around it, so -- and between Salt Lake to -- to 16 Idaho, to the Pacific Northwest, we just felt that region 17 had to be -- that Idaho needed to be somewhere in that 18 $2.55 range. And we honestly would have loved Salt Lake 19 to be higher than $2.55. 20 Q. What's the distance between Twin Falls and Salt 21 Lake, approximately? 22 A. It's about 250 -- 23 Q. Okay. 24 A. -- miles. 200 miles, maybe. 25 Q. I wanted to talk a little bit, moving up into 26 Idaho, the $2.20 zone. And that's the base differential 27 that's been discussed. 28 Were you involved in the discussions about how the 9594 1 $2.20 was proposed? 2 Because if I remember weeks back now, other 3 National Milk witnesses said, you know, that was the area 4 in the West that said we needed $2.20 to be able to get 5 milk there. 6 So I wanted to just -- you know, we're down to a 7 few National Milk witnesses left -- get a little more 8 information on the record of why that $2.20 as a base is 9 appropriate. 10 A. And you are talking about the counties up in the 11 thumb -- 12 Q. Yeah. 13 A. -- coming down? 14 Q. Uh-huh. 15 A. So in other words, touching on to Washington. 16 Q. Exactly. 17 A. There's really absolutely no milk production up 18 there, nor is there any plants. 19 THE COURT: Where? Just so I'm clear. 20 THE WITNESS: In the counties that she's referring 21 to. 22 THE COURT: But I would like you to say what 23 counties you are talking about. 24 THE WITNESS: Oh. 25 MS. TAYLOR: It would be in the thumb -- well, the 26 thumb is $2.55. But kind of the west side of Idaho, the 27 middle counties along the border. 28 THE WITNESS: Yeah. 9595 1 MS. TAYLOR: Right. 2 THE COURT: Thank you both. 3 THE WITNESS: Sorry. 4 BY MS. TAYLOR: 5 Q. Uh-huh. 6 A. So, yes, we just felt where that was located there 7 wasn't -- yes, it certainly could have been $2.55 as well. 8 But kind of the same rationale in some of the counties in 9 Montana as well that we didn't raise them as high for the 10 same reason, there is no production, no milk -- no plants 11 nor milk production in those counties. 12 Q. Montana is almost all $2.55; am I correct? $2.50? 13 I can't see anything with the lighting here today. 14 A. Yes. 15 Q. $2.55; is that correct? 16 A. $2.55, correct. 17 Q. So -- 18 A. I was referring to just -- there's two or three 19 counties I think that are not at $2.55 in Montana. 20 Q. Okay. Well, I had other questions, too, on 21 Montana. 22 You talked about -- you mentioned, maybe last 23 week, that there's a state order in Montana. 24 Can you describe generally how you understand that 25 to work, if you know? 26 A. Okay. Right. There's -- there's three plants, 27 one owned by Darigold and two owned by us: Meadow Gold 28 plant in Great Falls and then Billings, and theirs is in 9596 1 Bozeman, so it's kind of a triangle. And that's a pocket 2 where the milk is actually produced. Some milk actually 3 is produced all the way close to the border in the north, 4 in Canada. 5 But the state order basically accounts for all the 6 milk produced within the state. They have a quota program 7 that is designed to kind of help establish and make sure 8 that the production stays within balance of what the 9 plants can sell. 10 Darigold's milk oftentimes is leaving out of state 11 going into Colorado, Utah, and Idaho, in packaged form, 12 sorry, to Costcos. 13 In the two plants that we own, almost is -- it is 14 exclusively being -- packaged products is being sold 15 within the state of Montana. 16 So the order basically announces a quota price and 17 then an excess price, which if they are over their quota, 18 then it's $1.50 less than what the quota price is. 19 Q. Do they use Federal Order price as a benchmark in 20 that program? 21 A. They do. Class I is equal to Class I. They only 22 have three classes: Class I, Class II, and Class III. So 23 Class I is unique -- or excuse me -- consistent with 24 Federal Order, but Class II and III is where they change 25 up their manufacturing. 26 Q. Okay. So again, the base zone, the $2.20 area for 27 Idaho, that's basically -- there's not a lot of milk 28 there. I'm just trying to square that with what we have 9597 1 heard previously where some area out in the West needed 2 $2.20 to get milk moving, but you are saying that's not 3 necessarily relevant to Idaho? 4 A. Uh-huh. That's correct. 5 Q. That would be more relevant to, I guess -- 6 A. Other areas. 7 Q. -- it abuts Washington and Oregon areas of $2.20? 8 I don't have the whole map in front of me. 9 MS. TAYLOR: I think that's it from AMS. Thank 10 you. 11 THE WITNESS: Thank you. 12 THE COURT: Are there any questions prompted by 13 the Agricultural Marketing Service questions and answers? 14 I see none. I would now invite redirect. 15 REDIRECT EXAMINATION 16 BY MS. HANCOCK: 17 Q. Good morning, Mr. Stout. 18 Nicole Hancock with National Milk. 19 I'd first like to just thank you for making the 20 trip back out here again for this. I appreciate that and 21 all the time you gave us last week. Just a couple of 22 questions. 23 You were asked some questions about whether 24 demands for Class I milk has increased in Colorado or not. 25 I want to shift that a little bit and say, 26 regardless of whether the demand has increased or not, 27 have the costs to dairy farmers who are supplying that 28 Class I milk, have those increased? 9598 1 A. Yes. They absolutely have. 2 Q. And that would include -- we have talked about 3 items like feed. Is that an example of some of the costs 4 that are increased, and maybe even disproportionally 5 increasing, in Colorado as compared to some of the 6 surrounding areas? 7 A. That is correct, yes. 8 Q. You -- on Friday when you were on the stand, you 9 were asked a question about whether you could just short 10 manufacturing milk that was provided from -- whether you 11 could short manufacturing milk. 12 Do you remember that line of questions? 13 A. Yes. And I apologize. I was thinking the 14 question that was asked, when I thought he referenced our 15 manufacturing, I interpreted that, that that was our own 16 DFA Fort Morgan plant. And absolutely, yes, we would take 17 milk away from that. 18 But when it comes to the other manufacturing, not 19 just Leprino, any other manufacturing client that we have 20 a contract with, we would not be able to short them. They 21 would have to be -- we would have to deliver the milk. 22 Q. And when you answered thinking that you were 23 referring to being able to short your own DFA plant, 24 that's part of the balancing that you do as a cooperative; 25 is that right? 26 A. That's right. 27 Q. And there's a cost associated with that as well? 28 A. Absolutely. 9599 1 Q. And you had some other questions where your 2 testimony regarding the recommendations for a differential 3 proposed by National Milk in the Colorado area was based 4 in part on some of the commercial or contractual 5 relationships in the area. Those questions then evolved 6 into whether DFA is making a recommendation regarding -- 7 regarding the price differentials in Colorado just based 8 on the Leprino contract. I just want to be clear about 9 this. 10 Is the differentials that are recommended in 11 Colorado and in those aligning areas, is that based 12 solely on a commercial relationship that DFA has with 13 Leprino? 14 A. Absolutely not. No. 15 Q. And -- 16 A. No, there's lots of factors. 17 Q. Yeah. And those are the factors that you have 18 discussed on Friday and then again in today -- 19 A. Yes. 20 Q. -- for the items. 21 And you listened to Mr. Gallagher's testimony 22 yesterday? 23 A. As much as I could when I was flying. 24 Q. Okay. And the items that he talked about as 25 justifications as well, those are all the reasons why 26 deviations from the model were proposed by National Milk; 27 is that fair? 28 A. That is correct. Yes. 9600 1 MS. HANCOCK: Your Honor, at this time we would 2 move for the admission of Exhibits 403 and 404. 3 THE COURT: Is there any objection to the 4 admission into evidence of Exhibit 403, also marked 5 NMPF-53? 6 There is none. Exhibit 403 is admitted into 7 evidence. 8 (Thereafter, Exhibit Number 403 was received 9 into evidence.) 10 THE COURT: Is there any objection to the 11 admission into evidence of Exhibit Number 404, also known 12 as NMPF-53A? 13 MS. McMURTRAY: Yes, Your Honor. Michelle 14 McMurtray, Office of the General Counsel, on behalf of the 15 Agricultural Marketing Service. 16 We do object to Exhibit 404, just because 17 Mr. Stout is not privy to the information. He -- he 18 didn't collect the information in the document, and 19 there's nobody to cross-examine on this document. 20 We do know that Mr. Stout's testimony relied on 21 this, and we are fine with the testimony that came in. 22 But we think that admitting the document for the reasons 23 previously stated is not appropriate. 24 THE COURT: Ms. Hancock, your response? 25 MS. HANCOCK: Yes, Your Honor. While I am very 26 sympathetic to the objection that was raised, and under 27 any kind of normal evidentiary standards in a civil 28 proceeding I would say that that's an accurate 9601 1 characterization of what would delineate admissible versus 2 inadmissible evidence. But it's not the standard that we 3 have for purposes of this hearing. 4 In this hearing, this is the source of the 5 information that -- that he used in order to support his 6 testimony that he talks about, and throughout the course 7 of this hearing we have been admitting the source data 8 documents for the weight that they should be given. 9 Now, certainly anybody could put evidence in that 10 suggests this information is inaccurate, but because this 11 was the basis underlying his testimony, throughout the 12 course of this hearing we have done that, and it would be 13 a departure to not allow Exhibit 404 into evidence where 14 we have, throughout the course of the 40-some days 15 already, been allowing that evidence into the record. 16 THE COURT: Anything further from Agricultural 17 Marketing Service or counsel? 18 MS. McMURTRAY: I think -- I certainly understand 19 Ms. Hancock's position. I think that we would just 20 continue to object just because there is nobody that we 21 can ask about the contents or the methodology used in this 22 document. 23 THE COURT: Thank you. 24 I'm going to treat this very similarly to other 25 cautions, and that is, to recognize that the author of 26 this document is not here to be cross-examined. 27 But I agree with Ms. Hancock that the proper way 28 for Mr. Stout to show where he got his information is to 9602 1 give us a copy of the document it came from. 2 And so I believe it should be in the record. And 3 I do accept into evidence, over that objection, and 4 with -- and mindful of the caution that was advised, 5 Exhibit 404, also known as NMPF-53A. 6 (Thereafter, Exhibit Number 404 was received 7 into evidence.) 8 THE COURT: And, Mr. English, you have exhibits? 9 MR. ENGLISH: I do, Your Honor. And when I 10 departed, I forgot 414, and you reminded me. 11 So I have Exhibit 405 from last Friday and 12 Exhibit 414 from today. 13 And I expect I'll hear from Ms. Hancock about 405, 14 but it's similar to the other exhibits which you have 15 admitted with -- there will be a witness who will very 16 briefly at some point just say, "I did author these." 17 THE COURT: I was hoping that would be brief when 18 we get to that. But I'm glad that somebody in your team 19 is keeping track of which ones you will say that about. 20 Exhibit 405, is there any objection to my 21 admitting into evidence Exhibit 405, other than the 22 caution that Mr. English has referenced? It's also marked 23 MIG-60. 24 There is no additional objection. Exhibit 405 is 25 admitted into evidence. 26 (Thereafter, Exhibit Number 405 was received 27 into evidence.) 28 THE COURT: Is there any objection to the 9603 1 admission into evidence of Exhibit 414, also MIG 2 Exhibit 59? 3 There is none other than my concern that the 4 mountains are not depicted, and therefore, I admit into 5 evidence Exhibit 414. 6 (Thereafter, Exhibit Number 414 was received 7 into evidence.) 8 THE COURT: Mr. Stout, we all thank you. 9 THE WITNESS: Thank you, Your Honor. 10 THE COURT: You may step down. 11 Now, I'd like to take a five-minute stretch break, 12 but before we do, I want to confirm with Ms. Hancock who 13 will be the next witness. 14 Will it be Mr. Gallagher? 15 MS. HANCOCK: Yes. 16 THE COURT: Yes. So let's take a five-minute 17 stretch break. 18 Please be back ready to go at 9:15. 19 (Whereupon, a break was taken.) 20 THE COURT: Let's go back on record. 21 We're back on record at 9:17. Please state and 22 spell your name. 23 THE WITNESS: My name is Edward Gallagher, 24 E-D-W-A-R-D, G-A-L-L-A-G-H-E-R. 25 THE COURT: You remain sworn. 26 THE WITNESS: Thank you. 27 THE COURT: And, Mr. Miltner, please identify 28 yourself, and you may proceed. 9604 1 MR. MILTNER: Thank you, Your Honor. 2 My name is Ryan Miltner, and I represent Select 3 Milk Producers. 4 EDWARD GALLAGHER, 5 Having been previously sworn, was examined 6 and testified as follows: 7 CROSS-EXAMINATION (Cont'd) 8 BY MR. MILTNER: 9 Q. So, Mr. Gallagher -- 10 A. Good morning, Mr. Miltner. How are you today? 11 Q. I'm well. How are you? 12 A. Fine. Thank you. 13 Q. So the risk of being on the stand overnight is 14 that it sometimes gives the attorney the opportunity to 15 come up with a bunch more questions, but other times it 16 allows them to refine their stuff and call out a bunch of 17 stuff. And fortunately, for both of us, it's the latter. 18 You testified, I think it was -- I think it was in 19 response to a question, about option strategies for 20 Class I handlers. 21 Do you recall that statement that you made? 22 A. Yes. I recall testifying about that. 23 Q. And you described the use specifically of options 24 as a potential risk management tool for Class I handlers. 25 And my question is hopefully one of clarification. 26 If there were a Class I handler that wanted to 27 hedge their milk price risk, and they wanted to use 28 options to do so, if we had a higher-of Class I mover, 9605 1 they would be required to buy twice as many options as 2 they would if we used a mover that was an equal weight of 3 Class III and Class IV; is that correct? 4 A. Yes, that's correct. 5 Q. You also -- and I think this was in response to 6 some questioning -- you referred to livestock feed and the 7 increases in livestock feed as a part of a justification 8 for increasing the Class I differentials, correct? 9 A. That's correct. 10 Q. And I believe your response was specific to DFA's 11 exhibit to the Western region that it was specific to? 12 A. I was, as I recall, responding to 13 cross-examination questions about our proposed changes in 14 the state of Colorado. 15 Q. So you were speaking specifically to feed costs in 16 Colorado? 17 A. At that time, yes. 18 Q. Okay. Did you or the group you have worked with 19 to develop the Class I differentials look at the feed 20 costs in other regions of the country outside of Colorado? 21 A. We have. So referring back to when I testified on 22 Make Allowances, I referenced information that would have 23 been submitted by the Frazer, LLP, accounting firm, and 24 Nietzke Faupel from your area, that talked about costs of 25 production and costs of feed. And I also -- we entered 26 into as exhibits, and I testified about, USDA data on cost 27 of production and prices of feed. 28 Q. When you refer to Nietzke Faupel being in my area, 9606 1 that's -- for the purpose of the record, that's the 2 Order 33, the Michigan/Ohio area, correct? 3 A. Yes. 4 Q. And Frazer has clients across the country, but 5 more in the Western part of the U.S., correct? 6 A. That's my understanding. 7 Q. Now, in previous hearings on formulas there was 8 litigation afterward, and Select was part of that. And 9 one of the issues we raised was whether USDA adequately 10 considered the costs of feed in establishing the formulas 11 and Make Allowances specifically. 12 So that information's been put into the record. 13 You have referenced it with respect now to the Class I 14 differentials. 15 How would you propose USDA take that data into 16 consideration when it makes its findings here? 17 A. So the Agricultural Marketing Agreement Act 18 specifically states that the Secretary must consider -- I 19 don't know if I have this quoted exactly, but everybody 20 knows what I'm referencing, at USDA anyways -- the costs 21 of livestock feed and -- 22 THE COURT: The cost of what? 23 THE WITNESS: I'm sorry, livestock feed. And that 24 the pricing emanating from the Federal Orders have to be 25 high enough to assure an adequate supply of fluid milk. 26 And so it -- it's -- as we -- as they put together 27 each piece of these five topics that we have been hearing 28 in their recommendation and eventual final decisions, they 9607 1 have to sort of put all the pieces together in a way that 2 meets the requirements of the Act. 3 And so as we think about Class I differentials, 4 that becomes part of the determination, is there a milk 5 price being paid to dairy farmers under the Federal Orders 6 to assure an adequate supply of milk? 7 So there -- it's connected in that way, in my 8 opinion. 9 BY MR. MILTNER: 10 Q. Was the cost of feed and the increases in cost of 11 feed considered when the National Milk committees looked 12 at the model differentials and any adjustments to that for 13 the Southwest order? 14 A. I don't know the answer to that. I -- I -- I did 15 not participate in discussions on developing the price 16 surface in the Southwest, that I recall hearing 17 conversations about livestock feed prices, but I did not 18 participate in very many meetings for the determination of 19 the price surface for that region. 20 Q. And were livestock feed prices specifically part 21 of the considerations when the differentials for Weld 22 County, Colorado, and other points in Colorado were 23 established for Proposal 19? 24 A. Yes. 25 Q. At the bottom of page 4 of your testimony there's 26 a phrase, and it's been used in several witnesses' 27 statements. I'd like to understand what you intend when 28 you use this phrase, and the phrase is "blend price 9608 1 equity." 2 A. Could you help me find where -- 3 Q. Yeah, it's at the very bottom of page 4. 4 THE COURT: We're in Exhibit 407? 5 MR. MILTNER: Yes, Your Honor. 6 And the sentence as it's -- 7 THE WITNESS: Oh, I see it. Yes, the last 8 sentence on that page? 9 BY MR. MILTNER: 10 Q. Yeah. And for context, and for the record, it 11 reads, "For Colorado, the divergence from the model's 12 result is modest and is needed to maintain blend price 13 equity relative to current Colorado PPD and blend price 14 levels." 15 A. So specifically what I mean with blend price 16 equity in that sentence, in this statement, is an 17 equitable value of a blend price, current, compared to 18 what it's estimated to be with our proposed price surface, 19 only taking into account the changes from our proposed 20 price surface and no other proposals that are being heard 21 at this hearing. 22 So equitable -- equitable meaning if the current 23 blend price -- let me back up -- the current PPD. Let me 24 back up into the current PPD, because, obviously, maybe -- 25 maybe that would have been a better statement than blend 26 price, current PPD. 27 If the current PPD is $1 right now, that after we 28 overlay our new price surface at the -- the PPD in -- in 9609 1 the areas in Colorado should be at least $1. That would 2 be the equity part I'm speaking to. 3 Q. You made a statement in response to 4 cross-examination that the milk in Weld County, Colorado, 5 is not fungible. 6 And I wonder if you could expand on that and 7 explain why that, I assume conventional milk, in Weld 8 County is not fungible? 9 A. As I have explained in, I think, a number of times 10 yesterday relative to cross-examination, and Mr. Stout has 11 covered as well, that we have contractual arrangements 12 with our -- our valued customer Leprino Foods, who has a 13 cheese plant in Greeley, Colorado. And a lot of that milk 14 going to that plant would be produced in Weld County, is 15 my understanding, but regardless it is all of Colorado. 16 And so the contractual arrangements require us to 17 supply the plant. And so we don't get to choose if there 18 is a demand spike at another plant anywhere, that we don't 19 get to choose to take the milk out of Leprino to satisfy 20 that demand. 21 Q. So you also offered some testimony that attempted 22 to quantify how much milk in the U.S. system is truly 23 surplus or reserve, correct? 24 A. I did. 25 Q. And I think the number -- 26 A. Thank you for listening. I appreciate that. 27 Q. So I think the number you had provided was 2.5%. 28 Did I recall that correctly? 9610 1 A. Let me double check that. Give me a moment. 2 I believe that's correct. I can -- 3 (Court Reporter clarification.) 4 THE WITNESS: Oh, I'm sorry. How is that? 5 Okay. I can't find my note, but I believe it was 6 2.5%. 7 BY MR. MILTNER: 8 Q. Okay. Well, let's assume it was. And if it's 9 somewhat different, I don't think it's particularly 10 material to -- 11 A. Okay. 12 Q. -- the questions I want to ask. 13 A. Okay. 14 Q. Presumably every cooperative has contracts to 15 supply customers, right? 16 A. Most likely, yeah. Yes. 17 Q. And as part of your fiduciary obligations to your 18 owners, to your members, the co-op would strive to achieve 19 the highest return possible for the sales of the members' 20 milk, correct? 21 A. So I can't speak to how other cooperatives market 22 their milk. Obviously DFA is going to do that for our own 23 farmer-owners. 24 Q. Okay. And Select would do the same. 25 So -- 26 A. Is that your testimony? 27 Q. I'm not testifying. 28 A. Just asking. It sounds like you are. 9611 1 Q. Well, so in order to achieve that highest 2 return -- or wouldn't one of DFA's goals be to provide 3 milk to plants from the closest source and minimize 4 transportation costs? 5 A. That would be how we would generally operate our 6 business, yes. 7 Q. So the Leprino plant in Weld County, is it -- you 8 have an agreement to provide milk to that plant, and your 9 goal is to get the closest milk to that plant for its 10 supply, right? 11 A. That's correct. 12 Q. If you didn't have enough milk close in to the 13 plant, you could deliver milk from a farm that was more 14 distant, but it might come at a higher cost, correct? 15 A. It would come at a higher cost. 16 Q. And similarly, the milk that's produced in Weld 17 County, even though its closest plant would be the Leprino 18 plant, there's nothing that would prevent that milk from 19 being delivered to a further away Class I plant, but you 20 would incur additional cost, correct? 21 A. Could you repeat that question? 22 Q. Sure. 23 Milk in Weld County which would normally be 24 delivered to Leprino as an optimal delivery point would 25 still be an acceptable delivery to a Class I plant further 26 out, correct? 27 A. If that milk was available to ship to another 28 plant, that would be an acceptable -- that -- that -- 9612 1 those would be acceptable loads of milk to deliver 2 elsewhere. 3 Q. So when you say that the milk in Weld County is 4 not fungible, that's not entirely accurate in that the 5 milk itself is -- can be delivered to any plant and meet 6 the needs of these plants for its manufacturing purpose, 7 correct? 8 A. I'm not sure about that. 9 Q. Why? 10 A. I'm not -- now you are isolating our National Milk 11 marketing system down to one county, and so your question 12 isn't realistic. 13 Q. Well, you have testified that that milk is not 14 fungible, and my -- my question is, is it truly not 15 fungible or is it merely economically inconvenient to move 16 that milk elsewhere? 17 A. I'm going to stick with it's not fungible. 18 Q. How do you define "fungible"? 19 A. It's available, we need to meet the supply of 20 Leprino and that plant. The demand for that plant exceeds 21 more than half the milk produced in Colorado, and so that 22 Colorado milk supply goes to that plant. We have got a -- 23 we have got a National Milk marketing network, and it 24 has -- other plants may need milk, we would have to 25 look -- we'd -- we -- we'd look through our entire milk 26 marketing network to see if we had milk available. 27 Q. How is that situation different from the situation 28 Land O'Lakes would have for its customers? 9613 1 A. I don't know. I don't work for Land O'Lakes. I 2 don't know their milk marketing situation. 3 Q. You believe that DFA's considerations in 4 optimizing milk deliveries to its plants is unique among 5 all co-ops? 6 A. Yeah, because we have got a National Milk 7 marketing system. We're the largest Class I processor, so 8 we've got challenges that are different than any other 9 cooperative anywhere on the face of the earth. 10 Q. So it's because you are the largest co-op in the 11 U.S., with the largest manufacturing network in the U.S., 12 and you are the largest bottler in the U.S., and that 13 makes you uniquely -- that puts you in a unique position 14 to optimize milk deliveries? 15 A. It -- it -- I didn't say that. I said it creates 16 challenges that are different than any other milk marketer 17 anywhere in the world. 18 Q. And as a result, the regulations should be 19 tailored to recognize that unique situation? 20 A. We're not asking for that. 21 MR. MILTNER: Thank you. 22 THE COURT: Other cross-examination of 23 Mr. Gallagher? 24 I see no one. I invite questions from the 25 Agricultural Marketing Service. 26 MS. TAYLOR: Good morning. 27 THE WITNESS: Good morning, Erin. How are you 28 today? 9614 1 MS. TAYLOR: I'm good. And honestly, I don't have 2 any questions to ask. 3 THE WITNESS: Well, thank you. 4 MS. TAYLOR: I don't know -- yeah. We tried 5 really hard, but I think through all your 6 cross-examination, that's covered all my questions. And 7 so I'm not trying to drag this out any longer in total of 8 the hearing. 9 So AMS has no questions. 10 THE WITNESS: Thank you. 11 THE COURT: That works out lovely. 12 Redirect. 13 MS. HANCOCK: Every day brings new opportunities. 14 REDIRECT EXAMINATION 15 BY MS. HANCOCK: 16 Q. Mr. Gallagher, you had some questions on your 17 cross-examination, and others have as well, and they were 18 posed as, if the model posed a result for Class I 19 differentials, why did you disagree with it? 20 Do you understand that the model proposes any 21 Class I differentials? 22 A. Yeah, the model doesn't propose anything. It 23 provides a set of output to use as the basis to develop a 24 pricing surface. 25 Q. So -- and that's based on what Dr. Nicholson said; 26 is that right? 27 A. That is correct. 28 Q. And Dr. Stephenson as well? 9615 1 A. That is correct. 2 Q. In Colorado, did DFA build a big cheese plant? 3 A. It did not. 4 Q. Who built the big cheese plant? 5 A. Our valued customer, Leprino Foods. 6 Q. And DFA responded to the needs of that plant in 7 order to service it? 8 A. We did. 9 Q. And how did you respond to Leprino building that 10 plant? 11 A. We worked with our existing farmer-owners in 12 Colorado to work with them to grow their milk production, 13 and we had interactions with dairy farmers outside of the 14 state and encouraged some of those dairy farmers to move 15 or build an operation within the state of Colorado to help 16 supply the Leprino plant. 17 Q. And you were posed some questions yesterday about, 18 well, you could just terminate that contract, right? 19 Do you remember that? 20 A. I do remember that malarky. 21 Q. And you didn't want to answer that question. 22 I'm wondering if you can give me some insights as 23 to why you think it's malarky? 24 A. We have got a strong long-term relationship for 25 that -- that business. Leprino Foods, the demand for the 26 wonderful product that they produce, is growing to the 27 point that they are in the process of constructing a new 28 cheese plant in Lubbock, Texas. And so they -- they -- 9616 1 that plant in Greeley is going to be operating for a long, 2 long time. 3 Q. And is it your understanding that the Federal 4 Order is designed to do anything to interfere with growth 5 and development of new plants that would service the 6 Class I markets? 7 A. No. It has -- it has no bearing on the business 8 decisions to build plants or... 9 Q. You also, yesterday, talked about alignment when 10 you were looking at the model. 11 I'm wondering if you could talk about where those 12 alignments occurred, especially as it pertains to those 13 regional lines between different geographical areas? 14 A. Yeah. Going back to the testimony and the 15 cross-examination on that topic from yesterday, the 16 regional committees started with sort of a sense of 17 alignment with the anchor cities, and then went into the 18 regional groups to develop the rest of the price surface, 19 and then came back together to specifically make sure 20 those regional boundaries were aligned in an appropriate 21 way. 22 And so there was meetings within -- with -- with 23 between the groups, and then with everybody together, to 24 assure that there would be an appropriate alignment 25 wherever those boundaries came together. 26 Q. And there are instances where price differentials 27 that are proposed by National Milk are higher in areas 28 where DFA has plants, and also lower in areas where DFA 9617 1 has plants. 2 Can you speak to whether any of the work that you 3 were doing, or that your other task force members were 4 doing, was designed to provide DFA or any other 5 cooperative a competitive advantage over other competitors 6 that are throughout the country? 7 A. Yeah. That's another line of malarky that I have 8 heard in this hearing. None of the -- none of the 9 cooperatives, none of the people for any of the 10 cooperatives that worked on this project looked to try to 11 do something favorable for a plant that they supply or a 12 plant that they own. We worked to try to figure out what 13 would be the best price surface for the U.S. dairy 14 industry. That's what we came up with. 15 Q. And -- and we were talking yesterday about that 16 someone on your staff, or somebody within DFA, was helping 17 to maintain the master list of the spreadsheet. 18 Was that a substantive role or just a keeper of a 19 spreadsheet? 20 A. Yeah. That was just a keeper of the spreadsheet. 21 We provided a service to National Milk. They asked us to 22 help them on that particular aspect because we had a 23 mapping package that made it easy for us to map the 24 counties into various colors and various different ways 25 that facilitated our interactions and discussions. It was 26 easier to see what we had done after we got the maps back 27 and looked at what the colors looked like and see how 28 things matched up. It was -- so it was just a -- it was 9618 1 just a processing function that we did. And then when we 2 got the information, we provided it to National Milk, and 3 they distributed it from there. 4 Q. And there were a couple of different points in 5 time in which National Milk provided it to the USDA, which 6 is what MIG was able to print off of USDA's website and 7 put in as Exhibits 300 and 301. 8 Is that what you understood? 9 A. Yeah. Yes. And we -- the National Milk Producers 10 Federation has been very open and upfront along the way, 11 sharing our thoughts on what we wanted to do with the 12 price surface before we even had it finalized, so that the 13 entire industry had a -- had knowledge of what we were 14 thinking about. It was a very open, fair, honest process, 15 and I'm proud that we did it that way. 16 Q. And you understand that there's legal restrictions 17 that prevent outside individuals from talking about and 18 sharing costs and pricing information unless they fall 19 within some kind of an exemption; is that right? 20 A. Yes. 21 Q. And those would -- those were lines that National 22 Milk was careful to honor and respect; is that fair? 23 A. That is fair, yes. 24 Q. And I want to talk a bit about Michigan. You were 25 asked some questions about Michigan as it compares to 26 Colorado. 27 Is there a difference between the markets in 28 Michigan and Colorado? 9619 1 A. Yes, there is. In general, Michigan's milk supply 2 is greater than the demands of milk from milk plants in 3 the state of Michigan, and so on a regular basis, milk 4 from Michigan leaves to -- the state to meet demands in 5 other parts of the United States, principally in Ohio. 6 Q. And I think Mr. Parks testified yesterday about 7 how Michigan is a reserve supply for other states and -- 8 like Ohio, like you mentioned. 9 How does that then differ from Colorado, and maybe 10 Weld County in particular? 11 A. Yeah. So -- so Colorado and Weld County, Colorado 12 is -- it -- the milk produced in Colorado principally 13 stays to meet the demands in the state of Colorado. And 14 there is -- as Mr. Stout has previously testified to, 15 there's no regular shipments of Colorado milk that leave 16 the state. So that's vastly different than the situation 17 in Michigan. 18 Q. And when we talk about increasing differentials, 19 is that, in part, to help compensate dairy farmers for the 20 increased cost of supplying milk to the Class I market? 21 A. Yes, it is. 22 Q. And other than being able to help -- increasing 23 the differentials, are there other ways that the dairy 24 farmers have control over their markets in order to recoup 25 the additional costs that they have incurred over the last 26 20 years in servicing that market? 27 A. Very, very little. Very little. There's 28 opportunities to potentially negotiate over-order 9620 1 premiums, but as has been well testified to at this 2 hearing, those are challenging, difficult, no certain 3 outcomes. I think Mr. Parks did a fantastic job sort of 4 describing the challenges with that option. But beyond 5 that, no, they -- they don't. 6 As there -- and as we frequently see, and we have 7 seen for this year, their production costs are 8 significantly higher as a result of all the challenges, 9 and the global economy with inflation, that also impacted 10 the input prices of dairy farms. We have seen the demand 11 for biofuels increase. The price of livestock feed much 12 more than it would have been in the year 2000. And dairy 13 farmers do not have the opportunity to pass on those costs 14 to their buyers of milk as they escalate like they have 15 over the last few years. 16 Q. And when you described the challenges that dairy 17 farmers have with respect to negotiating over-order 18 premiums, is that -- are you referring to that disparity 19 in bargaining power between the dairy farmers and the 20 handlers? 21 A. And the retailers and the timing. As Mr. Parks 22 described, at best, it takes a while to be able to have 23 adjustments to over-order premiums. And while that's 24 happening, livestock feed prices escalate on a daily 25 basis. 26 Q. And I want to contrast the dairy farmer's 27 inability to recoup its costs other than by increasing 28 these -- the prices, contrast that with the handlers. 9621 1 Do the handlers have levers and pulleys that they 2 have control over that will allow them to absorb a price 3 differential increase? 4 A. More so than dairy farmers do, for sure. 5 Q. And can you tell me what some of those levers are 6 that they would have control over in order to absorb or 7 pass along those costs? 8 A. They -- they can make adjustments in their 9 manufacturing processes. They can make changes in the 10 inputs they are using to -- along with their milk to 11 purchase -- or excuse me -- along with their milk to 12 produce the product. And most significantly, they have 13 a -- the ability to pass their higher prices and higher 14 costs on to their customers. 15 Q. And -- and let's talk about the levers and the 16 pulleys that the ultimate cust- -- that the retail outlets 17 have for absorbing a price increase that could be passed 18 on by the handlers. 19 Do they also have different avenues within which 20 they could absorb or pass along those costs if the price 21 differentials are increased? 22 A. They certainly do. So they are the ultimate -- 23 the ultimate deciders of whether these prices get passed 24 along to consumers or not. Dairy farmers don't have a say 25 in that, and the handlers don't have a say in that. 26 The retailers have different strategies, and then 27 one of those strategies can just be pass the cost 28 increases, price increases on, or not. And there's all 9622 1 kinds of different strategies that are -- are used at 2 retail. You know, no one retailer is the same. 3 And, you know, I just -- they have levers they can 4 pull to cover something that would be like a -- you know, 5 if we increased Class I differentials by $1.50, which is 6 probably about 12 or $0.13 a gallon, they got a lot of 7 levers they can pull on -- on to figure out how to handle 8 that. 9 Q. Okay. So they could absorb the costs or deduct it 10 out of their own margins as an option; is that right? 11 A. Yes. 12 Q. Or they could -- they could take it as a loss 13 leader, as we have heard some people testify, that some 14 retail outlets do as part of an overall shopping draw to 15 get shoppers into their stores? 16 A. That's correct. To get -- a loss leader to get 17 shoppers into their stores, so that then those shoppers 18 would be there and purchase more higher margin product to 19 earn more of a profit for the retailer. 20 Q. And yesterday, I think your line of 21 cross-examination questions started off by, you were asked 22 about, aren't you really just a risk -- risk management 23 person. 24 Do you recall something to that effect? 25 A. I do recall something to that effect. 26 Q. And you have been designated as a -- and 27 recognized in this proceeding as an expert in Federal Milk 28 Marketing Orders, as well as risk management; is that 9623 1 right? 2 A. And milk pricing, yes. 3 Q. Okay. And milk pricing. Thank you. 4 MS. HANCOCK: I have no further questions. 5 Mr. Gallagher, I really appreciate your time. 6 Your Honor, we would move to admit Exhibits 407 7 through 411. 8 THE COURT: Before we get to exhibits, are there 9 questions that are prompted by the redirect? 10 MS. VULIN: Just one. And I -- I would have 11 raised it earlier had I seen. 12 So the subject of your testimony -- 13 THE COURT: Stop. Stop for just a minute. 14 MS. VULIN: Yes. 15 THE COURT: You are? 16 MS. VULIN: Ashley Vulin with the Milk Innovation 17 Group. 18 THE COURT: Thank you. You may proceed. 19 RECROSS-EXAMINATION 20 BY MS. VULIN: 21 Q. First page of your testimony, Exhibit 407, 22 "Subject: Class I and II Differentials." But we didn't 23 hear any discussion of Class II. 24 I'm just curious, was that intentionally omitted? 25 Will we come back to that? 26 A. I am not here to testify on Class II 27 differentials. I have that as "Subject: Class I and II 28 Differentials" because that's the topic of the Class I 9624 1 differentials as designated by USDA on their website. 2 Q. You are referring to Topic 5? 3 A. Topic 5, yeah. That's why I have that there. 4 Q. Okay. 5 A. I don't have testimony on Class II differentials. 6 Q. Thank you. Just wanted to clarify. 7 MS. VULIN: Nothing further. 8 THE WITNESS: Thank you. 9 THE COURT: Are there any other questions of 10 Mr. Gallagher before I turn to the exhibits? 11 I see none. 12 Is there any objection to the admission into 13 evidence of Exhibit 407, also NMPF-54? 14 There is none. Exhibit 407 is admitted into 15 evidence. 16 (Thereafter, Exhibit Number 407 was received 17 into evidence.) 18 THE COURT: Let me get 408. 19 Is there any objection to the admission into 20 evidence of Exhibit 408, which is also NMPF-54A? 21 There is none. Exhibit 408 is admitted into 22 evidence. 23 (Thereafter, Exhibit Number 408 was received 24 into evidence.) 25 THE COURT: Is there any objection to the 26 admission into evidence of Exhibit Number 409, also 27 NMPF-54B, as in boy? 28 There is none. Exhibit 409 is admitted into 9625 1 evidence. 2 (Thereafter, Exhibit Number 409 was received 3 into evidence.) 4 THE COURT: Is there any objection to the 5 admission into evidence of Exhibit Number 410, also 6 NMPF-54C, like cat? 7 There is none. Exhibit 410 is admitted into 8 evidence. 9 (Thereafter, Exhibit Number 410 was received 10 into evidence.) 11 THE COURT: Is there any objection to the 12 admission into evidence of Exhibit Number 411, also 13 NMPF-54D, as in David? 14 There is none. Exhibit 411 is admitted into 15 evidence. 16 (Thereafter, Exhibit Number 411 was received 17 into evidence.) 18 THE COURT: Now, MIG had two exhibits. 19 MS. VULIN: Thank you, Your Honor. 20 MIG-412 and MIG-413, we think those documents 21 would be appropriate to be judicial noticed as official 22 documents of USDA. Or of the Central Marketing Order, I 23 should say. 24 THE COURT: All right. Do you want them admitted 25 into evidence in the normal fashion as well? 26 MS. VULIN: Yes, please. 27 THE COURT: All right. Is there any objection to 28 the admission into evidence of Exhibit Number 412, also 9626 1 MIG-62? 2 There is none -- oh, Ms. Hancock. 3 MS. HANCOCK: Your Honor, I don't have any 4 objection to if you want to take judicial notice of them. 5 I don't believe that they have established the proper 6 foundationary support to admit them in through 7 Mr. Gallagher. They are not his documents. In fact, I 8 think he qualified numerous times that he didn't have any 9 familiarity with the content. 10 So if it is for judicial notice, no objection. 11 But if it's for admissibility purposes, we would object on 12 that basis. 13 THE COURT: All right. Would anyone else like to 14 be heard on that topic? 15 I agree with that. So I do take judicial 16 notice -- oh, excuse me, I don't have that capacity. I 17 take official notice, is the proper thing for an 18 Administrative Judge, take official notice of Exhibit 412, 19 also Exhibit MIG-62. And, of course, it's available for 20 any other witness that might want to testify about it. 21 MS. VULIN: May I respond, Your Honor? 22 THE COURT: Yes. 23 MS. VULIN: So there is a footnote at the bottom 24 that identifies the source of the document. It does come 25 from USDA. And the witness did testify that he was aware 26 of documents of this type, although he had not seen these 27 specific documents before. 28 And I believe that given the testimony that has 9627 1 come in on them, that they would be appropriate for 2 exhibits, and as they have already been marked, to be 3 admitted that way. 4 THE COURT: I thought that we had Mr. Gallagher's 5 testimony from these documents. 6 MS. VULIN: We did. We did. And for that reason, 7 that's why we would move for them to be admitted as 8 exhibits. 9 THE COURT: And it was during your 10 cross-examination? 11 MS. VULIN: Correct, Your Honor. 12 THE COURT: Because I remember being on page 2, 13 trying to keep up. 14 MS. VULIN: And given the testimony that was 15 covered on these documents, we think they should be 16 admitted as official exhibits so that they can be 17 referenced appropriately. 18 THE COURT: Ms. Hancock, I will hear from you 19 again. 20 MS. HANCOCK: Your Honor, they're still marked and 21 they're designated, so they can be referenced. There 22 is -- and, again, I don't have any objection to them, to 23 you taking judicial notice or official notice of them. 24 But I don't believe that they have said that they have 25 satisfied the evidentiary foundation requirements for 26 authenticity and for the substantive nature of the 27 documents sufficient to admit them in as evidence in this 28 record. 9628 1 I don't think that there's any problem with 2 including them in the record as judicial notice or just 3 because they are marked, but that is different than 4 admitting them as official evidence, unless they can bring 5 somebody to lay the proper substantive foundation. 6 He didn't rely on this information. He wasn't 7 familiar with this information. When posed with questions 8 about whether -- what the content of the information could 9 be interpreted to be, he had no information to be able to 10 provide that. 11 So for those reasons, I don't believe that it's a 12 proper admissible document. But, again, I mean, we might 13 just be talking semantics here. I think it's perfectly 14 fine if they want to have judicial notice taken of these 15 documents. 16 MR. HILL: Your Honor, Brian Hill from the USDA. 17 THE COURT: Yes, Mr. Hill. 18 MR. HILL: From the government's position, these 19 are documents that we acknowledge are our documents. So 20 from our perspective, it's either/or. We don't -- we 21 don't have a position either way, whether you take it 22 through official notice or accept it. But we do 23 acknowledge that these documents are authentic government 24 documents. 25 THE COURT: Thank you. 26 MS. VULIN: And one final point, Your Honor. The 27 witness did rely on Exhibit 54B, which is Central 28 Marketing Area -- is a similar price announcement issued 9629 1 by the Central Marketing Area. So documents relied upon 2 and incorporated into this witness's testimony are part 3 and parcel of the same -- within the same vein as the 4 document being admitted by MIG. 5 THE COURT: So I have a question for you, 6 Ms. Vulin. In looking at Exhibit 412, I wasn't aware that 7 Dr. Nicholson was a Market Administrator? 8 MS. VULIN: Different Nicholson -- it's not Chuck 9 Nicholson. This is Donald Nicholson. 10 THE COURT: Okay. Yeah. 11 But this was issued by a USDA Market 12 Administrator, correct? 13 MS. VULIN: Yes, Your Honor. And with Mr. Hill's 14 statement authenticating it, I think we have solved the 15 issue of any objection of authentication of the document. 16 THE COURT: I think so, too. I think these kinds 17 of publications come into evidence even if there are 18 errors in them, because people can bring that up if they 19 have any reason to believe they are not accurate. 20 So I do admit into evidence, over objection, 21 Exhibits 412 and 413. 22 So Exhibit 412 is admitted into evidence. That is 23 MIG-62. 24 (Thereafter, Exhibit Number 412 was received 25 into evidence.) 26 THE COURT: And Exhibit 413 is admitted into 27 evidence. That is MIG-63. Thank you. 28 (Thereafter, Exhibit Number 413 was received 9630 1 into evidence.) 2 MS. VULIN: Thank you, Your Honor. 3 THE COURT: Now it's time for a 15-minute break, 4 but first, Ms. Hancock, would you tell us who our next 5 witness will be? 6 MS. HANCOCK: Your Honor, we are going to finish 7 the cross-examination of Dr. Peter Vitaliano. But given 8 the speed with which we're moving today, it might be 9 helpful if MIG could provide us with their witnesses 10 because we will only have one more. 11 THE COURT: I am amazed that you think we're going 12 to run out of witnesses today. 13 MR. ENGLISH: Your Honor, first of all, the other 14 one is Mr. Sims, and I think that's a very long 15 cross-examination. There's also the question about his 16 direct on part 3. 17 We struggled to get witnesses here for today, 18 learning last week there were other witnesses -- I don't 19 want to go into who -- there are no MIG witnesses today. 20 There are no IDFA witnesses today. It may be we get to 21 4:30 and we don't have a witness. 22 But the reality is, there were witnesses who asked 23 to testify today back in mid-November who, through a 24 series of e-mails, it was suggested to them, you can 25 either come later this week or in January. Not all of 26 them were IDFA witnesses, not all of them were MIG 27 witnesses. 28 So we'll go today. I suspect we're going to get 9631 1 pretty close, if not to 5 o'clock. 2 THE COURT: What day do we have our farmer coming? 3 MS. TAYLOR: Tomorrow. 4 MR. ENGLISH: Tomorrow. 5 THE COURT: Tomorrow. 6 Okay. If Mr. Sims is going to be on the stand, I 7 suspect we have enough until 5:00. 8 Please be back and ready to go at 10:20. We 9 recess at 10:04. 10 (Whereupon, a break was taken.) 11 THE COURT: Let's go back on record. 12 We're back on record at 10:22. 13 Please state and spell your name. 14 THE WITNESS: Peter Vitaliano, V as in Victor, 15 I-T-A-L-I-A-N-O, first name P-E-T-E-R. 16 THE COURT: Thank you. You remain sworn. 17 THE WITNESS: Thank you, Your Honor. 18 PETER VITALIANO, 19 Having been previously sworn, was examined 20 and testified as follows: 21 THE COURT: You're welcome. 22 We are resuming your testimony on what topic? 23 THE WITNESS: On NMPF Proposal 19. 24 THE COURT: Thank you. 25 Ms. Hancock, again, identify yourself before you 26 proceed. 27 MS. HANCOCK: Nicole Hancock on behalf of National 28 Milk. 9632 1 DIRECT EXAMINATION 2 BY MS. HANCOCK: 3 Q. Dr. Vitaliano, thank you for returning to the 4 stand. 5 Just to recap where we were so our record is 6 complete here. Sometime in early October you had kicked 7 us off on Proposal 19 for National Milk and put in your 8 written testimony in Exhibit 299, and then you had also 9 put in some -- the proposed map as well. 10 At thi time, we interrupted your cross-examination 11 to take on some other witnesses who needed to go, and we 12 are just now making our way back to you to finish your 13 cross-examination. 14 But before we return to cross-examination, there 15 were a couple, four corrections that we need to make in 16 Exhibit 299, and want to update and provide an updated map 17 so that we can be as efficient as possible. 18 Is that what you understood where we left things? 19 A. Yes. 20 MS. HANCOCK: Your Honor, if the -- I know the 21 witness doesn't need Exhibit 299, but for our record copy, 22 we're going to make four corrections to Exhibit 299, and 23 then we have an additional exhibit that we would like to 24 mark. 25 THE COURT: All right. I'm going to go off record 26 while we do these things, and then we'll memorialize what 27 we have done when we're back on. 28 We'll go off record at 10:24. 9633 1 (An off-the-record discussion took place.) 2 THE COURT: Let's go back on record. 3 We're back on record at 10:26. 4 I have borrowed a record copy of 299, which I 5 promise to give back, and I have marked the new map as 6 Exhibit 415. 7 (Thereafter, Exhibit Number 415 was marked 8 for identification.) 9 THE COURT: And do you want to give me an NMPF 10 number? 11 MS. HANCOCK: That is NMPF Exhibit 109. 12 THE COURT: Tell me again. 13 MS. HANCOCK: 109. 14 THE COURT: Thank you. All right. 15 And, Dr. Vitaliano, do you have in front of you a 16 copy of Exhibit 299 and a copy of Exhibit 415, also known 17 as NMPF-109? 18 THE WITNESS: Yes, I have a paper copy of one; I 19 have a copy on my computer of the other. 20 THE COURT: Excellent. 21 Ms. Hancock, you may proceed. 22 MS. HANCOCK: Thank you, Your Honor. 23 BY MS. HANCOCK: 24 Q. Dr. Vitaliano, I want to start with the 25 corrections in Exhibit 299 that you would like to make. 26 So Exhibit 299 is your written testimony related 27 to Proposal 19; is that correct? 28 A. That's correct. 9634 1 Q. And then attached as an appendix to that testimony 2 is a list of the counties that are -- and the price 3 differentials that are being proposed by National Milk in 4 Proposal 19; is that correct? 5 A. That's correct. Those are submitted as our 6 proposed regulatory language. 7 Q. Okay. And you would like to make four corrections 8 as previously testified by Mr. Sims and Dr. Eric Erba? 9 A. That's correct. 10 Q. Okay. Where is the first change? 11 A. The first change is on page 57 of my original 12 statement that was admitted into the record. It's in the 13 state of Ohio, the county of Clark. The original number 14 for that proposed Class I differential for that county was 15 $4; the correct number, the actually new proposed number 16 is $3.70. 17 Q. And the second change? 18 A. On page 62, state of Pennsylvania, Allegheny 19 County. Originally testified as $4.40; corrected current, 20 corrected number is $4.20. 21 Q. And those were both changes that Dr. Eric Erba 22 testified to? 23 A. Yes. 24 Q. And what'd the third change? 25 A. Page 69, state of Texas, Comanche County. 26 Originally testified to $4.35; correct number is $3.85. 27 Q. And that one is correctly reflected in the 28 testimony on page 69; is that right? 9635 1 A. Yes. The two Texas changes came first, and I 2 submitted a revised version of my statement, 3 Exhibit NMPF-35, Hearing Exhibit 299. I did submit a 4 corrected copy with those two Texas changes. So if you 5 are going off the website, you will see that two Texas 6 changes are already made. 7 Q. Okay. And the -- 8 A. The two previous were not. 9 Q. And the last one, which is the second Texas 10 change, what page is that on? 11 A. Page 73, Travis County, Texas. 12 Q. And what should the -- what should the number be? 13 A. Previously $4.70; the correct number is $4.35. 14 Q. Okay. And with the two corrections I guess in 15 299, and confirming that the version of Exhibit 299 has 16 the Texas corrected, we have a new map that corrects those 17 counties as well, that's been identified as Exhibit 415; 18 is that correct? 19 A. Yes. 20 THE COURT: Say "yes" into the mic. 21 THE WITNESS: Yes. 22 THE COURT: Thank you. 23 BY MS. HANCOCK: 24 Q. And this corrects the map on page 2 of 25 Exhibit 339; is that right? 26 A. Yes. 27 Q. Okay. So what is -- has anything on Exhibit 415 28 changed from Exhibit 339, other than updating those four 9636 1 counties? 2 A. Not to my knowledge. 3 Q. Okay. 4 MS. HANCOCK: Your Honor, with that we would move 5 for the admission of 415 to correct Exhibit 339. 6 THE COURT: All right. And I'll -- I'll just 7 comment that on my borrowed record copy of 299, I needed 8 do nothing because the changes on the record copy had 9 already been made for the first two corrections, and were 10 already incorporated in this document for the two Texas 11 corrections. So I did not have to have the Agricultural 12 Marketing Service do anything to our record paper copies, 13 they had already taken care of that. 14 Now, with regard to Exhibit 415, also NMPF-109, 15 which corrects Exhibit 339; is that correct? 16 MS. HANCOCK: That's correct. 17 THE COURT: Is there any objection to the 18 admission into evidence of Exhibit 415? 19 There is none. Exhibit 415, also NMPF-109, is 20 admitted into evidence. 21 (Thereafter, Exhibit Number 415 was received 22 into evidence.) 23 MS. HANCOCK: And, Your Honor, with that we would 24 make Dr. Vitaliano available for his continued 25 cross-examination. 26 THE COURT: And was someone in the middle of 27 cross? 28 Ah, Mr. English. Welcome back. 9637 1 CROSS-EXAMINATION 2 BY MR. ENGLISH: 3 Q. This is Chip English for Milk Innovation Group. 4 Good morning, sir. Welcome back. 5 A. Good morning, Mr. English. 6 MR. ENGLISH: Yes, Your Honor. It seems that I'm 7 the one who gets interrupted -- well, the witness gets 8 interrupted more than I do, but I seem to be the one who 9 gets to carry on. 10 THE COURT: As well you should. 11 MR. ENGLISH: I don't recall where I actually was 12 at the time. October 3rd is what I have highlighted. So 13 I would like to start with an exhibit. 14 And we carefully checked the record and 15 everything, and we don't believe that what we have marked 16 as Exhibit MIG-44, the original letter submitted by 17 National Milk which had a spreadsheet that we have already 18 submitted as 300, has ever been admitted. 19 So we have single-spaced copies for USDA of 20 MIG-44, the May 1, 2023, letter, from National Milk 21 Producers Federation. And I have got double-spaced copies 22 for the audience. 23 THE COURT: And we'll go off record for just a 24 moment. We're off at 10:34. 25 (An off-the-record discussion took place.) 26 THE COURT: We're back on the record at 10:36. 27 Mr. English, we have marked Exhibit MIG-44 as 28 Exhibit 416. 9638 1 (Thereafter, Exhibit Number 416 was marked 2 for identification.) 3 MR. ENGLISH: Yes, Your Honor. It is National 4 Milk Producers Federation letterhead, dated May 1st, 2023, 5 addressed to Mr. Bruce Summers, Administrator of AMS. It 6 is a 51-page document. 7 Other than the MIG-44 and the obligation to put 8 the page and the footer, we have made no modifications to 9 this document as was submitted to USDA. 10 BY MR. ENGLISH: 11 Q. Doctor, you recognize this document? 12 A. I do. 13 Q. And it was submitted on National Milk Producers 14 Federation's behalf, correct? 15 A. That is correct. 16 Q. Thank you. 17 MR. ENGLISH: I'll move admission, Your Honor, of 18 Exhibit 416, and we can talk about it later. 19 THE COURT: Is there any objection to the 20 admission into evidence of 416, also known as MIG-44? 21 There is none. Exhibit 416 is admitted into 22 evidence. 23 (Thereafter, Exhibit Number 416 was received 24 into evidence.) 25 MR. ENGLISH: Thank you, Your Honor. 26 BY MR. ENGLISH: 27 Q. So, Doctor, with the exception of the discussion 28 you just had with National Milk's counsel Ms. Hancock, are 9639 1 there any other changes or clarifications to your 2 testimony since you testified on October 3rd? 3 A. No. 4 Q. So as it happens, I had just left off -- maybe 5 this is why I end up leading off -- I had not yet talked 6 to you about Exhibits 300 and 301 when you were -- when 7 you departed so other witnesses could get on back on 8 October 3rd. 9 A. So I get to join the 300/301 club? 10 Q. It's not a very exclusive club. But, yes. 11 So as it turned out, you followed Mr. Sims. 12 Prior to my examination of Mr. Sims back in even 13 earlier October, had you seen these documents before? 14 A. I had not. 15 Q. Have you discussed them with anybody other than 16 counsel since October 3rd? 17 A. No. 18 Q. So if I asked you questions about, for instance, 19 the volume numbers in Column R, you would not know the 20 answer? 21 A. Could you repeat the question? 22 Q. If I asked you a question about Exhibit 300, 23 Column R, this is the apparent volume numbers, you would 24 not know that because you have not seen it before; is that 25 correct? 26 A. That's correct. 27 Q. So going back to your statement, page 6 of your 28 testimony, third paragraph, you have the statement, "The 9640 1 tilt or slope of the price surface from reserve supply 2 points to Class I demand points has become steeper, and 3 the reserve supply of milk has generally shifted toward 4 Western states." 5 Correct? 6 A. What part of that page do you have that on? 7 I see that. 8 Q. Do you see it? 9 A. That's correct. That's in my testimony. 10 Q. Okay. And I know we have heard testimony from 11 others, but since you made this statement in your 12 testimony, why is it, then, that the price has been 13 increased in Western areas, especially west of the 14 Mississippi where the reserve supply is greater? 15 A. Can you repeat that question, again, please? 16 Q. Given your statement that "the tilt or slope of 17 the price surface from reserve supply plants to Class I 18 demand points has become steeper and the reserve of supply 19 of milk has generally shifted toward Western states," why 20 then has National Milk proposed increasing prices in the 21 western areas more than Florida -- more than the increases 22 to Florida? 23 A. My statement was a general characterization of 24 changes for the entire surface, Class I differential 25 surface. It was not designed to be a definitive statement 26 that would supersede or in any way dictate the work of the 27 colored pencil crews. 28 Q. Nonetheless, it is your statement, correct? 9641 1 A. That is correct. 2 Q. Okay. So if we look at page 6, fourth paragraph, 3 "The Southeastern states have become progressively more 4 deficit." 5 Correct? 6 A. Correct. 7 Q. So why does National Milk choose the low end, that 8 is to say the May model number for Miami, which would make 9 the slope less than it would otherwise have been had you 10 used the average? 11 A. Could you repeat that again, about Miami? 12 Q. Given -- well, given your quotation, "The 13 southeastern states have been progressively more deficit," 14 why does National Milk, in NMPF 19, choose to use the low 15 end, that is to say the May model number for Miami, which 16 actually reduces the slope to Miami? 17 A. I believe that's been covered by testimony by some 18 of our experts and our task force. Again, I draw your 19 attention to the fact that of all the differentials in the 20 current differential map, only those in the Southeast have 21 been increased since the Federal Order Reform original 22 differentials were proposed. 23 Therefore, in a sense, those in the Southeast, 24 with Miami being the most extreme, have already -- in a 25 sense, had already been increased and, therefore, the -- 26 you know, the new work that we did leading up to 27 Proposal 19, in a sense, the Southeast, particularly the 28 extreme point of Miami, had already received an increase 9642 1 that other sections, particularly outside the Southeast, 2 had not received. 3 So I do not consider that an anomaly at all. 4 Q. But you understand the model, USDSS model, does 5 not take into consideration the existence of Federal 6 Orders, correct? 7 A. Not directly, no. 8 Q. And so a model result for Miami doesn't, by 9 itself, recognize what the current differential is, 10 correct? 11 A. No. But when you are comparing the model results 12 to the actual current differentials, the effect of the 13 Federal Orders would affect that difference compared to 14 say -- one of the largest increases, as I understand it, 15 for the model was that that area where the 2008 16 Southeastern differential increases were abutted up 17 against the existing surface where there -- there was 18 no -- no change in the areas along that -- you know, that 19 interface where the 2008 differential increases took 20 effect. 21 You will see the results of the model showed some 22 of the largest increases compared to the current 23 differential surface in that area. 24 Q. So forgive me, I think we're talking past each 25 other. 26 I'm speaking of the fact -- by the way, I have to 27 correct myself -- for Miami, Florida, National Milk does 28 propose using the model average. Nonetheless, there are 9643 1 areas north of Miami where National Milk proposes going 2 above the model average. 3 That proposal, since the model average doesn't 4 take into consideration Federal Orders, that proposal by 5 National Milk to increase differentials north of Miami 6 more than the model but keeping Miami at the model 7 average, by definition, lowers the slope, correct? 8 A. It would probably tend to lower the slope, 9 particularly in the Southeastern part of the country. 10 Q. And that part would not be impacted by the fact 11 that the Southeast had adjustments in 2006, correct? 12 A. I don't think I agree with that. 13 Q. If the model results for Miami are $7.90, yes, the 14 difference between $7.90 and the current differential 15 would take into consideration the fact that in 2006 there 16 was a change. 17 But where the model results are raised north of 18 Miami and north of the Southeast, that would be completely 19 inapplicable as to the 2006 changes, because the model 20 doesn't take that into consideration, correct? 21 A. I think we are probably talking past each other. 22 Because to me it is perfectly understandable that the 23 areas north of Miami, particularly in that interface where 24 the -- between where the 2008 increases began to take 25 effect, whereas north of there they did not, there was no 26 such increase. Those are the areas where we would expect 27 some of the largest increases over the current 28 differentials. 9644 1 Q. Correct. But that's the comparison, that is 2 comparing the proposal, or the average, to the current. 3 I'm speaking about comparing National Milk to the model. 4 Those are different things, aren't they? 5 A. Okay. You are talking about the colored pencil -- 6 Q. Yes. 7 A. -- adjustments? 8 Q. Yes. 9 A. Okay. Of all of the five proposals that National 10 Milk submitted and that I have testified to, Proposal 19 11 was the one that required the most local knowledge amongst 12 our own members who were actually involved in moving the 13 milk. I was not involved in the colored pencil process of 14 any region and have -- since National Milk is a trade 15 association, we do not move milk. 16 I had no particular expertise to contribute to 17 that process, and so I really -- I would defer your 18 questions to those in the colored pencil crews that 19 actually were involved in those decisions. 20 Q. Thank you, sir. 21 And this may be a consequence of the fact that you 22 were -- at least, on October 3rd, didn't finish, now we 23 have had all of those, but this is how I wrote my 24 cross-exam, and I'm trying to work through it. All right? 25 A. We have had a lot of testimony from the individual 26 regions since October 3rd. 27 Q. All right. I also know we had a fair amount of 28 conversation with others, but I had not gotten to it with 9645 1 you October 3rd, and that is this question about the base 2 $2.20 for the Class I differential and what precisely is 3 it and where did it come from. 4 A. I think we have had a fair amount of testimony on 5 that. USDA, in putting together the original 6 differentials in Federal Order Reform, explicitly 7 identified a base zone differential and the reasons for 8 that. They chose to make it $1.60. Subsequently, 9 expenses, and that is -- that base zone differential was, 10 like the spatial differentials, had a cost basis to it. 11 Costs have gone up. National Milk considered very 12 carefully what needed to be done with that. 13 The -- Dr. Nicholson and Dr. Stephenson, who was 14 involved at that time, in explaining the model, explained 15 very carefully that the model did not solve for a base 16 zone differential, that was a totally different decision. 17 And as a result of those deliberations, National 18 Milk chose $2.20 as the base zone differential appropriate 19 to going forward. And there's been testimony on that. 20 Q. But going back to our conversation a moment ago 21 about Miami, the model result for Miami at $7.90 used the 22 existing $1.60 base, correct? 23 A. It may have computationally, yes. 24 Q. If you had increased the base by $0.60 in Miami, 25 you would then computationally have increased the $7.90 to 26 8.50, correct? 27 A. Yes. 28 Q. But that wasn't done, correct? 9646 1 A. Repeat that again. 2 Q. That was not proposed, correct? 3 A. Repeat the previous question, please. 4 Q. Previous question was, if computationally the 5 $7.90 done by USDSS included $1.60, leaving a difference 6 of $6.30, if you had added $0.60 to Miami, it would 7 necessarily mean it was 8.50, correct? 8 THE COURT: Are you saying $8.50? 9 MR. ENGLISH: $8.50, yes. 10 THE WITNESS: Yes. The proposed differential for 11 Miami, though, was the $7.90. So, of that, by definition, 12 just arithmetically, part of the -- the base part -- the 13 base zone differential of that one would be $2.20. 14 BY MR. ENGLISH: 15 Q. So -- but if computationally the model used $1.60, 16 then doesn't that mean if new base zone for Miami base is 17 $2.20, you have lowered the result from the model by $0.60 18 for Miami? 19 A. In terms of the -- the implied locational 20 differential, that's probably appropriate. Again, the 21 Southeastern group decided that a -- a total differential 22 of Miami of $7.90 was the appropriate number, and they -- 23 that's the group that needs to explain that and testify to 24 that. 25 Q. Your testimony includes discussion about Grade A, 26 Grade B milk, correct? 27 A. That's correct. 28 Q. No one disagrees that, say, for the 1970s to the 9647 1 present, the percentage of milk that is Grade A in this 2 country has only gotten larger, correct? 3 A. That's correct. It's gone maybe from 97% to 99%. 4 Q. Well, in the 1970s it wasn't 97%. 5 A. Oh, okay. '70s. 6 Q. But you agree it's gone to 99%, correct? 7 A. Yes. There's very little Grade B milk left. 8 Q. And everyone seems to agree, if you include all 9 milk, whether it's Federal Order milk or not, that Class I 10 utilization would be around 18%, correct? 11 A. Yes. Fluid milk in terms of percentage of all 12 milk produced in this country is about 18%. I make 13 those -- I make those calculations myself. Not all of 14 them, but I do that calculation along -- and many other 15 people have made the same calculations, and I agree with 16 those that are made by the others. 17 Q. There has been some conversation about the risk of 18 reversion to Grade B. 19 Are you aware of any actual reversion to Grade B 20 from Grade A? 21 A. I'm not aware of any that have taken place. But, 22 again, I do not follow developments out in the countryside 23 very much of that -- of that sort. 24 Q. And the definition of producer milk under Federal 25 Orders includes Grade A milk, correct? It has to be 26 Grade A milk to be producer milk, correct? 27 A. Grade A milk is -- my understanding is included in 28 the definition of producer milk, yes. 9648 1 Q. So that is to say Grade B milk cannot be producer 2 milk, correct? 3 A. I believe if -- if the -- if producers' milk is a 4 definition of milk that is eligible basically for pooling 5 in the Federal Order system, then it would exclude Grade B 6 milk, yes. 7 Q. So, in effect, in order to qualify in the pool as 8 Class III or IV milk, if -- that -- all milk must be, by 9 definition, Grade A, correct? 10 A. Yes. 11 Q. Okay. National Milk, you and others, have 12 mentioned the cost to comply under the Pasteurized Milk 13 Ordinance, correct? 14 A. Correct. 15 Q. And since 2000, the Food and Drug Administration 16 and the state conference, that is known as the National 17 Conference of Interstate Milk Shippers, has expanded the 18 definition of what constitutes a Grade A product, correct? 19 A. Yes. 20 Q. And a number of those products that are now 21 defined as Grade A products are products that are not 22 Class I products under the Federal Orders, correct? 23 A. Yes. We have staff in the regulatory area of -- 24 on National Milk Producers Federation staff that are 25 experts in regulatory affairs. They are the ones who 26 participate actively in the NCIMS. So I'm not an expert 27 in that, but I do look at the PMO from time to time, and 28 I'm aware that there are non-fluid products that are 9649 1 Grade A. 2 Q. Turning to page 5 of your testimony, you state -- 3 no, I didn't put down the paragraph because, of course, I 4 thought I would do this the same day you testified -- but 5 on page 5 there is a statement, "National Milk" -- "NMPF 6 recognizes and supports USDA's longstanding policy of 7 maintaining federally-regulated prices as minimum prices 8 and allowing market forces to fine tune market prices. As 9 costs increase and the capacity for over-order prices to 10 keep up with these costs wane, pricing equity between 11 competing processing plants is threatened." 12 At what point does National Milk acknowledge that 13 the market forces should operate? 14 A. How would you define the point at which forces 15 should operate? 16 Q. Well -- 17 A. What do you mean by "point"? 18 Q. Well, let me ask you what you mean by the 19 statement that you -- that "National Milk has recognized 20 and supported USDA's longstanding policy of maintaining 21 federally-regulated prices as minimum prices in allowing 22 market forces to fine tune market prices"? 23 What does that statement mean to you? 24 A. I think the context of that paragraph is primarily 25 to highlight the erosion of over-order premiums which are 26 the mechanism by which market forces should operate above 27 minimum prices that have been encountering increasing 28 difficulty in doing so. 9650 1 Q. At what point in time did minimum prices and 2 over-order premiums continue to work so that allowing 3 market forces were okay? 4 A. Repeat that again. 5 Q. That was a -- let me strike that question. 6 I guess the ultimate question I'm trying to ask 7 is, at what point are minimum prices high enough that 8 market forces can fine tune the prices? 9 A. At what point are prices high enough? 10 Q. Minimum prices. 11 A. Minimum prices. 12 THE COURT: State it again, Mr. English, please. 13 BY MR. ENGLISH: 14 Q. At what point -- as an economist, at what point 15 are minimum prices high enough to permit market forces to 16 fine tune the prices? 17 A. I guess I would understand the question, at what 18 point would they be not too high to prevent that. 19 Basically if the -- if the prices were not in excess of 20 the costs of supplying -- supplying the milk, then market 21 forces could -- could fine tune those prices. 22 Q. Is it always cost or is it also a demand function? 23 A. Well, we -- I tend to think of -- of Class I 24 differentials as being necessary to ensure an adequate 25 supply of milk for processing, and that's primarily a cost 26 function. Obviously demand is behind that, because if 27 there is not demand for the products, then there would not 28 be need for as much milk to be supplied to the processing 9651 1 plants. 2 But the fundamental function of Class I 3 differentials, as I see it, is to ensure an adequate 4 supply, which is a cost-related issue, for processing. 5 Q. But, sir, isn't that precisely the problem, if 6 Class I utilization, as an absolute level and a percentage 7 of the total market, continues to go down, at what point 8 is National Milk proposing that the minimum prices be 9 established at or above the market? 10 A. I don't agree that National Milk is proposing to 11 establish prices at or above the market. Proposing to 12 establish prices in relation to the increased costs of 13 supplying the market. 14 Q. Given the length of this hearing, it must have 15 occurred to you that at least MIG's members' objections on 16 the Class I differentials have two parts: Part one is 17 this issue of alignment, and part two is why are we 18 raising Class I prices on the one segment of the industry 19 that is flailing around. 20 Do you agree that you have heard that kind of 21 discussion from our cross-examination? 22 A. I am aware that fluid milk consumption is 23 declining due to a number of factors, of which price is 24 perhaps a very minor one. I know that's been in 25 contention. 26 I'm also aware, generally, of the purpose of the 27 Federal Order program. 28 I'm having difficulty, as an economist who deals 9652 1 with regulatory issues, to see what direct link the 2 objectives and procedures of the Federal Order program, 3 what relationship those things, regulatory matters have to 4 the business of effecting the demand for Class I fluid 5 milk. 6 I'm aware that the procedures of the Federal Order 7 program, particularly the Class I pricing, have to do with 8 ensuring a supply of milk for processing to meet whatever 9 demand is there. I'm not aware that there is a regulatory 10 link between those prices and -- and affecting demand. 11 Apart from the discussion of how much prices -- 12 those prices affect demand, the question of elasticities, 13 I do feel that the prices should not be raised above the 14 level they need to ensure an adequate supply of milk for 15 processing, because that would be disruptive. That 16 would -- that would affect the consumption of milk to some 17 extent -- that's a matter of debate -- unnecessarily. 18 But the question that we are looking at in 19 Proposal 19 is what is the level of Class I differentials 20 that is needed to effectuate the purposes of the order, 21 not to exceed the level of prices that is needed to 22 effectuate the basic purposes of the order. That's where 23 the debate is. 24 Q. Isn't there an implied policy within this, if 25 we're trying to make sure that there is an adequate supply 26 of milk for processing, and be in the public interest, 27 that we want to, as much as possible, continue to 28 encourage Class I sales? 9653 1 A. My understanding of what is affecting fluid milk 2 is a wide variety of circumstances, lifestyle 3 circumstances, changes in consumer behavior, of which the 4 price of fluid milk as affected by Class I differentials, 5 the Class I prices, is a very small part of that long-term 6 change. 7 And to focus on the Class I, the role of Class I 8 prices on that change in fluid milk to the exclusion of 9 all the other macro forces that are affecting and causing 10 a decline in Class I consumption, is basically to -- to 11 almost misrepresent the long-term fundamental changes that 12 are occurring in how consumers consume milk. 13 I think the shorthand that I have seen is 14 consumers are increasingly eating their milk, not drinking 15 it. 16 Q. Precisely. 17 That's to say that, as Dr. Capps said, that for 18 instance, yogurt is now a substitute for fluid milk, 19 correct? 20 A. That's probably a closer substitute. 21 But -- but the very fact that, in a large sense, 22 people are consuming more and more cheese and less and 23 less fluid milk is also a switch. Not necessarily a 24 direct one. Nobody's claiming that cheese is a -- is a -- 25 is a substitute in the sense that yogurt might be for 26 fluid milk. But it is basically where consumers' 27 consumption of dairy, in the broadest sense, are changing. 28 Q. So we may disagree on the -- you know, whether 9654 1 it's Dr. Capps or other testimony on the degree, but you 2 yourself said, the price has, in your opinion, a very 3 small impact. 4 Why would we do anything at all, given declining 5 Class I sales, to allow even -- and I quote -- a very 6 small impact to further erode Class I sales? 7 A. If avoiding a very small price impact would result 8 basically in the current situation where dairy farmers are 9 subsidizing the cost of supplying -- supplying milk for 10 Class I processing, that's a big -- that's a big ask for 11 America's dairy farmers. 12 Q. Isn't the so-called subsidy because Class I 13 processors already pay a higher price that is then blended 14 out in the pool? 15 And blending it out in the pool means, the Class I 16 handlers have paid for the milk, and yet, they still then, 17 for the producers who have to ship it, the producers are 18 saying, wait, I haven't gotten all that money. Isn't that 19 the problem? 20 A. I don't really understand your characterization of 21 this as a "problem." If you can -- 22 Q. How does increasing Class I differentials, when 23 it's pooled among producers who do not incur the costs of 24 shipping to Class I, whether the balancing costs, whether 25 it's the so-called Grade A costs, whether it's the 26 so-called incentive to pool it away costs, or whether it's 27 the cost of haul costs, how does a higher Class I 28 differential that is pooled out in the Order 30 market at 9655 1 6% move one additional drop of milk to a Class I plant in 2 compensation of those dairy farmers? 3 A. Well, if you are asking me a question specifically 4 about Order 30, that's very different than asking me that 5 same question about Order 6. 6 Q. And yet, National Milk is proposing, in parts of 7 Order 30, to increase the proposed Class I differential 8 above the model, whereas in Miami, which is Order 6, you 9 are not, correct? 10 A. That's correct. But that is a question you need 11 to direct to the colored pencil crew witnesses that are 12 dealing with Order 30. 13 Q. And we have done that. Thank you. 14 I know we're going to hear from Mr. Brown 15 tomorrow. To the extent your package proposals, which MIG 16 opposes, Proposals 1, 13, and 19 are adopted, has National 17 Milk Producers Federation done an analysis of how much all 18 three of those proposals will increase the Class I prices 19 relative to manufacturing prices? 20 A. Dr. Brown will testify to that in his -- in his 21 testimony tomorrow. He has done an analysis separately of 22 each of the five proposals National Milk has brought to 23 this hearing, and all five together. 24 Q. Well, my understanding of his testimony was that 25 he was looking at the ultimate impact on revenue to dairy 26 farmers, not on the impact of those proposals on Class I 27 prices. 28 Am I wrong? 9656 1 A. His results -- you will have to wait for his 2 testimony tomorrow. But his results do show the impact on 3 the various class prices, yes. 4 Q. I confess I don't see that, but then you are 5 right, I get to ask it tomorrow. 6 And as you say, he'll testify tomorrow, and so you 7 certainly have reviewed his testimony that is presubmitted 8 as NMPF-60, correct? 9 A. I haven't seen his -- I don't know the number of 10 his presubmitted testimony. But, yes, I have seen his 11 testimony. 12 Q. Do you recognize that he concludes that the impact 13 of all NMPF proposals, that is to say on page 22 of his 14 statement, would be to reduce the Class III and IV 15 price -- III and Class IV baselines for every year from 16 2023 to 2032? 17 A. Yes. 18 Q. And that happens while increasing just the Class I 19 mover value in the out years of 2027 to 2032, correct? 20 A. That is correct. 21 Q. In fact, the Class IV consistently goes down from 22 around between $0.74 a hundredweight to $0.83 a 23 hundredweight, correct? 24 A. Yes. But I would recommend you direct your 25 questions to Dr. Brown who will testify directly on those 26 numbers. I'm not here to testify on his behalf. 27 Q. I understand that. But I'm trying to get to 28 questions for you, and so I am trying to set a predicate. 9657 1 Has National Milk Producers Federation done -- for 2 itself, done an analysis of the impact of the adoption of 3 the proposals on additional supplies of Class IV milk that 4 would -- may result from the adoption of your proposals? 5 A. How would you define additional Class IV milk? 6 Milk diverted from -- 7 Q. Well, the baseline, from the baseline, milk that 8 is going into Class IV rather than higher classes. 9 A. We have not analyzed -- we have not come up with a 10 quantitative analysis of that, no. You have -- you may 11 ask that question to Dr. Brown, but -- 12 Q. Has National Milk Producers Federation done any 13 analysis of the impacts of adoption of all its packaged 14 proposals on the United States obligations under the World 15 Trade Organization? 16 A. No. But I have been familiar with those 17 obligations. I'm not aware that there's any -- any issue 18 with those obligations. And in particular, the obligation 19 under the WTO relating to the Federal Order program are 20 pretty minimal. 21 Q. But at some point, increasing Class I prices 22 relative to manufactured prices, however minimal, the 23 United States may face further objections under the WTO, 24 correct? 25 A. I don't agree with that. I don't -- I don't 26 understand what the basis of those objections would be. 27 The WTO commitments the United States has made is 28 for market access, export assistance or subsidies, and 9658 1 domestic support. And I have studied those particular 2 modalities and commitments, and I don't see how Federal 3 Orders would fall afoul of that. 4 Q. You don't believe at some level the increases in 5 the Class I differentials that are proposed, especially 6 under NMPF 19 that deviate from the economic model that 7 might then result in additional Class IV, could be viewed 8 as a subsidy by our trade partners? 9 A. An export subsidy or domestic subsidy? 10 Q. Domestic subsidy. 11 A. The domestic subsidy, the baseline in the WTO for 12 our domestic subsidization is very large and was addressed 13 very significantly by changing the nature of our Dairy 14 Price Support Program, which no longer is in operation. 15 So I do not see how the United States is doing anything 16 under the Federal Orders that would -- that would, you 17 know, cause any issues with our domestic support 18 obligations. 19 Q. On page 7 you say that Dr. Brown's analysis, 20 quote, "will show that these proposals will have a 21 modestly positive impact on the average price of milk 22 received by dairy farmers, which will dissipate fairly 23 rapidly." 24 Correct? 25 A. That's correct. That's how I would characterize 26 the numbers I have seen in his analysis. 27 Q. If it's going to "dissipate fairly rapidly," why 28 are we here? 9659 1 A. Excuse me? 2 Q. If the results of the package by National Milk 3 will only have a modest effect temporarily and will 4 dissipate rapidly, then why are we here? 5 A. We are here to correct a number of -- update a 6 number of features of the Federal Order program that have 7 been, you know, allowed to progressively deviate from the 8 structure of the U.S. -- the dynamic U.S. dairy industry, 9 as I have explained in my testimonies, that have led 10 increasingly to disorderly marketing. 11 We have not approached this hearing, and have 12 similarly informed our members, the purpose of this is not 13 to raise milk prices in any substantial way, because the 14 mechanisms of the Federal Order program that we're 15 addressing in our proposals do not, A, affect the cost of 16 producing milk; and B, do not affect the supply of milk. 17 And without either of those two features, you are not 18 going to effect the equilibrium price of fluid milk -- 19 of -- of producer milk. 20 Dr. Brown's analysis more than demonstrates that. 21 That's what we have understood is the purpose of all of 22 these things. That's not why we are here, to raise the 23 price of milk by some appreciable amount. 24 Q. And yet, with markets with very low levels of 25 Class I utilization, that is precisely what is proposed by 26 National Milk by increasing above the model averages, for 27 instance, as we heard today Colorado, as we heard last 28 week in Arizona, as we heard last week in the Pacific 9660 1 Northwest, as we heard last week in Order 30, significant 2 increases above the model averages where there are low 3 levels of Class I utilization that cannot and will not 4 return significant dollars to dairy farmers, correct? 5 A. Your use of Order 30 -- my understanding is 6 Order 30 is going to experience a -- probably a reduction 7 in prices, milk prices, because so much of that milk is 8 effect- -- is Class III, which is going to go down, as you 9 can -- you are going to see in Dr. Brown's results, due to 10 the increase in Make Allowances. 11 And whether or not that is offset in that 12 particular order by, you know, changes in the Class I 13 differentials, I don't know the answer to that. I have 14 not looked at those numbers. 15 Q. It's not just a Class I differential, I mean, 16 continuum. 17 Isn't the obligation of a Class I processor 18 altered by the actual pool obligation that a Class I 19 processor has that may, in fact, be much higher than the 20 differential? 21 A. From what sources? 22 Q. Well, in markets with low utilization and 23 voluntary market participation, isn't it the case that the 24 pool obligation for a Class I handler is not only 25 unpredictable, but also can vary and be significantly 26 higher than the actual Class I differential? 27 A. I'm not aware of -- I can't answer that question. 28 I don't -- I don't know the answer to that question. 9661 1 Q. Shouldn't that matter? If a Class I handler has 2 to account to its dairy farmers for the uniform price and 3 then make a pool payment based upon the difference between 4 the Class I and the blend, and the blend is low enough, 5 shouldn't National Milk take into consideration the 6 impacts on Class I of that additional amount having to be 7 paid into the pool? 8 A. I -- I'm sorry. I just don't know how to answer 9 that question. 10 My understanding is that Class I handlers 11 basically are obligated to the pool for -- you know, for 12 the difference between their Class I price and the blend 13 price. 14 Q. And you don't understand that that can mean, under 15 economic circumstances, that they end up paying for the 16 total volume of their milk something greater than the 17 Class I price? 18 A. Okay. Yes, it can. But that would be under a 19 circumstance in which fair amount of milk to be pooled is 20 my understanding. 21 Q. And how has National Milk taken into consideration 22 the impacts of that kind of situation on the health of the 23 Class I market? 24 A. National Milk's proposals on the Class I 25 differentials have been with respect to the cost of 26 supplying milk to the Class I market. We have not 27 directly tailored our recommendations for other than that 28 purpose. 9662 1 We have not -- our general feeling is that the 2 impact of price changes on fluid milk consumption is 3 relatively minor. I know that's a point of contention 4 here. But our focus has been on what is the purpose, the 5 objective of the Federal Orders, to assure orderly 6 marketing and assure there's an adequate supply of milk 7 being supplied to Class I processors. 8 And everything I have understood so far is that 9 with the current Class I differentials, dairy farmers are 10 being -- basically subsidizing the provision of Class I of 11 milk for Class I processors, in many cases, at a higher 12 cost than if they ship their milk to nearby -- nearby 13 cheese plants. 14 MR. ENGLISH: I have no further questions. Thank 15 you for your time. 16 THE COURT: Is there other cross-examination of 17 Dr. Vitaliano before I invite the Agricultural Marketing 18 Service questions? 19 I see none. The Agricultural Marketing Service is 20 invited. 21 CROSS-EXAMINATION 22 BY MS. TAYLOR: 23 Q. Good morning. 24 A. Good morning, Ms. Taylor. 25 Q. I'm going to try not to ask too many questions, 26 because I think with all the witnesses between October and 27 now probably have answered most everything. Let's see. 28 I want to turn to page 5. And Mr. English did ask 9663 1 you a few questions on this. In that middle paragraph 2 starting with NMPF, you talk about the structural changes 3 in the industry, and the next sentence goes through what 4 you say those are: Larger fluid milk plants, higher cost 5 of hauling, et cetera. 6 And I just wondered if you could -- we have heard 7 other witnesses talk about it, but if you could expand on 8 why you think those things were not adequately covered by 9 the model. 10 A. Covered by the what? 11 Q. Accounted for in the model. 12 A. Well, the model obviously encompassed a number of 13 those things. But as Dr. Nicholson testified, it cannot 14 necessarily account for everything. And those are things 15 that, again, largely were, but I think we have heard 16 plenty of testimony subsequent to my first part of this 17 testimony, as to exactly those types of things that 18 occurred in -- in individual markets that were not part of 19 the model, those -- those -- those things beyond the power 20 of the model to really understand. 21 The model had, Dr. Nicholson said, 80,000 22 constraints on it, but even that was not enough to cover 23 all of these specific factors that were taken into 24 account, in some cases, different factors in different 25 regions. 26 Q. If I turn to page 6, in the middle paragraph 27 beginning "the updated Class I differentials," you say, as 28 proposed, your analysis reflects less than the full cost 9664 1 of moving milk, and thereby maintain the Department's 2 longstanding principle of minimum prices. 3 I guess my question is, how -- how do you know 4 that? 5 A. That was a statement, quite frankly, that I took 6 from the people who were involved in -- already involved 7 in doing the colored pencil work. 8 Q. So that was just -- 9 A. I cannot verify that directly. 10 Q. Okay. On the bottom of 8, page 8, and this is 11 where you had talked about CPIs and a greater sensitivity 12 to the price of producer milk. You say, "The closer 13 connection between farm and retail prices for dairy stems 14 from the fact that the cost of raw milk has averaged about 15 31% of the retail value of products since 2002." 16 And I just wanted to know, how did you get the 31% 17 estimate? 18 A. That's an analysis that I do, that I did not 19 specifically spell out in here. 20 Q. Can you describe that then? What you looked at? 21 A. Yes. USDA, I guess it was the Economic Research 22 Service, used to publish monthly estimates of the percent 23 of retail price of a whole bunch of different agricultural 24 products, including dairy, as well as I think it was dairy 25 in the aggregate, used to publish number -- what 26 percentage of retail price is due to the farm price, and 27 there was the farmer share of the food dollar. And I 28 found those very useful. 9665 1 But USDA discontinued them. I think there were 2 maybe some questions about the methodology from time to 3 time. ERS gets a little nervous about its methodology and 4 will change things. But I found that useful enough that I 5 basically, you know, through -- going back through past 6 data, came up with sort of their formula for calculating 7 that. And I continued -- which basically took the 8 all-milk price and made calculations from changes in the 9 CPIs. So I basically continued making those calculations 10 based on the ERS methodology that they no longer reported. 11 And that was my number from averaging -- averaging 12 those annual numbers, which I actually compute them 13 monthly, averaging them since 2002. That's kind of what 14 we call the dairy farmers' share of the retail food 15 dollars, is what I have seen that referred to as. 16 Q. So you base that off an annual average of the 17 all-milk price and changes in the CPI over time? 18 A. Yeah. In other words, I maintained that same 19 relationship from, you know, past periods when -- when, 20 you know, ERS last reported those. I sort of calculated 21 how -- how they were comparing -- basically comparing or 22 converting the retail price to a -- of all dairy products, 23 to a per hundredweight of milk value, which could then be 24 directly compared to the all-milk price. 25 And I calculate those monthly, because they 26 have -- again, with the CPIs and the all-milk price, those 27 are monthly reported, so I basically compute that, up- -- 28 keep that old ERS methodology, update it on my own 9666 1 monthly, and then aggregate them annually, and in this 2 case, aggregated since 2002. 3 Q. Okay. And then on your CPI chart that's above in 4 the middle of that page, page 8, seems like the 5 variability, if I just look at the trend lines, there's 6 lower variability in your all items in all food series -- 7 A. Yes. 8 Q. -- when I compare them to dairy. 9 So I was just wondering if you could talk about 10 why you think that is? 11 A. Why the dairy CPI and the fluid milk line -- 12 Q. Is more variable. 13 A. -- are more variable? 14 Precisely because they are driven more fully by a 15 single rather volatile factor, and that is -- that is 16 basically the price of raw milk. It does translate into 17 retail prices with a lag. It does translate into price -- 18 you will notice on the right side where dairy had -- which 19 had been trending lower and lower compared to the 20 all-milk -- or excuse me -- the all items and the all food 21 and beverages. That was during a period in which the 22 price of milk was -- you know, was not -- was trending 23 below the general rate of inflation. 24 During 2000- -- between 2021 and 2022, there was a 25 period of rapid milk price inflation that was passed on to 26 retail. We saw those in the retail CPI numbers. And when 27 the price of milk went -- sort of reverted back down to 28 more normal levels, we saw that those CPIs turned around 9667 1 and actually were dropping. And those are not the 2 year-over-year rates, those are the actual consumer price 3 indices, which is an index version of actual retail 4 prices. 5 So what that graph says is particularly for all 6 dairy and -- and fluid milk is that the retail price in 7 nominal terms started dropping fairly quickly after the 8 price of milk to dairy farmers started dropping again. 9 So, again, the very -- the relative variability or 10 volatility of the dairy lines does -- does relate more 11 directly, as I pointed out there, to the price of raw 12 milk. And you will see that probably for any agricultural 13 product, say, such as eggs, although I don't have the 14 numbers, for which the retail price is a -- for which the 15 farm price is a relatively large percentage of the retail 16 price. And that -- that is different from 17 highly-processed food products for which the price of the 18 raw agricultural commodity is a pretty small part. 19 Q. And might that also -- I'm curious your opinion -- 20 also relate to the fact that since the peak in 2022, the 21 curve for dairy has flattened, it seems the curve for all 22 items and all food beverages continue to increase? 23 A. Yes. And I remarked on that in my -- the text of 24 my testimony. That -- and, again, my conclusion is that 25 overall inflation, which is the all items line, it 26 generally goes up, it rarely goes down for any significant 27 period of time. You can look at that chart, and you can 28 see a few -- a few very small percentage of the months 9668 1 displayed there, there is a reduction in overall 2 inflation. But generally the rate is upward. And that 3 the aggregate of all food and beverages is such a broad 4 category that it almost mirrors total inflation -- not 5 exactly, as you can see -- but it is also subject to the 6 same forces that tend to move it up and very rarely down. 7 And in particular, it is difficult to look at that 8 green line and determine and discern any significant 9 impact in the changes of general farm income and farm 10 prices. 11 MS. TAYLOR: I think that's it for AMS. Thank 12 you. 13 THE COURT: Are there any other questions before I 14 invite redirect? 15 There are none. 16 MS. HANCOCK: Your Honor, we have no further 17 questions, just to thank Dr. Vitaliano for his patience in 18 getting back on the stand. 19 THE COURT: All right. Let's turn to exhibits. 20 MS. HANCOCK: I think you have admitted them all. 21 THE COURT: Okay, then, good. We still have about 22 20 minutes before lunch. I would like to take a 23 five-minute stretch break, but I would like to confirm 24 that our next witness will, in fact, be Jeff Sims? 25 MS. HANCOCK: Yes, Your Honor. 26 MR. ENGLISH: I think that's right. I just -- we 27 have only had, I think, one stretch break and one 28 15-minute break. 9669 1 I'm just wondering, and I'm not wedded to this at 2 all, but I'm wondering for Mr. Sims and my benefit, 3 whether we take a 15-minute break now and go to 12:45 or 4 something? That might work out better. But I'm not 5 wedded to anything like that, and it may make a difference 6 because of the catering, so maybe we can't do that. 7 THE COURT: All right. Just a moment we will get 8 confirmation of the caterer's schedule. 9 Ms. Hancock? 10 MS. HANCOCK: I don't actually -- we only have a 11 few minutes left in Mr. Sims' time, and so I don't believe 12 that his direct is going to be that long, so I don't know 13 that we need to go as far as 12:45. But I would prefer to 14 just get him on, and we can take our break, get him on, 15 and take our lunch. 16 THE COURT: All right. Let's go off record just a 17 moment. 18 (An off-the-record discussion took place.) 19 THE COURT: Let's go back on record. 20 All right. We're back on record at 11:42. 21 I apparently have not admitted into evidence 22 Exhibit 299. There's no harm if I admit it in more than 23 once. 24 I hereby ask if there's any objection to my 25 admitting into evidence Exhibit 299, which is also 26 NMPF-35? 35. 27 There is none. I admit into evidence 28 Exhibit Number 299. 9670 1 (Thereafter, Exhibit Number 299 was received 2 into evidence.) 3 THE COURT: Now, I know that I admitted into 4 evidence Exhibit 416. 5 Did I admit into evidence Exhibit 415? I think I 6 did today. 7 All right. So now all the exhibits are in. 8 Mr. Sims will be our next witness, but lunch is 9 here, so I'd ask that you come back from lunch at 12:45. 10 We now go off record at 11:43. 11 (Whereupon, the lunch recess was taken.) 12 13 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9671 1 TUESDAY, DECEMBER 5, 2023 - - AFTERNOON SESSION 2 THE COURT: Let's go back on record. 3 We're back on record. It's 12:50, a bit late. I 4 apologize for that. 5 And we have not yet had this witness begin his 6 testimony on this, or we did? 7 MS. HANCOCK: We did, Your Honor. He introduced 8 Class I -- or I'm sorry -- well, Class I differentials, 9 Proposal 19 as a high-level overview, but then he has a 10 subset that is just his region, and that's what's left. 11 THE COURT: Very good. All right. Then, 12 Ms. Hancock, if you will introduce yourself and guide us 13 as to how we will proceed. 14 MS. HANCOCK: Thank you, Your Honor. Nicole 15 Hancock with National Milk. 16 Welcome back to the stand, Mr. Sims. 17 THE WITNESS: Thank you. 18 THE COURT: Would you state and spell your name? 19 THE WITNESS: Jeffrey Sims, J-E-F-F-R-E-Y, 20 S-I-M-S. 21 THE COURT: You remain sworn. 22 JEFFREY SIMS, 23 Having been previously sworn, was examined 24 and testified as follows: 25 DIRECT EXAMINATION (Cont'd) 26 BY MS. HANCOCK: 27 Q. Mr. Sims, you previously provided, and I believe 28 it was admitted, Exhibit 310, which is your written 9672 1 testimony that combines three different parts; is that 2 accurate? 3 A. Correct. 4 Q. And we have already talked about parts 1 and 2, 5 and now you are prepared to talk about part 3? 6 A. Correct. 7 Q. And that pertains to just the Southeast and 8 Southwest region as it pertains to Class I price 9 differential proposals from National Milk. 10 A. Yes. 11 Q. Okay. If you could provide us with your testimony 12 regarding that Southeast/Southwest region, and by that I 13 mean your summary of that Exhibit 310. 14 A. Do we -- do we -- would we like to make a couple 15 of substantive corrections before I delve into that? 16 Q. We can do that first. I was going the other way, 17 but we can do that first, if you want. 18 You have some corrections that you would like to 19 make on page 33 of Exhibit 310? 20 A. Yes. One correction on page 33. 21 Q. What would that be? 22 A. That is the very last paragraph, what technically 23 is the fourth line from the bottom, the line starting with 24 the words "and finally," the word there "Don," D-O-N, 25 should be D-O-N-A, that's Dona Anna County, D-O-N-A, 26 A-N-N-A. 27 Q. I just mentioned that part 3 is what you are 28 covering. That begins on page 25. 9673 1 So this is a change that falls in that part 3; is 2 that right? 3 A. Yes. 4 Q. Okay. And then you also have a change that you 5 would like to make on page 44? 6 A. Correct. 7 Q. And what are those changes that you would like to 8 make? 9 A. In the last long paragraph there with the -- that 10 begins with the word "today's," each time the word seven, 11 S-E-V-E-N, appears, that needs to be changed to ten, 12 T-E-N. That appears in the second line of that paragraph, 13 change S-E-V-E-N to T-E-N; in the seventh line of that 14 paragraph near the end, also S-E-V-E-N needs to be changed 15 to T-E-N; and then in the twelfth line, which is 16 technically also the fifth line from the bottom, near the 17 first of that line, that word seven, S-E-V-E-N, needs to 18 be changed to T-E-N. All three places. 19 Q. Okay. Thank you for that. 20 Now are you ready to give us your summary or 21 executive summary about your Southeast/Southwest 22 testimony? 23 A. Yes. This will be a brief executive summary of 24 the work of the Southeast/Southwest Regional Class I price 25 committee, or subcommittee as some people might call it, 26 particularly regarding Orders 5, 6, 7, and 126. 27 The Southeast/Southwest regional committee 28 followed a traditional method of establishing a Class I 9674 1 differential surface. The Southeast/Southwest regional 2 committee used the USDSS model results as a guide, 3 adjusting the model-suggested differentials as needed for 4 the local market particulars. 5 Certainly, the major local issue for the 6 Southeast/Southwest regional committee was the milk 7 deficit condition in the Orders 5, 6, 7 and Eastern Texas 8 portions of those four marketing areas. The mileage milk 9 moves to supply Class I in this area are massive. The 10 milk production has left the Southeast and moved within 11 Texas away from the population. Overall, the 12 Southeast/Southwest regional committee's proposed 13 differentials follow the USDSS model suggestion quite 14 closely. 15 The largest adjustments to the model results were 16 at plants, or groups of plants, in order to provide proper 17 price alignment between plants. The changes were 18 generally conservative, knowing that we had to make -- be 19 aware of price issues and adjustments in other regions 20 that would impact the overall price surface. 21 And this is major issues, the Class I -- the 22 shortage of milk available for Class I certainly in this 23 area, the overriding issue that we had to deal with as a 24 regional committee. 25 Q. Thank you, Mr. Sims. 26 MS. HANCOCK: And with that, we would make him 27 available for cross-examination. 28 THE COURT: Very fine. I'm going to need the 9675 1 record copy of the exhibit. I didn't bring mine with me. 2 THE WITNESS: It is number 310. 3 THE COURT: Thank you very much. I'm fine so far, 4 and I -- I did not want to ask for it while corrections 5 were being made to the record copy. Thank you. 6 MS. HANCOCK: I don't know if -- if there's -- I 7 guess I'll let others, if they need to refer to other 8 exhibits. But he had a grouping originally of exhibits. 9 You might need those as well. 10 THE COURT: All right. Thanks so much. 11 All right. We remain on record -- oh, let's go 12 back on record. 13 We're back on record at 12:57. 14 Who will begin? 15 CROSS-EXAMINATION 16 BY MR. ENGLISH: 17 Q. Good afternoon, Mr. Sims. My name is Chip English 18 with the Milk Innovation Group. 19 So I did divide up the cross-exam, and I am fairly 20 confident -- but, again, it's been a couple months -- that 21 I am not going to duplicate anything. 22 Nonetheless, your parts 1 and 2 were the big 23 picture, so now let's talk about the Southeast. We heard 24 testimony in October from Mr. Covington that you gave him 25 input on Florida. I think you were in the room when he 26 testified. 27 Do you recall his saying that? 28 A. I may have been in the room. I -- I -- would you 9676 1 repeat the question? I think -- you faded off at the end 2 there. 3 Q. In October, Mr. Covington said that you gave him 4 input on Florida. 5 Do you recall that? 6 A. I did give him input, and if he said that, it was 7 true. 8 Q. What was the input you gave him on Florida? 9 A. We discussed the prices that we would use or input 10 into our proposal. 11 Q. And did you discuss the reason why Miami, Florida, 12 was going to stay at the University of Wisconsin model at 13 $7.90? 14 A. That's the average -- 15 Q. Yes. 16 A. -- of the USDSS model results for May and October. 17 And, yes, that's the number we picked at Miami. 18 Q. And you were here earlier today when Dr. Vitaliano 19 testified that, at least in his view, that $7.90 would 20 then include the $2.20 base, correct? 21 A. The $7.90 was run off a model version that started 22 at $1.60. 23 Q. But then I asked him questions about where was the 24 $0.60, and he seemed to indicate that he thought that the 25 $0.60 was built into that; is that correct? 26 A. As I just testified, the model run we worked off 27 of had 1.60 as the minimum level. 28 One thing that is important to remember with 9677 1 regard to Orders 5, 6, and 7 is that there was another 2 proceeding, a hearing earlier this year, and a Final 3 Decision, which was just released late last week, which 4 will install increases in transportation credit 5 assessments, the transportation credit balancing fund 6 assessments particularly, in Orders 5 and 7, and 7 installing new distributing plant delivery credit in all 8 three orders, Orders 5, 6, and 7. 9 So there are additional Class I monies that the 10 order provides for the attraction of milk to those 11 marketing areas, which are not included in the specific 12 Class I differentials. 13 Q. So I was going to get there later, but if we're 14 going to go there now, that's fine. I -- I think USDA 15 might have questions as well. 16 But how and in what way were those changes 17 incorporated into your thinking for the Southeast? 18 A. They were not directly, but we did realize that we 19 had -- we believed had made a reasonable case for the 20 inclusion of those increases in those two different 21 transportation credit assessment plans. Thus, that led us 22 to take up a modest conservative approach with regard to 23 Florida and to follow the model. 24 Q. Now, the hearing had not yet been held when you 25 had the model run, correct? 26 A. That's correct. 27 Q. And the hearing, in fact, was in progress on the 28 day that March numbers were generated in Exhibit 300, 9678 1 correct? 2 A. I don't -- I can't testify as to the overlap of 3 any dates. But obviously, if the hearing was begun in 4 March, we had begun working on these provisions well in 5 advance of March so that we could get our proposal in. 6 And so we had some -- we had -- we were cautiously 7 optimistic that we could make a proper case for the 8 increase in those Class I transportation credit 9 assessments and dairy distributing plant delivery credits 10 for Orders 5, 6, and 7. 11 Q. So I think a few moments ago you said it didn't 12 directly impact. 13 How did it indirectly impact your thinking in the 14 Southeast? 15 A. That theoretically we could have gone a little 16 higher in Florida. We could have gone a little higher 17 anywhere. But those -- the potential of those new Class I 18 dollars for moving milk around the Southeast provided us 19 opportunity to -- to actually follow the model. 20 Q. And what about North Carolina, where we have 21 testimony that notwithstanding your desire for more money 22 for transportation credits, National Milk proposes 23 deviating from the model by lowering the prices, say, in 24 the Research Triangle area? 25 A. We did not lower the differentials, the 26 differentials increased. 27 Q. I'm sorry, I apologize. I apologize. Thank you. 28 You lowered them from the model, correct? 9679 1 A. We elected to use prices less than the average of 2 the model results for the two months. 3 Q. Do you know if you used the May or used something 4 lower than the May? 5 A. I don't recall whether we used the lower of. 6 We -- we looked at the data, looked at the model results. 7 That area is a little bit different than some of the rest 8 of the Southeast. The hearing record in the Orders 5, 6, 9 7 proceeding provides substantial information that there 10 is a -- a higher level -- a higher quantity of in-area 11 milk production in Order 5, most of which is east of the 12 Appalachian Mountains. 13 Therefore, we determined that because of two or 14 three things, that higher level of production in, say, 15 North Carolina and Virginia, and the several plants, the 16 robust plants -- robust number of plants in that area, 17 that we could do some stair-stepping, you can do a 18 little -- save a little money on balancing because there's 19 still several plants there, that led us to -- and plus the 20 nearness of the reserve supply in, say, Maryland and 21 Pennsylvania to that Virginia and Carolina area, that led 22 us to the conclusion that the model results were modestly 23 higher then they needed to be for our proposal. 24 Q. Now, you had the model results before you asked 25 USDA for the hearing, correct? 26 A. Yes. As I said, though, we were well into our 27 development process on that hearing proposal. Obviously, 28 if the hearing was held in March, we didn't come up with 9680 1 our proposal on the first day of March or the last day of 2 February. We were well into the development process, and 3 we felt we had a good case. 4 Q. Did you tell USDA in that hearing about the need 5 for transportation credits that, oh, look, in this one 6 particular part of area 5, we don't need milk as much? 7 A. Beg your pardon? Please repeat that question. 8 Q. In the Southeast hearing, given you had the model 9 results and you were thinking about what you were going to 10 do, did you tell USDA, oh, look, we have these model 11 results, we're going to go lower, we don't need 12 transportation credits at the same level in that part of 13 Order 5 that we need them elsewhere? 14 A. We did not go lower. We increased the 15 differentials in Proposal Number 19. 16 Q. To the extent that you, for instance, in Durham, 17 North Carolina, propose $0.20 lower than the model, which, 18 yes, is higher than the current, did you disclose to USDA 19 that there were certain situations within Order 5 that 20 merited an increase but not as high as other parts? 21 A. We did not have that conversation with USDA. 22 Q. Did you get input from Mr. Covington with respect 23 to the non-Florida Southeast? 24 A. Mr. Covington was a member of the 25 Southeast/Southwest regional price committee. 26 Q. And what input did you get from him with respect 27 to, say, Alabama or Georgia, if you recall? 28 A. Virtually every member of the Southeast/Southwest 9681 1 committee gave input on all four if you -- orders. One 2 member felt like they weren't qualified to make any kind 3 of recommendation regarding Order 126, but the whole 4 committee worked collaboratively to find a reasonable 5 price surface across that entire region, with the 6 exception, again, of Area 126 where one of our members 7 didn't feel qualified to participate in that particular 8 marketing area. 9 Q. I think Mr. Hoeger suggested that he may have 10 given you input on the Southeast; is that true? 11 A. Mr. Hoeger was a member of the committee, so 12 obviously he gave -- he didn't give me input. He shared 13 his views with the broader committee. 14 Q. What was the input that he gave you with respect 15 to the Southeast? 16 A. That -- that the -- generally, that the agreement 17 that the slope needed to increase because it was very 18 difficult to attract milk for -- for any use to the 19 Southeast, much less Class I, and that we needed to 20 increase the slope, follow the model where it was 21 appropriate, adjust it where it needed adjusting. 22 Our general idea was to follow the model unless 23 there was a good reason not to. Also, to apply and try to 24 maintain current price relationships unless there was a 25 compelling reason not to. 26 Q. If the slope needed to increase, why not go even 27 higher in Miami than you did? 28 A. As I said, we had a very -- we felt very 9682 1 confident, very good about our case that would apply an 2 extra $0.85 -- or 80 to $0.85 -- onto the Class I, the 3 effective Class I cost to handlers in the Florida market, 4 including Miami. It would be hard to not recognize that, 5 at least in our thinking. 6 Q. Did you give Mr. Hoeger input on Order 32? 7 A. I beg your pardon? 8 Q. Did you give Mr. Hoeger input, in turn, on what he 9 was doing in Order 32? 10 A. If it was, it was very, very little. 11 Q. And who did give you input on Order 126? 12 A. The regional committee was -- had representatives 13 from five cooperatives: Dairy Farmers of America, Lone 14 Star Milk Producers, Maryland and Virginia Milk Producers 15 Cooperative Association, Prairie Farms Dairy, and 16 Southeast Milk. 17 Q. And was it Southeast Milk who didn't feel 18 qualified to comment on Order 126? 19 A. No. 20 Q. Which one was it? 21 A. Maryland and Virginia chose not to comment on 22 Order 126. 23 Q. So turning to the Southeast and anchor cities, 24 were you involved in the determination of what would be 25 the anchor cities? 26 A. Did you say determination? 27 Q. Yeah, determination of which cities would be 28 anchor cities. 9683 1 A. I was. 2 Q. So looking at your area, it appears Winchester, 3 Kentucky; Nashville, Tennessee; Asheville, North Carolina; 4 and Amarillo, Texas, were anchor cities; is that correct? 5 A. Yes. 6 Q. Are those supply points or distributing plant 7 locations? 8 A. Those are distributing plant locations. All of 9 them pool distributing plants. 10 Q. In 2006, when the cooperatives sought and obtained 11 an increase in the Class I differentials, did you use 12 distributing plant locations or supply points as the 13 basis? 14 A. Number one, that hearing was held in 2007. 15 Q. I apologize, 2007. 16 A. It was not implemented until 2008. We used a 17 combination of supply points, typically supply points 18 outside the marketing areas, but then we used distributing 19 plant points inside. 20 Q. And so why didn't you use supply point areas 21 outside in this instance? 22 A. I'm -- I'm -- I find that question curious, 23 Mr. English. At that hearing, it was in Tampa as I 24 recall, you asked me some very specific questions about -- 25 at that time, about why we didn't use a model like the 26 USDSS model. So now you are asking me why we didn't do 27 something that you intimated at that time that we should 28 have done. I'm a little curious. 9684 1 Q. Well, actually, no, sir. First of all, I'm asking 2 the questions, so you can be curious. But I don't believe 3 there's any inconsistency because I'm asking about how you 4 deviated from the model. 5 A. Oh, I'm sorry. Didn't sound like that to me. 6 Q. Well, the model didn't provide anchor cities, did 7 it? 8 A. It did not. 9 Q. So the idea of anchor cities was yours, right? 10 A. The idea of anchor cities was that, when we 11 divvied up the work among the regional committees, we 12 needed some demand points along the -- what I will 13 casually refer to borders of the regional committee, so 14 that each regional committee would at least have something 15 to start with in terms of its regional work. 16 Q. But you, a moment ago, thought that somehow I was 17 maybe somewhat inconsistent because I wasn't looking at 18 the model. 19 I'm actually looking at the model. And so now I'm 20 asking you why, in deviating from the model now, are you 21 deviating from no model in 2007, the concept of using both 22 distributing plants and supply points? 23 A. Well, the model considers supply points and demand 24 points. 25 Q. What were the principle core concepts for 26 selecting an anchor city? 27 A. As I indicated, there were cities along the 28 regional borders that we set tentative Class I 9685 1 differentials, and I emphasize "tentative." These were 2 not -- well, if I had a different word, I would have used 3 it now in afterthought instead of anchor. They were not 4 anchored in the sense that they could not be adjusted, 5 simply they were set to aid the development of the 6 intra-regional Class I price surfaces. It gave us each a 7 place to start as we worked toward the middle, if you 8 will, of our respective regional areas. 9 Q. And so what regional area was Amarillo adjacent 10 to? 11 A. It would have been adjacent to the Western -- or 12 to the -- generally the Kansas portion of Order 32. 13 Q. And yesterday, and today, and last week, there was 14 some extensive discussion about what was done in that 15 area. 16 Did -- did you get input from them as to what 17 Amarillo should be set at based upon what they were 18 looking to do for Colorado and Kansas? 19 A. I don't recall any conversations that said we need 20 to set Amarillo based on anything outside of that. Our 21 decision on Amarillo was purely based on the relationship 22 with Lubbock. 23 Q. And how did Asheville meet the criteria of being 24 an anchor city? 25 A. It was kind of a -- it was a bit of the corner 26 where -- nearby where, say, Order 33 dips down into West 27 Virginia. 28 Q. Now, did you change -- for the anchor city in 9686 1 Asheville, make it something other than zero from the 2 model? You altered it from the model? 3 A. Did we -- 4 Q. Did you propose Asheville as being the model 5 average? 6 A. No. 7 Q. What did you propose Asheville to be relative to 8 the model average? 9 A. $0.30 less per hundredweight. 10 Q. And yet it was adjacent to Order 33, and Order 3 11 has an anchor city in Charleston, West Virginia, correct? 12 A. Correct. 13 Q. And for Charleston, West Virginia, National Milk 14 says it should stay at the model average, correct? 15 A. I think I -- yes. I believe that's correct. 16 Q. And did you know that when you recommended setting 17 Asheville as an anchor city at $0.30 less than the model 18 average? 19 A. I don't recall knowing what the Charleston 20 recommendation was at that time -- the Charleston, West 21 Virginia, recommendation. 22 Q. There's a proprietary plant located in Charleston, 23 West Virginia, correct? 24 A. I believe so, yes. 25 Q. What is the justification for saying, we're going 26 to use the model average for Charleston, West Virginia, 27 but to the south and east for sales that might come out of 28 that plant, you are going to go $0.30 lower in Asheville? 9687 1 A. As we described in the testimony, and as I 2 mentioned a moment ago, the cost to supply the Carolinas 3 and Virginia, we felt the model overstated. There is some 4 balancing opportunities in between the plants, there is 5 some milk production left in Virginia and North Carolina. 6 Again, a quantity inside the marketing area which exceeds 7 certainly Order 7 is a proportion of the supply. We just 8 simply felt that the model actually generated slightly 9 higher results than -- than was necessary, so we adjusted 10 those. 11 Q. You were here earlier today when Dr. Vitaliano 12 testified about a correction to Clark County, Ohio, 13 correct? 14 A. Yes. 15 Q. And that was to reduce the value in Clark County, 16 Ohio, correct? 17 A. I don't know the genesis of that correction. 18 Q. So do you know whether Charleston, West Virginia, 19 has the privilege of being set at the model average, but 20 both to the north, and west, and south, and east, National 21 Milk selected numbers that were lower than the model 22 average? 23 A. Well, Charleston, West Virginia, is on the west 24 side of the Appalachian Mountains, an area which is 25 particularly substantially more difficult to supply than 26 the east side of the Appalachians. 27 Q. Do you know whether that plant has a local milk 28 supply? 9688 1 A. I do not know for sure. 2 Q. Since the existence of the local milk supply for 3 those plants in North Carolina made a difference for 4 National Milk in setting Asheville, if they testified that 5 they had a local milk supply, should USDA take that 6 consideration in their pricing? 7 A. Number one, I didn't say that the milk supply in 8 Virginia and North Carolina is sufficient to supply all 9 the plants in those two states. They are -- the quantity 10 of milk produced inside Virginia and North Carolina 11 compared to its use is higher locally than, say, Order 7. 12 There is still substantial milk that must move from, say, 13 the Middle Atlantic area down to the Virginia and Carolina 14 plants. 15 I don't know what the circumstance is at 16 Charleston, West Virginia. Where its supply is, I'm -- 17 I'm not familiar with that. 18 Q. Tell me about the decision-making process for 19 National Milk in proposing to increase Amarillo from the 20 model results of an average of $2.25 to $3, which is $0.75 21 per hundredweight? 22 A. Yes. That -- I can explain it, I hope, in a way 23 that is understandable. 24 Currently across the Order 126 marketing area, the 25 differential structure works like this: There is a 26 differential for the Texas Panhandle, which applies today 27 to both Amarillo and Lubbock of $2.40 per hundredweight. 28 The differential in Dallas, Texas, or the 9689 1 Dallas-Fort Worth Metroplex, is $3 per hundredweight. 2 That's the order base zone. Then there is a differential 3 of $3.60 per hundredweight that is applicable on the Gulf 4 Coast, particularly Houston and Conroe. 5 So if you look at the relationship of those three 6 areas, the Panhandle at $2.40, to Dallas at $3, to Houston 7 at $3.60, there are equal steps of $0.60 coming from the 8 Panhandle where most of the milk and the reserve supply 9 is, there are equal $0.60 steps, $0.60 to 10 Dallas-Fort Worth from the Panhandle, $0.60 more to 11 Houston/Conroe. 12 The committee looked at that and said that equal 13 step process is a good idea, and we should preserve that, 14 but the slope needs to increase. 15 So we knew what the differential we had provided, 16 or at least tentatively established on the Order 7, Gulf 17 Coast, and set -- or the Houston differential at $5, a 18 number which aligns well with the $5.70 at Lafayette, 19 Baton Rouge, and Hammond, Louisiana. 20 Anyway, we also noticed when we looked at the -- 21 at the alignment of prices, there is a natural $4 per 22 hundredweight zone that basically starts all the way in 23 New York and weaves its way from the Northeast to the 24 Southwest, and extending on its line, makes it to Dallas. 25 We said, okay, that makes good sense. That aligns 26 also nicely with the plants -- the prices we have 27 established, or we tentatively established in Arkansas and 28 Southwest Missouri. 9690 1 So at that point, we said, okay, $4 in Dallas 2 makes sense, or Dallas-Fort Worth Metroplex. And so if 3 we're going to maintain those equal steps from the 4 Panhandle to Dallas, Dallas to Houston, the Panhandle 5 price should be $1 less than the Dallas price. So, okay, 6 $3. So we -- basically the $3 comes pretty close to the 7 number the model suggests for Lubbock. 8 Then the question was simply, should Lubbock and 9 Amarillo have the same price as they do today? And the 10 answer was yes. And the data suggests that, absolutely, 11 both Lubbock and Amarillo sit in the heavy production 12 portion of Texas. 13 Both of those distributing plants have more than 14 sufficient milk right around them, in counties either -- 15 the county that the -- of -- I think Lubbock has actually 16 a little bit of milk in it, but the neighboring counties 17 have sufficient supply for that plant. 18 Amarillo I don't believe has -- or -- which is 19 Potter County, I don't believe has any milk production, 20 but it sits right on top of another local supply. 21 So the local supply procurement cost for those two 22 plants in Amarillo and Lubbock are very little. They -- 23 they have got milk right on top of them. And both of 24 those plants kind of share that Panhandle area as 25 distribution points. 26 And so our decision was that it makes good sense 27 to establish both of those plants at the same price, the 28 same differential, and that did mean varying from the 9691 1 model. And -- but the price alignment between the 2 Panhandle and the Dallas Metroplex and the Panhandle in 3 Houston, and within the Panhandle between those two 4 plants, were the overriding considerations for 5 establishing $3 as the differential in the Panhandle. 6 Q. I'm sorry, what county is Lubbock in? 7 A. Lubbock. 8 Q. It's in Lubbock County. 9 A. Lubbock is in Lubbock County. 10 Q. For instance, Houston is in Harris County, 11 correct? 12 A. Houston is in Harris County, correct. 13 Q. There happens to be a Houston County -- 14 A. There is a Houston County that is not Houston. 15 Q. But the model, notwithstanding what you just said 16 about Lubbock and Amarillo, the model did provide for a 17 $0.50 difference between Lubbock and Amarillo, correct? 18 A. Yes. Let me -- before I say "yes," let me verify 19 that. 20 What number did you say for a difference? 21 Q. $0.50. 22 A. Actually, I believe it's 60, if you use the model 23 averages. 24 Which I think now would be a good time to point 25 out, we ran the model for two months, and in virtually 26 every case, the May solution and the October solution were 27 different. That says to me that differentials are going 28 to follow in some range around those numbers, not always 9692 1 at the average, not always at the bottom, not always at 2 the top, maybe above the top, below the bottom. But that 3 in itself suggests that the model results are imprecise 4 and require some adjustment. 5 Q. So just to be clear, when you did the $0.60 6 difference, was that Hereford County? 7 A. My notes here say that the average of the model 8 runs of the third model run for Amarillo is two and a 9 quarter -- 2.25, excuse me -- $2.25 per hundredweight, and 10 the average for Lubbock was $2.85. And I believe that is 11 a $0.60 difference. 12 MR. ENGLISH: Can I have another exhibit marked, 13 Your Honor? 14 THE COURT: Yes. Let's go off record while we do 15 that. 16 We go off record at 1:29. 17 (An off-the-record discussion took place.) 18 THE COURT: Let's go back on record. 19 We're back on record at 1:38. 20 Mr. English, we have marked as Exhibit 417, 21 MIG-38; we have marked as Exhibit 418, MIG-41; and we have 22 marked as Exhibit 419, MIG-42. 23 MR. ENGLISH: Thank you, Your Honor. 24 (Thereafter, Exhibit Numbers 417, 418, and 25 419 were marked for identification.) 26 MR. ENGLISH: And so for the record, Exhibit 417, 27 also known as MIG-38, is, for this particular testimony, 28 the selected Arkansas, Kansas, Missouri, Oklahoma, and 9693 1 Texas county comparison with the same legend as we have 2 had for every other document, and with the same 3 information with, of course, the reference to the pool 4 distributing and supply plants and county locations comes 5 from Federal Milk Order data and will be testified about 6 by Ms. Keefe. And then to the right, of course, 7 Proposal 19 are calculations that are described in the 8 legend. So that is what Exhibit 417 is. 9 Exhibit 418 is a state map of Texas with counties 10 and a number of cities listed. Texas is a big state. 11 They have a lot of counties. And I thought it would be 12 more useful than the conversation I have been having with 13 Mr. Sims to locate some of those areas. 14 And, finally, Exhibit 419 is titled "Pounds of 15 Milk Marketed from Each County of Texas by Selected Texas 16 Producers for 2023" -- should be selected "Texas 17 Counties." 18 THE COURT: What part should say "selected" -- 19 instead of "producers" it should say "counties"? 20 MR. ENGLISH: I'm sorry. "Pounds of Milk Marketed 21 for Each County of Texas by Selected Texas Producers for 22 2023." That's correct as it is. 23 THE COURT: Okay. 24 MR. ENGLISH: And it is data, as you can see in 25 the header at the very bottom, derived from the Southwest 26 Milk Marketing Administrator, DallasMA.com, Order 27 Statistics. This is the specific website reference. In 28 order to print the very same document, you'd have to, you 9694 1 know, hit print on the website to get these, and so this 2 has production data. 3 And, again, the source of the information is, in 4 this instance, the Southwest Milk Market Administrator. 5 THE COURT: How do I know that? 6 MR. ENGLISH: The website, Your Honor, is 7 https://www.DallasMA.com. 8 And DallasMA is what they must use because 9 that's -- the MA is for Market Administrator, I believe, 10 and the Market Administrator's office for that order is in 11 Dallas. 12 THE COURT: Thank you very much. 13 MR. ENGLISH: Carrollton, Texas. 14 THE COURT: Good. You may proceed. 15 BY MR. ENGLISH: 16 Q. You could have achieved the same result as 17 encouraging milk to move to Dallas and Houston with the 18 model results, could you not? 19 A. The relationship between Lubbock, the average of 20 the May and October results was $2.85. Lubbock represents 21 kind of the bottom end, or the south end of that Panhandle 22 area. 23 The model for -- depends on whether you pick 24 Fort Worth or Dallas. The model results actually were 25 different for the model for -- for Fort Worth and Dallas 26 if you looked at the average. So at 2.85 versus 3.75, to 27 all the way to Dallas, that is less than the $1 difference 28 that we propose. 9695 1 Q. But if you look at the county of Deaf Smith to the 2 west of Amarillo, that's where the milk production really 3 is in the Panhandle, correct? 4 A. Deaf Smith is one of the predominant milk 5 production counties, yes. 6 Q. Is the milk moving from there or from Lubbock or 7 both? 8 A. Depends on the day. 9 Q. But if it needs to move from Deaf Smith, wouldn't 10 the model results have provided you more of a slope to 11 Dallas and Fort Worth? 12 A. It would, but it would not have aligned the prices 13 between Lubbock and Amarillo, as we indicated makes sense. 14 Q. Why is the model wrong in establishing that $0.60 15 difference between Lubbock and Amarillo? 16 A. I don't think it's wrong. I think that it -- it 17 provides a general picture of how prices should flow from 18 reserve supply areas to demand areas -- a general picture. 19 And then there are overriding concerns based on local 20 issues which make adjustments to those general suggested, 21 if you will, values necessary. 22 Q. Now, we have heard some testimony earlier today 23 from Mr. Gallagher, that in addition to the cheese plants 24 in Colorado, that there's a cheese plant being built in 25 Lubbock, correct? 26 A. Yes. 27 Q. And did you disclose to University of Wisconsin 28 that that plant was being built? 9696 1 A. I do not recall whether that was on the plant add 2 list, if you will. 3 Q. Now, if Mr. Gallagher is to be believed, doesn't 4 that cheese plant being built in Lubbock mean that there 5 will be more demand for milk in and around Lubbock? 6 A. The inclusion of the opening of any new plant 7 generates demand, yes. 8 Q. And if the model took that into consideration, 9 won't that volume in and around Lubbock not be as 10 available to Class I using the same rationale as 11 Mr. Gallagher used with respect to Weld County? 12 A. I think we need to pause and think about this just 13 a second. The basic threat, in my opinion -- and I will 14 say this is my opinion -- to supplies for Class I are that 15 it is easier and more convenient and less costly to supply 16 cheese plants than it is Class I plants. The cheese 17 plants typically run every day. They take a similar 18 amount of milk every day. The only reason they don't run 19 is if their equipment fails. They are located near the 20 milk, generally. They are shorter hauls. They are easier 21 to balance because they don't require a lot of balancing. 22 The Class I plants are a long way from the milk. 23 They vary their receipts daily, even within the day. The 24 thing that the order program is going to have to address 25 is if we're going to -- if we're going to track milk to 26 Class I, the competing use of milk is Class III. 27 Q. The plant -- there's a proprietary fluid milk 28 operation known as Plains Creamery located in Amarillo, 9697 1 correct? 2 A. Yes. 3 Q. Milk doesn't have to move very far to Amarillo, 4 does it? 5 A. There's -- there is sufficient milk nearby 6 Amarillo to supply that plant, yes. 7 Q. Doesn't the model address that and suggest that 8 the value, then, for Amarillo should be indeed lower than 9 Lubbock? 10 A. The model's suggestion doesn't take into account 11 the fact that both Amarillo and Lubbock sit directly on 12 top of local supplies. Those plants have, for a very long 13 time, had the same Class I price -- or the same Class I 14 differential, if you will. They both serve customers in 15 that Panhandle area. They compete for sales in the same 16 area. Lubbock milk comes back up to Amarillo. Amarillo 17 milk is sold in Lubbock. And they both compete for 18 customers in between and left and right, from the 19 horizontal -- excuse me -- the vertical line between 20 Amarillo and Lubbock. 21 Consequently, because of that historic 22 relationship, that submarket, if you will, of 23 Amarillo/Lubbock, the Southeast/Southwest committee felt 24 like, believes, and still believes, and believe we're 25 correct, that those plants should continue to have the 26 same Class I differential. 27 Q. One way to have the same Class I differential is 28 you could have raised Amarillo up and taken Lubbock down, 9698 1 correct? 2 A. There are an infinite number of mathematical 3 combinations, so I guess I'll agree. 4 Q. So if you had done that, then you could still 5 achieve a difference between Lubbock and Dallas that would 6 be identical to a difference between Amarillo and Dallas, 7 correct? 8 A. It still requires going up from $2.85 to $3. 9 We -- again, there was the overriding additional -- 10 additional constraint, or additional belief, or additional 11 desire, to maintain equal steps from the Panhandle to the 12 Dallas-Fort Worth Metroplex, and from the 13 Dallas-Fort Worth Metroplex to the two counties on the 14 Gulf Coast, or near the Gulf Coast, Houston and I believe 15 the other county, or Harris County and the county that 16 Conway sits in -- that Conroe sits in. 17 Q. And I do -- so I don't want to go back and revisit 18 the testimony of part 1 and 2, which was also addressed by 19 IDFA. 20 But you went out of your way to talk about the 21 difficulty of getting milk from Amarillo and Lubbock to 22 Dallas. If both of them were even lower than what you 23 have, wouldn't you increase the incentive for the milk to 24 move to Dallas? 25 A. If we had lowered the -- or if we had established 26 a differential at less than 3, that would have been a 27 steeper slope for Dallas had we maintained 4 at Dallas. 28 Once you change the Panhandle, that doesn't mean that you 9699 1 end up with the necessarily $4 at Dallas. 2 Other factors and other price alignment issues 3 could -- could impact where we came out at Dallas. You 4 can't move one place without considering its impact on 5 others. This is an iterative process. 6 Q. And yet, the model does that as well, does it not? 7 A. I beg your pardon? 8 Q. The model also is an iterative process and finds a 9 way to move milk, correct? 10 A. It finds the absolute perfect solution for moving 11 milk looking backwards into time. 12 Q. Didn't the model, for moving milk from the 13 Panhandle to Dallas, provide a $0.40 better solution than 14 what you have done? That is to say, your model, your 15 results are a $1 difference and the model difference would 16 be $1.40? 17 A. A dollar what? 18 Q. $1.40. 19 A. To Dallas or Fort Worth? 20 Q. To Dallas. 21 A. But, I believe that it would be $1.50 -- $3.75 per 22 the model is $2.75. But, again, it ignores the other 23 implications of having a separate price at Amarillo and 24 Lubbock. 25 Q. I don't mean to be circular, or I think maybe you 26 are being circular, what about the model is -- needs to be 27 corrected with respect to the fact that the model suggests 28 that Amarillo should be less than Lubbock? 9700 1 A. The -- the model provides a solution which doesn't 2 take into account those local factors, those local 3 competitive circumstances, that the human element does. 4 Q. And what precisely is the human factor considering 5 why Lubbock and Amarillo should be identical rather than 6 reflecting the model difference? 7 A. The -- I think I have described that. They both 8 sit -- they both have, in essence, equal local supply 9 costs. They both sit on top of the next door supply. 10 They both compete for sales in the same area. They have, 11 for a very long time, had the same price. Those are the 12 overriding factors we -- we applied. 13 Q. All right. So let's compare the map, 418, to the 14 Market Administrator's information, which is 419. And 15 let's just -- that's for convenience purposes for here, 16 for the month of October, since that's the most recent 17 one. 18 The Amarillo milk sits near Deaf Smith, correct? 19 THE COURT: Amarillo milk sits? 20 BY MR. ENGLISH: 21 Q. Amarillo milk, Amarillo plant sits near the county 22 of Deaf Smith, correct? 23 A. Yes. 24 Q. Which had 102 million pounds of milk in October of 25 2023, correct? 26 A. According to this tabular summary, yes. 27 Q. In addition, the plant at Amarillo sits south by 28 two counties of Moore County, correct? 9701 1 A. Yes. Actually, Amarillo is in Potter County, 2 so -- 3 Q. Yes. One county. Okay. 4 A. Technically that's one county away. 5 Q. Looked like it was on the border. 6 A. It's very close. But if you look at the -- if 7 you -- when you go to Amarillo, you are in Potter County. 8 Q. Okay. So we have Moore County with 201.8 billion 9 pounds in October, correct? 10 A. Yes. Almost 201.9. 11 Q. What's the milk that's close to Lubbock? 12 A. Our -- excuse me. Hale, I believe, is a 13 substantial milk production county, H-A-L-E. 14 Q. Hale? 15 A. It is almost 50 million pounds. 16 Q. 50 million pounds. Deaf Smith is 102 million. 17 Okay. 18 A. Right. 19 Q. Okay. 20 A. Lamb County, I believe, is a pretty substantial 21 milk producing county, almost 180 pounds. L-A-M-B, Lamb. 22 Q. L-A-M-B. Okay. 23 Nonetheless, also less than Deaf Smith, correct? 24 A. Yes. But -- a little bit less than Deaf Smith. 25 That's D-E-A-F, S-M-I-T-H. 26 Q. But significantly less than Moore at 27 201.8 million, correct? 28 A. Which is less. They are all less than Moore. 9702 1 Q. Lamb -- Lamb is half of what is available just 2 north of Amarillo in Moore County, correct? 3 A. Moore County exceeds all three of the other 4 counties you have identified. 5 Q. Is there milk also to the west of the state line 6 in New Mexico? 7 A. Yes. 8 Q. Is that closer to Amarillo or to Lubbock? 9 A. I don't think there's a substantial amount of 10 difference. I don't know the mileages absolutely, but -- 11 that milk probably is closer to Lubbock. 12 Q. Now, as testified to earlier today, but also it's 13 been in the record for a while, but Dr. Vitaliano 14 testified -- 15 THE COURT: You are kind of talking to yourself. 16 MR. ENGLISH: Sorry. 17 THE COURT: So slow down and -- 18 MR. ENGLISH: I thought I was still speaking 19 slowly, but apparently not. All right. I will do what I 20 can to move my voice up, and maybe if I take a quick 21 second to have some water. 22 BY MR. ENGLISH: 23 Q. So if we look at Row 2678, the next to the last 24 row on Exhibit 417, the difference between Proposal 19 and 25 University of Wisconsin average as a percentage is 33%, 26 correct? 27 A. That's what the table says, yes. 28 Q. And for Deaf Smith, Row 2549, up to -- its 28%, 9703 1 correct? 2 A. Yes. 3 Q. So now Comanche, as we heard earlier today, but 4 it's been in the record for a while, there was a change 5 from what you had determined to what is now the number, 6 and so it is now $3.85, correct? 7 A. Yes. It always was that. I can't -- I cannot 8 explain how the -- those two counties were listed 9 incorrectly in the -- one of those submissions, but it's 10 not like we made a late change at Comanche and whatever 11 county, Travis County. They have been that for a long 12 time. There was just some error that got into the 13 spreadsheet, and I have no idea how. 14 Q. So what is the explanation for Comanche County 15 only going up 5% from the model versus these areas in the 16 Panhandle with lots of milk? 17 A. We felt $3.85 was a reasonable relationship with 18 Dallas-Fort Worth at $4. It was about the relationship 19 between those two prices, not their relative change versus 20 a plant in the Panhandle. 21 Q. So nonetheless, going to Dallas, you moved up 22 Dallas $0.25 from the average. 23 The model actually had Dallas at 3.75, correct? 24 A. Yes. 25 Q. Which wasn't that far off from $4, was it? 26 A. And I think we could make the case that $4 isn't 27 that far off 3.75. 28 Q. But, again, the model would, vis-a-vis Amarillo 9704 1 as, you know -- give you $1.50 difference? 2 A. I'm sorry? 3 Q. If you look at line 2547, Dallas -- 4 A. Yes. 5 Q. -- the model average is 3.75. 6 A. Yes. 7 Q. If you look down to 278 where Plains, Amarillo is, 8 it's 2.25, or $1.50 difference. 9 A. Yes. 10 Q. You have actually narrowed that difference by 11 $0.50, correct? 12 A. We have -- we have increased the difference 13 between the Panhandle from $0.60 to $1. 14 Q. But you have decreased it vis-a-vis the model, 15 correct? 16 A. Yeah. That presumes that the model number is, for 17 lack of a better term, "gospel," and it is not. It is a 18 suggestion. It's a starting spot. There's a range of 19 numbers around that average or the high or the low that 20 would all be reasonable. 21 Q. Going back to your exhibit that was then discussed 22 by IDFA, nonetheless, that $1.50 difference would solve 23 that problem of getting milk from Amarillo to Dallas 24 better, correct? 25 A. $1.50 per hundredweight is greater than $1 and -- 26 $1 per hundredweight. But that $0.50 would create a 27 substantial problem between Amarillo and Lubbock. 28 Q. Even though cheese plant is about to be built in 9705 1 Lubbock and take up milk? 2 A. The -- our proposal is that the price in Amarillo 3 and the price at Lubbock, as they are today, should be the 4 same differential. 5 Q. I think you did mention to me maybe 20 or 6 30 minutes ago that one of your considerations was current 7 alignment, correct? 8 A. That is one of the many considerations, yes. 9 Q. Isn't one of the consequences of 25 years between 10 the last time we did Class I differentials and now that 11 milk production has moved, population has changed, hauling 12 rates have gone up. 13 How does that match up with the idea that you can 14 maintain alignment between current differentials? 15 A. Sir, a state as big as Texas, where the distance 16 from the Panhandle to Dallas is roughly 400 miles, that 17 provides lots of room to make some adjustments 18 intra-plant, or between plants, particularly in the 19 Panhandle where there's only two. 20 Q. Did you hear some examination, I think it was last 21 week, that it, in essence, takes one penny a hundredweight 22 to move milk each mile -- each mile? 23 A. That's about right. 24 Q. And how many miles did you say it is between the 25 Panhandle and Dallas? 26 A. Roughly 400. 27 Q. So that would suggest that a $4 difference is 28 necessary between Amarillo and Dallas? 9706 1 A. If you went purely on the cost of moving milk from 2 the Panhandle to Dallas, that would generate a roughly $4 3 difference. 4 Q. Now, we have never done that, correct? 5 A. Not to my knowledge. 6 Q. In fact, in 2007, in the Southeast, you discussed, 7 and USDA accepted, a -- sort of an 80%? 8 A. I think I recall that, yes. Of course, the 9 transportation credits are then further adjusted by the 10 difference in the differentials. So you -- you -- the 11 transportation credits don't net you the full cost of 12 hauling. 13 Q. I was referring to the Class I differential 14 portion of the 2007 hearing. 15 A. Oh, I see. 16 Q. Didn't that also apply at 80%? 17 A. I don't recall that specifically. 18 MR. ENGLISH: I'll come back to that after the 19 break, Your Honor. 20 BY MR. ENGLISH: 21 Q. To what extent did paragraph 75 in the order, the 22 location adjustment for producers, come into play with the 23 price that was proposed by National Milk for Potter 24 County, Amarillo? 25 A. The -- the draw out of the pool, if you will, the 26 producer price surface, would be relative in Potter County 27 as the same to Lubbock as it is today. The same. 28 Q. But it would certainly be higher than the model 9707 1 provided, correct? 2 A. It would. 3 Q. Do you know, have you discussed with the 4 University of Wisconsin, whether that kind of price change 5 imposed on the model would alter the model's results? 6 A. I'm sorry, what kind of change imposed on the 7 model? 8 Q. If you said, you know, to University of Wisconsin, 9 "We disagree with your result in Amarillo, and we want you 10 to input into Amarillo this number," do you know whether 11 that would have an impact on the results of the model? 12 A. I suspect it would, but I can't speculate as to 13 what that impact on the model would be. We certainly 14 never asked the University of Wisconsin people to force a 15 number on a spot, and would not have. 16 Q. But you don't know whether that was done, for 17 instance, over wide swaths of the West, whether that would 18 impact how the model would attempt to move milk? 19 A. My understanding from a very long time ago back in 20 graduate school when I learned a little bit about linear 21 programming, if you force a constraint on the model, the 22 model result will probably be different depending on 23 whether that constraint is significant. So adding 24 significant number of constraints to a model will change 25 the output. 26 Q. So I specifically held off back in October a 27 conversation because you said, "Please talk about that in 28 part 3." And that is a conversation with you about the 9708 1 distance between farms and plant issues and how they are 2 involved in the model. So I just want to set that as a 3 predicate, that I started to ask you some questions 4 regarding parts 1 and 2, and you said, "Those questions 5 would be better asked after I testify about part 3." 6 I'm just giving you some reference point. Okay? 7 A. That's not burned in my memory, but I will -- 8 sure. Let's go. 9 Q. Well, I burned it into my paper. 10 A. Good enough. 11 Q. In your testimony, the written testimony that you 12 summarized today, you reference the increasing distance 13 between farms and plants. 14 But doesn't the model account for that? 15 A. I believe the model provides, actually assigns 16 production by county. So to that -- to the -- whether 17 that -- if that is correctly assigned in the model, then, 18 yes, there would be some reflection of the distance 19 between farms, or the changed difference between milk 20 production centers and demand centers. Yes. 21 Q. To the extent in the Southeast or in the Southwest 22 you are making modifications, does it matter that some 23 plants have been built close to the milk supply? That is 24 to say, the milk doesn't have to move as far to the plant, 25 and the plant is bearing the cost of moving it to the 26 consumption center; should that matter? 27 A. I'm sorry, that compound question lost me in the 28 middle. 9709 1 Q. Well, let me ask you a specific question about a 2 specific operation to try to clarify. 3 Shamrock Foods built a plant in Virginia, correct? 4 A. Yes. 5 Q. Since Federal Order Reform, correct? 6 A. Yes. 7 Q. And it built that plant close to the milk supply, 8 correct? 9 A. That Northern Virginia area does have, continues 10 to have, some milk supply, yes. 11 Q. Okay. Just to be clear, you call that Northern 12 Virginia. I consider Northern Virginia to be Arlington 13 and Fairfax. 14 Shamrock did not build its plant in what is called 15 Northern Virginia for those of us who live in D.C., 16 correct? 17 A. I don't know what you call Northern Virginia, but 18 I will say this, it's in -- it's north of Richmond 19 somewhere. How's that? 20 Q. It's also west of the Richmond, correct? 21 A. I would think that is pretty true, yes. 22 Q. I consider that -- 23 A. Somewhere toward the Shenandoah Valley, right? 24 Q. I guarantee you, that's not Northern Virginia, 25 but... 26 So that plant was built close to the milk supply, 27 correct? 28 A. It was built close to a milk supply. 9710 1 Q. And it is then carrying the costs of -- or at 2 least more of the costs for moving the milk from where 3 it's produced to where it is consumed, correct? 4 A. In that unusual example, that would be correct. 5 Q. Other than Shamrock, when you look at the world in 6 2023 versus 2000, and when you think about what your work 7 you did and what the model did, it wasn't that plants 8 other than maybe Shamrock moved, it was that farms moved 9 farther from plants, correct? 10 A. Farms moved farther from Class I plants. 11 Q. Okay. And to the extent milk moved farther from 12 Class I plants, doesn't the model pick up the need to move 13 that milk to those fluid plants? 14 A. It should, yes. 15 Q. When you use the term alignment for purposes of 16 your modifications, what is your definition of alignment? 17 A. Number one, that the resulting Class I price 18 surface provides incentives to move milk toward areas of 19 need; that if we can, that we respect the relationship of 20 plants -- particularly plants within a -- a metro area 21 that before our work had a common Class I differential, to 22 respect those Class I differentials within plants -- or 23 within cities, excuse me, or metro areas so that you don't 24 disrupt the competitive relationship between those plants; 25 and that between plants and other plants, that there is a 26 reasonable and reasoned price surface that results from 27 the process. 28 Q. What role does an efficient market play, if any? 9711 1 THE COURT: What was the last word? 2 BY MR. ENGLISH: 3 Q. What role does an efficient market play, if any? 4 A. What role does an efficient market play? I'm not 5 quite sure I know how to answer that. 6 The location of the plants is pretty much fixed, 7 particularly Class I plants. They don't tend to get up 8 and walk around. 9 Farms can, and farms have moved farther away from 10 the cities. That's the problem that we're solving for. 11 Q. I apologize for my imprecise question. 12 In determining how to address alignment changes 13 from the model, does the concept of an efficient market 14 play a role in those modifications? 15 A. There's many levels of efficiency. There is 16 efficiency of farm-to-market movements. There's 17 efficiency of competition between plants. There's 18 efficiency of distribution of Class I product. There are 19 any number of levels of efficiency. 20 Q. Which of those would apply to the question of the 21 modifications that you have proposed making, for instance, 22 in Texas? 23 A. The -- 24 THE COURT: I'm sorry, what were your last three 25 words? 26 MR. ENGLISH: In Texas. In Texas. 27 THE COURT: Thank you. 28 THE WITNESS: The major modification we made in 9712 1 Texas is the Amarillo-to-Lubbock relationship, and that 2 one would be based on two of those three, certainly: The 3 relationship of those plants from a competitive 4 standpoint, and the fact that they distribute and compete 5 for sales in a micro market that is theirs more or less 6 alone. So those are the efficiencies that we would 7 considered in that point. 8 And, quite frankly, since they both sit up on top 9 of their own respective farm milk supplies, those 10 efficiencies are there already. And the -- and since they 11 both would have a common or very similar local procurement 12 cost, there's a -- there's a recognition of efficiency. 13 BY MR. ENGLISH: 14 Q. Did you ever go back to the University of 15 Wisconsin and say, "We don't understand or we don't agree 16 with what you have done with Lubbock and Amarillo. Can 17 you explain it?" 18 A. We did not. I did not. How's that? 19 Q. Do you know if anybody else ever did? 20 A. I have no -- I can only speak for myself. I do 21 not know that anybody else did, but I can only say that I 22 did not. 23 Q. But you were the one in charge of Texas, correct? 24 A. I don't know if the "in charge" is the right term. 25 But I coordinated the Southeast/Southwest committee, yes. 26 MR. ENGLISH: Let's have another exhibit marked, 27 please. 28 THE COURT: Yes. I know it's a little early for a 9713 1 break, but I would like one. So it's about 2:20, so let's 2 take 15 minutes. Please be back and ready to go at 2:35. 3 We go off record now at 2:20. 4 (Whereupon, a break was taken.) 5 THE COURT: Let's go back on record. 6 We're back on record at 2:35. 7 Mr. English, you have been marking and 8 distributing documents. What would you like to talk 9 about? 10 MR. ENGLISH: So I believe we're up to 11 Exhibit 420 -- no jokes, please -- and that's -- this 12 would be MIG-Exhibit 43, which is now a more focused map 13 with highways of Dallas-Fort Worth, but also having marked 14 Sulphur Springs and Stephenville. 15 THE COURT: Sulphur Springs and Stephenville are 16 called out on the map. So I guess I would ask that to be 17 marked as Exhibit 420. 18 THE COURT: Very good. And it's been done. 19 (Thereafter, Exhibit Number 420 was marked 20 for identification.) 21 THE COURT: And let's see, I'll need a copy. 22 And does the witness have a copy? 23 MR. ENGLISH: I gave the witness a copy. I have 24 been instructed by USDA not to give you copies because 25 they are going to give you the officially marked copy. 26 THE COURT: I know, they are going to put a 27 sticker on it. 28 MR. ENGLISH: I was doing what I was instructed to 9714 1 do -- requested to do. 2 THE COURT: Very good. I'm looking at 3 Exhibit 420, 4-2-0, MIG-Exhibit 43, 4-3. 4 All right. And do you want to talk about any 5 other document at this time, Mr. English? 6 MR. ENGLISH: Yes, Your Honor. In addition, I 7 handed out limited copies for official notice purposes of 8 Federal Register Volume 73 from Friday, February 29th, 9 2008, starting on page 11,194. I provided also the 10 witness a copy and Your Honor a copy. 11 And this is the proposed rule and tentative 12 partial decision of the United States Department of 13 Agriculture made in 2008 with respect to the proceeding, 14 that Mr. Sims correctly corrected me on, occurred in 2007. 15 MR. HILL: Could you repeat that Federal Register 16 cite, please? 17 MR. ENGLISH: Of course. It is 73 Federal 18 Register, 11,194, et seq, February 29, 2008. 19 MR. HILL: Thank you. 20 MR. ENGLISH: And I'll be asking for official 21 notice of this document, Your Honor, but let me go to a 22 specific page to provide the context. And that would be 23 page 11,205, the third column. 24 And I'm backtracking for a moment. I was 25 struggling during my direct to find this, and I said I 26 would find it during the break. And so this goes back to 27 this question I asked Mr. Sims about an 80% cost of 28 hauling factor. 9715 1 And if you look, Mr. Sims, in the third column of 2 page 11,205, the next to the last paragraph, and I would 3 direct you to the language that says, "The Class I price 4 adjustment at every county and parish location relies upon 5 a mileage rate factor implemented in December 2006. This 6 factor, representing approximately 80% of the cost of 7 hauling milk" -- 8 THE COURT: "Of hauling bulk milk?" 9 MR. ENGLISH: "Of hauling bulk milk" -- thank you, 10 Your Honor -- "is further reduced by 80%." 11 BY MR. ENGLISH: 12 Q. Do you see that? 13 A. I do. 14 Q. Does that refresh your recollection of whether the 15 80% factor was applied to the hauling rate at that time? 16 A. Yeah. But I think we are misinterpreting what 17 that means. It says that when -- when we developed the 18 Class I price surface at that time, we used the mileage 19 rate factor, which refers to the transportation credit 20 mileage rate factor, which was established in 2006. 21 Mileage rate factors, under Federal Milk Orders, 22 are particular- -- maybe I should say that differently. 23 The mileage rate factor under Orders 5 and 7 is 24 deliberatively -- deliberately, excuse me -- deliberately 25 conservative in terms of its cost of haul. 26 And so it says we used 80% of a hauling rate 27 factor, which was already conservative, and then it 28 reduced it another 80% again, I believe is what this says. 9716 1 So you are looking at 64% of an already conservative price 2 hauling cost. 3 Q. So let me -- let me get to that second part, 4 because I puzzled over that second part quite a while. 5 But the first part is, if you look in the previous 6 column, that is not a discussion about the transportation 7 credits, this is a discussion about the Class I prices and 8 Class I price surface, correct? 9 A. Yes, sir, I understand that. But if you look at 10 the paragraph, it says that, "The adjustment of every 11 county and parish location relies on a mileage rate factor 12 implemented in December 2006." That is the mileage -- 13 there is only one mileage rate factor in those two orders, 14 and that refers to the transportation credit mileage rate 15 factor. So -- and there was an amendment in December 2006 16 which updated the mileage rate factor. 17 So it's 80% of a conservative mileage rate factor, 18 reduced further by 80%. 19 Q. I'm not going to get into a grammatical argument 20 or discussion because we'll be here all day on what that 21 means. 22 But whether it's 80% or 64%, nonetheless, this 23 resulted from your own testimony, correct? 24 A. It did. 25 Q. Okay. So whether it was 80% or 64%, the idea was 26 you don't compensate for 100% of the haul, correct? 27 A. That's true. 28 Q. Thank you. That's the only thing I was trying to 9717 1 do there. 2 MR. ENGLISH: I still think it would be useful to 3 take official notice of this, Your Honor. I mostly used 4 it as a mechanism for the two of us to have a conversation 5 that we had 15 years ago. So -- and I don't think it 6 hurts to take official notice. It's not burdening the 7 record as an exhibit. 8 So I would ask for official notice to be taken of 9 this entire decision, not just the page referenced, 10 because somebody else may want to refer to a different 11 page number. 12 I believe we have taken official notice of other 13 previous decisions of the Department. 14 THE COURT: Yes. I'm very happy to take official 15 notice of this portion of the Federal Register. I want to 16 make sure that people can find it from what we have put on 17 the record. 18 Were you able to find it, Mr. Hill, with the cite 19 that Mr. English provided? 20 MR. HILL: I was. 21 THE COURT: All right. Good. 22 Is there any objection to my taking official 23 notice of Volume 73 of the Federal Register, beginning on 24 page 1194 (sic), but particularly with the third column of 25 page 11,205? 26 There is none. I do take official notice of this 27 document, found at 73 Federal Register beginning at page 28 1194 (sic). 9718 1 MR. ENGLISH: Thank you, Your Honor. 2 BY MR. ENGLISH: 3 Q. So, again, Moore is a -- so you know what I'm 4 going to do, Mr. Sims, I now want to talk about the Dallas 5 and Fort Worth areas. All right? 6 A. Okay. 7 Q. And I believe you said that this week was some 8 kind of anniversary for your involvement in Federal 9 Orders; is that correct? 10 A. Today, 40 years ago, was my first day of 11 employment with the Market Administrator's Office in 12 Atlanta, Georgia. 13 (Applause from the room.) 14 THE WITNESS: Less impressive than it sounds. 15 BY MR. ENGLISH: 16 Q. When was the first time you were involved with 17 Order 126, which back in those days was known as the Texas 18 order, correct? 19 A. It was what? 20 Q. The Texas order. Before it was the Southwest 21 order. 22 A. I believe it was, yes. My -- my involvement in 23 the -- in Order 126 probably dates back, in some respects, 24 to roughly 2002. Although at that time -- well, I'm 25 just -- I was going to qualify it, but the -- my 26 involvement at that time would have provided me some 27 knowledge of the way milk moved and the location of milk 28 supplies, predominantly the location of milk supplies in 9719 1 the Texas area along about then. 2 Q. About when? 3 A. 2002. 4 Q. Okay. Have you gone back and studied, given this 5 testimony, or talked to others about the history of the 6 Texas order going back into the mid-1980s? 7 A. No. 8 Q. Were you involved when you -- when -- when were 9 you last involved at the Market Administrator's office? 10 A. When I was last an employee? 11 Q. Yes, an employee. 12 A. 1996. 13 Q. Yeah. Good caveat. 14 And were you still at -- in Atlanta, Georgia -- 15 A. No, I was in Louisville, Kentucky from 1991 16 through 1996. 17 THE COURT: Gentlemen, do not gallop. 18 MR. ENGLISH: Oh, sorry. I thought I wasn't, but 19 it must be the after-lunch effect. 20 BY MR. ENGLISH: 21 Q. Do you know that there were a series of 22 hearings -- have you -- did you know that there was a 23 series of hearings dating back in the 1970s through 1995, 24 with respect to questions raised in those hearings as to 25 the proper level location adjustments in Texas? 26 A. I am aware that there were hearings. That would 27 probably represent the totality of my knowledge, simply 28 the awareness that those hearings were occurring or did 9720 1 occur. 2 Q. In preparing for this hearing or preparing for 3 your involvement in -- as -- in your role as coordinator, 4 especially of Texas, did you discuss, you know, the 5 history of where Texas milk supply, you know, has been and 6 where it has moved to? 7 A. I specifically consulted the Market 8 Administrator's for Order 126 website. They have what I 9 can only describe as an extremely useful tool that 10 provides milk production information in Texas and New 11 Mexico by their designated regions, all the way back to 12 2000. So I looked at that a great deal. And you can look 13 at it by month and by -- by region of Texas. 14 Q. Given your other involvement -- involvements, are 15 you aware that, at least at some recent time, recent time 16 being during our careers, that the milk supply for Dallas 17 largely came from Sulphur Springs? 18 A. There was a time when Sulphur Springs would have 19 been an important supply for the Dallas market, but that 20 was a pretty long time ago. 21 Q. Thanks so much. Dating me. 22 And are you aware -- so what county is Sulphur 23 Springs in? 24 A. Sulphur Springs, I believe, is in Hopkins. 25 Q. Yes. 26 A. There's three or four counties right around 27 Hopkins County, which form what we, in the industry, I 28 would say colloquially, refer to as the Sulphur Springs 9721 1 milk shed. 2 Q. And are you aware that the milk for Fort Worth 3 came from Stephenville? 4 A. That would make sense. And Stephenville is in 5 Erath County. 6 Q. And Sulphur Springs to Dallas is fairly 7 equidistant as from Stephenville to Fort Worth, correct? 8 A. That would be about right, yes. 9 Q. Now, is it fair to say that that milk supply in 10 Hopkins County has gone down? 11 A. The milk supply in what I -- and I think most 12 industry people would refer to as the Sulphur Springs milk 13 shed, has experienced milk production declines that 14 actually look a lot more like the Southeast than -- than 15 many other places in Texas. That production is probably 16 well less than half of what it was couple of decades ago. 17 Q. And to the extent there is still milk production, 18 it's moving east? 19 A. Some of it moves east. Some of it moves south. 20 Some of it stays in that general area for -- there's a 21 plant, pool distributing plant in -- in Sulphur Springs. 22 There also is one in Tyler. And so some of that milk 23 production stays right there. Some of it moves south to 24 the Houston/Conroe complex. Some of it might move east to 25 Order 7. 26 Q. But it's not moving to Dallas anymore, correct? 27 A. It generally would not. It would be an unusual 28 case for it to go back to Dallas. 9722 1 Q. And similarly, what about milk supply in Erath 2 County, commonly known as Stephenville, where does that -- 3 has that milk gone down as well? 4 A. Some. 5 Q. Does that milk generally move south now rather 6 than into Fort Worth? 7 A. Correct. It generally goes towards the plants 8 at -- I would say Austin, but that plant is closed. No. 9 Yes. Yes. San Antonio, Houston/Conroe, might 10 occasionally go to El Paso, but I can't say that for sure. 11 Q. And I'm trying not to belabor the record with too 12 many things. 13 You agree that -- that milk from Erath would go to 14 San Antonio, correct? 15 A. Generally, yes. That would be a natural 16 destination for some of that milk, yes. 17 Q. And it wouldn't surprise you if USDA made a 18 finding of that back in 1991, correct? 19 A. I'm sorry. Please repeat that. You are starting 20 to speed up. I'm from the south. I hear slow. 21 Q. As we now know, I'm from Northern Virginia. And 22 so our court reporter thanks you, and apparently I was 23 doing better this morning, but I'll try to slow down. 24 THE COURT: I don't know if the court reporter 25 caught that. But you lowered your chin, and I didn't 26 catch it at all. 27 So while I have got you stopped, would you please 28 spell Stephenville for me. 9723 1 THE WITNESS: Yes. S-T-E-P-H-E-N-V-I-L-L-E. 2 THE COURT: And the speed with which you speak is 3 only half the problem. The other problem is not waiting 4 until the other's voice dies down. Both of you are 5 guilty. 6 MR. ENGLISH: I doubt he's guilty of speaking too 7 quickly. 8 BY MR. ENGLISH: 9 Q. So when milk moved from Stephenville to Fort Worth 10 and Sulphur Springs to Dallas, back when milk was still 11 available, it made sense that the two locations would have 12 the same Class I differential value, correct? 13 A. Which two locations, Stephenville -- 14 Q. Fort Worth and Dallas. 15 A. Still makes sense for them to have the same 16 differential, but that would have made sense then, too. 17 Q. Well, let's get to what it does now. 18 Let's first agree that given looking at current 19 situations, it made sense then. We can agree on that. 20 All right? 21 A. I can agree with that. 22 Q. Okay. Now, you do say, on page 32, when you 23 discuss Dallas and Fort Worth, you say, "In a world, 24 driven purely by logic and science, a differing Class I 25 differential in these two cities might work. In 26 practicality, no way." 27 Correct? 28 A. That's -- that sounds like me. Yes. 9724 1 Q. Well, speaking about practicality and looking at 2 the map, whether the milk for those locations comes from 3 Amarillo or Lubbock, it has to pass north of and east of 4 Fort Worth to get to Dallas, doesn't it? 5 A. Generally, yes. 6 Q. Would you agree that the trip from the Panhandle 7 is 25 miles farther to Dallas than Fort Worth? 8 A. That's about right, yes. 9 Q. And would you agree that those 25 miles, we have 10 heard things about traffic? You know, even on Sunday 11 morning, which I checked this week, will take you like 12 35 minutes longer than going to Fort Worth to Dallas? 13 A. There is substantial traffic in the 14 Dallas-Fort Worth Metroplex. 15 Q. So given those practicalities and the idea that it 16 costs $0.01 per hundredweight to move one mile, therefore, 17 there's 25 miles extra distance to go to Dallas, why 18 doesn't the model make sense for the results in Fort Worth 19 to Dallas? 20 A. This is another case where historical relationship 21 of plants within a city cluster or a plant cluster should 22 continue to have the same Class I differential as exists 23 currently. 24 Again, that Dallas-Fort Worth Metroplex is a 25 substantial demand point. There are, I believe, four pool 26 distributing plants in and around Fort Worth and Dallas. 27 They should -- in our opinion, it's simply most practical, 28 most realistic, most efficient, most deserving, that those 9725 1 plants could and should continue to have the same Class I 2 differential despite the fact that there is a certain -- 3 there is, obviously, a slightly higher cost for milk going 4 from the Panhandle, past Fort Worth, to Dallas. 5 Q. There are three Class I plants in the 6 Dallas-Fort Worth Metropolitan area, correct? 7 A. I believe it's four. 8 Q. What are the four? 9 A. There is -- you said the Dallas-Fort Worth Metro 10 area, right? 11 Q. Yes. Yes. 12 A. I believe Kroger Company operates a plant in 13 Fort Worth. It might be listed on the Market 14 Administrator list as Vandervoort's. I think there are 15 two plants -- three plants in -- in the -- on the Dallas 16 side, two of which are -- I believe they are owned by 17 Dairy Farmers of America, and one is owned, operated by 18 Hiland on the Dallas side. I believe there are three 19 plants on the Dallas side. 20 Q. Okay. So a proprietary operation in Fort Worth 21 and cooperatives in Dallas -- cooperative-owned plants in 22 Dallas? 23 A. Yes. 24 Q. Are you also aware that there is some organic 25 utilization in Dallas? 26 A. I wouldn't be surprised by that, but I have no 27 personal knowledge. 28 Q. Turning now to Georgia, and you -- I believe you 9726 1 gave your testimony, and I cross-examined you, and I wrote 2 this cross-examination before there was another 3 announcement that there is going to be a Walmart facility 4 built in Georgia, correct? 5 A. Yes. 6 Q. Do you know if that Walmart facility was 7 provide -- whether the possible existence of that Walmart 8 facility was provided to the model? 9 A. I certainly had no knowledge of that potential, 10 and I don't know that anybody else did. I can say with 11 some certainty that that -- the potentiality of that plant 12 was not in the model. 13 Q. Have you -- given the nature of that public 14 announcement, has National Milk considered what impacts 15 that would have on the proposal? 16 A. I'm sorry? 17 Q. Have you considered what impacts the announcement 18 of that plant would have on NMPF 19? 19 A. We have not modified our proposal. 20 Q. Do you think USDA should consider that plant that 21 is not yet opened? 22 A. Yes. 23 Q. Are plants in Atlanta located closer to the milk 24 shed than a plant in Spartanburg? 25 A. No. 26 Q. Where is the milk supply for the Atlanta plants? 27 A. There's not much. There if -- if -- there is a 28 supply of milk in South Georgia, which is quite distant 9727 1 and has to come up against the grain to get to Atlanta. 2 There is still some milk supply in the counties to the 3 east a little ways from -- from the Atlanta Metro area. 4 What is the name of that town over there? It escapes me 5 at the moment, but there's not a lot left. 6 So Spartanburg is close enough to North Carolina 7 to have a nearer supply than -- than Atlanta does. 8 Q. And so Spartanburg, the model Row 2325, if you 9 want to -- I thought you had it electronically. Do you 10 have it electronically or not? Or do you have a 11 different -- 12 A. Which -- which, I'm sorry? 13 Q. Spartanburg, South Carolina. I'm looking to 14 discuss the -- 15 A. Perhaps you could tell me what exhibit you are 16 looking at. 17 Q. I'm going to look at 301 again, which I thought -- 18 A. I do not have a copy of that, but I do have some 19 of this information. How's that? 20 Q. I may have made an assumption that you had a copy 21 electronically. 22 A. I do not. 23 THE COURT: I'm sorry, here it is. 24 THE WITNESS: Thank you so much, Your Honor. 25 Your -- where, again, are we looking? 26 BY MR. ENGLISH: 27 Q. Spartanburg, which is Row 2325. 28 A. Yes. 9728 1 Q. The model average was $6.00, correct? 2 A. Yes. 3 Q. And the proposal is for $5.60, correct? 4 A. Yes. 5 Q. So it's not just North Carolina that has a 6 reduction. You are also proposing a reduction for 7 Spartanburg, South Carolina, correct? 8 Over the model. Over the model. Not a reduction 9 in the overall. I saw where you were going, and I 10 apologize. But comparing the model to the proposal, you 11 are proposing a decrease of $0.40, correct? 12 A. Our proposal at Spartanburg is less than the 13 average generated by the two monthly model runs. 14 Q. Since you went out of your way to say that, if you 15 look back at Column F, that's also lower than the May at 16 $5.80, correct? 17 A. It is. 18 Q. And do you recall whether -- whether the model 19 also provided for $6.00 for Atlanta? 20 A. I do recall that. 21 Q. And you reduced that by $0.05 for Atlanta? 22 A. Our proposal is $5.95 per hundredweight for the 23 two plants in -- in and around the Atlanta Metro area, 24 which is, I agree, $0.05 less than the model average. 25 Q. Who owns those plants in Atlanta? 26 A. One is owned by Kroger Company; the other is owned 27 by Publix Supermarkets. 28 Q. And who owns the plant in Spartanburg? 9729 1 A. I believe that's a Dairy Farmers of America plant. 2 Q. Were you here for my conversation with Mr. John 3 last week? 4 A. I was not. No. I -- yes, I was. I'm sorry, yes, 5 I was here for that. 6 Q. What role did you have with respect to the 7 decisions made for pricing of the Kroger plant in 8 Lynchburg and the Maryland plant in Newport News? 9 A. We collaborated across that area and arrived at a 10 price surface we felt was realistic given the nearness of 11 the local supply and the nearness of the supplemental 12 supply. And that kind of segmented part of Order 5. It's 13 that portion east of the Appalachians. 14 Q. Isn't Lynchburg closer to the milk supply than 15 Newport News? 16 A. It would be, yes. 17 Q. Other than existing price alignment, what 18 justification is there for modifications to the model that 19 lowered Lynchburg by $0.05, but lowered Maryland and 20 Virginia's plant by $0.55 to reduce the difference between 21 the two on the model by $0.50? 22 A. Again, that area continues to have some milk 23 supply, unlike many parts of the Southeast, and it's 24 closer to the supplemental supply. We felt like the model 25 had overpriced that -- that area for that reason, that it 26 was -- that -- that the availability of the supplemental 27 supply, the availability -- the relative better 28 availability of local supply justified a lower price 9730 1 than -- in that area, than the model generated. 2 Q. What is the closest volume of milk to Newport 3 News? 4 A. Beg your pardon? 5 Q. What is the closest volume of milk on a farm to 6 Newport News? 7 A. Probably would be milk on the western side of 8 Virginia. 9 Q. Which is closer to Lynchburg, correct? 10 A. Yes. 11 Q. Was Mr. Kang involved in your conversations in 12 your red pencil crew? 13 A. Some. 14 Q. So it's my understanding that he's not going to be 15 testifying, correct? 16 A. I believe so. He was relatively late to the 17 process. 18 Q. That's fine. If I asked you questions about the 19 discussion that he would have had in his testimony, with 20 respect to milk moving from West Texas and Kansas, would 21 you have information on that? 22 A. I can see, if you will -- if you want to talk 23 about it, fine. I'm -- I'll see if I can agree or 24 disagree. 25 Q. Where does milk from West Kansas move for fluid 26 milk use? 27 A. Some of it goes to Order 7. Some of it goes to 28 the east side of Texas. And I don't -- I don't know where 9731 1 it all goes. But I can say that some moves to points in 2 the western side of Order 7. Some of it moves to points 3 on the east side of Order 126. May occasionally -- in 4 fact, I'm sure it goes sometimes to the Dallas-Fort Worth 5 area. May actually come down and supply Amarillo and 6 Lubbock. I can't say for sure, but it would depend on the 7 day. But it might move to those areas. 8 Q. But what is the purpose of setting the Class I 9 differential say, in Wichita, Sedgwick, Kansas, at 3.85, 10 $0.90 higher than the model, and 31%, if you are trying to 11 move milk east? 12 A. We were not involved in the Wichita/Kansas price. 13 Q. In that case, thank you, Mr. Sims. 14 MR. ENGLISH: I have no further questions. I 15 guess I move admission, Your Honor, subject to 16 Ms. Hancock's concerns about 417 -- 417, 418, 419, and 17 420. 18 THE COURT: Ms. Hancock, do you want to go on 19 record with regard to your reservations about Exhibit 417? 20 MS. HANCOCK: Your Honor, it incorporates my prior 21 comments. My reservation with the document is that the 22 witness didn't put the document together, can't 23 independently verify it. We're not objecting to its 24 admission as long as we're noting that for the record. 25 THE COURT: Thank you. 26 Is there any other comment or objection to the 27 admission into evidence of Exhibit 417, also MIG-38? 28 There is none. Exhibit 417 is admitted into 9732 1 evidence. 2 (Thereafter, Exhibit Number 417 was received 3 into evidence.) 4 THE COURT: Is there any objection to the 5 admission into evidence of Exhibit 418, also MIG-41? 6 There is none. Exhibit 418 is admitted into 7 evidence. 8 (Thereafter, Exhibit Number 418 was received 9 into evidence.) 10 THE COURT: Is there any objection to the 11 admission into evidence of Exhibit Number 419? 12 There is none. Exhibit 419 is admitted into 13 evidence. 14 (Thereafter, Exhibit Number 419 was received 15 into evidence.) 16 THE COURT: Is there any objection to the 17 admission into evidence of Exhibit Number 420? 18 There is none. Exhibit 420 is admitted into 19 evidence. 20 (Thereafter, Exhibit Number 420 was received 21 into evidence.) 22 MR. ENGLISH: Thank you, Your Honor. If I had 23 just a couple minutes, I'll clean up all of the things I 24 have put over here, if that's okay. 25 THE COURT: In other words, you would like a 26 little break before the next cross-examiner? 27 MR. ENGLISH: I think it would make it easier for 28 the next cross-examiner to work if I got rid of all my 9733 1 stuff. 2 THE COURT: Yeah, but your documents are gone, and 3 you have those nice chairs there. 4 MR. ENGLISH: I'm going to move the chairs. I 5 don't anybody else wants to use them, and I'm crowded, 6 too. 7 THE COURT: All right. Let's take a five-minute 8 stretch break. Be back and ready to go at 3:20. 9 (Whereupon, a break was taken.) 10 THE COURT: Let's go back on record. 11 We're back on record at 3:20. 12 CROSS-EXAMINATION 13 BY MR. MILTNER: 14 Q. Good afternoon, Mr. Sims. 15 A. Good afternoon, Mr. Miltner. 16 Q. For the record, I'm Ryan Miltner. I represent 17 Select Milk Producers. 18 So I read through Section 3 of your testimony, 19 which you summarized for us earlier this afternoon. And 20 it seems to me that there was a commonality of approach in 21 the work your group did to set differentials, or proposed 22 differentials I should say, for Orders 5, 7, 6, and 126, 23 and the approach that Mr. Gallagher explained either 24 yesterday or earlier today for the Central Order. 25 Would you agree? 26 A. I think so, yes. 27 Q. And, specifically, I think in both instances, if I 28 understand correctly, there was a starting point further 9734 1 to the east. I think Mr. Gallagher spoke to St. Louis, 2 and then in his case, worked backward to Kansas City, and 3 eventually all the way to Colorado. 4 Does that sound familiar to you? 5 A. I wouldn't disagree with that. I was not involved 6 with that, but that sounds -- I think that encapsulates 7 Mr. Gallagher's description, yes. 8 Q. And the work that your group did -- and it's -- 9 again, it's in the written testimony that you -- I don't 10 think you talked about it a lot while you were on the 11 stand, but taking a point in Order 7, and you mentioned 12 Hammond, Louisiana, and a few points like that, as a kind 13 of starting point for you working back westward into 14 Houston, Dallas, and then eventually the western part of 15 that territory; is that correct? 16 A. That's a fair characterization. 17 Q. And so in both instances, am I correct that you -- 18 whatever that starting point furthest to the east was, 19 that your working group, after some e-mails and 20 consultations, established a proposed differential for 21 that starting point; is that right? 22 A. In the case that you just described, I would 23 wouldn't say it was Hammond, Louisiana, which is the most 24 eastern plant on that Louisiana Gulf Coast complex. We 25 basically worked through those three plants simultaneously 26 because we felt like they needed to have a common 27 differential. 28 So I -- if you would indulge me and say that we 9735 1 used that complex as our basing point, that did inform our 2 decision regarding Houston and then points north and west. 3 Q. And when you say informed your decision on 4 Houston, I think later in your testimony you talk about 5 using that complex of plants to settle on a $5 6 differential for Houston. 7 A. I disagree with the "settle on." 8 Q. Okay. 9 A. Because every place is -- this is an iterative 10 process, and you have to weigh any number of factors. But 11 to say that we were comfortable with the relationship 12 between the Southern Louisiana Class I plants and our 13 proposal for the Houston/Conroe area is a fair statement. 14 Q. Is it also correct that the Houston differential 15 was arrived at after the complex of plants' differential 16 was proposed for those areas? 17 A. I think that's fair, yes. 18 Q. Okay. And then you describe, both in your 19 question-and-answer exchange with Mr. English, as well as 20 in your written statement, that once a number was proposed 21 for Houston, that was used to propose a differential for 22 Dallas, and then further back into the Panhandle of Texas, 23 correct? 24 A. Yes. 25 Q. And that you also described the working group's 26 desire to maintain proportionality in those steps along 27 the chain? 28 A. Yes. 9736 1 Q. Okay. Great. So I have a good grasp on that 2 then. Thank you. 3 You described some of the cooperatives were -- all 4 of the cooperatives that were in your working group. Did 5 you, prior to the submission of National Milk's proposals, 6 consult with any other cooperatives about the 7 differentials surface? 8 A. I did not. 9 Q. Do you know if others on your committee or 10 National Milk reached out to any cooperatives? 11 A. I do not. I do not know. 12 Q. Okay. So I have a list of all of the cooperatives 13 that are listed as handlers on Orders 5, 6, 7, and 126. I 14 think it's two dozen or so. I don't want to belabor it 15 and ask you about each of them because you said you didn't 16 reach out to any of them. 17 But there's 20 other milk marketing entities which 18 have a history of milk sales and sometimes manufacturing 19 operations in those four orders, but -- but they were not 20 consulted? 21 A. They were not consulted by me. 22 Q. Okay. Not consulted by you. 23 And you were -- am I correct that you had either 24 testified to this, or someone else may have -- may have 25 crowned you, you were kind of the coordinator of the -- 26 devising the differentials and putting the map together? 27 A. Yes. 28 Q. Okay. 9737 1 A. Coordinator is probably as good a word as you can 2 use. 3 Q. As the coordinator, would you have expected to 4 have been aware if someone else had reached out to someone 5 outside of your working group to provide input? 6 A. I don't know about "expect," but I am not aware 7 that anyone else reached out. But they may have. 8 Q. Within your working group, the business knowledge 9 and local knowledge and competitive relationships played a 10 very important role in setting the differentials, did they 11 not? 12 A. There were any number of factors that we used to 13 determine our proposal. Local knowledge. It was 14 certainly key the -- among our ability to develop a 15 reasoned and reasonable Class I price surface. 16 Q. What about business relationships between 17 cooperatives and their customers? 18 A. I don't recall any discussion about cooperatives 19 and their customers. No, we do -- we didn't really talk 20 about that much. We kind of went plant to plant to plant, 21 what's the right relationship to the next plant over. 22 Q. So Mr. Gallagher testified about the importance of 23 his cooperatives' relationship with a large customer, 24 valuable customer, Leprino Foods, in Colorado. 25 Within your working group, there were no such 26 considerations discussed? 27 A. Not that I recall. It was -- this was, what does 28 it take to get milk to a place? What's -- what does it 9738 1 look like, north, south, east, west to the next place 2 over? And how do you define a Class I differential? 3 Q. There's been a term that's been used throughout 4 testimony of several witnesses of "blend price equity." 5 Was blend price equity a consideration of your 6 working group in setting proposing differentials? 7 A. I don't recall us ever discussing anything like 8 the phrase "blend price equity." We -- we -- I think we 9 all intuitively know that the -- I hope we all intuitively 10 know -- that the Class I price surface also defines the 11 producer price surface for the revenue for delivery to a 12 plant. It's in the back of your mind. I guess you think 13 about blend price relationships that way. 14 But we did not define -- we -- in the Southeast 15 and the eastern part of Texas, the overwhelming problem is 16 getting the milk there. 17 Q. Did you hear Mr. Gallagher's response when I asked 18 him for his definition of "blend price equity"? 19 A. I did hear. 20 Q. Okay. And my recollection and notes are that 21 blend price equity was maintaining a producer's price 22 differential that is similar to that which is currently 23 realized. 24 Is that your recollection as well? 25 A. I won't argue with that, but I don't recall the 26 quote verbatim. 27 Q. I don't have it verbatim either, for the record. 28 Was maintaining producer price differentials at a 9739 1 level similar to what is currently experienced a goal of 2 your working group? 3 A. We never discussed the -- as a group, what --the 4 impact on PPDs. I -- I will tell you this: I can 5 calculate them in my head, and probably thought about them 6 myself. But this wasn't a point of discussion 7 particularly amongst the group, remembering that three of 8 the four orders don't have PPDs. 9 Q. They do have a blend price equivalent, though? 10 A. They do have a blend price, but not a PPD. 11 Q. And so let's talk about Order 126, which does have 12 a PPD, correct? 13 A. Yes. 14 Q. Although you said you may have been calculating 15 those in your head, they were never discussed by the 16 working group? 17 A. I wouldn't say never. We may have gone back later 18 on and made sure that -- in fact, I believe we did. We 19 just kind of informally took a quick look and made sure 20 that these location values didn't have an unintended 21 consequence of increasing the general incentive to depool. 22 And I believe that our general consensus, kind of 23 just doing the work in our head, I never did it on paper, 24 I did it in my head, and so we -- our relationship between 25 the base zone and the place where most of the depooling 26 happens would actually decrease the likelihood of 27 depooling. 28 Q. So in the instance of Dallas County, Texas, and 9740 1 Chavez or Curry County, New Mexico -- 2 A. Yes. 3 Q. -- the New Mexico counties are $2.10 zone right 4 now, and Dallas is at $3, correct? 5 A. Correct. 6 Q. So there's $0.90 there? 7 A. Yes. 8 Q. The proposal would be $4 in Dallas County, $2.70 9 in the New Mexico counties? 10 A. Yes. 11 Q. So moving that spread from $0.90 to $1.30, you are 12 satisfied that that will not increase substantially the 13 incidents of depooling? 14 A. I'd have to say that I don't think I personally 15 looked through -- looked at those -- depooling at those 16 plant -- those manufacturing plants. I was thinking 17 about -- quite frankly, I was thinking about the 18 Panhandle. I would have to think through the question 19 at -- at those Eastern New Mexico plants. 20 Q. The Panhandle would include -- would you include 21 Lubbock County in the Panhandle? 22 A. Yes, I would. 23 Q. Bailey County? Muleshoe. 24 A. Muleshoe? Yes. There's no plant in Muleshoe, 25 though. 26 Q. But there are farms? 27 A. There are farms. 28 Q. Lamb County -- 9741 1 A. Yes. 2 Q. -- Littlefield? 3 Potter County, Amarillo? 4 A. Yes. 5 Q. So those are all $3 zones, right -- 6 A. Correct. 7 Q. -- proposed? 8 So $0.30 difference than New Mexico -- 9 A. Yes. 10 Q. -- Eastern New Mexico? 11 A. Yes. 12 Q. Okay. Was there anybody else in your working 13 group that perhaps focused more on New Mexico? 14 A. I don't recall there being, no. 15 Q. So -- 16 A. But individually, they may have done the math. 17 But I did not, honestly, do that piece of math in my head 18 for those New Mexico plants. 19 Q. New Mexico is the ninth largest dairy state in the 20 country, right? 21 A. That sounds right. 22 Q. And the largest cheddar cheese plant in perhaps 23 the world, certainly North America, is in New Mexico? 24 A. Correct. That's -- I understand that it is one of 25 the largest, yes. 26 Q. And a substantial mozzarella or Italian cheese 27 plant in Roswell? 28 A. Correct. 9742 1 Q. And to your recollection, you don't know if 2 anybody on your working group specifically thought about 3 the differentials in depooling in New Mexico? 4 A. We did not have that conversation, that I recall. 5 Again, we did have a quick, in-our-head, 6 how-many-does-the-blend-go-up kind of question, and does 7 that generate any likely depooling. 8 When -- when we were having that kind of informal 9 conversation, I was thinking Panhandle. The other people 10 may have been thinking Panhandle and Eastern New Mexico. 11 I just said, I don't think we have a problem. And I was 12 thinking about the Panhandle. 13 They -- the other individual that was in that 14 conversation may have been thinking about Eastern New 15 Mexico. I was not. 16 Q. Now, Lubbock County, Bailey County, Lamb County, 17 in Texas, they are currently a $2.40 zone, correct? 18 A. Yes. 19 Q. So there's a $0.30 difference currently between 20 Eastern New Mexico and the neighboring Panhandle of Texas, 21 correct? 22 A. Yes. 23 Q. Have you -- have you given any thought to where 24 milk production has grown in the past 15 years in that 25 part of the country, whether it's been growing in New 26 Mexico or growing in the Panhandle? 27 A. The growth has been in the Panhandle. The New 28 Mexico production is actually been backing up of late. 9743 1 Q. New Mexico, I think at one point, was the highest 2 as the fifth or sixth largest dairy state in the country? 3 A. I don't recall that statistic, but I do -- that 4 there is no doubt that milk production in New Mexico has 5 fallen lately. 6 Q. Do you think that any part of that might be 7 attributable to the fact that it is more economically 8 advantageous to locate a farm in the Panhandle because of 9 that difference in differential? 10 A. I don't know -- I can't say with certaintude that 11 that $0.30 difference in price would spur all the growth 12 in the -- in the Texas Panhandle and would cause the 13 decline in New Mexico. But it is $0.30 difference today. 14 Q. And I did not try to suggest that it was spurring 15 all of the growth but -- 16 A. Could it have had some factor? Yes. 17 Q. We talked earlier about the commonality of the 18 approach for the Central Order and Order 126 in helping to 19 establish the values in Proposal 19. There's also some 20 other commonalities. I want to see if you agree with me. 21 So up in Weld County, Colorado, there's a 22 substantial cheese manufacturer, correct? 23 A. Yes. 24 Q. And the same would be on the -- kind of the 25 western edge of Order 126 where you have a large cheddar 26 manufacturer, correct? 27 A. The western edge of 126? 28 Q. Yes. 9744 1 A. Cheese, there's only one cheese manufacturer in 2 what I would call the western edge of 126. 3 Q. Say the western portion of 126. 4 A. Southwest Cheese -- there are several cheese 5 plants in what I would consider the western part of 126. 6 Q. Southwest Cheese is a pretty large plant, is it 7 not? 8 A. And that one is located in New Mexico. 9 Q. As a matter of fact, almost due south of Weld 10 County, Colorado, correct? 11 A. I'd have to think about that geography, but put it 12 this way, you go up the center part of New Mexico, loop 13 around on I-25 and up to Denver. So, sure. 14 Q. Now, when National Milk was -- after it had gone 15 through the process of starting in the east with the 16 differential and working its way back west, there was a 17 modification made to the Weld County, Colorado, 18 differential to account for the large cheese plant there 19 and a long-term milk supply agreement, correct? 20 A. That seems to be the history, yes. 21 Q. If you did the same to the south for Order 126, 22 you end up either in the Panhandle or Eastern New Mexico 23 where the milk supplies a larger cheese plant with a 24 similarly committed milk supply. 25 Why did you choose not to adjust the differentials 26 there in the same way that they were changed for Weld 27 County? 28 A. They -- I -- I was not involved in the 9745 1 quote/unquote Weld County question. The relationship 2 between the Panhandle and New Mexico, the Texas Panhandle, 3 at least, and New Mexico, the Dallas-Fort Worth price and 4 the New Mexico price, was to -- when milk needed to move 5 from New Mexico to the Class I destinations on the east 6 side of Texas, that there would be an additional 7 relationship which would encourage that milk to move. It 8 does not move very often and -- but if it did need to, 9 that there would be the additional incentive to encourage 10 it to move. 11 Q. How often do you -- in your experience, does an 12 appreciable volume of milk move from New Mexico to the 13 Eastern Texas plants? 14 A. Not very often. But if it did, it needs an 15 incentive to do so. 16 Q. So those -- are those spot sales then, almost? 17 A. How much milk moves out of New Mexico into the 18 Metroplex and Houston and -- and San Antonio, I don't 19 know. But it -- I do know that it's a fairly rare 20 occurrence. 21 Q. If milk is so short that it has to move that far, 22 6 to 700 miles, correct? 23 A. Yes. 24 Q. Is that Class I plant going to be paying the class 25 price or are they going to be paying a substantial premium 26 to meet their needs? 27 A. I would -- I would not agree with the term 28 "substantial." The Class I plant probably pays the same 9746 1 premium no matter where the milk comes from. 2 Q. Then isn't that a failure of the cooperative in 3 managing its milk supply? 4 A. Failure? 5 Q. Yes. 6 A. No. 7 Q. If they are obligated to move milk 700 miles at a 8 long-term contracted price and pass that through to their 9 members, that's not a failure of the cooperative to do its 10 job right? 11 A. It is -- it's a concern. That's one of the 12 reasons we're here, to up the differentials and increase 13 the incentive to move milk from the reserve supply areas 14 to the demand areas, to correct some of that problem. 15 Q. On page 24 of your statement, you don't need to 16 turn to it, I don't think, but you cite that 17 "collaboration" was your watch word within your working 18 group? 19 A. Yes. 20 Q. Was collaboration also an important watch word 21 among the various committees working on different zones of 22 the country? 23 A. I presume. We worked independently, and there's 24 no directive as to how to work together. We -- from what 25 I understand of the various committees, it seemed they 26 worked very much together. 27 Q. I think you are answering -- I perhaps asked the 28 question imprecisely. 9747 1 Collaboration among the working groups within 2 intra-group collaboration, but how about inter-group 3 collaboration? 4 A. Once -- once each group developed its full, 5 fleshed out proposal, the -- what I think -- if I get my 6 Latin right, the intra-region price surface, we 7 collaborated or we -- we would put down, I guess, side by 8 side or next to each other, however you want to put it, 9 the next region over, to make sure that there was 10 appropriate alignment between areas as to -- that was 11 mostly where the concern was, is did the regions line up, 12 and at the end of the day, did we have a reasoned and 13 reasonable Class I price surface -- 14 (Court Reporter clarification.) 15 THE WITNESS: I'm sorry. I sat back. 16 The answer is that the regional committees, once 17 they completed their intra-area work, would compare notes 18 with the neighboring committee to make sure that there was 19 alignment across the borders between those regions. And 20 at the end of the day, to make sure that when all the 21 regions, all the puzzle pieces, if you will, fit together, 22 that it made a reasonable and reasoned Class I price 23 surface. And that is what we did. 24 BY MR. MILTNER: 25 Q. Was there collaboration inter-group, 26 between-the-group collaboration, on the methodologies used 27 to make discrete county adjustments? 28 A. We allowed every -- each of the regional 9748 1 committees to use their local knowledge and apply that as 2 appropriate for their area. 3 Q. Do you have an opinion as to whether the slope 4 between Colorado and Kansas City is sufficient to move 5 milk from Colorado to Kansas City? 6 A. I don't know that. I haven't memorized either of 7 the Kansas City nor the Colorado differentials. 8 Q. Jackson County, Missouri, is $0.15 higher than 9 Weld County, Colorado, in Proposal 19. 10 A. Okay. 11 Q. Do you have an opinion now? 12 A. That is not enough to move -- not enough slope to 13 move milk. But there's not enough slope anywhere in the 14 country to actually move the milk on the differentials. 15 You can encourage the milk to move, but no place in the 16 country do we have point-to-point differential differences 17 that are sufficient to, on their own, move the milk. 18 Q. That would include New Mexico to Dallas or points 19 further east? 20 A. It would. 21 Q. So if that's the case, why not increase Eastern 22 New Mexico the same way that Weld County, Colorado, was 23 increased to ensure or decrease the likelihood of 24 depooling of milk? 25 A. Like I said, I thought -- I didn't think through 26 that, but I can see how it is a consideration. 27 MR. MILTNER: Thank you very much, Mr. Sims. 28 THE COURT: Who next has questions for Mr. Sims 9749 1 before I invite the Agricultural Marketing Service 2 questions? 3 No one. Agricultural Marketing Service, you may 4 proceed. 5 CROSS-EXAMINATION 6 BY MS. TAYLOR: 7 Q. Good afternoon. 8 A. Good afternoon. 9 Q. I was shocked that I get a turn today. 10 A. No comment. 11 Q. That doesn't make you laugh? 12 A. No comment. 13 Q. Little levity. All right. 14 So for part 3 in the beginning portion, you 15 described the considerations that your working group 16 members had when developing the recommended differentials. 17 Among them you talk about and describe the desire to 18 maintain current cross-city pricing relationships when 19 possible. 20 I was wondering if you could just first elaborate 21 on the importance that you all felt there was in 22 maintaining these price relationships. 23 A. Yes. It just simply makes sense that when you 24 have plants spread across metropolitan areas that are -- 25 that abut -- or that are -- that we almost consider a 26 single market, that those plants continue as they 27 currently have, or if they deserve to have -- to have 28 commonality of pricing. It's simply orderly that you 9750 1 don't have little nickel differences across a short 2 period, a short distance. That's disorderly, and it 3 doesn't change the way the milk moves. It just simply 4 makes more sense to provide a -- across plants 5 particularly -- and I think Dallas and Fort Worth are the 6 perfect example, that it simply doesn't make any sense to 7 have a separate price in Fort Worth than in Dallas. It 8 just is kind of unnecessary. It's an unnecessary 9 complication to the system. 10 Q. And so to drill down a little bit more, did you 11 look at -- did you look at it in the -- in the kind of 12 like the sales side, where those plants compete for sales? 13 A. That would have been one element perhaps. Also 14 the commonality of supply, the three plants across the 15 Louisiana coast, the supply to those plants was, by far, 16 the overriding factor in what -- in deciding that those 17 plants should have the same price. 18 Q. So you looked at things for both the supply side 19 and the demand side and -- but you didn't necessarily give 20 precedent that one always weighed over the other? 21 A. It just -- that's right. Each situation is unto 22 itself, that you would evaluate what the most important 23 element of those decision-making pieces are depending on 24 the certain circumstances. There is no silver bullet that 25 works every place. 26 Q. And so you have -- your anchor city for the 27 Southwest was Amarillo, correct? 28 A. Yes. 9751 1 Q. And then you had some anchor cities for the kind 2 of like -- the Southeast area kind of going toward, I 3 think, the Central and the Mideast Area? 4 A. Yes. 5 Q. Did you have an anchor city between the Southeast 6 and the Southwest that you looked at? 7 A. I guess you could say that we -- that the 8 iterative process, the stepwise process that we used, 9 created certain cities where you would key off of for the 10 next one. And so the relationship with the nearest plants 11 in between Order 126 and the western side of Order 7 12 certainly would be the Houston plants, or the 13 Houston/Conroe plants, and the Louisiana Gulf Coast plants 14 moving east and west generally. Also, the plants to the 15 east of Dallas, the Sulphur Springs and Tyler plants, and 16 their relationship, basically with the -- with Little 17 Rock, and then Little Rock's relationship with Fort Smith, 18 Fayetteville, Springfield, et cetera. 19 So it's kind of, in some respects, although we 20 didn't really say it this way, the way the Mideast kind of 21 did their city pairs, you know, it's a stepwise process. 22 Q. Okay. So you had a set of anchor cities, but then 23 some secondary ones you looked at after. 24 A. That's a fair way to put it. Anchor cities on the 25 borders, and then secondary anchor cities intra-market. 26 Q. So if I look at the bottom of 25, I think from 27 what I read from there, you thought the model results -- 28 and please tell me if I'm not grasping this correctly -- 9752 1 were appropriate in what it came out for the averages for 2 Winchester, Kentucky, and Nashville, Tennessee? 3 A. Yes. 4 Q. Okay. And then working from there, you made 5 adjustments to the other cities. 6 I'm wondering why you thought those two were 7 appropriate, but not whatever came out for the other two 8 anchor cities? 9 A. In the Southeast, there's -- the overriding 10 question is, what does it cost to get milk to where it's 11 got to be? And it all comes from a very long way away, 12 because there simply isn't very much inside the market 13 areas, with the notable exception, and it's obviously a 14 relative thing, the Virginia and the North Carolina area. 15 But for Nashville, if you think about it, the -- 16 the supplemental supplies for the Southeast, or the 17 primary supplemental supplies, are located in four or five 18 places. For the western side of Order 7, the milk is 19 going to come out of Texas Panhandle or Southwest 20 Missouri -- or Southwest Kansas, excuse me. 21 Once you rotate -- and that is probably true for 22 all the plants on the -- in the Arkansas/Western Tennessee 23 complex. 24 The plants in the central portion of Order 7, they 25 have a bit of a choice. They can receive -- they can get 26 some of their supplemental supply from the west, like 27 Nashville. I would consider Nashville to be in the center 28 portion of Order 7 for this purpose. But Nashville can 9753 1 also get supplemental supplies from the north. 2 So you have to balance out where -- where is the 3 most efficient source of supplemental supply depending on 4 the day, and you have to kind of look at both of them in 5 tandem. 6 And then for, say, Atlanta keying off of 7 Nashville. Atlanta is hard to get to, to be honest. 8 Atlanta is a little too far east to come from the west 9 over there. It's just hard to get your trucks over there 10 and turn them. In fact, you can't. So that adds extra 11 cost. That milk coming from the north, say from Order 33, 12 has to go right past Nashville and right past Athens, 13 Tennessee, on its way to Atlanta. So it needs a higher 14 price to attract that supply on south from Nashville, or 15 say Athens, Tennessee. 16 The plants on the northern tier of Order 7, say, 17 Holland and Winchester. Winchester is terribly hard to 18 supply. The supply is going to come out of Northern 19 Indiana or Ohio. Holland is probably out of Indiana, 20 what's not supplied locally. 21 So all those things you have to kind of weigh in 22 the Southeast. It's not straightforward, the plant -- the 23 milk's going to come from here on this day. And so it's a 24 stepwise process, comparing point to point to point in 25 terms of what the location of the local supplies are, if 26 there are any, and the location of the supplemental 27 supplies. 28 Q. Which I gather from what you just said is -- 9754 1 changes -- 2 A. Every day. 3 Q. -- on a daily basis? 4 A. Every day. 5 Q. Unlike maybe other situations we have heard where 6 for a certain demand point the reserve supplies typically 7 come from this one area? 8 A. Yes. If you think about it, the reserve supply 9 for the eastern side of Texas in Order 7, or certainly 10 through the middle part of Order 7, they are -- it all 11 comes from one or two places, the Texas Panhandle or 12 Southwest Kansas. There is -- again, there is some 13 options once you get to the middle part of Order 7. But 14 once you get east of the Appalachians onto the coast, you 15 prac- -- you can get to Asheville, North Carolina, with 16 milk from the west, but it's a real stretch. So most of 17 that supplemental milk supply comes from the north, in the 18 Middle Atlantic area. 19 Q. Turning to page 26, you talk about Miami, and you 20 say the model result "was reasonable in light of the 21 distance to South Florida from reserve supplies." 22 So that's why you kept the $7.90? 23 A. Yes. 24 Q. Could you expand on where the reserve supplies 25 come for that region? 26 A. Most of the reserve supply for Florida, the first 27 reserve supply is South Georgia. And then when -- if that 28 runs out, then it's -- then Florida's competing with the 9755 1 rest of Order 7 for supplies largely to the north. 2 Probably Order 33 would be my guess. 3 Q. And it's the working group's opinion that $7.90 4 was adequate to get milk down there. 5 A. It's as adequate as it is to get it anywhere. 6 How's that? 7 Any of the differentials are insufficient, but not 8 any worse for Miami than anywhere else. 9 Q. I'm going to try not to be repetitive, so bear 10 with me. 11 I know you talked a bit with Mr. English on the 12 Southwest transportation credits -- Southwestern area, all 13 three orders transporta- -- 14 A. Southwest? 15 Q. Excuse me. Southeast, sorry. It's been a long 16 day. Southeastern transportation credits. 17 A. Yes. 18 Q. And this might be a question for Dr. Stephenson 19 when he comes, but I'll ask you. I know there was some 20 talk about were the credits considered as a way to get 21 milk where it needs to go. 22 I'm wondering if you know, because if I heard 23 correctly, the model did not take into account Federal 24 Order provisions? 25 A. It does not. 26 Q. And so did the model look at the current Class I 27 differentials in the Southeast plus the transportation 28 credit assessments that are assessed on top of that or 9756 1 just the differentials in their adjusted ones for that 2 region? 3 A. The model never looks at current differentials, 4 period. No matter how they are constructed. It simply 5 generates a price surface based on the minimum cost 6 minimization of using theoretical supplies or -- and 7 placing that in the most efficient way. 8 So we then go back, as humans, obviously, the 9 natural tendency is, let's look at what the model said 10 versus what we are today. So that's why we make those 11 comparisons. But the model itself doesn't know that the 12 current differential in Atlanta is $3.80, or the current 13 differential in Miami is 6. That's completely outside the 14 model's operation. 15 Q. Okay. 16 A. And I think we need to -- we need to make one note 17 for the record, I think. 18 When we -- when we start thinking about -- when 19 the Department starts thinking about the Southeast and the 20 interplay between Class I differentials and the 21 transportation credit system, there is an element of the 22 transportation credit system which is self-correcting. 23 When -- after you multiply the miles at whatever 24 rate is applicable for the month, there is a mathematical 25 adjustment to that gross credit based on the relationship, 26 the regulated price relationship, between -- or the 27 Class I differential relationship between the origin point 28 and the destination point. 9757 1 So as we change the slope of the differentials in 2 the Southeast, we increase the slope, or the prices get 3 higher as you head toward the -- you know, the tip of 4 Florida. That will actually reduce the net credit you 5 receive, you will see, because the deduction for the 6 origin to destination point calculation gets bigger. 7 So for the same mileages, after we -- after the 8 Secretary wisely increases the differentials, there will 9 be a -- there will -- that deduct number gets smaller, so 10 it -- the transportation credit system kind of 11 self-corrects for the -- any changes in the relationship 12 of the regulated Class I prices. 13 Q. Right. It self-corrects for any changes in the 14 slope, but -- 15 A. Yes. 16 Q. -- not necessarily the increased part? 17 A. The what? 18 Q. The increased part, just -- 19 A. The change in slope. 20 Q. Yes. 21 A. Yes, but if you increase the slope, it increases 22 the deduct. 23 Q. Sure. 24 On page 27 you are talking about someplace in 25 Mississippi I can't pronounce. 26 A. Kosciusko? 27 Q. That would be it. And I had to ask my lovely OGC 28 attorney over here who is from Mississippi to show me 9758 1 where that was on the map. So that will help. 2 A. Pretty much right in the middle of the state. 3 Q. That's what she said. 4 THE COURT: Would you spell it? 5 THE WITNESS: Yes. K-O-S-C-I-U-S-K-O. I have had 6 to learn that in my career. And Mississippi is spelled -- 7 BY MS. TAYLOR: 8 Q. You talked about the adjustment you made because 9 of the cost to supply milk for that area is much nearer to 10 supplying -- is "as much nearer to the cost of supplying 11 these coastal plants than it is to being $0.50 less than 12 the coastal plants." 13 So I think what you all did was change the 14 difference between the model suggested $0.50 to $0.20? 15 A. The $0.50 is the current relationship. 16 Q. Okay. 17 A. And -- 18 Q. I was wondering if you could explain that a little 19 more. 20 A. Yeah. 21 Q. It did not make sense to me when I read that 22 paragraph. 23 A. Okay. There is only four plants in Louisiana and 24 Mississippi. The three Louisiana plants across the Gulf 25 Coast from -- going west to east, Lafayette, Baton Rouge, 26 and Hemet. The Kosciusko plant is north of those 27 plants -- of those plants in Mississippi. There is not 28 much milk left in Mississippi. There's not much milk left 9759 1 in Louisiana. There's not much milk left in Arkansas. 2 And there's not much milk left in Southern Missouri. 3 So to supply the plant at Kosciusko, it costs 4 almost as much -- and the milk comes out of the same place 5 as it would for the reserve supply for the Arkansas plants 6 and the Louisiana plants -- and it costs just about as 7 much to get to Kosciusko -- it does -- you wouldn't think 8 about it on the map, but the mileages are almost pretty 9 close as the difference between, say, Hereford and 10 Kosciusko, and Hereford and Lafayette. 11 Q. And that's the reserve -- sorry for interrupting, 12 but that's the reserve supply area? 13 A. The reserve supply. 14 Q. Uh-huh. 15 A. Either that, or say Garden City, Kansas, either 16 one can serve those plants similarly. 17 So our point is that the current differential 18 difference, the Kosciusko plant has an effective 19 differential of 3.30, $3.30 per hundredweight. The plants 20 across Southern Louisiana, those coastal plants, what I 21 call them, is $3.80 per hundredweight today. That's a 22 $0.50 difference. It doesn't cost $0.50 less to supply 23 Kosciusko than it does it the plants on the coast, so we 24 upped that -- we -- I guess you could say reduced the 25 difference between those coastal plants and Kosciusko to 26 reflect that it costs almost as much to get milk to 27 Kosciusko as it does those coastal areas. 28 Q. Okay. Thank you. 9760 1 On page 20 -- on, excuse me, 28, at the bottom you 2 are talking about Asheville, North Carolina. 3 A. Yes. 4 Q. And the anchor price -- at the bottom full 5 paragraph, larger paragraph, in the middle of that 6 paragraph starts, While the anchor price at Asheville has 7 initially been set at 5.70, the working group deemed that 8 too high, and a $0.20 gradient was determined to be 9 warranted. I'm summarizing your sentence. 10 A. Yes. 11 Q. Just wondering if you could expand on why you 12 thought the 5.70 was too high. 13 A. The -- that plant does get some of its supply from 14 that -- that milk production which remains in Southern 15 Virginia, Central North Carolina, I think Iredell County, 16 which is kind of on the western side of -- I-R-E-D-E-L-L, 17 Iredell -- and -- but it's -- it's difficult to get that 18 milk to Asheville. If you have ever driven that road, you 19 would know. It's in the mountain -- Asheville is in the 20 mountains. It's a treacherous drive. It simply is hard 21 to get milk over there. 22 So while we believe that the model price was too 23 high, we did set Asheville higher than those plants across 24 the southern tier or the middle tier of North Carolina. 25 Today those plants are all priced the same. They are 3.40 26 per hundredweight today. 27 So we set all those prices the same, because it 28 pretty much costs the same to get the milk out into them. 9761 1 But Asheville is more expensive, just harder to get there. 2 Q. So 5.70 was too much, but you still needed some 3 slope to get the milk there? 4 A. Correct. 5 Q. And when you said $5.70 is too much, and you are 6 looking at that in relationship to those other plant 7 decisions you made maybe northwest of there -- 8 A. Yes. 9 Q. -- or wherever? I don't think my hand gestures 10 make it through our transcript, but I'll try. 11 On pages 29 into 30, here you are talking about 12 Atlanta and Slocum, Alabama -- 13 A. Yes. 14 Q. -- which is Geneva County. 15 A. Yes. 16 Q. And you talk about, I think right now they are -- 17 it's -- there's -- currently there's a $0.50 difference 18 between the two locations. 19 A. Correct. Atlanta is $3.80. That southern tier of 20 Alabama County is $4.30. 21 Q. And you are proposing that the differentials be 22 the same? 23 A. Yes. 24 Q. And why is that appropriate? 25 A. Number one, that Slocum plant is -- it rocks back 26 and forth. When we see it on the Market Administrator's 27 list between -- I think it rocks -- it's only pooled part 28 of the time. It's what I would almost call a farmstead 9762 1 plant. 2 But it -- if that milk did, if that plant did need 3 supplemental supplies, it's going to -- it's going to 4 compete for the Atlanta, for supplies to Atlanta. It 5 should have the same, generally the same price. 6 Q. Okay. And down in the middle of that page where 7 you are talking about Myakka City, Florida -- 8 A. Yes. 9 Q. -- and currently it has a differential $0.40 10 greater than Tampa? 11 A. 40 -- I think it's $0.40 currently, or $0.30? 12 Q. Your paper says $0.40. 13 A. Then that's correct. 14 Q. Says currently carries a differential $0.40 15 greater than plants in the Tampa or Orlando, Florida? 16 A. Yes. 17 Q. Based on its nearness to Tampa, you thought the 18 spread was too high to -- by half, so you are recommending 19 a $0.20 spread? 20 A. Yes. The Myakka City county is Manatee, 21 M-A-N-E-T-E-E (sic), like the aquatic animal. Those -- 22 Tampa and -- Tampa County, or Tampa-St. Pete, and Manatee 23 are very close together. We felt like the current $0.40 24 difference between Tampa and Tampa County or Tampa -- the 25 Tampa Bay Area and Manatee County, Myakka City, was too 26 much, since they were close together. They do need a 27 little bit of difference because they attract their supply 28 from the same place -- or attract a supply out of South 9763 1 Georgia, so they need a little bit of price, but not as 2 much as $0.40, so we just went with 20. 3 Q. And when you say "very close," I feel like very 4 close in Florida is different than very close in Texas. 5 So what's very close in Florida? 6 A. One county away. 7 Q. Okay. 8 THE COURT: How do you spell that city? 9 THE WITNESS: M-Y-A-K-K-A, Myakka City. 10 THE COURT: Thank you. 11 I'd like to take a 15-minute break. Would that 12 work? 13 MS. TAYLOR: That's a wonderful idea. 14 THE COURT: Very good. Please be back and ready 15 to go at 4:30. 16 (Whereupon, a break was taken.) 17 THE COURT: Let's go back on record. 18 We're back on record at 4:30. 19 Ms. Taylor, you may resume. 20 BY MS. TAYLOR: 21 Q. Okay. I'm just trying to get back to my place 22 where I was at. 23 I'm going to look on page 31 -- no, excuse me, 32 24 into 33. And that's where you are talking about, I think 25 it's Gustine County, I learned? Is that how I say it? Or 26 is it Gustine, which is in Comanche County; is that 27 correct? 28 A. I'm sorry, where are you? 9764 1 Q. Where am I? I'm on page 32 going onto 33, and 2 pronouncing this name wrong. 3 A. Gustine. 4 Q. Gustine, that's what I thought. 5 A. G-U-S-T-I-N-E. 6 Q. And that's in what county? 7 A. Comanche, I believe. 8 Q. Okay. 9 A. Let me double check. 10 THE COURT: May we have a little more volume for 11 Agricultural Marketing Service? Thank you. 12 THE WITNESS: Yes, Comanche County. 13 BY MS. TAYLOR: 14 Q. Okay. And I wanted to talk a little bit there on 15 the adjustment you made and the difference between 16 Comanche County and Dallas-Fort Worth. 17 A. Yes. 18 Q. Because you narrowed the slope. 19 Am I correct? 20 A. Yes. I think that's correct. 21 Q. Okay. And so I just -- if you could go into a 22 little bit why you felt that was appropriate. You said it 23 was appropriate, but I'm not sure I got to the "why" part 24 of that. 25 A. I don't think we narrowed the slope, did we? 26 Q. Well, an increase -- 27 A. Oh, yes, we did. Yes. 28 (Court Reporter clarification.) 9765 1 BY MS. TAYLOR: 2 Q. I think you are going from $0.20 to $0.15? 3 A. Yes. 4 Q. For over current from what you have proposed? 5 A. Correct. 6 Q. So I wanted to just ask why that slight narrow, 7 but that adjustment was made? 8 A. Well, if we were going to spread the Panhandle to 9 Dallas, it would be appropriate to spread that just a 10 little bit. That plant can -- is -- is also relatively 11 small. But it has a -- it's pretty close to that Sul- -- 12 excuse me -- that Stephenville milk shed. But some 13 recognition of the increased slope between the Panhandle 14 and Dallas, between Dallas and San Antonio, between San 15 Antonio and Houston, should be recognized at that plant. 16 And it is, agreed, only a nickel, but that does recognize 17 that increased slope. 18 Q. Okay. And I wanted to talk -- you talk a lot 19 about Dallas to Amarillo. 20 And if I'm not mistaken, was Norman, Oklahoma, 21 also an anchor city? 22 A. It was. 23 Q. Okay. My number's correct. 24 I wanted to talk a lit bit of the relationship 25 between Norman and Dallas, if any exists currently. 26 A. Yes. 27 Q. So as we looked at the differentials currently, 28 there are $0.60 between those two locations. Norman is 9766 1 currently 2.40, and Dallas, three bucks. 2 A. I thought Norman was 2.60 currently. 3 Q. That may be part of our problem. So $0.40, thank 4 you for the correction. 5 And as you all have proposed it, Norman would be 6 3.85 and Dallas $4? 7 A. Yes. 8 Q. Just wondering if you could talk about what that 9 narrowing of $0.25, why you chose to narrow that? Is 10 there milk that moves between those two regions that needs 11 to be considered in the first place? 12 A. Well, there's not a lot of milk that moves through 13 that world, particularly raw milk. If -- the milk in 14 Kansas that would come, is in Southwestern Kansas, doesn't 15 really go through the Oklahoma City, you know, Metro. 16 There's not a lot of packaged supply that comes out of 17 Oklahoma into North Texas, so we didn't feel like that 18 that -- narrowing that was -- was a major issue. 19 Q. Okay. And turning -- I think this is my last 20 question -- to page 35, toward the bottom, and into 36. 21 You are talking about the relationship between the 22 Dallas-Fort Worth Metroplex and Hopkins and Smith 23 Counties. 24 A. Yes. 25 Q. Can you elaborate a little bit more on the 26 differences between those hauls and why you chose to kind 27 of break the relationship -- 28 A. Yes. 9767 1 Q. -- the way you did? 2 A. Currently the Class I differential for Fort -- 3 excuse me -- Fort Worth-Dallas, Tyler, and Sulphur Springs 4 is the same. The -- that those two latter plants, the 5 Tyler plant and the Sulphur Springs plant, during order 6 reform would have been supplied from that local supply in 7 Sulphur Springs. They sit right on top of them, right on 8 top of that supply. 9 As we mentioned, the Sulphur Springs supply has 10 really shrunk in the last 20-some-odd years, and that 11 plant -- that -- that Sulphur Springs supply is kind of 12 a -- a two-prong supply. There still is some multi-stop 13 routes in that Sulphur Springs area. In other words, it 14 takes more than one producer to make a load. But there 15 are some multi -- there are some load-a-day and 16 multi-load-a-day farms in that area. 17 The local stuff, the multi-stop routes in that 18 Sulphur Springs area tend to stay at home, but the 19 multi- -- the load-a-day folks or load-per-pickup folks, 20 that milk leaves there. It either goes south to, say, 21 Houston or Conroe, or works its way southeast to those 22 coastal plants in Louisiana. Doesn't really often go 23 north toward the Arkansas plants, but it can. 24 So what really has happened is, since that Sulphur 25 Springs milk shed has declined, that there is -- the milk 26 that backfills those two plants, as the Sulphur Springs 27 milk that can move has moved, it's either gone out of 28 business, or if it's load-for-pickup size, it leaves the 9768 1 area. So that's left that those two plants in that 2 Sulphur Springs milk shed. Although they sit on a little 3 bit of a milk shed, that milk's really not sufficient to 4 supply those plants, so the milk is backfilled out of the 5 Panhandle. 6 So the -- basically what it amounts to is the milk 7 comes straight through the Dallas-Fort Worth Metroplex, 8 moves that hundred or so miles from Dallas over to 9 Tyler/Sulphur Springs. It actually needs a little bit of 10 difference between Dallas that it -- in order reform it 11 wouldn't have needed because it had a local supply. 12 Today that supply comes from the Panhandle. We 13 need a little bit of additional differential to attract 14 that supply to those far Eastern Texas plants, those two, 15 Tyler and Sulphur Springs. And that $0.35 represents 16 pretty much the same ratio of real haul costs to the 17 differential differences we have used elsewhere. 18 Q. And I'm right that the Comanche -- no. Sorry. 19 We're having our own discussion. Okay. 20 MS. TAYLOR: That's it from AMS. 21 THE COURT: Are there any other questions before I 22 call on Ms. Hancock for redirect? There are none. 23 Ms. Hancock. 24 MS. HANCOCK: Your Honor, we have nothing further. 25 I'd just like to confirm that all of those were admitted 26 with respect to Mr. Sims. 27 USDA REPRESENTATIVE. I believe so. 28 MS. HANCOCK: 310 is where it starts. 9769 1 USDA REPRESENTATIVE: Yes. 310 through 317? 2 MS. HANCOCK: Yes. 3 USDA REPRESENTATIVE: Were all admitted. 4 MS. HANCOCK: Yes. 5 THE COURT: Very good. 6 Mr. Sims? 7 THE WITNESS: Yes. 8 THE COURT: I'm delighted with your recall, which 9 is incredible. Is there anything else that will help the 10 Secretary? 11 THE WITNESS: Nothing I need to say, I don't 12 think. I think we've made a pretty good record. 13 THE COURT: Very fine. Thank you. 14 You may step down. 15 THE WITNESS: Thank you. 16 MS. HANCOCK: Mr. Prowant just clarified that it 17 goes up to 319. It should all be the same. I just want 18 to make sure that we're clear. 19 USDA REPRESENTATIVE: Yes. They were all entered 20 on October 10th. 21 THE COURT: Ms. Hancock, were you able to 22 ascertain whether all of your exhibits are already 23 admitted? 24 MS. HANCOCK: They are, Your Honor. Thank you. 25 THE COURT: Excellent. 26 Then shall we talk about tomorrow? 27 MS. HANCOCK: Your Honor, we have Dr. Scott Brown, 28 and that's the last witness that we have in support of our 9770 1 proposed Proposal Number 19. 2 MS. TAYLOR: Your Honor, I'm aware of one dairy 3 farmer coming tomorrow, Mike Sumners. I don't believe I 4 have seen him in the room today, so I assume he'll be here 5 in the morning. If he's here first thing, I would 6 advocate that he get to go on first, and then we start 7 with Dr. Brown, and then move on to whatever MIG 8 witnesses, as they have the next proposal up for 9 conversation. 10 MR. ENGLISH: So this is Chip English for Milk 11 Innovation Group, but also speaking for people who are not 12 members of the Milk Innovation Group. 13 First of all, I think Mike Sumners is driving up 14 tonight. He is, I think, content to go after Mr. Brown, 15 and I think it will be nice to get NMPF 19 done. 16 THE COURT: So talk into the mic so I can hear 17 you. 18 MR. ENGLISH: I'm sorry, I was turning to 19 Ms. Hancock to say that I was trying to make sure 20 Mr. Brown got done. 21 I will confirm with Mr. Sumners before we get here 22 tomorrow morning that he agrees with me that he can go 23 after Mr. Brown. 24 I do not believe any of us -- I should knock on 25 wood -- believe that Mr. Brown will not get done tomorrow. 26 I think he's absolutely going to get done tomorrow. 27 So I will confirm and let you know. But if that's 28 USDA's perspective, I'm not going to argue. I think he is 9771 1 prepared to go after Mr. Brown. So after Mr. Brown and 2 Mr. Sumners, depending who's in what order. 3 IDFA identified in an e-mail back in November, and 4 we were able to move United Dairy, U-N-I-T-E-D, Dairy 5 witnesses, Joe Carson, who is one of the owners of United 6 Dairy, C-A-R-S-O-N, but also a dairy farmer who ships to 7 United Dairy, Joe Shockey, S-H-O-C-K-E-Y. And I will 8 confirm tonight, but it may be that they get up on the 9 witness stand, each give their separate statement, and 10 then be available for cross-examination, assuming the 11 parties agree. 12 After that we have Jim Hau, H-A-U, from Maple Hill 13 Creamery. He is not an IDFA member, or Maple Hill 14 Creamery is not an IDFA member, and he's not a member of 15 MIG, but we will presenting, you know, an independent 16 processor witness. 17 It is actually my opinion, and maybe I'm 18 stretching it now, that we will get all of those done and 19 still have time. As such, assuming we have time, we will 20 have a flex witness, I'm advised by IDFA, I'm permitted to 21 say that Mr. Mike Brown, assuming we get all of those done 22 and have time, would be available to go on the stand 23 tomorrow. So that we -- and I think it's fair to say, 24 that assuming Mr. Brown gets on the stand, he will not be 25 completed tomorrow. 26 I say that partly because on Thursday, he may not 27 be the first witness back to the stand. That is why he's 28 a flex witness. So he may not return to the stand first 9772 1 thing Thursday, if he's not done. 2 And I don't know of the order of witnesses at the 3 moment, but we do expect, as I think long has been 4 discussed in this hearing, and so Mark -- Dr. Mark 5 Stephenson, but he will be providing comments on NMPF 19 6 only. He will not be giving his MIG 20 testimony. This 7 is all NMPF 19 opposition testimony. 8 And then, to the extent there is time -- and it 9 may not be Thursday, it could be Friday -- Sally Keefe, 10 K-E-E-F-E, expects to have her MIG -- I'm sorry -- her 11 National Milk Producers Federation 19 testimony completed, 12 her opposition testimony. Again, that is not MIG 20 13 testimony. 14 I would also say that back in mid-November there 15 was communication with everybody that a Mr. Tim Galloway, 16 G-A-L-L-O-W-A-Y, would like to testify this week. He 17 would testify only on Proposal 21 for American Farm Bureau 18 Federation, and the most likely day will be Friday. 19 There may be other witnesses if we get the 20 testimony prepared. 21 MS. TAYLOR: And this is Erin Taylor from AMS. 22 For the witnesses on Thursday, Dr. Mark Stephenson 23 and Sally Keefe, I assume we'll get that testimony by 24 8:00 a.m.? 25 MR. ENGLISH: Absolutely. Frankly, we will do 26 better than that. 27 MS. TAYLOR: That would be appreciated. 28 MR. ENGLISH: MIG has tried to get its testimony 9773 1 in the night before, and we will try to do the same. My 2 understanding is that we will try to submit tonight -- 3 well, we won't be submitting. IDFA will try to submit -- 4 MS. TAYLOR: Can you talk into the mic? 5 MR. ENGLISH: -- once it's done, Mr. Brown's 6 testimony for tomorrow at some point, I'm not sure how 7 late, but it will be available tonight. 8 MS. TAYLOR: And as a courtesy, since we are 9 unable to get things up on the website instantaneously, I 10 think it's been done before, which is appreciated by all 11 members here, if those could go out to the parties that 12 are present in an e-mail as well so they have time to 13 review. 14 MR. ENGLISH: Thank you. That was my clear 15 intention. 16 MS. TAYLOR: Okay. Thank you. 17 MR. ENGLISH: But I will also communicate that to 18 others. 19 MS. TAYLOR: And did you have -- intend to have 20 any other MIG witnesses this week then, or is that 21 probably the complete list? 22 MR. ENGLISH: I think that's the complete MIG 23 witnesses. I think IDFA may be working on a witness, but 24 I do not know whether that testimony is done yet, so I 25 don't know. I will let Mr. Rosenbaum speak for himself 26 tomorrow. 27 MS. TAYLOR: So what I gather from that, I just 28 want to make sure we're all perfectly clear about this, 9774 1 you don't intend to start Proposal 20 this week? 2 MR. ENGLISH: There is no chance for starting 3 Proposal 20 this week. 4 I will say in advance that to the extent the ten 5 members of MIG will appear, they're going to combine their 6 19 opposition and their 20 presubmitted opposition but 7 they are not going to appear twice. You are not going to 8 have 20 -- and I think I indicated this in an e-mail back 9 in November -- that the fact witnesses, the industry 10 witnesses, will testify once. 11 The MIG witnesses who will testify twice -- well, 12 Sally Keefe on 19 and 20; Dr. Stephenson on 20; his 13 comments on 19 are what they are, comments on 19. So I 14 will let him speak for himself about what he's saying 15 about 19. 16 But to be clear, when we return in January, we're 17 not going to have 22 witnesses on MIG 20; we would have 18 12. 19 THE COURT: Say it again, Mr. English? 20 MR. ENGLISH: We're not going to have 22 witnesses 21 on 19 and 20, because the MIG industry witnesses, the ten 22 members of MIG who will testify, will provide, like so 23 many others have at one point in time, I'm giving my 24 statement on 19, and giving my statement on 20. 20, of 25 course, was presubmitted. Opposition to 19 will be 26 submitted the night before. 27 Does that answer your questions, Ms. Taylor? 28 MS. TAYLOR: It does. Thank you. 9775 1 MR. ENGLISH: Thank you. 2 THE COURT: Are there any other questions or 3 comments before we recess? 4 I see none. I will see you all at 8 o'clock in 5 the morning. 6 We now go off record at 4:50 p.m. 7 (Whereupon, the proceedings were concluded.) 8 ---o0o--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9776 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: January 17, 2024 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