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______________________________________________________

BEFORE THE UNITED STATE DEPARTMENT

OF AGRICULTURE

AGRICULTURAL MARKETING SERVICE

IN RE: ) 7 CFR Parts 1005,

) 1006, and 1007

Milk in the Appalachian, )

Southeast, and Florida ) Docket No. 23-J-0019

Marketing Areas )

) AMS-DA-23-0003

RULEMAKING HEARING BEFORE

CHIEF PRESIDING ADMINISTRATIVE LAW JUDGE

CHANNING D. STROTHER, JUDGE

MARCH 1, 2023

Volume 4 of 6 Volumes

LISA FINCH, LCR #539

STONE & GEORGE COURT REPORTING

2020 Fieldstone Parkway

Ste. 900-PMB 234

Franklin, TN 37069

(615)268-1244
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APPEARANCES:

For the Dairy Corporation Marketing Association:

JOHNSON, DUFFIE, STEWART & WEIDNER

Marvin, Beshore, Esq.

Attorney at Law

301 Market Street

P.O. Box

Lemoyne, Pennsylvania 170453

For Select Milk Producers:

MILTNER REED, LLC

Ryan Miltner, Esq.

Attorney at Law

2-1 East Auglaize Street, Ste. 1

Wapakoneta, OH 54895

For the USDA - AMS - Dairy Program:

OFFICE OF THE GENERAL COUNSEL

MARKETING, REGULATORY & FOOD SAFETY

Brian Hill, Esq.

Senior Counsel, USDA

Michelle McMurtray, Esq.

Attorney Advisor, USDA

Lauren Becker, Esq.

Dairy Marketing Specialist

Erin Taylor, Director

Order Formulation & Enforcement Division

Rebecca Dickerson

Dairy Marketing Specialist

1400 Independence Avenue Southwest

Washington D.C. 20250

Also Present:

Dennis Tonak, Esq.

Prairie Farms

* *Reporter's Note: All names are spelled phonetically

unless otherwise provided to the Reporter by the

parties.
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(Whereupon, Volume 4 begins).

THE COURT: Mr. Beshore, I think you were

standing up at least when I took the recess, I forget

where we are.

MR. BESHORE: I defer to Mr. Tonak with

one additional question for cross before redirect.

THE COURT: Very well, Mr. Tonak.

BY MR. TONAK:

Q. In your testimony, you had discussed the debt the

Market Administrator should make every effort to make

sure that no movements were efficient and that there was

nothing going on that would tend to make the

distributing plant delivery credits used incorrectly?

A. Do the very last sentence, the door slammed?

Q. And have the Market Administrator make analysis

that the delivery, the distributing plant delivery

credits were applied appropriately and so on, do you

recall those?

A. Yes.

Q. My particular question has to do, would that

cause from those distributed plants, normally most

plants have some excess cream that gets hauled back out

of the plant, and would you suggest that there should be

adjustments made to the distributing plant delivery

credit if the hauler is also back hauling the cream out
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of the plant?

A. I don't think so.

Q. So it would be okay to pay the delivery, the

distributing plant delivery credit on one way using full

transportation dollars, even though there was a backhaul

by the same hauler coming out of the plant?

A. Yes. I think the instances there would be pretty

slim, you may have a pretty specialized observation, and

so, seems like that that's the exception rather than the

rule.

MR. TONAK: Thank you.

THE COURT: Questions by any other

parties, AMS or DCMA? Seeing none, let's hear redirect,

Mr. Beshore.

MR. BESHORE: Thank you, Your Honor.

REDIRECT EXAMINATION

BY MR. BESHORE:

Q. Couple of questions on redirect, Mr. Hollon,

primarily relating to the language of your proposals.

The DCMA proposals, let's go first to exhibit 73, which

is proposal number 1, language that starts the bottom of

the second page and goes to the top of page 3, which is

V-I-I-I, (d)(3)(viii)?

A. Correct.

Q. Okay. Now you were asked the intention of that
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language related to market administrator may adjust the

mileage adjustment factor by as much as 10-percent up to

25 or decrease as much as 10-percent down to 5.

Question from Ms. Taylor, the question was what the

10-percent applies to, does it apply to the 15-percent

or -- okay, can you clarify for us what the intention of

that is?

A. The language in (d)(3)(viii) opens up with Market

Administrator may revise the factor described in (3)

(iii), if you look up and see (3)(iii), it is the

15-percent of the mile adjustment. You go over then to

the language as it spills onto the next page and you

look at the 10-percent and 25-percent, if you start at

15-percent, you can make an adjustment and it puts the

range around those adjustments, both up or down, and so

it's not multiplying the two adjustments together, it's

saying 15-percent up 10 to 25 or down, and so, all of

the language refers to the 15-percent calculation and,

in (3)(iii).

Q. So it's 15-percent, 10-percent, 25-percent, all

of those apply to the mileage to which the distributing

plant delivery credit might apply?

A. Correct.

Q. Now you were also asked by Ms. Taylor whether

some of the qualifications for the distributing plant
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credit might be considered to be automatic from time to

time or from month-to-month, do you recall that?

A. Yes.

Q. Can you talk about that a little bit with respect

to the reporting requirements, which are, reporting

language, which is parts 30 and 32 in all three, all

three orders, exhibit 75, 76, 77 for Orders 5, 6 and 7?

A. The idea of automatic sounds good and is still

good, but there still needs to be the need to make sure

that the entity that's automatically supplied to is

eligible for the credit. So if I report all of my

information on my market report, and as an example,

maybe have milk that came from an eligible county and I

have may have milk that came from an ineligible county,

I still have to make that distinction before I do the

Math to apply the credit. So, I don't know if instant

automatic is maybe the right, you know, the right way to

go.

Q. In other words, you feel it's probably necessary

for the reporting of eligible versus ineligible milk to

be done monthly as in the report, proposed language?

A. Correct.

Q. Okay. Now let's look at again in the

distributing plant delivery credit language, if you go

to part 84, go to part 84(g), there was question, that's
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on page 5 of exhibit 75, 76, 77, just look at 75, page

5, subpart (4)(g), there's a question of what in (f)(1)

and (f)(6)6 references in the third to the last line of

that paragraph reference?

A. Paragraph G is talking about calculation

adjustments that would apply to (f)(1), and instead of

(f)(6), that should be (f)(2), so the things that are

being calculated or applied would be either with respect

to milk delivered directly to a distributing plant,

which is (f)(1), or with respect to milk delivered from

pool supply plant to a distributing plant, that's

(f)(2).

MR. HILL: Could we have one moment Your

Honor, to approach?

THE COURT: Yes, off the record.

(Whereupon, a brief discussion was held off

the record.

BY MR. BESHORE:

Q. Okay. So I think you said that the (f)(6)

references in 84(g) should be (f)(2), that's a

typographical error, correct?

A. I didn't --

Q. I'm sorry, that the reference to (f)(6) in 84(g)

should be (f)(2), that there's basically a typo there,

the 6 should be 2?
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A. Yes, that is correct.

Q. Okay. And I could have one final question on

redirect; in calculating the mileage from farm to plant,

the -- the way to make that calculation has been

referenced as from the farm to the plant, and in

determining the farm I think in the Market

Administrator's farm location, I think the Market

Administrator's exhibits the county seat of the farm

county may have been utilized?

A. That is correct.

Q. And I'm not sure whether the language is

absolutely clear with respect to what your thought is,

what the proponent's thought is with respect to locating

the mileage point for the farms, can you talk about that

a little?

A. Yes. Yes. We would be okay if we continue to

use the county seat method, which is I think a little

easier calculating. On the other hand, if the Market

Administrator wants to drill down to the plant level, I

mean, to the farm level, that's also okay, but either

judgment is fine. In the long run, it doesn't seem to

make a big difference, one is certainly easier than the

other.

Q. So are there any other items that you'd like to

touch on now in redirect, Mr. Hollon?
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A. There are none.

MR. BESHORE: Then I have no further

questions.

THE COURT: Hold on anyone want to

recross? Have any recross? Okay, with that, we'll

dismiss the witness. Now is the time I'm sure to offer

this witness's exhibits into the record.

MR. BESHORE: Yes, I would offer

exhibits through number 77 that have not yet been

received.

THE COURT: Did we receive anything into

record previously?

MR. BESHORE: 13 through 77, with

exception of 55 and 56, which were other witness'

statements.

THE COURT: Any objection to exhibits 12

through 77, with the exception of 55 and 56 --

MR. HILL: No objections.

THE COURT: Good, 12 through 77 are

admitted into the record, 55 and 56 have already been.

(Whereupon, Exhibits 12 through 77 were

introduced into the record.)

THE COURT: Call the next witness.

MR. BESHORE: Yes, DCMA calls as its

next witness Emma Downing Reynolds.
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352

Whereupon,

EMMA DOWNING REYNOLDS,

having been first duly sworn, was

examined and testified as follows:

DIRECT EXAMINATION

BY MR. BESHORE:

Q. Ms. Reynolds, if you'd state your name, give us

your address, just the town is sufficient, mailing, post

office address is sufficient.

BY MS. REYNOLDS:

A. Emma Downing Reynolds, E-M-M-A, D-O-W-N-I-N-G.

R-E-Y-N-O-L-D-S, address is 1405 North 98th Street,

Kansas City, Kansas, 66111.

Q. Have you ever been to a federal milk order

hearing before this one?

A. I have not.

Q. You ever testified at a hearing similar to this

before?

A. I have not.

Q. Have you nevertheless prepared a statement to

present for this hearing?

A. I have.

Q. And is it a five-page document with a cover page,

two pages of texts and two-page exhibit or table behind?

A. That is correct.
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Q. I would like to ask that Ms. Reynolds testimony

Ms. Reynolds her prepared testimony be marked as exhibit

78.

THE COURT: Yes. We're not going to

mark the table separately?

MR. BESHORE: I do not propose to mark

the table separately, no just mark the document as one

exhibit for the hearing.

(Whereupon, Exhibit No. 78 was marked for

evidence.)

THE COURT: That works.

Q. Would you proceed, Ms. Reynolds, and present your

testimony as prepared in exhibit 78?

A. "Hello, my name is Emma Downing Reynolds, and I

work for Dairy Farmers of America, one of the nine

Capper Volstead farmer-owned milk-marketing cooperatives

that make up the Dairy Cooperative Marketing

Association. I first started as an intern with the

Cooperative in 2016, working in fluid milk marketing.

After receiving a Masters of Science in Agriculture and

Applied Economics with a Public Policy Analysis emphasis

from the University of Missouri, I transitioned into a

full-time position working on a multitude of projects

focused on policy, milk analytics and strategic

initiatives. Today, my role in dairy policy and
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industry relations provides an opportunity to work

directly with our farmer owners, staff across the

Cooperative and a variety of others in the industry."

"I'm here today to testify regarding the

analysis surrounding point-to-point reefer

transportation rates between a variety of Class I milk

plants located primarily outside of the southeastern

Orders to Class I plants located within Federal Orders

5, 6 and 7's marketing areas. The information I will be

sharing today was utilized by Elvin Hollon in his

previous testimony. The results of this analysis, in

particular, found that packaged Class I milk products

processed in plants outside the southeastern marketing

areas will not have a cost advantage relative to Orders

5, 6 and 7's Class I pool plants due to the increased

assessments put forth by DCMA in proposals 1 through 5.

In conjunction with the previous testimony, I am here to

provide greater background regarding data sources and

processes on the transportation component of that

testimony. To this analysis, the information utilized

was provided by DAT Solutions, D-A-T., a U.S. based

provider of transportation information and freight

exchange services, founded in 1987 and originally known

as "Dial a truck." DAT began in a truck stop. There,

displayed on a corkboard haulers would post their
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services, routes and pricing. As the information

exhibited on this physical board grew, interested

transport companies and individuals began to call into

the truck stop solely to ask what was posted on the

board that day. Today, DAT has around 120,000 carrier

customers representing 2 million trucks, 10,000 broker

customers and 13,000 shipping customers, representing

the largest truckload freight marketplace in North

America. With more than 536 million loads and trucks

posted annually, it is the trucking industry's largest

on-demand network. DAT services are separated into two

product segments, DAT One Freight and DAT IQ Analytics.

DAT One Freight serves as a marketplace where haulers

can quote loaded rates at which they're willing to

provide services for specific routes and provides the

ability to match buyers a sellers into the platform.

DAT IQ Analytics compiles the data realized by that

internal marketplace and other users, aggregates the

information, and shares to subscribers seeking price

realization and current trends. Currently DFA Dairy

Brands, a division within DFA consisting of regionally

branded dairy products, including packaged milk that

coordinates transportation for around 68,000 trucks

annually, is an active subscriber and frequently out

utilizes information provided by DAT."
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"Given DAT's widespread scope and

well-known reputation within the hauling industry, their

services provided a key input to the transportation

costs within the analysis. A subsection of around 60

possible routes was evaluated between locations of Class

I processing facilities within the southeast Orders and

surrounding areas. The research question was: Does the

DCMA proposal of an increasing the out-of-area

assessments and establishments of an in-area assessment

unintentionally disadvantage these Class I processing

plants within the Southeast Orders, all else equal? My

table, as referenced, breakdown of DAT transportation

calculation, lists the selected routes and calculated

outcomes."

"For each of the selected routes, a

transportation cost of a loaded truck reefer, a heavily

insulated refrigerated trailer was calculated using the

average line haul rate, the base cost of reefer

transportation for early 2023 and the fuel surcharge

provided to DAT to approximate the number of miles

between the selected two Class I processing facilities.

Through this, a loaded haul cost for that specific route

was calculated. Applying the DAT provided data within

each specific route allow the ability to factor in

differing marketplace dynamics by location such, as
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possibility for back hauls regional differences in labor

costs and localized hauling competitiveness. Given the

longer hauls of these scenarios, the DAT data provided a

better account of the actual transportation costs that

any internal information accessible given the

transportation of packaged milk remains more local in

nature."

"In the table mentioned, breakdown of

DAT transportation calculation, the city, state and

Federal Order of the designation city and origin city

are listed. Following the locations, the approximate

number of miles between the two are included. The DAT

average contract rate is represented on a per mile basis

for each specific route. This data is representative of

average actual quotes for this hypothetical route for

January 2023. When the information provided by DAT was

pulled, the January 2023 time period was a selected

point in time as it provided updated information

surrounding line haul rates. There was a desire to

pressure test transportation costs of these routes with

differing diesel prices. Upon additional analysis, the

fuel surcharge was adjusted to be a variable dependent

upon diesel prices by utilizing the DAT fuel surcharge

calculated ranges. As diesel prizes change, so do

something surcharges. The results within the table
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equate to a fuel surcharge of $0.55 per mile. This

applies a U.S. energy information's administration's

February 2023 average diesel price of $4.428, this

diesel price is also employed in the USDA Announcement

of that Advanced Class Price and Pricing Factors by the

Southeast Federal Orders."

"Referring again to the table, the DAT

average contract line haul rates and fuel surcharge were

some to calculate the DAT total contracts line haul

rates on a per mile and aggregate basis. This total

haul cost was then applied to the typical weight of a

packaged -- of packaged milk that a standard reefer

trailer would haul. Given the length of miles between

our collected scenarios, it was assumed this entire load

would be gallons. Typically, a reefer trailer can fit

around 216 gallons on 22 pallets, equating to 40,860

pounds of packaged milk, therefore, 408.6 hundredweights

were divided by the aggregate contract haul rate to

calculate a quotient representing transportation costs

on a per hundredweight basis for each scenario."

"In closing, the transportation cost

assessments of these specific routes help support the

findings shared within the previous testimony.

Potential unintended consequences the DCMA proposals had

on the relative competitiveness of Class I plants in and
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out of the Southeast marketing areas in reference to

transportation costs were evaluated, all else equal.

Again, this particular analysis didn't not find there to

be any unfair competitive advantages given these

specific factors. Thank you for allowing me to testify

today.

Q. Okay, Ms. Reynolds, just a few additional

questions I would have for you. In your, in your

testimony when you referred to the table mentioned or

the table, you were referring to the table that's the

last two pages of what's been marked as exhibit 78,

correct?

A. Correct.

Q. Now, I think your testimony, based, essentially

indicated that the table was referencing costs

calculated from one class, one plant to another,

correct?

A. In general.

Q. In general. But as -- as was pointed out in

Mr. Hollon's testimony by Mr. Tonak, in a few cases the

locations are not locations of currently operating

plants, they may be just a destination point?

A. Correct.

Q. Okay. Let me just ask you one think -- and

actually here, your table has the same pairs as on
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Mr. Hollon's exhibit 70, correct?

A. That is correct.

Q. Okay. Basically you're providing a breakdown of

how the calculations for some of the numbers on his

table were made?

A. Correct.

Q. Okay. One final question that you can I think

help the record with, Mr. Hollon was asked about milk

PAP, and provided some limited information, can you

provide some more precise information about milk PAP,

what that program is and how what the reference to it in

this record means?

A. Sure.

Q. Would you do that? Go ahead.

A. So pulling a description from the USDA AMS

websites titled the National Fluid Milk Processor

Promotion Board. The description follows the National

Fluid Milk Processor Promotion Program or fluid milk

check-off program conducts business as the milk

processor education program or milk PAP. The program

develops and finances generic advertising programs

designed to maintain and expand markets and use

essentials for fluid milk products produced in the U.S.

Processors marketing more than 3 million pounds of fluid

milk per month pay a 20 cents per hundredweight
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assessment on fluid milk processed and marketed in

consumer-type packages in the US.

Q. So the publication or the information that

Mr. Hollon referenced as being sourced from milk PAP was

information that was generated by the board mentioned

with the handler assessment?

A. Correct.

MR. BESHORE: Thank you. No further

questions on direct for Ms. Reynolds.

THE COURT: AMS cross?

CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good afternoon.

A. Good afternoon.

Q. I think I want to start, if you would walk me

through the table. When it comes to the numbers, I

tried to match up the columns as you were talking about

them in your testimony, but it would be helpful to walk

through so I can understand what you used to calculate

what and what is perhaps a number that was calculated in

this table, but came from other things?

A. Understandable. Would you like to -- what column

would you like to start with? Would you like to start

with column one?

Q. I got column one through seven, so let's start
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with 8.

A. Got it.

Q. I'm all about efficiency.

A. So starting with column 8. DAT averaged contract

line haul rates, dollars per mile, so this was directly

provided by DATS, specific to the route within this row.

So, for example, you know, DAT provided early 2023

origin, city, Indianapolis for the destination city. As

you move into column 9, "DAT contract fuel surcharge

dollars per mile," that is the fuel surcharge I stated

within my previous testimony, and that fuel surcharge,

as stated, is referenced within that, the February 2023

announced diesel price of $4.428. So, essentially what

we did was DAT provided a range of when diesel prices

are from here to here, this is the fuel surcharge. And

so, we were able to match using this $4.428, plug it

into that range, and were able to get a $0.55 fuel

surcharge.

Q. So the $0.55 came from DAT based on the --

A. The range came from DAT, yes. Yes. The $0.55

fuel surcharge was based off a --

Q. Fuel price of $4 --

A. Yes. It was based off a DAT equation.

Q. Okay.

A. And then moving into column 10, as referenced in
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my testimony, you know, it's the sum of 8 and 8. Moving

into column 11, it's similar to that sum, but it's

multiplying column 10, so the DAT total contract line

haul rate by the listed miles in column 7. So the table

is showing it on a per mile -- the total a per mile

basis and the total on an aggregate basis.

Q. Okay.

A. Additionally, in column 12, as referenced in my

testimony, the 408.6 hundredweights is representative of

a reefer load of packaged milk.

Q. Is that a number you got from DAT or is that a

number of USDA's experience, you said it's

representative, but?

A. Correct. And so we surveyed internally.

Q. Okay.

A. And given the widespread experience we have

initially, it, that was an industry standard we settled

on. Finishing up in column 13, it's that per

hundredweight load divided by that total haul charge.

So the transportation costs mentioned in the prior

testimony is dollars per hundredweight.

Q. I just need to you say that for me again. What

columns I would use --

A. So if you're looking at the numbers listed in

column 13.
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Q. Uh-huh (affirmative).

A. It's 12, it's 11 divided by 12, so this example,

it would be in the first row 1,638.49 divided by 408.6,

these are approximates.

Q. Okay. Helpful to go through, seems kind of

redundant, but when we go back and you're not here to

ask these questions to sometimes we forget?

A. Understandable.

Q. Different kind of question, since you pulled this

data from DAT, I'm curious if similar data is available

on raw milk deliveries since there is some discussion of

what the haul rate should be in the transportation

credit provisions, I know the DCMA survey members and

their rates was 3.67, I'm just curious if there's

additional data sources out there that would provide

another reference point on when --

A. I did not investigate that.

Q. I think that's all I have at this time.

THE COURT: Does anyone else have any

cross for this witness?

THE COURT: Mr. Beshore, any redirect?

MR. BESHORE: I have no questions for

redirect. I would move the admission of exhibit 78.

THE COURT: Any objection?

Exhibit 78, the testimony and tables for Ms. Reynolds is
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entered into the record.

(Whereupon, Exhibit No. 78 was introduced

into evidence.)

THE COURT: Next witness .

MR. BESHORE: DCMA calls, as the next

witness, Sarah Vanadia.

Whereupon,

SARAH VANADIA,

having been first duly sworn, was

examined and testified as follows:

DIRECT EXAMINATION

MR. BESHORE: Your witness, Mr. Beshore.

BY MR. BESHORE:

Q. Would you state your name and address for the

record, please?

BY MS. VANADIA:

A. I am Sarah Vanadia, S-A-R-A-H, V-A-N-A-D-I-A. My

business address is 1405 North 98th Street, Kansas City,

Kansas, 66111.

Q. Ms. Vanadia, have you ever been to a Federal

Order hearing before and testified?

A. I have not.

Q. Have you prepared a three-page statement for

presentation at this hearing?

A. I have.
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MR. BESHORE: And Your Honor, I'd like

Ms. Vanadia's statement to be marked for identification

purposes as exhibit 79.

THE COURT: So marked.

(Whereupon, Exhibit No. 79 was marked for

evidence.)

Q. Would you proceed to present your prepared

statement, Ms. Vanadia?

A. Well, as stated, I am Sarah Vanadia, I am a

Commodity Risk Management Analyst for Dairy Farmers of

America on the DFA Risk Management Team. I started as

an intern at DFA in 2019, working in the fluid milk

marketing and logistics department out of the Mideast

area office in Medina, Ohio."

"After receiving a bachelors in

Agricultural Economics from Virginia Tech and my Masters

in Applied Economics from the Ohio State University, I

started full-time working with the DFA Risk Management

Team in Kansas City. I work with our farmer owners,

customers, internal business units, utilizing tools to

manage price risk across both agricultural and industry

commodities. My focus is on educating and informing

stakeholders, strategy, development, execution, position

management and market research. As part of my work, I

support DFA's Areas and other business units in hedging
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their future diesel fuel prices."

"I appear here today to provide

perspective on historical diesel fuel prices and by

using futures markets, a view of the marketplace's

expectation for diesel fuel prices through 2025."

"The U.S. energy information

administration, which I will refer to as EIA released a

detailed gasoline and diesel price report broken down by

Petroleum Administration for Defense District, which I

will refer to as PADD.

MR. BESHORE: I'm sorry to interrupt

you, but in your, in exhibit 79, on the first page,

there's a graph that you've prepared called "Figure 1,

Monthly Retail On-Highway Diesel Fuel Price," are you

now going to discuss that graph?

A. In the next paragraph I was.

Q. Okay. Very good.

MR. BESHORE: Your Honor, since the

exhibit will presumably be part of the record, we'll

proceed as if it is part of the record without her

having verbally recite it.

THE COURT: Just as we've done with the

other witnesses, thank you, Mr. Beshore.

MR. BESHORE: Thank you.

A. Okay, so broken down by Petroleum Administration
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for Defense District, which I will refer to as PADD.

So, for this analysis, specifically we are using the

on-highway diesel fuel price for the whole U.S., along

with PADD 1C, PADD 1C includes Georgia, Florida, North

Carolina, South Carolina, Virginia and West Virginia.

In my exhibit, figure one, the monthly retail on-highway

diesel fuel price, both the U.S. diesel and PADD 1C

price history are charted since January of 2006,

alongside the projection for the February 2023 through

December 2025, PADD 1C retail on-highway diesel fuel

price. The projection is a calculation based on the New

York Mercantile Exchange, or NYMEX, New York Harbor

ultra-low sulfur or ULSD future as of February 15, 2023,

plus the two-year average historical basis between the

New York Harbor ULSD futures contract settlements and

the PADD 1C monthly retail diesel price. Over the last

24 months, the basis has fluctuated from a dollar to a

$1.73, averaging $1.27 per gallon. Based on the NYMEX

futures market and historical basis, an average diesel

fuel price can be projected around $4.05 for the

remainder of 2023, $3.87 for 2024 and $2.77 for 2025."

"The most recent average for use February 18

through January 2023, retail diesel price for PADD 1C

was $3.35 per gallon. Within that timeframe, the range

of prices was $3.40, with the lowest price you
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experienced being $2.32 per gallon and the highest being

$5.73 per gallon. In that same 5-year average, retail

diesel price for all U.S. was $3.44 per gallon. Within

that timeframe, the range of prices was $3.36, and the

lowest price experienced being $2.35 per gallon and the

highest being $5.75 per gallon. Since January 1st of

2006, the average retail diesel price was $3.19 per

gallon. Within that timeframe, the range of prices was

$3.77. The lowest price experienced in February of

2016, being $1.96 per gallon and the highest price being

$5.73 per gallon, experienced in June of 2022, diesel

fuel prices have demonstrated volatility and experience

a large range due to multiple factors."

"First factor to consider is the current

supply environment. The EIA releases a weekly petroleum

status reports, which indicates U.S. inventories for

crude oil and distillate fuel oil. Distillate fuel oil

is defined by the EIA as a general classification for

one of the petroleum fractions produced in conventional

distillation operations. It includes diesel fuels and

fuel oils. Products known as number 1, number 2, and

number 4 diesel fuel are used in on-highway diesel

engines, such as those in trucks and automobiles, as

well as off-highway engines, such as those in railroad

locomotives and agriculture machinery. Products known
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as number one, number two and number four, fuel oils are

used primarily for space heating and electric power

generation. For the week ending February 11, U.S.

distillate fuel inventories are at about 15-percent

below the five-year average for this time of year. The

U.S. is currently experiencing one of the lowest supply

periods in history; in May of 2022, the U.S. stock of

distillate fuel oils were at their lowest point since

May of 2005."

"Highlighting current production

volatility, considering data back to 2010, U.S.

production of distillate fuel oils peaked in January of

2019 and bottomed out in March of 2021. Since 2020,

approximately one million barrels per day of refining

capacity has have removed from the United States as

around eight refineries have either closed their doors

or are begin converted to a renewable fuel production

facility. Also, in March of 2022, the U.S. announced a

ban on the import of Russian crude oil ad certain

petroleum products. In 2021, the U.S. imported nearly

700,000 barrels per day of Russian petroleum products.

The U.S. also imports crude oil and refined products

from 72 other countries. Record low inventories, along

with uncertain production and current geopolitical

events have provided price support to diesel fuel over
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the last couple of years and will most likely do so

moving forward."

"On the other side of supply is demand.

The EIA releases how much production is supplied to the

U.S. market, and therefore is used as a proxy for

consumption. The components of petroleum supply are

field production, refinery production, imports, and net

receipts when calculated on a PADD basis. Distillate

fuel oil supplied reached its highest level in February

of 2022 since March of 2007, and has backed off since.

Currently distillate fuel product supplied is down 15.6

percent from the same time last year. Domestic demand

for distillate fuel if highly correlated with the health

of the U.S. economy as it's the main fuel source for

trucks, tractors, trains, and much more that keep our

country moving and manufacturing. Demand decreased in

2022 as the U. S. Economy struggled and experienced

negative GDP growth rats in the first half of the year.

As the economy rebounds and manufacturing, freight and

services that utilize mobility fuels picks up, we can

easily find ourselves in a shortage situation,

supporting prices. On the other hand, we must consider

an economic downturn in the U.S. that would decrease the

demand for diesel fuel, potentially pressuring prices.

Another factor to consider is how China rebounds from
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COVID19, as they relax policies and increase activities,

the United States export demand to China can quickly

pick up; in 2021 China was in the top 3 destination

countries for U.S. petroleum exports, behind only Mexico

and Canada."

"In summary, supply and demand are

currently close to being in balance, but prices for fuel

are already elevated when compared to historical values.

With stocks, production, and imports at their current

levels, there is significant risk of upward price

movement. Meanwhile the U.S. and global demand is still

uncertain, but at this time demand is down and partially

offsetting the record low inventories. With the fragile

nature of the current supply and demand balance, we

anticipate greater pricing volatility as the markets

reacts to various supply and demand changes and

indicators of such change." Thank you.

Q. I have just one, one question additional dialect.

You used the term basis, of historical basis, could you

define "basis" in your field?

A. Yea, so "basis" is the difference. So it's the

difference between, in this scenario, the New York

Harbor ultra-low sulphur diesel fuel future settlements

and the retail diesel price for PADD 1C.

Q. How is that factored into the projections showing
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because, I don't know if it's fair to call projections,

the blue line showing for the time period from February

'23 through December 2025?

A. Yea. So I took the two-year average, so the last

two years of that basis, which came out to be $1.27, and

I added that to the NYMEX ULSD futures as of February

15, 2023 to calculate a projection.

Q. Very good.

MR. BESHORE: I have no further

questions for Ms. Vanadia on direct. She's available

for cross.

THE COURT: AMS have any cross?

MS. TAYLOR: Yes, we do.

CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good afternoon.

A. Good afternoon.

Q. I wanted to piggy-back off what Mr. Beshore was

just asking you about, I had similar questions. So you

added the $1.27 to the price as of February 15, but I

don't think in your testimony you say what that is?

A. Because I add it to the monthly price. So the

futures contract is a contract for each month that the

NYMEX offers, so I added it to each month. Each month

is different. I don't have the average noted here. I
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could provide that for you, if needed.

Q. So when it comes to futures, this isn't something

that the department's had a lot of, hasn't been

necessary in the past to think about futures and risk

management to a large extent because back when we

changed these things in the early 2000's, it wasn't

utilized a lot.

A. Yep.

Q. So I was just trying to, for the record, make

sure we understood how we got to 4.05 --

A. Yea, so --

Q. -- et cetera.

A. I took the monthly NYMEX ULSD futures contracts

settlement as of February 15th.

Q. Which was a specific number?

A. For each month.

Q. Each month of?

A. From February 2023 through December 2025. Each

month a has different price.

Q. I understand.

A. I add the same $1.27 to each month though.

Q. Okay. And then you averaged for the year to come

up with these numbers?

A. Correct.

Q. Okay. Perfect, thank you. On the last page of
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your statement, right at the very top, and I only ask

this question for clarity, it starts page two, "Record

low inventories along with uncertain production and

current geopolitical events have provided price support

to diesel fuel," etc., as a government person, when I

think price support, I probably think of that term

different than what you are intending.

A. Correct. Price support here is elevated price,

increasing, yea.

Q. Okay. Then I had another question. So, does DFA

hedge their fuel prices as much as they can?

A. Yes, we participate in diesel fuel hedging for

several areas and then our internal business units.

Q. Okay. So you're able to try to withstand some of

the fuel volatility, fuel price volatility that exists

in the market if you hedged correctly?

A. We try to.

Q. Not sure if you're the right person to ask this

question to, but I'll ask it anyways; if that's the case

that you're hedging fuel costs, the transportation

credit calculation transmits that volatility in the

equation we use to come up with that, no accounting for

an entity's ability to hedge fuel cost, so maybe you're

not experiencing that volatility in the fuel cost

because you've been able to hedge your risk some, and
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I'm just trying to square kind of that thought of if

it's or how we account for that in our transportation

cost to reimbursement, so I'm not sure you're the person

to ask, but?

A. I don't think I am.

Q. Since talk about fuel cost, I thought I'd throw

that question out there.

A. Yes, I do not think I'm the person to answer that

question.

Q. Maybe that can be addressed by a future witness.

Nothing more. That's all I have for the moment.

A. Awesome. Thank you. Am I good?

THE COURT: Any cross by any other party

representatives other than AMS? Seeing none,

Mr. Beshore, redirect?

MR. BESHORE: Yes.

REDIRECT EXAMINATION

BY MR. BESHORE:

Q. Just a couple of questions that are in response

to questions Ms. Taylor asked you. Okay. When you

talked about DFA hedging fuel prices, you're talk about

for DFA's fleet of vehicles it's operating?

A. Correct, DFA owned operating fleets.

Q. You're not hedging for contract milk haulers?

A. No.
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Q. Transport DFA members raw milk or haul DFA

members milk from farming plant?

A. No, sir.

Q. Okay. With respect to the projection of prices,

I mean, when I look at this, and you described how you

calculated that and all, it stands out to me that the

projection line is much smoother than the line of

reality, okay.

A. Right.

Q. So is that likely to be the case in the future?

A. No, sir. So, that is where market participants

deemed that fuel is worth in that point in time on that

specific day.

Q. Okay.

A. So it's based on the information they had that

day, react off of.

Q. Right. So those projections are just a

representation of what the participants in the

marketplace are thinking that day?

A. Correct. They are willing to buy and sell

financial fuel at whatever future month that day.

Q. So, when -- when the period of that projection is

in our rear view mirror as opposed to our forecast

mirror, would it be fair to assume that that line would

look more like the rear view on this chart than the
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forecast on this chart?

A. It would have lot more highs and lows, instead of

a flat line, correct.

Q. In other words, volatility is going to be with us

in diesel prices for the future?

A. As it has been in 2006 and before.

Q. As you documented. Thank you. That's all I have

in redirect?

THE COURT: Recross? Okay, I think we

can let this witness step down. Thank you. Are you

going to move 79 into evidence?

MR. BESHORE: Yes, I would offer for the

admission of 79.

THE COURT: Any objections?

MR. HILL: No objections.

THE COURT: Exhibit 79 is received into

the record.

(Whereupon, Exhibit No. 79 was introduced

into evidence.)

MR. BESHORE: DCMA calls as its next

witness, Jason Smith.

Whereupon,

JASON SMITH,

having been first duly sworn, was

examined and testified as follows:
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DIRECT EXAMINATION

BY MR. BESHORE:

Q. Would you state your name and address, please,

sir?

BY MR. SMITH:

A. Jason Smith, J-A-S-O-N. S-M-I-T-H/ my working

address is 10115 Kincey Avenue, Huntersville, North

Carolina.

Q. Now, is it fair to say you've been to Federal

Order hearings before today?

A. I have not.

Q. Have not?

A. No, I have not.

Q. Bet you've never testified at one before?

A. I have not.

Q. Nevertheless, have you prepared a six-page

statement to present as your testimony here today?

A. Yes, sir, I have.

MR. BESHORE: Your Honor, I would like

Mr. Smith's statement to be marked a exhibit 80.

(Whereupon, Exhibit No. 80 was marked for

evidence.)

Whereupon,

JASON SMITH,

having been first duly sworn, was
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examined and testified as follows:

DIRECT EXAMINATION

BY MR. BESHORE:

Q. Would you present your statement now?

BY MR. SMITH:

A. Yes, sir.

Q. Proceed with that.

A. Yes, Thank you. "Good afternoon. I'm Jason

Smith, Director of Sales and Logistics for Maryland and

Virginia Milk Producers Cooperative. Maryland and

Virginia's corporate office is located at 13921 Park

Central Road, Herndon, Maryland and Virginia is a

Capper-Volstead cooperative association that has

approximately 930 dairy farmer members located in 10

states, Maryland and Virginia's team markets our

members' milk on the Appalachian, Southeast, Northeast

and Mideast orders. Maryland and Virginia is a member

of Dairy Cooperative Marketing Association, Inc., also

known as DCMA."

"My responsibilities at Maryland and

Virginia includes overseeing the raw milk dispatch team,

which manages the movement of approximately 180 loads

per day of member milk and partner supply milk

procurement of supplemental milk supplies, manages

relationships with our raw milk customers and monitoring
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the monthly Federal Order requirements. I've spent a

good portion of my 20-plus year tenure with Maryland and

Virginia focused on milk movements within our southeast

area. "

"I'm here today to express Maryland and

Virginia's support of proposals 1, 2, 3, 4 and 5. I

will testify on the marketing conditions within the

Appalachian market order based on my experience. It is

critical and urgent to Maryland and Virginia's

membership that the Federal Order's Transportation

Credit provision continues to exist and improvements are

made due to the current conditions in the market."

"Maryland and Virginia owns and operates

two fluids processing facilities within the Appalachian

Order and is the contract milk supplier to several other

processors in the region. Securing a sustainable milk

supply for our plants and third party customers is a top

priority for my team. "

"As illustrated in DCMA's testimony,

milk production has sharply declined in the southeast

states, down 32.4 percent over the last 15 years,

creating challenges to maintain a secure milk supply.

With that said, Maryland and Virginia relies heavily on

supplemental milk from other regions, predominantly the

Northeast order to meet our year-around obligation.
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During the peak supplemental season, late Summer, early

Fall, approximately 25 loads per day of supplemental

milk is required to fulfill our demand."

"The average distance to the market for

our Northeast supply is approximately 450 miles. The

transportation cost ranges between $4.90 to $5.25 on a

per mile rate based on the current input cost for

trucking and diesel fuel price. That equates to roughly

$4.43 per hundredweight using the low end of the per

mile rate range. In a typical month, the pricing delta

available to handlers between the Appalachian and

Northeast Orders range between a dollar and $1.50 per

hundredweight, taking the high side of that range, the

difference in the two orders provides an offset to the

transportation cost, but still leaves $2.93 per

hundredweight of uncovered costs to move the

supplemental milk to the market."

"The Transportation Credit provision

provides some relief in covering the outstanding cost of

transportation supplemental milk to the market, but fall

short in relation to the current transportation cost.

Over the last several years, milk haulers have been

facing increased costs in all aspects of their business,

equipment, parts, oil, labor, insurance and fuel all

have seen double digits, in some cases, triple-digit
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percentage increase. With no updates to the

Transportation Credit provisions mileage rate

calculation components since 2006, the percentage of the

cost covered by Transportation Credits continues to

decrease. At the end of the day, haulers expect to get

paid for transporting supplemental milk to the market,

so the current imbalance is covered through over-order

premiums or as a deduction from our dairy farmer's milk

checks."

"Proposal 1 and 2 will align the

components factors of the mileage rate within the

current Transportation Credit system with the current

freight rates, making this change is imperative to

maintaining a readily available milk supply to meet the

ever-changing demand of the Class I markets. Without

these updates, supplemental suppliers will be less

willing to commit raw milk volumes to the Appalachian

Order during high deficit periods. This will negatively

impact process capacity in the Appalachian Order, with a

likely outcome of less capacity in the Appalachian area

to provides local dairy products to the end consumers."

"Since early 2000, 11 pool distributing

plants closed within Maryland and Virginia's core area

of the Appalachian Order. As these plants shuttered

their doors, the distance of the next closest plant
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increased, and the cost of balancing the daily ebb and

flow of the Class I demand has increased substantially.

As customers' orders for the milk shift at the remaining

pool distributing plants, raw milk loads are shuffled in

and out of those facilities to ensure adequate supplies

are available without raw milk inventories exceeding

silo capacity. With fewer plants in the network, there

is less opportunities to utilize the next plant's silo

capacity, therefore, the ability to stairstep milk

throughout the region to align supply and demand is more

difficult. With more miles between plants, the steps

are taller, driving up the cost to land the milk at the

next plant. A prime example being when Pet Dairy of

Richmond, Virginia closed, milk from North Central

Virginia was forced to move to Southeastern Virginia or

the Carolinas, an increase in mileage to the market of

51-percent and 67-percent respectively. If and when

plant production in either region declines, milk is

forced to travel north to a balancing plant. Both moves

increase the total cost to dairy farmers in the

marketing area."

"As milk moves farther distances with

the Order and total cost of transportation increases,

the Class I location differentials are not adequately

compensating dairy farmers for milk movements within the
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order. Producer milk located in Harrisonburg, Virginia

often delivers to Newport News Virginia, which is

approximately 207 miles from Harrisonburg. The milk

originated in a $2.90 Class I location differential zone

and Newport News, Virginia is at $3.20 Class I location

differential zone, a $0.30 difference in the location

differential. Based on the per mile rate discussed

earlier, the $0.30 per hundredweight delta in the Class

I location differentials between the origin point and

the delivery location covers approximately 15-percent of

the cost of moving the milk within the market. As

transportation costs have increased over the years, the

percentage of transportation cost covered by the Class I

differentials has dramatically decreased. DCMA's

proposal 3 provides additional compensations and

incentives to move milk within the order offsetting a

portion of the deficiencies in a Class I location

differentials. By adopting this proposal, dairy farmers

will be compensated more fairly for getting their milk

to market."

"Another challenge facing the

Appalachian Order is the fluctuation of Class I demand

based on seasonal and weather-related events. Snow

storms and filling the school pipeline often are the

times I dread the most from a logistic standpoint, as
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these events tax our milk marketing and transportation

systems. Each year we face the challenge of filling the

school pipeline and we see an exponential increase in

order for a four to five-week period. During this time,

all available reserve supplies are fully deployed to the

Appalachian area. The transportation credit system

allows us to tap into the reserve supplies and offset

some of the transportation cost, but we need the

proposed improvements to continue to have supplemental

supplies available. Without these proper tools to

incentivize the supplemental suppliers, these supplies

could very well stay home for a greater return. "

"Last year, during the period of August

20th through September 27th, school pipeline filling

season, Maryland and Virginia reloaded and then

transferred to Class I plants approximately 80 loads of

milk from our pool supply plant, Valley Milk Strasburg,

Virginia, to meet the increased demand during this

period. To be honest, this was a last resort as

Maryland and Virginia was desperate to get supplemental

milk to the market."

"Our team reached out to several of our

local milk haulers from Maryland and Pennsylvania

requesting they deliver farm direct milk to the

Appalachian market, As these haulers declined for a
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multitude of reasons. Most of these haulers in Maryland

and Pennsylvania pick up multiple producer routes on

farm pick-up tankers, which are not equipped to travel

long distances. There is also a timing issue by picking

up multiple stop routes and delivering a longer

distance. The driver cannot legally make the turn

within the driver's available hours of service.

Delivering milk further distance also ties up additional

equipment, which the local haulers do not carry in their

fleet. It's hard for the haulers to justify carrying

additional equipment to only utilize that equipment in a

short period of year. So, our best alternative was to

have the Maryland and Pennsylvania haulers deliver loads

to Valley Milk, a pool supply plant on the Appalachian

Order, and then transfer that milk out of Valley Milk

silos on to transport tankers. This allowed us to

utilize over-the-road hauling companies that are

accustomed to delivering longer distances."

"Maryland and Virginia was successful at

moving additional loads to the Appalachian Order to meet

the demands of the market. However, the expense of

covering all the transportation costs to move the

supplemental milk to the market was absorbed by dairy

farmers."

"Based on this example, Maryland and
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Virginia fully supports DCMA's request to allow milk

originating from a pool supply plant within the

Appalachian Order to qualify for the Distributing Plant

Delivery Credit. This allows a hauler to assemble milk

from smaller farms, deliver that milk to a central

location, and then transfer those loads to a pool

distributing plant to fulfill the Class I demand,

reducing the burden to dairy farmers with unintended

cost of supplying the market."

"The current market conditions in the

Appalachian Order demand that milk within the Order move

further distance, at a higher transportation cost. It

is also critical that supplemental supplies are readily

available to meet the demand of the Order. Based on

these facts, improvements in the Order's transportation

system are absolutely necessary to maintain orderly

markets while also maintaining an adequate raw milk

supply for the in-area processors that provide local

dairy products to the end consumer."

"Maryland and Virginia supports

proposals 1, 2, 3, 4 and 5, and request a timely

decision. Thank you for the opportunity to present this

testimony."

THE COURT: Questions Mr. Beshore?

MR. BESHORE: Yes, thank you, Your
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Honor.

BY MR. BESHORE:

Q. Mr. Smith, I have a few additional questions for

you. First of all, let's talk about the area in

Virginia, which is not currently part of the federal,

any federal government marketing area. The Newport News

plant of Maryland and Virginia is located in that area,

correct?

A. That is correct, yes.

Q. It is a pool distributing plant for Order 5,

correct?

A. That is correct, yes.

Q. So is that, it's pool distributing plant

year-around, Order 5?

A. That is correct, yes.

Q. Is that pool distributing plant primarily

supplied with milk supplies from the, or at least, is it

regularly supplied with milk supplies from the

unregulated counties, non-federally regulated counties

in Virginia?

A. Yes, sir. The counties there in Virginia are the

producers that are located in those non-regulated

counties, typically flow down to that plant and other

Federal Order 5 plants to do it on a consistent

year-around basis.
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Q. Okay. And those are the counties that DCMA has

identified in its request the, included as farms that

were eligible for the distributing plant delivery

credit?

A. Yes.

Q. Now, with respect, let's talk about the pool

supply plant. I believe it's correct that the Strasburg

plant in Maryland and Virginia is the only pool supply

plant currently functioning, primarily functioning in

recent years in the Southeastern United States for Order

5, 6 and 7, is that true to the best of your knowledge?

A. To the best of my knowledge, yes.

Q. Okay. And that plant functions, as you've

described it, as a pool supply plant, and at certain

times delivers milk, makes milk available to the Class I

market in Order 5, correct?

A. That is correct.

Q. Okay. From what sources are the supplies that

come into that plant that you've indicated come from, in

some cases, from Maryland and Pennsylvania farms are

they primarily from small farms?

A. I would say they're predominantly from small

farms. I'd say if you look at the statistics for milk

out of Pennsylvania in 2021 from the Northeast annual

report, I think the average farm size or average pick-up
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was 5600 pounds a day, that kind of in my mind

stipulates the smaller farms and I'll say even some of

the milk we supply are Amish farms, Amish producers, but

they're a bit smaller, probably shipping about 3,000

pounds a day, so.

Q. So many of the farms whose milk is collected or

received at Strasburg and then re-shipped, as you've

indicated, reloaded off the marker or over-the-road.

Trucks come from the smaller Amish and Mennonite Farms

in Pennsylvania and Maryland perhaps?

A. Yes.

Q. It's your request that those shipments from the

supply plant into Federal Order 5 or 7 distributing

plants, they be eligible for distributing plant credit

for the mileage from the supply plant to the

distributing plant, correct?

A. Yes, that's correct.

Q. Okay. Now, one of your responsibilities you've

indicated is supervising, overseeing the raw milk

dispatch team of Maryland and Virginia, 180 loads or so

per day, in that capacity, I take it you're familiar

with the costs of over-the-road deliveries?

A. Yes, sir.

Q. And with your contract haulers?

A. Uh-huh (affirmative).
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Q. Okay. The proposals in this hearing are based on

the costs of those, the update of the market rate

factor, the MRF, as Mr. Hollon described it, is based on

the survey of those costs during September and October

of 2020, you're aware of that, you've heard that

testimony, you're familiar with that, correct?

A. Yes, sir.

Q. Okay. In your opinion, based on your experience,

that's supervising those shipments during that period of

time for Maryland and Virginia, being knowledgeable of

the cost of the supplies, are those costs shown in the

DCMA survey representative of the costs during that

period of time?

A. Yes, during that period of time, yes, they would

be.

Q. Maryland and Virginia participate in providing

its information to DCMA for that survey?

A. Yes, sir.

Q. Were you personally involved in aggregating some

of that information?

A. I indeed did do some of that work and put some of

that together, so.

Q. Was it all -- did you do it, provide complete and

accurate information for that survey?

A. Yes.
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Q. Okay. You've talked about, on page 2 of your

testimony, the difference between the cost of providing

supplemental milk into the market and the over-order

charges that you're able -- able to collect in between

the dollar and $1.50 per hundredweight, am I correct

about that?

A. That is not correct. That's more to deal with

the delta between the Appalachian and Northeast Orders

that you maintain, you typically have a variance between

those orders.

Q. The blend price?

A. From the blend price, yes.

Q. Okay. So the blend price provides dollar to a

dollar-fifty difference --

A. Right.

Q. -- and with respect to those deliveries. Now,

are you able to recover the additional cost in

over-order charges?

A. Minimum cost in over-order charges.

Q. Why can't you recover it? Is it more difficult

to get -- is it difficult to get those full costs out of

the market in over-order charges in your experience?

A. In our experience, yes, it's hard to get all the

customers kind of (unintelligible).

(Court reporter asked for repeat.)
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A. I'm sorry. I said, yes, it is hard to get those

costs recovered in the marketplace just because it's

hard to get all of the customers within the marketplace

consensus in the past that have struggled to be able to

increase as overall.

Q. What's the difference in customers' reactions to

pay those charges and regulated federal prices versus

over-order negotiated prices?

A. We've had a lot of customers, as we've negotiated

and talked through, trying to get, I'll say passed

through cost back to customers have mentioned that it's

a whole lot easier for them to pass regulated costs back

to their end customers because they can see it on there,

it's mandatory and they always ask us, well, we can do

it as long as we are held on a level playing field with

all the rest of the processors out there, so it's a

whole lot easier to do it on the regulated side of it

than it is on the over-order premium. There's two

things in my mind that does, one it guarantees the

handler payment because if it's in the regulated

portion, we've got the guaranteed part there, but also

gives the processor some comfort that everybody is on

that level playing field and they're all getting charged

equally throughout the deal.

Q. One final area; you talked about the PET milk
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plant in Richmond closing, and the impact that had on

the supplies, supplies to that plant and costs of moving

that milk. Were you here when Mr. Hollon testified

about disruption in local market relationships that

occur when plants close and with the declining, what the

market conditions in the southeast, you heard that

testimony?

A. Yes.

Q. Would you consider the Pet Richmond experience

that you've described, an example, maybe a good example

of how those local relationships can be disrupted at a

cost to farmers' cooperatives supply in the market?

A. I would agree that was a disruption for the local

the farmers as milk had to move further distances, push

to different relationships, so.

Q. Okay. And are there other examples, situations

in the markets that you service where there have been

similar kinds of disruptions with plants closing and

such?

A. Yes, there's been other plants, some of our South

Carolina milk used to be dedicated to the Charleston

plant that recently closed down, and that milk had to

move to another facility, kind of across grain,

so-to-speak, about against location differential to move

to the next market that impacted the dairy farmers of
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that region, so.

Q. Did it increase the cost of supply, of that milk

being supplied to distributing plants?

A. Yes.

MR. BESHORE: I think that's all the

questions I have for you at this time, thank you. He's

available for cross.

THE COURT: Any cross by AMS?

CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good afternoon.

A. Good afternoon.

Q. Thanks For testifying today. On the second page

of your statement, you talk about in the first full

paragraph, second full paragraph, supplying the

Northeast and those supplemental loads come about 450

miles.

A. Uh-huh (affirmative).

Q. And your cost range is from 4.90 to 5.25. So is

it safe to say that those types of loads are what the

loads that were included in your survey data that you

provided to DCMA?

A. That would be -- yes, those loads would have been

included. I would say those rates are reflective of

probably more recent rates as opposed to the rates we
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397

submitted in 2020.

Q. Good point. Fair enough. Thank you. And then,

going into the next page, you talk about, you know, the

cost of supplying this milk, the extra transportation

costs, and you either get it, the over-order premiums to

cover that cost, you get it either through over-order

premiums that you get out of the marketplace, which you

just discussed with Mr. Beshore or deduction from your

dairy farmer milk checks because money's got to come

from somewhere?

A. Correct.

Q. Can you talk a little bit about the deductions

that you experience in order to cover those costs?

A. I would say the imbalance that we have on

bringing that supplemental milk back is pretty much laid

across our dairy farmers and the Appalachian Order

predominantly, even through our entire milk shed, so

those costs they absorb through their milk shed, it's

typically a line item deduction on some or through the

hauling subsidies built into their prices, so they'll

see a reduction in their base price or their blend price

due to some of these costs, these additional

transportation costs that are included in there to pull

that supplemental milk into the market and just balance

and maintain that market and provide that service for
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398

the market.

Q. And that's shared amongst all your members?

A. Yes.

Q. On page 4, in that first full paragraph, you talk

about the difference in zone was $0.30, and based on the

mile rate discussed earlier, $0.30 is only about

15-percent -- $0.30 you get for cost differential really

only covers 15-percent of the transportation credit

cost?

A. Correct.

Q. And I, just for the record, wanted to know what,

because there's few numbers previously, what number

you're talking about, mileage --

A. The 4.90 number, using the low end, 4.90 mileage

rate.

Q. Okay. And just to clear, I want to be clear on

the pool supply plant provision, so I think what I heard

was, in Maryland and Virginia experience, the tankers

that haul your local milk are smaller, for example, and

they don't have the ability to get a larger load and

ship it a longer distance for a Class I plant for a

variety of reasons, they don't do that, so instead

you've had to in the past assemble that milk at the pool

supply plant, ship it in a silo, then pump it out again

into a larger tanker that could supply that milk?
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399

A. Tanker-size is probably irrelevant because some

of that milk comes in on farm pick-ups more so, size of

the tanker is a little irrelevant but comes on on

equipment that doesn't necessarily have the ability to

travel longer distance over-the-road, they pick it up,

they've got to get those farm pick-ups back, they've got

pumps on there that they've got to get back and pick up

the next route, and they can't have them gone for the

extended period of time, so we've got to get them to the

pool supply plant somewhere assembled so they can unload

it and then we can get other tankers in there to be able

to transport that. And there's more of those transport

tankers down there available to take that milk further,

it takes longer to do that, so that's the reason why we

can't, can't have the local haulers make that turn.

Q. Got you, okay. Back to the data that you put

into the survey. On your supplemental milk loads, do

you find a difference in haul cost between your

supplemental load you have to bring in a longer distance

versus normal, closer hauls where they're relatively

similar?

A. I think there is some difference in the

over-the-road hauls compared to the local, and some of

that is they're doing different jobs to assist. They're

covering, the local guys tend to be covering less
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400

mileage, so their per mile rate sometimes has to be

higher because they've got more -- they have got to

cover the overhead cost regardless, and to travel those

fewer distances, that rate has got to be higher as some

folks go longer distances, those per mile rates can be

less because they've got more miles to cover the

overhead cost.

Q. Okay. Does Maryland and Virginia haul its own

milk or do you use contractors?

A. We use third-party contractors.

Q. Do you know about what their normal tanker size

is?

A. It depends. I'd say transport tankers are 6200

gallons to 6500 gallons, comparing that to some Maryland

and Pennsylvania, those haulers, some of those folks are

running 7500 gallon tankers just because the different

states have weight differences that you can -- and not

all of the States have the same weight requirements, so

some states allow heavier takers, some don't. So,

Pennsylvania is one that you can haul for a payload

size, they seem to have the bigger tanker sizes.

Q. There's been a lot of discussion about needing to

bring this milk in, the supplemental milk to meet the

demand. I just want you, if you could, from your

experience, talk about what happens if that doesn't get
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401

met, what's the consequence if you don't get all the

supplemental milk in to --

A. If we don't get enough supplemental milk, then

the plant don't have milk to run that to get out to

consumers, prime example and this is extreme, but snow

storms, we see demands spike exponentially, and we can't

necessarily always get enough demand or supply back into

the system, and you do that, you go to the grocery

stores, you see empty shelves across the board where

there's no milk in the grocery stores, things like that.

If we don't get that supplemental milk into the system,

in my opinion, you see end consumers not have product or

not have dairy products to be able to consume, and then,

I also think at the end of the day that puts pressure on

the processors that are within the system because some

of those retailers may go outside of the order to

purchase milk or bring packaged milk.

Q. So it can affect not just consumers, but

cooperative's ability to operate based on what customers

you have?

A. Correct. Yes.

Q. And you spoke a little bit about the over-order

premiums. So, is Maryland and Virginia able to get some

over-order premiums from the market (inaudible)?

A. Right. We've been able to get of those
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402

over-order premiums through DCMA, and back in 2019, we

were able to increase or put some over-order premiums in

place, but we continue to push and continue to try to

increase and pass those costs through over-order

premiums, but like I mentioned, just getting consensus

from customers is very difficult and we've gotten a lot

of pushback from time to time saying, all right, you can

as those over-order premiums, but we're not going to pay

it, we'll short you on the invoice, and it doesn't do us

any good at that point in time, that creates more havoc

throughout our system.

Q. So you can bill them, but they may not pay you?

A. Correct, yes.

Q. That's the story?

A. Right.

Q. And then I think lastly is we've been DCMA has

asked us to consider this on an emergency basis,

rule-making proceeding, which essentially means the

timeframe is a little bit shortened, then you just

talked about in your perspective why this can be

considered on an emergency basis and right now with the

market conditions are right now is why we should be

doing that?

A. I think it's critical. I think we've heard

testimony from several dairy farmers yesterday of just
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403

the conditions out there for the dairy farmers, and if

we don't get some help back to the dairy farmers in the

Southeast, I think we're going to see more, more

producers exit the business and there again not having

some of that local supply, have a negative impact on the

local processors and we'll continue to see that downward

trajectory of dairy farmers in the area and milk process

in the area to provide the local dairy products to

consumers.

MS. TAYLOR: I think that's all we

have at the moment, thank you so much.

THE COURT: Cross by anyone other

than AMS? Seeing none. Any redirect, Mr. Beshore?

CROSS EXAMINATION

BY MR. TONAK:

Q. That Richmond Plant you mentioned that closed,

was that a pool distributing plant on Order 5?

A. There were times it was a pool distributing plant

on 5, so it kind of went on and off, and I think towards

the end when right before it closed down, it was indeed

a pool supply plant Order 5, per my regulation.

Q. Okay. Now the Marva Maid Plant at Newport News,

Virginia, how long had that been a regulated Order 5

distributing plant, if you know?

A. I don't know exactly how long that's been, so I
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404

don't know the exact dates of when it's been, how long

it's been, so.

Q. Do you have any idea, 5 years, 10 years?

A. If I had to guess, I would say, I could count for

the record, the last six or seven years it's been a pool

supply plant on Order 5.

Q. Now, on the producers that are closely associated

with supplying that Order 5 plant in Newport News, is

all the milk going into that plant coming from the

unregulated counties?

A. No.

Q. There's milk coming from the counties in the

regulated Order 5 area then?

A. Yes.

Q. And in those unregulated counties, the milk that

delivers to Newport News is then regulated by Order 5,

is that correct?

A. That would be correct, yes.

MR. TONAK: Okay, thank you.

THE COURT: Anyone else have any cross?

Mr. Beshore, do you actually have redirect or just offer

the exhibit?

MR. BESHORE: I have no redirect, I'd

offer exhibit 80.

THE COURT: Any objection? Exhibit 80
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405

is entered into the evidentiary record.

(Whereupon, Exhibit No. 80 was entered into

evidence.)

THE COURT: Should we do an afternoon

break or --

MR. BESHORE: I think that's

appropriate.

THE COURT: Fifteen minutes? All right,

let's go back at 25 after.

(Whereupon, a recess was taken.)

THE COURT: Mr. Beshore, the floor is

yours.

MR. BESHORE: Your Honor, DCMA calls as

its next witness, Calvin Covington.

Whereupon,

CALVIN COVINGTON,

having been first duly sworn, was

examined and testified as follows:

DIRECT EXAMINATION

BY MR. BESHORE:

Q. Please state your name and address,

Mr. Covington.

BY MR. COVINGTON:

A. Calvin Covington, C-O-V-I-N-G-T-O-N, Covington

Road, King, North Carolina, 27021.
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406

Q. Have you prepared a six-page statement for

presentation at this hearing, Mr. Covington?

A. Yes, I have.

MR. BESHORE: I would like to have

Mr. Covington's statement marked as exhibit 81,

THE COURT: So marked and identified.

MR. BESHORE: Thank you

(Whereupon, Exhibit No. 81 was marked for

evidence.)

Q. And I would note that in exhibit 81, there is

several tables and charts or sets of data, and as

Mr. Covington presents his testimony, I would just like

him to, since the exhibit hopefully will be part of the

record, I would just ask you to talk about those data

sets in the way that is convenient to you, for the

record -- would you please proceed then to present your

testimony in exhibit 81?

A. "My name is Calvin Covington. This testimony is

presented on behalf of Southeast Milk, Incorporated,

SMI, PO Box 3790, probation officer box three seven nine

oh Belleview, Florida, 34421. I started working in the

dairy industry which is approaching 50 years, including

preparing for --

THE COURT: Hold up, I'm not sure.

MR. HILL: I'm not sure if this witness
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has been sworn in.

in.

MR. SMITH: Yes, sir, I've been sworn

Sorry for the

THE COURT:

interruption.

Thanks for back-checking me.

A. "My time working in the dairy industry, which is

approaching 50 years, includes preparing proposals for

and presenting testimonies in many federal milk order

hearings. I retired from SMI as their CEO in 2010, but

have remained involved in several areas, including milk

pricing and Federal Order regulations. Since leaving

full-time employment with SMI, my Association with the

Cooperative has continued, including serving as their

interim CEO most recently in 2022."

"Southeast Milk Incorporated is a

Capper-Volstead cooperative. SMI is responsible for

supplying all of the raw milk needs for five pool

distributing plants located in the Florida and Southeast

Orders. In January 2023, SMI pooled the following

volume of milk on the three Southeastern Federal

Orders."

"Table one shows Southeast Milk January

of 2023 producer milk by the three Federal Orders, the

Appalachian Order, Florida, the Southeast Order, along

with a number of producers pooled there on each order.
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SMI is a member of Dairy Cooperative Marketing

Association, DCMA, SMI supports all five DCMA proposals,

proposals 1 through 5 as contained in the hearing

notice. SMI's testimony are focused on proposal 4, the

establishment of distributing plant delivery credits or

intra-market Transportation Credits in the Florida

marketing order. SMI's support for intra-market

Transportation Credits is based upon the following

reasons: Reason number one, declining Florida milk

production. The Florida marketing area comprises all of

the State of Florida except the four most western

counties, and there's little or no milk in these four

counties. As shown in table two, Florida order producer

milk produced in the State of Florida has steadily

declined. Only 76-percent of the order's milk was

produced in Florida in 2022 compared to 87.1-percent

three years ago in 2019. Let me interject, the Florida

Order producer milk numbers track National Agricultural

Statistics Service (NASS), milk production numbers for

the State of Florida. Of the 24 states in NASS's

monthly milk production report, Florida had the larges

year-over-year milk production decline in 2022, down

10.9 percent. In 2022, the State of Florida reported

its lowest milk volume since 1984."

Table two there shows the Florida
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Federal Milk Order producer milk by State, 2016 through

2022 for the State of Florida and the percent of total

producer milk. And then the other state category shows

that volume percent of the total.

"Higher milk production expenses

including higher freight costs, a high percent of

Florida's dairy feed, supplies and fertilizer are

imported into the State from some distances, ongoing

environmental challenges and related expenses,

opportunity costs, urbanization and lower margins are

reasons for declining Florida milk production. The

implementation of proposal 4 on an expedited basis is a

step towards slowing the decline of Florida milk

production.

"Reason number two, more milk from

outside of Florida. Less milk produced in the State of

Florida means more milk from outside the State of

Florida is needed to supply Florida fluid milk needs in

the Florida Order. As depicted in table two, 24-percent

of Florida Order producer milk in 2022 was produced

outside the State of Florida. This percent has

increased in recent years."

"Due to market administrator

restrictions on publishing milk production volumes by

county or state with a limited number of producers
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and/or volume, actual milk volume for each state in the

other states category is not available. However, based

on SMI marketings and personal knowledge, I can

confidently state a very high percentage of other states

producer milk comes from the other 49 South Georgia

counties including in proposal 4."

I'll go off my written testimony right

here and state that the exhibits presented by the market

administrator's office yesterday backs up the statement

that I have just made about the volume of milk in

Georgia coming into Florida.

"Historically South Georgia reserved as

a milk supply for the Florida market. Due to declining

Florida milk production and increased milk production in

Georgia, South Georgia is now a regular milk supplier to

the Florida Order. Unlike the State of Florida, NASS

reports Georgia had the second highest milk production

increase in 2022, up 12.7 percent."

"Forty-nine South Georgia counties are

included in proposal 4, due to these counties now

serving as a regular source of producer milk for the

Florida Order. Proposal four is needed to provide some

reimbursement of milk hauling expense due to the

distance this milk is from Florida pool distributing

plants. It's 225 miles from the Florida-Georgia border
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on Interstate 75 to the closest Florida pool

distributing plant."

"Georgia milk production has increased

in recent years. In discussions with Georgia dairy

farmers, most expanded due to lower margins per unit.

More units of production are needed to cover fixed

expenses. South Georgia is more conducive to dairy

farming and dairy expansion compared to other parts of

the Southeast. However, distance to fluid milk plant

and associated milk hauling cost is a major concern to

these dairy farms and will weigh heavily on future

expansion. The acceptance of proposal 4 will assist

these dairy farmers in transporting milk to distributing

plants and help ensure adequate milk supply for the

Florida market. "

"Reason number three, increased Class I

disposition. From 2006 to 2021, Florida Order Class I

disposition declined. In 2022, the reverse happened and

Class I disposition increased 2.3-percent from 2021 to

2.042 billion pounds, this is shown in table 3. The

increase in continuing 2023. January 2023, Class 1

disposition is 187.544 million pounds, 3-percent higher

than January 2022. Table three shows Florida Class 1

disposition 2016 to 2022, by those years."

"Even though Class I disposition
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increased 2.3% in 2022, packaged fluid milk sales in the

Florida marketing area declined 0.1% om 2022.

Disposition up and fluid sales basically flat, indicates

Florida pool distributing plants are marketing more

packaged fluid milk outside of the Florida marketing

area. Based on my interactions with Florida pool

distributing plants, this is the case, especially in

regards to school milk."

"The number of pool distributing plants

in the three Southeastern Orders continues to diminish.

The three Southeastern Orders started 2022 with 44 pool

distributing plants and ended the year with 39. Many of

the closed plants historically packaged and distributed

milk to schools. Today there are fewer plants in the

three Southeaster Orders processing, packaging and

distributing school milk. Those that continue providing

school milk serve a greater geographical area. Florida

has a pool distributing plant specializing in packaging

fluid milk for institutions, especially schools. This

pant not only supplies a high percent of Florida school

milk, but the plant now supplies milk to schools outside

of Florida. Due to the demand for school milk, less

plants packaging school milk, this Florida-based plant

is expanding. This means additional raw milk will be

needed to meet the increased demand for school milk from
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this plant. Looking ahead, I project more milk

processed and packaged in Florida, especially school

milk will be distributed outside of the Florida

marketing area."

"Reason number four; more farm milk

moving west and north to pool distributing plants.

Historically, most farm milk was delivered to pool

distributing plants located in a county with the same or

a higher Class I differential than the dairy farm.

Moving to a location with a higher differential helped

cover some of the milk hauling expense needed to

transport the milk, one of the purposes of Class I

differentials. Due to less pool distribute plants and

the location of a plant versus the most accessible milk

supply, this has changed. Today, SMI markets producer

milk to pool distributing plants located both west and

north of the dairy farm's location."

"In January 2023, all of SMI's

Appalachian Order milk moved from a higher $4.00 to a

lower 3.60 zone. In the past, this milk was marketed

East to the Charleston, South Carolina area or South to

the Jacksonville, Florida area, today there are no

longer fluid milk plants in these areas."

"Approximately 44-percent of the milk

delivered by SMI to Southeast Order pool distributing
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plant moved from a higher $4.00 to a lower 3.80 zone.

The milk located South of the plant is the most

accessible milk for the plant."

"Almost 14-percent of SMI's Florida

producer milk, delivered to Florida order pool

distributing plants was transported from a higher 5.80

to a lower 5.40 zone, this is because of less pool

distributing plants located in the Miami market. "

"The implementation of Proposal 4 will

allow the above milk to milk to receive some

reimbursement of milk hauling expense incurred, from

moving milk from a higher to a lower priced location."

"Reason 5, higher milk hauling expense.

Since the formation of SMI 25 years ago, the cooperative

has owned and operated its own milk hauling fleet. To

support the testimony of the primary DCMA witness in

regards to increased milk hauling cost, the following

are annual changes in four milk hauling related expenses

incurred by SMI. Average diesel fuel cost expressed in

dollars per gallon; in 2020, it was a $1.9239 per

gallon. In 2021, it was $2.7785 per gallon. And last

year, 2022, it was $4.4117 per gallon. Average milk

hauler wages, these do not include benefits, dollars per

hour. In fiscal 2018, 22.60 per hour; fiscal '22, 28.70

per hour. And so far here in fiscal 2023, 31.24 per
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hour. Quoted prices to SMI for a Peterbilt truck, the

day cab, not including taxes. The 2020 model quoted

July 31, 2019, $118,102. A 2021 model, quoted October

6th, 2020, $119,678; a 2022 model, quoted October 14,

2021, $144,309. SMI has not asked for quotes on trucks

since October 14, 2021. The truck person SMI deals with

reports current quotes about 18-percent higher than the

last quote, putting the truck price over $170,000."

"Quoted prices to SMI for 6,200-gallon

milk tankers, first quarter of each year when the quote

was given. 2021, $69,400; 2022, $74,656; 2023, $8,256.

Let me emphasize, there are more milk hauling expenses

than just fuel, wages and equipment that have increased.

Other expenses include employee benefits, insurance

premiums, tractor tanker maintenance, tires, repairs,

taxes, permits and highway tolls. SMI has and continues

to work to improve the efficiency of its milk hauling

and control expenses. These efforts include moving to

larger milk tankers, direct farm milk loading, closing

of truck terminals, improved fuel efficiency and driver

safety. However, efforts to control costs, only offsets

a portion of higher milk hauling expenses."

"Let me state confidently, SMI's actual

expense to haul milk from its members' farms to pool

distributing plants greatly exceeds the intra-market
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transportation credit being requested."

"Reason number six, meets the primary

purposes of federal milk marketing orders. The two

primary purposes of federal milk marketing orders are,

one, help ensure consumers have an adequate supply of

fresh, wholesome milk for drinking purposes; and two,

promote and maintaining orderly marketing conditions."

"Intra-market Transportation Credits

provide an incentive to produce and deliver raw milk to

Florida pool distributing plants, thus helping ensure

fluid milk plants can provide consumers, including

school children, with an adequate supply of fresh and

wholesome fluid milk. It's important to remember

Florida is the nation's third most-populated state and

is consistently one of the fastest growing states in the

nation. Proposal 4 is urgently needed to help meet the

fluid milk demand of Florida consumers, whose numbers

increase everyday."

"Due to raw milk being a higher

percentage of the cost of packaged milk at fluid milk

plant's dock, it is important to have equitable raw milk

cost to help maintain orderly marketing of milk. The

proposed intra-market Transportation Credits provide

another tool towards more orderly marketing. The

proposed intra-market Transportation Credit requires all
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regulated Class I processors to contribute an equal

amount per hundredweight to offset a portion of farm to

market milk hauling costs. Just as market-wide pooling

promotes orderly marketing by preventing a handler with

a higher Class I utilization having a producer price

advantage. Intra-market Transportation Credits reduce

the potential of a handler having a price advantage due

to the location of its milk supply."

"Southeast Milk, Incorporated, expresses

its appreciation to the Secretary of Agricultural and to

the Dairy Division for holding this hearing to consider

these important proposals. We encourage the Secretary

to recommend the adoption of Proposals 1 through 5 as

presented, and to do so on an expedited basis.

Respectfully submitted on behalf of Southeast Milk,

Incorporated."

Q. Thank you, Mr. Covington. Your testimony is

prepared to enter as exhibit 81, just a couple of

additional questions for you. With respect to the cost

from hauling from farm to market, does Southeast charge

its farms for that service on a -- can you talk about

how it's charged and how that relates to the

reimbursement request for the intra-market distributing

plant delivery credits here?

A. Yes, I can. Southeast Milk is going through a
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lot of transformations, and one of those it's updating,

it's farm to market hauling rate that the producers pay,

and effective here this year is composed of three

components, and a mileage rate per mile, per loaded mile

from the farm to its assigned pool distributing plant, a

flat hundredweight per hundredweight to cover the fixed

cost, regardless of how many miles it goes. And if a

farm is not direct load, if it has a pick-up charge and

just on taking an average mileage for a producer with a,

not a direct load, the milk hauler has to load the milk,

a full load of milk, that current charge is a little

over 1.3 cents per hundredweight per mile. And if you

look at the testimony that's been presented with

proposals for the new mileage factor rate, you can see

that was in January, just based on January on the

proposal, that's not quite twice what's being proposed,

plus what's being proposed doesn't start until after

15-percent of the miles.

Q. So, on the basis of Southeast Milk's actual cost

because it owns the fleets and owns the trucks and

employees, drivers, et cetera, the reimbursement

requested for distributing plant delivery credits in

this hearing is significantly less than the actual cost?

A. Yes, that's correct.

Q. Okay. With respect to the question, your 50
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years in the industry and you're involvement as CEO for

Southeast Milk and other capacities in the industry, is

it correct that you've had substantial experience with

negotiating with processors over premiums and selling

raw milk?

A. Yes, I have.

Q. Okay. Could you talk about the capability of

recovering these hauling costs that have been discussed

in this hiring over order charges versus having them

incorporated into the Federal Order system through the

proposals?

A. On a regular basis Southeast Milk, and again,

I've done it for many, many times in our regular

conversations with a customers, our milk buyers, we're

always trying, we share with them what our expenses are

in getting milk to them, increased hauling costs,

balancing costs, those type of things, especially, you

know, holidays and so forth when they can't take milk,

and we keep explaining to them how we need to be able to

recover those costs, and one way we can do that is

through over-order premiums, and we are able to get some

over-order premiums, but what I've noticed over the

years and as I talked with processors, major milk buyers

is that they're concerned that hey, if I as a milk buyer

pay for over-order premium, how do I know that my
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competitor is going to pay that same over-order premium?

I want to ensure that we have equal raw product cost, as

I mentioned, that's the key to having orally marketing

when it comes to dealing with a commodity like milk.

And those conversations lead to that the processor will

say, and this is more than just one, we're a lot more

comfortable if you could get it through the Federal

Order system because if it goes through the Federal

Order system, we have a high degree of assurance that

everybody's going to be on an equal playing field, and

that's the, you know, they know the price of the milk

might go up, but equally, if not more so, concerned that

they're going to be on equal footing with their

competitors, and that's one of the reasons why we were

coming here today through this proposal, to treat all

milk buyers the same.

Q. So, is it fair to say that you're involved with

DCMA and attempting to extract over-order premiums from

the marketplace the past few years, correct?

A. Yes.

Q. Has DCMA been able to obtain the increased costs

that you've reported here from the marketplace in

over-order premiums?

A. DCMA has some over-order premiums, but it has by

no means been able to keep up with what the increased
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costs are of servicing the fluid market.

Q. Okay. Now, question here in terms of marketing

under the Florida order and over-orders and the proposed

distributing plant delivery credit, how do diversions of

milk, if there are any, marketing in Florida, how do you

see that working into the program here with respect to

whether they -- whether -- to distributing plant

delivery credit program?

A. We're not talking about changing the diversions

whatsoever. Diversion requirement orders stay the same.

Proposals being presented here today have nothing to do

whatsoever with diversions, but there will be some milk

that needs to be diverted as a part of balancing the

market, especially spring flush, holidays and those

things. So any milk that is diverted, diverted to a

manufacture plant, non-pool plant, that diverted milk

would not be eligible to receive the intra-market

receiving credit. It would only be that producer milk

that actually went to a pool distributing plant, but I

will emphasize, Florida Order has the tightest pooling

requirements, most stringent diverse requirements of any

order, but we still have to have them because, unlike

cows, pool distributing plants don't operate 365 days a

year and consumers don't drink the same amount of milk

everyday, so we need them.
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Also going back to diversions, it would

be rare, but it could happen if economics tell us so,

that it's possible that we could divert milk that is

pooled on Federal Order 6 to a pool distributing plant

in Federal Order 7, it would be rare, and you have to

look at what the utilization of that particular plant,

but again, if that milk was diverted, again, no

distributing plant credits on diverted milk.

Q. If it remained pooled on Order 6?

A. Yes, on Order 6. Now, Federal Order 7, like the

proposal says, it would be eligible for distributing

plant credits.

Q. Order 7?

A. Yes, sir.

Q. One final question, now Mr. Covington, at the end

of your testimony, you've asked the Department to

consider the issues in this hearing and act on them on

an expedited basis, are there any, in your experience in

the past order of proceedings, are there any particulars

with respect to how you would recommend that it might

be, the proposals might be handled in this hearing?

A. If my memory serves me correct, and other people

here in this room have been involved in it, but go back

to 2006 when we had a hearing to consider increased

Class I differentials in the three Southeastern Orders,
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the Appalachian, the Southeast and the Florida Order,

that was done on an expedited basis, if I remember,

through offering an interim rule. It was needed at that

time to keep on supplying milk, milk to the market,

again, I think it was several years later before it was

actually a final rule, so people could be able to

comment, so forth, I don't know all the particulars, but

again, it's been done in the past.

Q. And in fact it may have been done in the past

with respect to the outside of the market, the

supplemental milk Transportation Credit Balancing Fund

on these Orders when an interim rule promptly filed at

the hearing, but it was not finalized until some years

later.

A. Yea, on that same hearing, I made reference to

Class I differentials, but also in the Appalachian,

Southeast Order, it was a modification to the in current

order Transportation Credits and it was also on an

interim basis.

MR. BESHORE: Thank you, I have no

further questions on direct for Mr. Covington.

THE COURT: Does AMS have any cross?

MS. TAYLOR: I do, Your Honor.

CROSS EXAMINATION

BY MS. TAYLOR:
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Q. Good afternoon, Mr. Covington.

A. Good afternoon, Ms. Taylor.

Q. Thanks for testifying today.

A. Thank you, glad to be here.

Q. Just a couple questions about Southeast Milk, I

don't see it in your statement, I don't know if I asked

this of the last witness of their cooperative, but how

many members does SMI have, producer members? Maybe I

missed it.

A. Okay. On the first page of my testimony, again,

I didn't read it, it was in the table, but on table one,

this was on January 2023, it had 13 members pooled on

Appalachian Order, 80 producers on the Florida Order and

58 on the Southeast Order.

Q. So, if I added that up, that's the total number

of SMI --

A. It could have been a few duplicates.

Q. Right.

A. Somewhere it's around, again, don't hold me to

this since I'm not there on a regular basis, somewhere

around 135, but I will tell you that Southeast does

market organic milk, and some organic milk, it takes

several producers to get on the truck, and that inflates

the numbers some.

Q. They're included in this?
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A. They're included in that, yes.

Q. They may not be members?

A. Yea, they're all members.

Q. All members?

A. Yes, they're all members, yes. SMI purchased

milk from some other cooperatives, but all the milk it

actually markets, it's members.

Q. Okay. I had a question on, it's around page 3,

talking about the Georgia counties that would be

eligible to get credits in Order 6.

A. Yes.

Q. I asked this question of an earlier witness, but

as it's written, because those counties are within a

Federal Order to begin with, no other Georgia county

could later ask to be included, to be eligible for an

order -- eligible to receive a distributing plant

delivery credit, unlike unregulated counties in

Virginia, for example?

A. Reason we include these counties, these counties

we know have milk production in them, and based upon the

farms, they're probably going to, hopefully they're

going to be there for some time. Again, if you look at

the map, there's going to be some counties in between

where there's no milk production, but just to tie them

in together and make the map. And, again, just based
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upon knowing that geographical area, there's some other

counties in Georgia, to be perfectly honest with you,

they have to drain a lot of swamps to do this, that and

the other, there's going to be some dairy farms there,

but if something were to happen down the road, who knows

what's going to happen in the future milk supply, I

assume more if counties need to be included could go

through an order hearing like this and add them, but we

feel pretty comfortable on these counties now.

Q. On the bottom of that page, you talked about

dispositions up or fluid milk sales in Florida are flat.

And then on the next page you talk about that Florida

plant that does school milk.

A. Yes, ma'am.

Q. So, I'm taking from that whole part of your

testimony, a lot of that increased disposition that's

going out is probably that school milk?

A. Yes. Based upon personal knowledge, you know,

packaged milk sales in Florida are just like it is

throughout the country, have been declining for a number

of years. Now, last year was the lowest decline in

Florida in quite some time, but it's declining, but on

disposition that was a nice increase, 2.3 percent, and

again, based upon personal knowledge, you know, that one

plant and, again, it's mostly all school milk, and he's
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going to neighboring states because just people, I mean,

he has a waiting list, a waiting list of counties that

are coming to him wanting school milk because they just

can't get it. And he's trying -- he's committed to it,

that's what his plant gears up for, and the thing about

school milk, you know, he's down in the Summer, but

Southeast Milk is willing to work with him because he's

geared to that and he's trying to do expansions so he

can supply more schools because it's needed, nobody else

is doing it.

Q. On page 5, you entered a lot of great information

on an actual cost from SMI, so I do appreciate that.

When you talk about your, well you mentioned that SMI

operates its own milk hauling fleet. Do you guys hedge

your fuel?

A. All my time when I was a CEO and when I've gone

back twice as interim CEO, we never hedged fuel. We

looked into it and we couldn't see it was going to be

profitable for us, best of my knowledge, unless they've

started over the past month, still not hedging.

Q. Probably a pretty safe guess then.

A. Uh-huh (affirmative).

Q. On the 3.67 base haul rate that's proposed, SMI

contributed to that survey, would you say that your cost

to bring in supplemental milk is similar to your cause
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for your local cause or different as the previous

witness has testified?

A. On that survey, Southeast Milk data was not used

in that survey because that data was only used for

intra-order Transportation Credit, and so, since

Southeast Milk was not involved in Florida in the

intra-order, its data was not included in that. But in

getting to your question, it varies. On the average,

based upon my experience, you know, the bringing in

supplemental milk, it depends where we're getting it at

and what kind of freight lines we can find. For

example, if we can, back when we were bringing some more

milk in from the Northeast, if we can get on a freight

line that we knew there was still going to be some fresh

orange juice going back, we could do a better rate on

that, but if we were going to be on a freight line where

it wasn't going to be hardly backhaul, it got expensive.

If I were to present to you what our haul cost for the

supplemental milk we get purchased, it's going to be a

wide variation, wide variation.

Q. So would you say the 3.67 is reasonable in your

eyes on the cost you've experienced and --

A. Based upon today's load, it's costing more than

that, yea, and again, I don't mind, you know, again,

because we just, this changes, and I don't mind sharing
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this because we want you to have the data, you know, I

gave you the 1.3 cents.

Q. Yes.

A. Right now on our new program, we charge dairy

farmers, SMI dairy farmers, we're charging them 4.98 a

loaded mile from their farm to their sign pool

distributing plant, plus $0.50 a hundredweight, plus if

plus if it is not direct load, $50 stop charge, and so I

think if you add all those up, you're going to be over

$6.00 a mile, if you do the math.

Q. Thank you. Could you talk a little bit about,

and you did touch on this about what happens when

consumers don't get the milk they need and the impact of

that, but what happens to you as a Co-op if you're not

able move the milk to the plants to meet that plant

demand?

A. Well, I can give you example having lived through

several hurricanes, and I'll go back to 2004 when we had

three hurricanes hit Florida three weeks in a row. And

we hadn't had a major hurricane in Florida in quite

some, in quite some time, and to be honest with you, we

got too lackadaisical and we really weren't planned, so

we had one of our major customers, we weren't able to

get them milk, and I won't repeat the words that were

used at me of what, we almost lost a customer over it by
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not having milk we were not prepared, so after then,

we've been very prepared, and then, at times, because

you don't know when a hurricane hits, you got milk, you

got to dump, and then everybody and their brother wants

it as soon as the store opens. And so we learn to do a

lot of things, for example, we fill up every silo and

milk plant in Florida full of milk before a hurricane

hits and the cooperative takes responsibility of that.

We lock up more milk now than we need. We actually take

reservation fees, or I call it insurance on it, because

we know it's important not to let those shelves go

empty, we want to make sure we supply our customer. We

might be late on some or whatever, but there's expense

in doing that, but we know how important it is to keep

customers, but it's getting harder, I mean, you've gotta

go begging sometimes, especially in a hurricane, you got

to beg for trucks, just beg for it. I couldn't tell you

how many we've dead-headed out of Florida to go get

milk.

Q. I remember that conversation from the hurricane

hearings.

A. Yes.

Q. On the over-order premium discussion, you had

some of that with Mr. Beshore, but do you have a similar

-- has SMI had similar experiences where they've tried
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to charge customers over-order premiums, but you can

charge them, but they won't pay?

A. Yea, I'll just give you a prime example.

Southeast Milk, about a year ago, went through some

transitions, and it was without a CEO there for about

two or three weeks. And, again, the farmers are

hurting, so the farmers said, well, we just got to have

some more premium. So the farmer leadership just put a

letter out to the customers and said "Hey, we're just

going to charge this premium." And then I came back as

interim CEO about two weeks and pretty much those

customers said "Hey, you can bill us for it, but we're

not going to pay it," or "we're going to go somewhere

else," I mean, I feel for the dairy farmers, because

they're hurting, they're hurting bad, but we just had to

have a conversation, well, you got to maintain your

market, so let's just try to work through DCMA and all

the cooperatives to try to do something, then we started

having these conversations that led to this hearing here

today because customers were coming to us just being

concerned about, you know, increasing over a premium,

whether it's going to be on a level playing cost, and

they were saying hey, if it's in the order, well we can

show it and pass it on to our customers, for example,

the school milk, they can show that, they got to show
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documentation, we just want to know we're on an evil --

equal playing field.

Q. Okay. And that kind of brings another question,

you know, intuitively, if someone would say, if you're

taking a loss on every load, why on heck are you doing

this in the first place, right? I think you just spoke

to that, maybe you can speak to why you choose to do

that instead of, you know, the alternative?

A. Yea. Yes, you look at individual loads, you

don't want to lose money on anything.

Q. Sure.

A. But you've got to look at the total picture,

total picture. We might lose money on five loads of

milk or 10 loads of milk, but by losing money on that,

we're making money for the dairy farmers on that other

hundred loads by keep the customers, it's important, you

got to look at the big picture.

Q. Thank you for that point.

A. Uh-huh (affirmative).

Q. My last question is just in regards to the

request to handle this on an emergency basis, you could

touch or, you know, touch a little bit or reemphasize a

little bit on why the Department should consider this on

an emergency basis? Why the market conditions exist

right now and this is why you're requesting that?
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A. If you could go out and talk to them, you've got

several large dairy farmers, I'm talking about dairy

farmers, second and third generation dairy farmers in

Florida, especially South Florida, are right on a

teetering point of whether they're going to stay in

business or not. A lot of them are putting their hope

on this hearing. And again, it might not sound like a

lot of money to some, but you know on a per

hundredweight basis where margins are tight, it means a

lot. And so on a expedited basis, and we're again

encouraging it be a positive decision, it can't be on an

expedited basis, it's going to give these producers hope

of staying in business.

MS.

have, thank you.

THE

other participant?

to the lector.

TAYLOR: That's all the questions I

COURT: Cross of this witness by any

Don't see any. Oh yes. Come on up

CROSS EXAMINATION

BY MR. SUMMERS:

Q. My name Mike

you say you need to

Summers. Over-order work premiums,

raise them and they say you go

somewhere else to get the milk, where else are they

going to get the milk?

BY MR. COVINGTON:
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A. Well, in my, in my experience, the case I

responded to Ms. Taylor, that particular customer who

got very, very strong with me had already had

conversations with another milk supplier and that

supplier was going to supply that plant with milk unless

we kept them at an equal raw product cost, so other

places out there willing to supply the milk.

Q. And they have the same cost as SMI does is

supplying the milk, I would assume?

A. I don't know their books or so forth, but I just

know what that customer told me.

Q. But that same supplier is here today in agreement

with SMI today?

A. Again, you know, that happened about a year ago

with Ms. Taylor, and I just know what that customer told

me, and we didn't want to lose that customer.

Q. Okay.

THE COURT: Does that complete your

examination? Anyone else? Mr. Beshore, redirect?

MR. BESHORE: I have no questions on

redirect, I would move for the admission of exhibit 81.

THE COURT: Any objection?

MR. HILL: No objection.

THE COURT: Exhibit 81 is entered into

the evidentiary record.
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(Whereupon, Exhibit No. 81 was introduced

into evidence.)

MR. BESHORE: DCMA's witness is Mike

Herting.

Whereupon,

MIKE HERTING,

having been first duly sworn, was

examined and testified as follows:

MR. BESHORE: As Mr. Herting approaches

the stand, he will be asked to present two sets of

testimony, which hopefully have been available to Your

Honor, AMS and other folks here. The first is a

document with a cover sheet, two pages of statement

testimony, and four exhibits with it. And as we did

with the prior witness, I would like to have the entire

document marked as one exhibit for this record exhibit

82.

(Whereupon, Exhibit No. 82 was marked for

evidence.)

THE COURT: Very well.

MR. BESHORE: Second is the pre-prepared

testimony of Jeffery Sims, which is a cover page, a

total of 12 pages of testimony that I would ask to be

marked as exhibit 83.
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MR. HILL: I object to the admission of

83.

MR. BESHORE: I didn't offer if for

admission yet.

MR. HILL: We're going to object to 83.

MR. BESHORE: After we get to that,

after we complete examination of the presentation on 82,

I would be just up front, say that both, he's going to

present both or we would hope to have him present both,

and we would ask to have him present both, I'll talk

about his knowledge base for the statement in 83 at the

time prior to that, and address the concerns that the

Federal Government may have.

MR. HILL: I believe that we should

address 83 before it is presented.

MR. BESHORE: Yes, I understand. We

will talk about it before he presents it, that's just

how I would propose to proceed.

THE COURT: We will mark the cover sheet

that describes the testimony of Jeffrey Sims, it states

"the testimony of Jeffrey Sims," we'll mark that as 83

for identification.

(Whereupon, Exhibit No. 83 was marked for ID

ONLY.)

MR. BESHORE: We'll do 82 fully first.
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THE COURT: Including cross?

MR. BESHORE: Including cross.

(Inaudible).

THE COURT: Take care of all of 82

first, see if that goes, and we'll take up.

MR. HILL: That's fine with me as long

as --

THE COURT: Then we'll take up 83, we

may not have time today. Your witness, Mr. Beshore.

Whereupon,

MIKE HERTING,

having been first duly sworn, was

examined and testified as follows:

DIRECT EXAMINATION

BY MR. BESHORE:

Q. State your name and address, please, Mr. Herting.

BY MR. HERTING:

A. Mike Herting, M-I-K-E, H-E-R-T-I-N-G.

Q. Your business address?

A. 1405 North 98th Street, Kansas City, Kansas.

Q. Okay. And now would you proceed with the

prepared testimony that you have provided, exhibit 82,

including the exhibits, and as you reference exhibits,

any description of them that you'd like to present at

that time, please offer, and we would be -- the entire
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exhibit has been marked as one exhibit. Please proceed.

A. "My name is Mike Herting. I'm the Director of

Operations and Accounting for the Southeast area of

Dairy Farmers of America, who I will refer to as "DFA."

I've worked for DFA for over 30 years in a variety of

positions within accounting, dispatching, and

information technology analytics. My work experiences

during this time have allowed me to work with marketing

of raw milk, including the analytics, planning and

execution of efficient milk movements."

"DFA is a global farmer-owned milk

marketing cooperative with more than 11,500 family farm

owners throughout the United States. Through a strong

grassroots governance process, DFA is owned and governed

by dairy farmers. Our farmers are invested in 84 dairy

manufacturing facilities nationwide, including seven

Class I distributing plants within Federal Orders 5, 6

and 7."

"The structure of DFA is separated into

seven distinct operating areas, and the proposals being

brought forth today fall within the DFA's Southeast

Area. The majority of DFA Southeast Area farms are in

Federal Orders 5, 6 and 7, are considered small

businesses using the Regulatory Flexibility Act

guidelines, which are relevant for this hearing.
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Approximately 95-percent of DFA Southeast Area family

farms are counted as a small business."

"Most dairy farms in this region would

be considered relatively small in comparison to other

marketing areas in the U.S. And the dairy farm families

in the Southeast operate on slim margins and have had to

contend with rising on-farm input costs. These

challenges have contributed to dairy farm number

declines in most regions of the Southeast.

Exhibit entitled "Farm Input Costs Indices, 2019 though

2022," displays the stark rate of increase for selected

input costs over the past few years." And on that, it

shows the increase in feed price, fertilizer price,

chemical price, machinery price and wage rates.

"Declining milk production combined with

close processing plants forces milk to move further to

market at a greater expense. The farmers that continue

to supply these markets through their milk marketing

cooperatives bear the majority of these costs. This

causes additional economic pressures to family farms

within the region and along with these headwinds, the

growing population of the southeast is compounding the

problem."

"DFA supports both proposal 1 and 2, the

in quotes "updating" of the existing Transportation
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Credit Balancing Fund components, which partially fund

milk deliveries originating from outside the

southeastern Orders and proposals 3 through 5, the

implementation of a similar program, the distributing

plant delivery credit, which applies to milk deliveries

originating with limited exception from inside the

Orders. My primary focus here today will focus on

proposals 3 through 5. I will be specifically focusing

on why raw milk produced in the state of Georgia, and

transported throughout the Southeast Federal Orders,

should be eligible for the proposed new distributing

plant delivery credits across Federal Orders 5, 6 and

7."

"In the Southeastern U.S., the majority

of raw milk is sold to Class I processing plants, which

package fluid milk for the consuming public throughout

the area. While the growing population of Southeast

promotes healthy consumer demand, this same region

currently operates as the most significant milk deficit

region of the country. Due to the imbalance of local

supply and demand, the marketing dynamics require

importing milk from outside the marketing areas to

supplement the local supply."

"Referring to the exhibit titled "U.S.

Milk Production, 2022 versus 2021," shows a map of the
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U.S. production and this was provided by NASS data with

a chart or index on the left hand side showing the

different colors for the states. You will see the only

state with significant growth in the dairy production in

the Southeast and Georgia, yet the growth of milk

production in Georgia does not cover the decline in milk

production in Florida alone. While the region is facing

milk deficit, Florida and Georgia experiencing record

population growth, increase in demand for this fluid

milk products."

"DFA Southeast areas milk supply in

Georgia's southern counties are called upon everyday to

deliver to the pool distributing plants, and by

extension, fluid milk drinking consumers located in

Florida. In 2022, 31-percent of the DFA milk in these

southern Georgia counties shipped to Florida processors.

This milk movement is displayed in the exhibit titled

"Georgia milk production by Counties delivered to

Florida market in 2022."

And it is a map showing the southern

part of Georgia and Florida with that green highlight of

the proposed Federal Order 6, proposed counties in

Georgia that would be part of the Federal Order 6

proposal. And then the blue highlighted counties are

where DFA has production that ship to Florida in 2022.
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"This demonstrates that this milk is

actively servicing the needs of the Florida Order 6

market, even if the boundary for that is at the state

line. Due to this, it is important to treat these

deliveries on equal footing with deliveries in current

Federal Order 6 boundaries. "

"In addition to supplying the state of

Florida, you'll see Georgia's milk production helps to

supply the deficits across much of the Southeast within

the exhibit titled "Georgia milk production by County,

all deliveries in 2022," and this map on the very end

shows again all of Georgia, basically all of the

southeast, and the red dots or plants that Georgia

counties shipped to in 2022, all of Federal Orders 5, 6

and 7. "Portions of Georgia milk production not only

serve local needs in Federal Order 7, but also are

utilized daily for supplying several Federal Order 5

Class 1 processors. Georgia milk production is needed

and used daily in meeting the demand needs of the

Federal Order 5 distributing plants."

"During 2022, 24-percent of DFA Georgia

milk was delivered to Federal Order 5 Class I

processors, thus minimizing the need for additional

long-distance loads coming into the Southeast milk shed

at additional costs. The demand for the milk across the
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region and the mileage it is transported drives the need

for this milk to be eligible for the new intra-order

distributing plant delivery credits being proposed.

These credits will provide much needed relief to the

local dairy farmers producing milk for use throughout

the year."

"In closing, I urge the USDA to

recognize the burden currently being placed on the local

dairy farm families in the Southeast and to implement

DCMA proposal's 1 through 5, adoption will support many

small business owners that produce farm fresh milk vital

to these marketing areas. Thank you for the time in

letting me testify today. This issue is of the highest

importance to the family farm owners of DFA."

Q. Just a couple of additional questions,

Mr. Herting. Can you tell us, not sure it was

explicitly laid out, in your statement, Southeast Region

of DFA for which you have operational responsibility,

how is that defined geographically? What states and

what regulatory, what orders are in encompassed in your

area of responsibility?

A. So, all of areas, Orders 5, 6 and 7, small

portion of 126 in East Texas, and a small portion of

Federal Order 32 in Eastern Oklahoma. So it runs from

Eastern Oklahoma to Eastern Texas, all the way to
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Florida, north to the southern part of Missouri, all of

Virginia, and a small portion of West Virginia, and the

western two-thirds of Kentucky, so it's -- I didn't

bring a DFA map.

Q. Tennessee is included?

A. Tennessee is totally included. Portions of 17

states, that doesn't help, but.

Q. Eastern Kentucky included?

A. Eastern Kentucky is actually in the mid-east

area.

Q. Okay. How many dairy farm members of DFA are

under your operational area, included in your operation?

A. Most recent count is around 830.

Q. Okay. Going to the first chart in exhibit 82,

which you've testified to, but the graph, first exhibit,

it's a graph I guess as opposed to a chart, it shows the

farm input cost indices 2019 to 2022, I don't know that

you referenced the source, but the source is noted on

the exhibit and could you tell us where you got that

information, the information in the graphs?

A. The individual specifically?

Q. Well all --

A. Internal DFA corporate access to the USDA agg

prices website.

Q. Okay. So, if I understand it then, these indices
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of farm input costs are government numbers?

A. Correct.

Q. From USDA?

A. (Nodded affirmative).

Q. You've been her for this hearing, correct?

You've heard the testimony of the farmer witnesses --

A. Yes.

Q. -- in this hearing? Do these indices and their

trajectory, their increase in recent times, confirm or

verify the testimony regarding farm level costs that you

heard from the dairy farmers?

A. Yes, it does.

Q. Going to the final page of exhibit 82, where you

have, which is titled "Georgia Milk Production by County

All Deliveries 2022," as I understood your testimony,

the red dots are plants to which milk produced in

Georgia was delivered in 2022, correct?

A. Correct.

Q. What's the -- what's the source of the

information in exhibit 2022 (sic)?

A. DFA based southeast area milk tracking.

Q. So, this is based on your personal knowledge,

DFA?

A. Correct. That's DFA deliveries? I'm sorry, my

title didn't say that.
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Q. But that is the title?

A. It is DFA.

Q. Okay. So, I want to -- I want to talk about what

this shows then, the deliveries from Georgia to the

plants, to the West of Georgia, and Alabama,

Mississippi, Louisiana, Arkansas and the Western portion

of Tennessee, would it be correct to say that all of

those deliveries, there's no differential value in

Federal Order system to compensate for the movement of

raw milk in those directions?

A. No, it's a loss.

Q. And with respect to the red dots to the North of

Georgia, and Tennessee, North Carolina and South

Carolina to the northeast, is there any differential

value of the Federal Order system for those deliveries?

A. All substantial losses.

Q. And even within the state of Georgia, do you have

deliveries from South to North?

A. Yes.

Q. And are those also at a loss in terms of

differential value?

A. Yes, comparison to the producer county to the

processor county, yea.

Q. Yes.

A. Most of the milk delivering to Atlanta comes from
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south of Atlanta.

Q. Okay. And would it be correct to say the

distributing plant delivery credits in this hearing

proposed by DCMA are designed to provide some

compensation for all of these milk deliveries from

supply point to demand point for which, which the

Federal Order system presently makes a loss transaction?

A. That is correct, to present a small compensation

for that cost.

Q. To get hyper-technical now, there's been some

discussion about how diversions would or would not --

how milk diversions would or would not come into play

with respect to the proposed, to the DCMA proposals for

distributing plant delivery credits, can you speak to

that, your understanding of how, whether they would come

into play or how they would or would not come into play?

A. I would be of the understanding that diversions

would still be allowed on pounds that were requested for

the distributing plant delivery credit, contrary to the

process used with the transportation credit fund

calculations.

Q. Okay. So, the proposed -- the DCMA proposals do

not change pooling provisions of the Orders at all?

A. Correct.

Q. And the terms, whereas the Transportation Credit
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Balancing Fund has provisions which offset volumes of

diversion against volumes of deliveries determining what

credits are payable. Distributing plant delivery

credits do not have that provision?

A. Correct.

Q. And do you think that's appropriate, they should

not have any offsets or diversions?

A. It's definitely appropriate.

Q. Why so?

A. Because there are many times of the year, as been

attested by previous witnesses that, and weekends

holidays, as the cycle changes, milk production that

milk isn't going to the distributing plants within their

local milk shed, they need to be shipped out and

sometimes that ends you up at non-pool plants where it

otherwise wouldn't be pooled, but those producers still

want that pool delivery price from the marketplace.

Q. So even though southeast orders in-area are

deficit, there year-around needs, there are times during

the week or during the month or during the year when the

only -- when it's necessary to divert some of that

production to non-pool plants?

A. Yes, sir.

Q. Okay. So, are you in your experience, both in

your current capacity and previous work with DFA, are
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you experienced in negotiating over-order prices with

handlers?

A. I personally haven't negotiated, but I'm aware of

all the negotiations that occur and aware that at times

of the pushback that occurs.

Q. So, what is your view then of the viability of

recovering the cost to which you've testified here in

over-order charges as opposed through the Federal Order

system?

A. Very, very difficult. As been noticed, mentioned

by prior testimony, DFA has also experienced the times

where we have attempted to raise premiums and then been

told, you know, they won't be paid, and so we've had to

make last-minute changes to change what we're going to

be billed, you know, to make the decision whether we're

going to get paid or not.

Q. Okay. So, would it be fair to say that it's

your, your opinion and your experience that if these

costs that the farmers are experiencing, as you've

depicted, are to be recovered, the Federal Order system

in these proposals provide the best --

A. That is the recurring comment that I've heard,

many with communications from customers that in order to

have transparency of the cost for everybody, they're

being assured that they're getting treated the same,
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they prefer it being come through the Federal Order

system, Federal Order prices.

Q. Might not pay if it's charged otherwise?

A. Correct.

Q. Okay. What's your -- what can you offer,

Mr. Herting, with respect to the urgency of the cost

recoveries addressed in this hearing and the

appropriateness request for an expedited consideration

of the hearing?

A. The emergency status, talking with dairy farmers

when we meet at Co-ops or on the phone all the time, and

there's more and more of them going out of business

everyday, and there is many of them relying upon the

possibility of some additional dollars coming and just

paying it on, and any delay in that at all is going to

be that many more farmers that just say, you know, "I

can't do it, somebody come get the cows," and then that

puts the burden more on those farms in that area to pick

up the cost supplying the milk for their local milk

shed. It's just a, you know --

Q. So, the sooner the better?

A. The sooner the better.

Q. Okay. Thank you.

A. It's taken a long time to get to here too.

MR. BESHORE: Okay, I have no further
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questions for Mr. Herting on direct. He's available for

further examination.

THE COURT: AMS have any cross on

exhibit 82?

MS. TAYLOR: I do, Your Honor

CROSS EXAMINATION

BY MS. TAYLOR:

Q. Good afternoon.

A. Good afternoon.

Q. Thank you for coming today.

A. Thank you.

Q. Just a quick note on the map before your last

map, the one that says "Georgia milk production by

county delivered to Florida markets in 2022," did that

also --

A. That also should be labeled DFA. I apologize, I

believe I fixed my notes and I forgot to fix the maps.

Q. You said at the beginning you had about, DFA

Southeast has about 130 producer members?

A. Yes.

Q. Can you just talk a little bit about recent

experience and production, we're talking about farm

losses that have happened recently, and I'm sure DFA's

experienced that just like every other Co-op, can you

just speak a little bit about that?
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A. Well, it's -- it's -- many farms more going out

of business right now, even with the high milk prices

that we've had in 2022, there are still farms going out

of business, and now, as the milk price is expected to

drop, even more than already dropped for January, going

down for '23, unfortunately, I would expect that there's

going to be as many going out in '23 as there were in

2022, I hope not more, but.

Q. And that speaks to maybe the emergency --

A. Correct.

Q. -- piece you were talking about?

A. Right. The sooner the better.

Q. On your second page of your exhibit, in parts of

it you talk about for DFA, "about 31 percent of DFA milk

in Georgia?"

A. Southern Georgia.

Q. "Southern Georgia, those highlighted counties, go

to Florida, 24-percent of the milk in that area --

A. No, the 24-percent is Georgia entirely.

31-percent is just those southern counties, so there's a

slight difference.

Q. Okay. Slight different. Okay. But I do think,

as I read through this, one of your points, and then one

of the reasons for including those Georgia counties and

the ability to get intra-credits for Florida, because
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basically those counties supply 5, 6 and 7 in some

fashion, right, because they would be eligible to get a

credit in any of those counties, wherever their milk

landed?

A. Correct.

Q. Okay. I want to talk about the base haul rate

that's being proposed to use in the distributing plant

delivery credits, and I'm taking it, is it correct to

say that obviously your local intra-movements of milk

were not part of that survey, only supplemental milk?

A. Yes.

Q. But can you speak to how is that number

representative of the cost you do incur for your local

hauls?

A. It was representative at that time. The cost is

significantly higher now, but at the time that we

prepared the documents, it was representative.

Q. And it's significantly higher now because of?

A. Fuel costs and truck costs, hauling costs, all of

the above.

Q. Does DFA families haul their own milk?

A. No we do not. We all use third-party contract

haulers.

Q. Okay. And can you talk a little bit about what

happens when you can't meet plant demand to you as a
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cooperative?

A. The dispatch team gets very unhappy with all the

calls that they get and we start scrambling where can we

find milk, and we'll be calling folks up in the

Northeast, calling Mid-East, calling Central, calling

Western, we've tried getting milk out of Mountain area,

see if we can call Colorado milk into Arkansas. We get

a lot of milk out of Texas and New Mexico. And then the

last few Falls, we've we had to ration and not everybody

got everything that they needed.

Q. Okay.

A. So it happens just about every Fall these days.

Q. Have you ever lost customers because you weren't

able to meet their demand?

A. We haven't, that I'm aware of.

Q. And can you talk a little bit about the loads

that you're taking losses on, why you still choose to do

that, from your Co-op's perspective?

A. Sure. Well, in each milk shed, you've got local

supply, and then in a lot of cases, majority of the

cases that local supply isn't enough for the processors,

but in order to keep that marketplace alive for the

local supply, you need to supply everything to the

plant. Mostly our customers are full supply contracts,

so we got to supply them everything they need with the
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local supply and then supplemental milk, and so you can

make some money on the local supply and then lose money

on bringing in the supplemental, but if you don't keep

the whole supply, now you're going to be shipping the

local supply somewhere else.

Q. Okay. I think that's all I have, thank you.

THE COURT: Is there cross by any other

parties? No one? Mr. Beshore?

MR. BESHORE: I have no questions on

redirect for Mr. Herting. I would move for the

admission of exhibit 82.

THE COURT: Any objection?

MR. HILL: No objections.

THE COURT: Exhibit 82 is accepted into

the evidentiary record.

(Whereupon, Exhibit No. 82 was introduced

into evidence.)

THE COURT: Okay. Should we talk about

exhibit 82?

MR. BESHORE: Could we possibly go off

the record, talk about procedures of exhibit 83?

THE COURT: Sure, we may want to

describe what we did off the record on the record after

we talk about it, but let's go ahead off the record.

(Whereupon, discussion was held off the
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record.)

(Whereupon, Exhibit No. 83 was marked for

evidence.)

THE COURT: Okay, in a discussion

off-the-record, we basically, the story is, Mr. Sims,

the original proposed witness on this testimony that's

been marked as exhibit 83, was in contact with

individuals that had COVID and, under I guess the CDC

Guidelines, cannot travel to be here. I agree that

under, among other things, there's a case GH Gary, 71

agg decisions 1, 2012, it's a judicial officer decision

that interprets the regs to say that the witnesses have

to be here in person to be cross-examined, and so we're

stuck with Mr. Sims can't come and Mr. Herting appears

to me to be qualified to testify as to portions of

exhibit 83, but not portions that were specific to Lone

Star Milk Producers, Inc., which is the outfit that

Mr. Sims is, I guess, is an officer of. So, what we're

going to do is Mr. Beshore and Mr. Hill and his

colleagues from AMS, if they choose to, are going to

work on what in exhibit 83 would look like if it were

limited to what Mr. Herting's competent to testify to.

Mr. Hill and AMS reserve their objections to this and

we'll take it up in the morning.
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MR. BESHORE: Very good

THE COURT: Thank you gentlemen. Good

lawyering. With that, any other business before we

adjourn for the evening?

MR. HILL: Just about time, is it 9:00

a.m. tomorrow as well?

THE COURT: I think so.

(Whereupon, these proceedings were adjourned

for the day.)