[Federal Register: August 30, 2006 (Volume 71, Number 168)]
[Rules and Regulations]
[Page 51422-51428]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30au06-3]
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DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Parts 1421, 1423 and 1427
RIN 0560-AH48
Storage, Handling, and Ginning Requirements for Cotton Marketing
Assistance Loan Collateral
AGENCY: Commodity Credit Corporation, USDA.
ACTION: Final rule.
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SUMMARY: This rule amends regulations governing the cotton Marketing
Assistance Loan Program of the Commodity Credit Corporation (CCC). The
changes provide that bales of upland cotton pledged as collateral for
CCC loans may be stored outside at warehouses approved by CCC subject
to special storage, protection, receipting, and reporting requirements
and loss of any applicable storage credits for the period stored
outside. Second, the rule provides that producers or their agents may
transfer cotton loan collateral to another approved location. Third,
the rule provides limits on the amount of storage credits provided to
producers when an upland cotton marketing assistance loan is repaid.
Fourth, the rule requires ginned cotton to meet the definition of good
condition and not be wet cotton in order to be eligible for a CCC loan.
Fifth, this rule requires any unpaid warehouse compression charges to
be billed to producers on loan cotton collateral that is delivered to
CCC in satisfaction of the loan obligation. Sixth, this rule defines a
minimum acceptable shipping standard for cotton warehouses. This rule
also corrects and clarifies the Marketing Assistance Loan (MAL) and
Loan Deficiency Payment (LDP) Program regulations of CCC regarding loss
of beneficial interest in commodities delivered to certain facilities
engaged in storing and handling commodities under those programs.
DATES: This rule is effective August 30, 2006.
FOR FURTHER INFORMATION CONTACT: Gene Rosera, Cotton Program Manager,
Price Support Division, FSA/USDA, Stop 0512, 1400 Independence Ave.,
SW., Washington, DC 20250-0512; phone (202) 720-8481; e-mail:
gene.rosera@wdc.usda.gov; or fax: (202) 690-1536. Persons with
disabilities who require alternative means for communication (Braille,
large print, audiotape, etc.) should contact the USDA Target Center at
(202) 720-2600 (voice and TDD).
SUPPLEMENTARY INFORMATION:
Discussion of the Final Rule
I. Background
A. Cotton Stored Outside
The revisions established by this final rule to the cotton
marketing assistance loan program generally result from changing
industry practices and marketing needs over recent years. For both the
2004 and 2005 crops, west Texas cotton storage warehouse capacity has
not kept pace with production increases. In response to those
shortages, CCC granted authorization to some warehouses to temporarily
store cotton loan collateral outside subject to special insurance and
storage requirements. The use of such storage was significant for the
2005 crop, topping 435,000 bales. This shortage of traditional cotton
storage capacity has occurred at a time when cotton usage is
increasingly dependent on export sales. Export use represented about 37
percent of total use for the 1995 through 1999 crops, but is estimated
at about 75 percent for the 2006 marketing year. This shift in use has
raised merchant concerns about both the quality of U.S. cotton,
especially cotton stored outside, and the timeliness of its delivery
from storing warehouses to export customers.
[[Page 51423]]
These concerns may have been aggravated by CCC's temporary approvals of
outside storage, a step viewed by some merchants as contributing to an
increase in so-called ``country damage'' (loss of quality due to dust,
rain, and packaging damage) and the slowing of cotton flow from
warehouses with inventories exceeding their performance abilities.
Concurrently, CCC had no process for allowing producers or their agents
to move their cotton loan collateral from outside locations to
available inside storage in other locations, or from warehouses
considered unreliable to meet load-out requests.
B. Cotton Moisture Content
Additionally, several sectors of the U.S. cotton industry have been
concerned about excess moisture in ginned cotton. FSA issued a Notice
to the Trade (BCD-121) on February 1, 2006 to alert cotton warehouse
operators of the incidence of water-packed cotton in Missouri. After
similar problems were observed at a Tennessee warehouse CCC examined
cotton from seven other gins for moisture damage. Initial results
indicated similar moisture problems. The growing use of direct water
spray moisture restoration systems concerns many in the cotton
industry. And there is concern that these systems may be the cause of
most moisture-damaged cotton. Prior to proposing changes regarding bale
moisture, CCC was urged to revise loan eligibility requirements to
provide that bales subject to direct water spray would be ineligible as
collateral for a CCC loan starting after the 2007 crop year. CCC
received other comments in opposition to that proposal. An estimated
200 U.S. gins use some form of direct-spray moisture restoration
systems, and that the incidence of moisture problems, according to
comments received, does not justify denial of loan eligibility to
cotton from all the gins that use such systems.
In response to these issues, CCC initially published an advance
notice of proposed rulemaking on February 13, 2006 at 71 FR 7445.
During the 60-day comment period CCC received forty-three comments.
Respondents included four national organizations, eight regional
organizations, fifteen cotton storage warehouses, and sixteen
individuals or companies. Based on the comments on the advance notice
of proposed rulemaking, CCC published a proposed rule on May 26, 2006
at 71 FR 30318. Eighty nine comments were submitted on the proposed
rule from six national/state organizations, twenty-four warehouse/
warehouse associations, twenty-seven ginners/ginner associations,
twelve merchants/merchant organizations, thirteen producers/producer
cooperatives/associations, and seven individuals.
II. Discussion of Comments on Proposed Rule
A. Outside Storage of Cotton
Thirty four comments were received regarding CCC's proposal to
permit the outside storage of loan cotton and indicate industry support
for allowing the outside storage of cotton loan collateral if it is
subject to various constraints and conditions. The majority of comments
support approval only under special circumstances, although the
majority of merchant comments oppose use of outside storage due to the
increased risk of country damage. Many comments suggest that if outside
storage is permitted it also be subject to denial of storage credit.
A recommendation submitted by the National Cotton Council on behalf
of all cotton industry sectors was that warehouses subject to the U.S.
Warehouse Act or with a Cotton Storage Agreement be required to
indicate on the Electronic Warehouse Receipt (EWR) for such cotton the
dates the bale was stored outside. Many comments stress the increased
risk to the quality of cotton stored outside, and support its use only
if limited to areas having unavoidable circumstances and subject to
special storage requirements to assure the protection of the cotton.
Some comments suggest that CCC should provide a grace period during
which cotton may be stored outside. To constrain the use of outside
storage, even when special circumstances occur, the comments also
support CCC's proposal to limit the storage credits provided and to
impose more stringent receipting, storage, reporting, and insurance
requirements as a condition for approval. Therefore, to document the
number of days a bale is stored outside, and to calculate the period
for which a storage credit will not be provided, this rule also
requires that warehouses requesting approval to indicate on the bale
EWR the dates of outside storage and to submit weekly reports
identifying such bales.
As suggested by the comments, this final rule provides that the
warehouse must be in an area that has inadequate approved inside
capacity to store the current crop. CCC will determine whether a state,
a county, or a group of counties within a State is such a cotton
storage deficit area based on the most recent cotton production
estimate for the area provided by the National Agricultural Statistics
Service. The area will be considered a deficit storage area for the
crop year if cotton production for the crop year exceeds the combined
approved inside storage capacity of warehouses in the area that have
entered into a Cotton Storage Agreement with CCC.
B. Storage Credits
Denial of Credit for Outside Storage
CCC proposed to deny storage credit for all bales under a loan if
one or more bales were stored outside for any period while under loan.
Thirty three comments were received about this proposal. The comments
indicate wide support for denying storage credits to cotton stored
outside, but only for the period outside, and only if administered on a
bale-by-bale basis. Four national organizations favor this proposal.
Related comments are that bale receipts or associated records should
indicate the dates the bale was stored outside for calculating denied
storage credits.
CCC proposed to deny storage credits on outside-stored bales as an
incentive for gins and producers to seek inside storage rather than to
use warehouses where cotton inventory exceeds its inside capacity. CCC
originally proposed to deny the storage credits for an entire loan
quantity if one or more bales were stored outside. However, based on
comments received, CCC understands that the proposal would disadvantage
some producers whose loan cotton may be stored at multiple locations.
CCC agrees that a more equitable policy is to deny credits on a bale-
by-bale basis and this rule provides that, however, warehouses must
provide weekly reports to CCC identifying bales stored outside. CCC
also considered the suggestion that the credit should be denied only
for the period of outside storage and resumed if the cotton is moved
inside. CCC agrees that it would be inconsistent to deny storage
credits for outside-stored loan cotton that is being transferred to
inside storage. Therefore, this rule provides that storage credits are
denied only for the period of time the cotton is stored outside.
Comments also suggested that CCC more precisely define when a bale
is considered as stored outside. CCC agrees. Accordingly, this rule, in
section 1427.19, provides that CCC shall not provide storage credits to
a bale of upland cotton loan collateral for the period of time the bale
is stored outside that exceeds a 15-day period beginning on the day the
warehouse was notified that the bale is under loan.
[[Page 51424]]
Maximum Storage Credit
CCC proposed a uniform national rate of the lesser of a warehouse's
2005-crop tariff rate or $2.15/bale/month for calculating any storage
credits applicable. This limit was intended to reduce incentives for
warehouses to delay load-outs in order to maximize CCC storage
payments, and discourage transfer of cotton under loan to maximize
storage payments. Sixty-seven comments were received regarding this
proposal. Very few support the proposed uniform rate of $2.15 or any
other national rate. Some comments state that warehouse tariff rates
and storage credits do not influence cotton flow, and that any
reduction of rates will be disruptive, hurt producers, or ought to be
postponed. Other comments state that the rates used for storage credits
need to rise over time to cover operating cost increases. Many
comments, including those submitted as the joint industry
recommendation, suggest establishing two storage credit rates, each
based on the weighted average tariff rates of two regions--California
and Arizona comprising one region, and all other states comprising the
other. The California and Arizona average would be reduced by an
estimated average receiving charge for that area. This would allow the
warehouses with tariff rates below the regional averages the
opportunity to raise their rates to the average. CCC agrees that the
objectives of capped rates may be better achieved by taking into
account regional warehousing costs. Accordingly, section 1427.19 is
revised to provide that the maximum storage credit rate for the 2006
and subsequent crops of upland cotton shall be the lesser of the 2005-
crop tariff rate of a warehouse or $4.37 per bale per month for
warehouses located in Arizona and California, and $2.66 per bale per
month for warehouses located in all other cotton-producing States.
Additionally, section 1427.13 is amended to provide that if
producers elect to forfeit the loan collateral to CCC, they shall pay
any warehouse storage charges associated with the forfeited cotton that
accrued during the period of the loan that are based on a rate
exceeding CCC's maximum storage credit rate for the warehouse. This
will provide for uniformity of storage credits whether the cotton is
redeemed from loan or forfeited to CCC in satisfaction of the loan
obligation.
C. Cotton Bale Eligibility
CCC proposed to amend cotton bale eligibility rules to require that
cotton must be ginned by a ginner that, in addition to certifying to
using approved bale packaging materials, would certify to not producing
bales that are water-packed, false-packed, re-ginned, or re-packed.
Thirty-two comments were received regarding this proposal. Although
some support this proposal, the majority oppose it either as inadequate
to remediate the problem of excessive moisture in cotton, or as an
unfair certification to require from ginners. Three major national
organizations, including a national ginner association, urge CCC to
curtail all ginner use of direct water-spray systems after the 2007
crop, and to impose bale marketing and certification requirements in
the meantime for gins that employ direct spray systems. Some ginners
expressed an opposing view that CCC should not require moisture
certifications for which no measurement protocols exist or dictate
equipment specifications.
CCC shares the concern of most respondents regarding the use of
direct water-spray equipment to increase bale moisture. The
predominance of comments received, including the comments from USDA
researchers, is that there is an increased risk of damage to cotton
that is directly sprayed with water. Comments received from an industry
task force, a national ginners association, and those representing the
joint industry position urge CCC to prohibit directly sprayed cotton as
being eligible to be pledged as loan collateral for marketing
assistance loans starting after the 2007 crop. Although, the comments
received indicate that this proposal is the majority view of the
industry, CCC is aware that direct spray systems are used by about 20
percent of U.S. ginners. These ginners, with a few exceptions, feel
that the system can be used without damaging cotton.
To the extent practicable, CCC generally supports the use of
industry standards in the establishment of CCC cotton loan program
regulations, most notably by requiring the use of packaging and ties
that conform to industry specifications. However, CCC lacks authority
to direct all of the processing requirements of gins based on loan
collateral eligibility. Further, the equipment and a process for
accurately measuring bale moisture at a gin are not commonly employed,
and a moisture certification requirement would impose costs on ginners
to comply. Therefore, CCC will not establish any new certification by
ginners regarding the production of wet-packed, false-packed, re-
ginned, or re-packed cotton. However, CCC agrees with the comments that
suggest that the maximum level of moisture before fiber damage would
occur, as measured at a gin, wet basis, is 7.5 percent at any point in
the bale. Thus, while this rule imposes no new inspection process at
the gin or warehouse, in evaluating complaints received about wet or
damaged cotton, CCC will impose a maximum moisture level requirement
for a bale of cotton. Similarly, to encourage maintenance of the
quality of ginned cotton, CCC will incorporate into its bale
eligibility requirements the standards established by the Joint Cotton
Industry Bale Packaging Committee (``Committee'') publication ``A Guide
for Cotton Bale Standards.'' Accordingly, this rule revises the
regulations at 7 CFR 1427.5 to provide that a bale must be in good
condition and shall not be wet cotton to be eligible as loan
collateral. ``Wet cotton'' is defined as a bale at a gin that has 7.5
percent or more moisture, wet basis, at any point in the bale. ``Good
condition'' is defined as a bale of cotton determined to be a Grade A
or Grade B bale, by comparing the bale with the photographic standards
of the Committee.
D. Transfer of Cotton Loan Collateral
CCC proposed to allow the transfer of loan cotton to other CCC-
approved warehouses to provide producers or their agents the means to
relocate outside-stored cotton, or to reduce marketing risks by
removing cotton from warehouses considered unreliable in meeting load-
out requests. CCC received seventy-one comments in response to the
proposal. In general, the comments received are favorable to the
concept of the relocation of loan cotton, although support is
conditional on the imposition of several conditions. Support is stated
by ginners, many warehouses, producers, and national organizations.
Commonly suggested conditions are that producers must authorize such
movement; that relocation costs be paid in full by the requestor; that
relocations count against flow standards; and that storage credits be
limited in some cases to reduce predatory transfers. Some comments in
opposition are that relocations may disadvantage smaller warehouses,
stress transportation resources, increase storage outlays, and only
benefit larger merchants without improving cotton flow.
Based on the comments received, there is industry support to allow
producers to move their cotton, and that proposal is adopted in this
final rule. Also, CCC has decided to incorporate the recommendation of
the joint industry position to limit storage credits applicable to some
transferred cotton to 75 days to provide an incentive for
[[Page 51425]]
timely marketing of transferred cotton. This time period has been
determined to be the average required by a cotton merchant from
warehouse loadout to final marketing. Accordingly, this rule provides
that producers may request the transfer of cotton loan collateral
represented by an EWR to another approved cotton warehouse. The loan
settlements of transferred cotton will be based on rates applicable at
the original storing location, and storage credits may be limited based
on the circumstances of the transfer.
E. Producer Liability for Unpaid Charges
CCC proposed amending section 1427.12 to correct two
inconsistencies. First, regulations provide that if there are any liens
or encumbrances on cotton provided as collateral for a marketing
assistance loan, CCC must obtain waivers that fully protect the
interest of CCC before disbursement of the loan even if the liens or
encumbrances are satisfied from the loan proceeds. However, section
1427.25 provides for CCC to credit the loan repayment amount by all or
a portion of the warehouse storage charges that have accrued during the
period the cotton was pledged for loan. Second, over 40 percent of
cotton warehouses have tariff charges for compression services that are
not actually provided, and that such unpaid charges have followed the
bale and were payable on cotton forfeited to CCC in satisfaction of the
loan obligation. Accordingly, CCC proposed to establish consistency
between these two requirements, and to clarify that CCC shall not be
responsible for any charges attached to a bale other than for the
storage charges as provided in 7 CFR 1427.19(h).
Eight comments were received in response to the proposal that CCC
will not be responsible for unpaid charges associated with a loan bale
(such as warehouse compression) and will bill a producer for such
charges on forfeited cotton. All comments received either did not
object, or were in favor of the proposal, thus no change from the
proposal is made in the final rule.
III. Shipping Standards
Comments were received on the proposed rule suggesting significant
industry support for regulations defining a minimum acceptable shipping
standard for cotton warehouses. Such standards are currently set forth
in the CCC Cotton Storage Agreement. CCC agrees that these terms should
be clarified and set forth in those regulations governing cotton
storage warehouses. Accordingly, this rule makes amendments to the
terms and conditions for approval of a warehouse operator by CCC to
store and handle CCC interest commodities at 7 CFR part 1423 to provide
such a definition and to require mandatory weekly reporting of bales
made available for shipment.
IV. Clarification
This rule amends Sec. 1421.6(h)(1) of 7 CFR part 1421 to clarify
the use of contracts with respect to beneficial interest. On June, 6,
2006 the agency published a final rule at 71 FR 32415 that amended
regulations governing beneficial interest with respect to eligible
commodities delivered to facilities governed by a Federal license,
State license or CCC storage agreement. This provision unintentionally
restricts a producer's ability to obtain a loan deficiency payment or
freely market commodities of which they still maintain control and
title in limited cases. This rule clarifies that facilities governed by
a Federal license, State license, or CCC storage agreement can be
bailees and the producers who deliver commodities may continue to have
beneficial interest. Regardless, CCC may still require acceptable
documentation from a producer to indicate whether the producer retains
title and control of the stored commodity.
This rule also corrects the amendments made by the June 6, 2006
rule regarding beneficial interest provisions for cooperative marketing
associations by restoring them consistent with that amendment as Sec.
1421.6(j). And, finally, this rule amends 7 CFR 1421.201 to clarify
that the loan deficiency payment rate shall be based on the date the
commodity is delivered, if the producer elects this option.
Executive Order 12866
This rule is issued in conformance with Executive Order 12866, was
determined to be significant and has been reviewed by the Office of
Management Budget.
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this rule because the CCC is not required by 5 U.S.C. 533
or any other law to publish a notice of proposed rulemaking for the
subject matter of this rule.
Environmental Assessment
The environmental impacts of this rule have been considered
consistent with the provisions of the National Environmental Policy Act
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council
on Environmental Quality (40 CFR parts 1500-1508), and the FSA
regulations for compliance with NEPA, 7 CFR part 799. FSA concluded
that the rule requires no further environmental review because it is
categorically excluded. No extraordinary circumstances or other
unforeseeable factors exist which would require preparation of an
environmental assessment or environmental impact statement.
Executive Order 12988
This rule has been reviewed in accordance with Executive Order
12988. This rule will preempt State laws that are inconsistent with it.
Before any legal action may be brought regarding a determination under
this rule, the administrative appeal provisions set forth at 7 CFR
parts 11 and 780 must be exhausted.
Executive Order 12372
This program is not subject to the provisions of Executive Order
12372, which require intergovernmental consultation with State and
local officials. See the notice related to 7 CFR part 3014, subpart V,
published at 48 FR 29115 (June 24, 1983).
Unfunded Mandates Reform Act of 1995
The rule contains no Federal mandates under the regulatory
provisions of Title II of the Unfunded Mandates Reform Act of 1995
(UMRA) for State, local, and tribal governments or the private sector.
Thus, this rule is not subject to the requirements of sections 202 and
205 of the UMRA.
Paperwork Reduction Act
Section 1601(c) of the 2002 Act provides that the promulgation of
regulations and the administration of Title I of the 2002 Act shall be
made without regard to chapter 5 of title 44 of the United States Code
(the Paperwork Reduction Act). Accordingly, these regulations and the
forms and other information collection activities needed to administer
the program authorized by these regulations are not subject to review
by OMB under the Paperwork Reduction Act.
Executive Order 12612
This rule does not have sufficient Federalism implications to
warrant the preparation of a Federalism Assessment. The provisions
contained in this rule will not have substantial direct effect on
States or their political subdivisions or on the distribution of power
and
[[Page 51426]]
responsibilities among the various levels of government.
Government Paperwork Elimination Act
CCC is committed to compliance with the Government Paperwork
Elimination Act (GPEA) and the Freedom to E-File Act, which require
Government agencies in general and FSA in particular to provide the
public the option of submitting information or transacting business
electronically to the maximum extent possible. The forms and other
information collection activities required for participation in the
program are available electronically through the USDA eForms Web site
at http://www.sc.egov.usda.gov for downloading. The regulation is available at
FSA's Price Support Division Internet site at http://www.fsa.usda.gov/dafp/psd.
Applications may be submitted at the FSA county offices, by mail
or by FAX. At this time, electronic submission is not available. Full
development of electronic submission is underway.
E-Government Act Compliance
CCC is committed to complying with the E-Government Act to promote
the use of the Internet and other information technologies to provide
increased opportunities for citizen access to Government information
and services, and for other purposes. For information pertinent to E-
GOV compliance related to this rule, please contact the person named
above under the information contact section.
Federal Assistance Programs
The title and number of the Federal assistance program found in the
Catalog of Federal Domestic Assistance to which this final rule applies
are Commodity Loans and Loan Deficiency Payments, 10.051.
List of Subjects
7 CFR Part 1421
Agricultural commodities, Feed grains, Grains, Loan programs--
agriculture, Oilseeds, Price support programs, Reporting and
recordkeeping requirements.
7 CFR Part 1423
Agricultural commodities, Approval of warehouses, Dairy products,
Feed grains, oilseeds, Price support programs, Processed commodities,
Surplus agricultural commodities.
7 CFR Part 1427
Agricultural commodities, Cotton, Loan programs--agriculture, Price
support programs, Reporting and recordkeeping requirements.
0
For the reasons set out in the preamble, 7 CFR parts 1421, 1423, and
1427 are amended as follows:
PART 1421--GRAINS AND SIMILARLY HANDLED COMMODITIES--MARKETING
ASSISTANCE LOANS AND LOAN DEFICIENCY PAYMENTS FOR THE 2002 THROUGH
2007 CROP YEARS
0
1. The authority citation for part 1421 continues to read as follows:
Authority: 7 U.S.C. 7231-7237 and 7931 et seq.; 15 U.S.C. 714b
and 714c.
Subpart A--General
0
2. Amend Sec. 1421.6 by revising paragraphs (h)(1), (h)(2) and adding
paragraph (j) to read as follows:
Sec. 1421.6 Beneficial interest.
* * * * *
(h) * * *
(1) A provision that allows the producer to select the sales price
of the commodity at a time the contract is entered into or at a later
date, for example, a contract normally referred to as a deferred-price,
forward or price later contract. The following conditions apply:
(i) Producers under a deferred-price, forward, or price later
contract will lose beneficial interest in the commodity once the
commodity is applied in fulfillment of such a contract.
(ii) Beneficial interest in the commodity is retained by the
producer if the contract has no restrictive or contradictory clauses
within the contract that may cause the producer to lose beneficial
interest in the commodity.
(2) A provision between the producer and a warehouse approved in
accordance with Sec. 1421.103(c) for the storage of CCC loan
collateral that provides the producer a period of time following the
date of physical delivery of the commodity to elect whether the
commodity is to be stored and receipted on behalf of the producer or is
to be considered transferred to the warehouse.
* * * * *
(j) If marketing assistance loans and loan deficiency payments are
made available to producers through an approved cooperative marketing
association in accordance with part 1425 of this chapter, the
beneficial interest in the commodity must always have been in the
producer-member who delivered the commodity to the approved cooperative
marketing association or its member approved cooperative marketing
association, except as otherwise provided in this section. If the
producer-member who delivered the commodity does not retain the right
to share in the proceeds from the marketing of the commodity as
provided in part 1425 of this chapter, commodities delivered to an
approved cooperative marketing association shall not be eligible to be
pledged as collateral for a marketing assistance loan or be taken into
consideration when a loan deficiency payment is made.
Subpart C--Loan Deficiency Payments
0
3. Section 1421.201 is amended by adding paragraph (b)(3)(iii) to read
as follows:
Sec. 1421.201 Loan deficiency payment rate.
* * * * *
(b) * * *
(3) * * *
(iii) The commodity is delivered, if the producer elects to receive
the LDP rate based on the date of delivery.
* * * * *
PART 1423--COMMODITY CREDIT CORPORATION APPROVED WAREHOUSES
0
4. The authority citation for part 1423 continues to read as follows:
Authority: 15 U.S.C. 714b and 714c.
0
5. Add Sec. 1423.11 to read as follows:
Sec. 1423.11 Delivery and shipping standards for cotton warehouses.
(a) Unless prevented from doing so by severe weather conditions,
fire, explosion, flood, earthquake, insurrection, riot, strike, labor
dispute, acts of civil or military authority, non-availability of
transportation facilities or any cause beyond the control of the
warehouse operator that renders performance impossible, the warehouse
operator will:
(1) Deliver stored cotton without unnecessary delay.
(2) Be considered to have delivered cotton without unnecessary
delay if, for the week in question, the warehouse operator has made
available for shipment at least 4.5 percent of their applicable storage
capacity in effect during the relevant week of shipment.
(b) The warehouse operator shall provide a written report to CCC on
a weekly basis. The reporting week shall be the seven day period
starting at midnight following the close of business on each Saturday
and ending at midnight after close of business of the following
Saturday. Before close of business of the first business day of the
following week, the warehouse operator
[[Page 51427]]
will provide following information to CCC:
(1) Bales made available for shipment (BMAS) during such week. BMAS
is defined as any cotton bales that:
(i) Have been delivered, or are scheduled and ready for delivery
during such week; and
(ii) Were scheduled and ready for delivery in a previous week, but
were not picked up by the shipper and remain available for immediate
loading and another shipping date has not been established, or such
bales are not subject to a restocking fee as provided in the warehouse
operator's public tariff.
(2) Active shipping orders, by week; and
(3) Applicable storage capacity that is the higher of CCC approved
capacity or the maximum number of bales stored at any time during the
applicable crop year.
(c) The warehouse operator may resolve any claim for noncompliance
from any entity other than CCC with the cotton shipping standard in a
court of competent jurisdiction or through mutually agreed upon
arbitration procedures. In no case will CCC provide assistance or
representation to parties involved in arbitration proceedings arising
with respect to activities authorized under the Cotton Storage
Agreement.
PART 1427--COTTON
0
6. The authority citation for part 1427 continues to read as follows:
Authority: 7 U.S.C. 7231-7237 and 7931-7939; and 15 U.S.C. 714b
and 714c.
Subpart A--Nonrecourse Cotton Loan and Loan Deficiency Payments
0
7. Amend Sec. 1427.3 by revising the definition of ``Reconcentration''
and adding definitions for ``Cotton storage deficit area'', ``Good
condition'', ``Transfer'', and ``Wet cotton'' to read as follows:
Sec. 1427.3 Definitions.
* * * * *
Cotton storage deficit area means a State, County, or group of
contiguous counties within a State, where the production of cotton for
the area based on the most recent estimate from the USDA, National
Agricultural Statistics Service exceeds the combined approved inside
storage capacity of warehouses that have entered into a Cotton Storage
Agreement with CCC.
* * * * *
Good condition means a bale of cotton that, by comparison with the
photographic standards of ``A Guide for Cotton Bale Standards'' of the
Joint Cotton Industry Bale Packaging Committee, is determined to be a
Grade A or Grade B bale.
* * * * *
Reconcentration means the process for moving CCC-owned cotton from
one approved warehouse to another CCC-approved warehouse location.
* * * * *
Transfer means the process for a producer or an authorized agent of
the producer to move warehouse-stored loan collateral to another
warehouse.
* * * * *
Wet cotton means a bale of cotton that, at a gin, has 7.5 percent
or more moisture, wet basis, at any point in the bale.
0
8. Amend Sec. 1427.5 by revising paragraphs (b)(2) and (b)(4) to read
as follows:
Sec. 1427.5 General eligibility requirements.
* * * * *
(b) * * *
(2) Be in existence and good condition, be covered by fire
insurance, and at the time of disbursement of the loan proceeds, be
stored inside an approved storage warehouse unless, as determined under
Sec. 1427.10, CCC has approved the warehouse to use outside storage
for cotton loan collateral for the period of the loan.
* * * * *
(4) Not be false-packed, wet cotton, water-packed, mixed-packed,
re-ginned, or repacked;
* * * * *
0
9. Amend Sec. 1427.10 by revising paragraph (b), redesignating
paragraphs (c), (d), and (e) as (d), (e), and (f), respectively, and
adding a new paragraph (c) as follows:
Sec. 1427.10 Approved storage.
* * * * *
(b) When the operator of a warehouse receives notice from CCC that
a loan has been made by CCC on a bale of cotton, the operator shall, if
such cotton is not stored within the warehouse, as directed by CCC
place such cotton within such warehouse.
(c) An approved cotton storage warehouse may temporarily store
cotton pledged as collateral for a CCC loan outside, subject to the
following conditions:
(1) The warehouse submits an application for approval of outside
storage on a form prescribed by CCC.
(2) The warehouse is located in a storage deficit area as
determined by CCC.
(3) The warehouse complies with all outside storage requirements
established by CCC including but not limited to the duration of such
outside storage as granted by CCC for the individual application, all-
risk insurance for the loan value of the cotton with CCC as loss payee,
and use of additional protective coverings and materials that elevate
the entire bottom surface of the bale to protect such cotton from
damage by water or airborne contaminants.
(4) The electronic warehouse receipt for any bale or bales of
cotton pledged as collateral for a CCC loan must include the dates that
the bale was initially stored outside, and the date that outside
storage stopped.
(5) The warehouse provides CCC a weekly report in a format
proscribed by CCC identifying individual bales of cotton pledged as
collateral for a CCC loan that are stored outside.
* * * * *
0
10. Revise Sec. 1427.12 to read as follows:
Sec. 1427.12 Liens.
(a) Waivers that fully protect the interest of CCC must be obtained
before loan disbursement, notwithstanding provisions in Sec.
1427.19(h), if there are any liens or encumbrances on the cotton
tendered as collateral for a loan, even though the liens or
encumbrances are satisfied from the loan proceeds.
(b) CCC may elect to accept cotton as loan collateral that has
warehouse receiving, compression, or other charges without a lien
waiver if the producer at the time of loan application agrees to
reimburse CCC for any such charges that CCC may pay on behalf of the
producer or that reduce the value of the cotton delivered to CCC.
0
11. Add paragraph (e)(3) to Sec. 1427.13 to read as follows:
Sec. 1427.13 Fees, charges, and interest.
* * * * *
(e) * * *
(3) Any warehouse storage charges associated with the forfeited
cotton that accrued during the period of the loan and paid by CCC to
the warehouse that exceed such charges calculated based on CCC's
maximum storage credit rate for the warehouse established in Sec.
1427.19.
0
12. Revise Sec. 1427.16 to read as follows:
Sec. 1427.16 Movement and protection of warehouse-stored cotton.
(a) CCC may insure or reinsure stored cotton against any risk, or
otherwise take an action it deems necessary to protect the interest
therein of CCC.
(b) CCC may reconcentrate cotton as defined in Sec. 1427.3 subject
to the following:
[[Page 51428]]
(1) A loan servicing agent, or CMA shall arrange for
reconcentration of cotton under the direction of CCC and CCC shall
obtain new warehouse receipts; and
(2) Any charges, fees, costs, or expenses incident to the
reconcentration of cotton shall be paid by CCC.
(c) A producer may transfer cotton loan collateral from one CCC-
approved cotton storage warehouse to another CCC-approved cotton
storage warehouse subject to the following conditions:
(1) The cotton is represented by electronic warehouse receipts;
(2) The request is submitted by a producer or a properly designated
agent of the producer;
(3) The transfer is agreed to by the receiving warehouse operator;
and
(4) The CCC marketing assistance loan that is secured by such
cotton matures at least 30 days after the date on which the request for
the transfer is submitted to CCC.
(d) Following written notice by CCC to the producer and warehouse
operator, CCC may transfer cotton pledged as collateral for the
marketing assistance loan from one CCC-approved warehouse to another
if:
(1) CCC determines such loan cotton collateral is improperly
warehoused and subject to damage; or
(2) Any term of the producer's loan agreement is violated, or
(3) Carrying charges are substantially in excess of the average of
carrying charges available elsewhere and the storing warehouse, after
notice, declines to reduce such charges.
(e) Any charges, fees, costs, or expenses incident to the transfer
of cotton loan collateral under paragraph (c) of this section shall be
paid by the requestor of the transfer.
(f) CCC shall exclude from the calculation of any storage credits
payable under Sec. 1427.19 the following periods:
(1) The period during which the cotton is in transit between
warehouses; and
(2) Any period beyond 75 days starting from the date of transfer
from the shipping warehouse, unless the shipping warehouse is:
(3) Out of compliance with the terms of its Cotton Storage
Agreement;
(4) Storing cotton loan collateral outside, or
(5) Under common ownership with the receiving warehouse.
0
13. Amend Sec. 1427.19 by revising paragraphs (h)(1) and (h)(2), and
adding paragraph (j) to read as follows:
Sec. 1427.19 Repayment of loans.
* * * * *
(h) * * *
(1) Below the national average loan rate for upland cotton, CCC
will pay at the time of loan repayment to the producer, agent, or
subsequent agent authorized by the producer in the manner prescribed by
CCC for the period the cotton was pledged as collateral for such loan:
(i) The warehouse storage charges which have accrued, and
(ii) With respect to the 2006 and subsequent-crops of upland
cotton, for each bale of the loan stored inside an approved cotton
warehouse during the entire period of the loan, storage charges based
on paragraph (j) of this section, except that CCC shall not credit the
loan repayment amount for a bale for any accrued storage charges for
any period that the cotton bale was stored outside exceeding a
continuous 15-day period beginning on the day the warehouse was
notified that the bale is under loan.
(2) Above the national average loan rate by less than the sum of
the accrued interest and warehouse storage charges that accrued during
the period the cotton was pledged for loan, CCC will pay at the time of
loan repayment to the producer, agent, or subsequent agent authorized
by the producer in the manner prescribed by CCC, without regard to any
warehouse charges that accrued before the cotton was pledged for loan:
(i) That portion of the warehouse storage charges that accrued
during the period the cotton was pledged for loan that are determined
to be necessary to permit the loan to be repaid at the adjusted world
price; and
(ii) With respect to the 2006 and subsequent crops of upland cotton
stored inside an approved cotton warehouse during the entire period of
the loan, storage charges based on the rates in paragraph (j) of this
section, except that CCC shall not credit the loan repayment amount for
a bale for any accrued storage charges for any period that the cotton
bale was stored outside exceeding a continuous 15-day period beginning
on the day the warehouse was notified that the bale is under loan; or
* * * * *
(j) For the purpose of calculating storage credits that may be
applicable under paragraph (h) of this section to the 2006 and
subsequent crops of upland cotton, the warehouse storage rates to be
used shall be the lower of;
(1) The tariff storage rate for the warehouse for the 2005-crop, or
for any warehouse not in existence in 2005, a CCC-assigned average
2005-crop tariff rate for the county or area; or
(2) For warehouses located in Arizona and California, $4.37 per
bale per month; and for warehouses located in all States other than
Arizona and California, $2.66 per bale per month.
* * * * *
Signed in Washington, DC on August 23, 2006.
Thomas B. Hofeller,
Acting Executive Vice President, Commodity Credit Corporation.
[FR Doc. E6-14370 Filed 8-29-06; 8:45 am]
BILLING CODE 3410-05-P