[Federal Register: June 22, 2006 (Volume 71, Number 120)]
[Rules and Regulations]
[Page 35771-35775]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jn06-1]
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Rules and Regulations
Federal Register
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[[Page 35771]]
DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Part 1423
RIN 0560-AE50
Standards for Approval of Warehouses for Storage of CCC
Commodities
AGENCY: Commodity Credit Corporation, USDA.
ACTION: Final rule.
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SUMMARY: This rule revises the regulations covering the storage of
commodities owned by the Commodity Credit Corporation (CCC). For the
most part, these commodities are acquired under various mandatory
marketing assistance and price support programs that benefit producers.
This rule will consolidate the regulations for all commodities stored
by CCC into one set of regulations. In addition, this rule will revise,
in some instances, the substantive provisions that are in effect under
the existing regulations.
DATES: Effective June 22, 2006.
FOR FURTHER INFORMATION CONTACT: Howard Froehlich, Warehouse and
Inventory Division, Farm Service Agency, United States Department of
Agriculture, 1400 Independence Avenue, SW., STOP 0553, Washington, DC
20250-0553, telephone (202) 720-7398, FAX (202) 690-3123, e-mail
address: Howard.Froehlich@wdc.usda.gov. Persons with disabilities who
require alternative means for communication for regulatory information
(Braille, large print, audiotape, etc.) should contact USDA's TARGET
Center at (202) 720-2600 (voice and TDD).
SUPPLEMENTARY INFORMATION:
Discussion of the Final Rule
CCC acquires agricultural commodities in the administration of its
programs under various circumstances. For instance, under Title I of
the Farm Security and Rural Investment Act of 2002, the CCC makes
marketing assistance loans to producers that can lead to forfeiture of
the commodities to CCC. To provide for the storage of various
commodities it acquires, CCC may enter into storage agreements with
private warehouse operators. Further, section 5 of the CCC Charter Act
(7 U.S.C. 714c) requires that in purchasing, selling, warehousing,
transporting, or handling agricultural commodities, CCC shall use, to
the maximum extent practicable, the usual and customary channels,
facilities, and arrangements of trade and commerce.
CCC has regulations covering commodity storage at 7 CFR 1421.5551-
1421.5559, part 1423, and 1427, subpart E. A proposed rule addressing
consolidation of the approval regulations at one location in the Code
of Federal Regulations and other technical and clarifying changes in
the wording and structure of the regulation and other substantive
changes was published in the Federal Register on November 20, 2003 (68
FR 65412). The comment period expired January 20, 2004, but was
reopened and extended until March 11, 2004.
Comments on the Proposed Rule
Responses to the proposed rule were received from 18 interested
parties as follows: Eight from cotton associations, cooperatives,
merchandisers, or individuals; five from grain associations,
cooperatives, warehouses, or individuals; one from a processed
commodities warehouse operator; two from Federal government employees;
one from a commission firm; and one from a certified public accountant
(CPA). Most respondents made multiple comments. The specific comments
received and the Agency response follows.
Cotton Flow
CCC received 19 comments addressing issues of loading cotton from
warehouses (cotton flow) and arbitration of disputes arising from the
cotton flow standard. Seven respondents favored a minimum cotton flow
standard of 4.5 percent per week of approved capacity. One respondent
opposed the 4.5 percent cotton flow standard and suggests a three
percent standard instead. This issue was not addressed in previous
regulation; however, the cotton flow standard can have an impact on
warehouse operators with a Cotton Storage Agreement (CSA). CCC has
addressed this issue by including the 4.5 percent cotton flow standard
and an arbitration clause in the CSA instead of in the regulations.
Thus, the respondent's suggestion for a three percent standard was not
adopted.
Outside Storage of Cotton
Five respondents supported section 1423.4(d)(4), which states that
commodities shall not be subject to greater than normal risk of fire,
flood, or other hazards. Two respondents opposed warehouse operators
being allowed to store cotton in excess of their licensed warehouse
capacity. Another respondent was in favor of establishing a licensed
warehouse capacity for cotton prior to a ``receiving'' season, then not
permitting a reduction of that capacity during the crop year. Section
1423.4 provides general requirements for warehouse operators storing
CCC-interest commodities. CCC storage agreements require storage of
commodities in approved space. Establishing a warehouse capacity based
on a ``receiving'' season would be cumbersome for warehouse operators
and difficult for CCC to monitor. Thus, the suggestion was not adopted.
Financial Statement Reports and Net Worth
CCC received 11 comments on removing the option of submitting a
financial statement compilation report prepared by a commission or
management firm. Seven comments were received supporting submission of
compilation reports: four from grain warehouses or cooperatives, two
from cotton associations, and one from a commission firm. One warehouse
operator suggested that a report by the commission house accountant
would be reliable because the commission house accountant ``is very
qualified in the grain industry'' and ``is top notch.'' Other comments
opposed the proposed provision and suggested that, ``cost would be a
major factor for our budget,'' and ``if it isn't broke don't fix it.''
The commission firm requested that CCC continue to accept compilation
reports and submitted a list of employees servicing country elevator
accounts, their education and years of experience,
[[Page 35772]]
as well as a list of the 77 country elevators that subscribe to their
reporting services.
Four comments support the requirement that warehouse operators
submit an audit or review financial statement prepared by an
independent CPA or independent public accountant. The four comments are
from a grain warehouse, grain association, a CPA, and cotton warehouse
association. The grain warehouse operator states, ``This is a great
requirement. It will add credibility to grain elevator financial
statements.'' The grain warehouse association supports disallowing
compilation financial statements and suggests a phase-in period to
provide time for warehouse operators to arrange for audit or review-
level financial statements. The comments from the CPA suggested that
compilation financial statements are untrustworthy because there was a
``lack of independence with these clients'' and that ``management firms
have control over every facet'' of the country elevator's business. The
response from the cotton warehouse association supports ``requiring
financial statements be reviewed or audited by a certified public
accountant or an independent public accountant.''
In response to comments received in favor of retaining the current
regulation language, CCC will maintain the provisions which allow for
the submission of financial reports prepared by a CPA or independent
public accountant, a commission or management firm staff member.
Because current regulations for the CCC storage agreements are
inconsistent, Sec. 1423.6 will be revised from the proposed regulation
to allow CCC to revise its storage agreements to include language
specific to each agreement.
Three respondents requested that the net worth provisions for each
type of storage agreement be included in the regulations. The three
comments were from cotton warehouse associations, who expressed concern
that ``warehouse operators will not know their net worth requirements
until they apply for a CSA and review its provisions.'' It is
understandable that respondents and prospective CCC agreement holders
would want to see net worth requirements in the regulations. However,
because of the differences in warehousing of various commodities,
having separate requirements for each agreement type in the regulations
could lead to misunderstandings. When new warehouse operators request
information on a CCC storage agreement, they are provided with a
complete information package, which includes the regulations, storage
agreement, and other related information. Therefore, CCC finds it
unnecessary to include the net worth requirements in the regulations,
but CCC storage agreements will be revised to include minimum net worth
requirements. Two of the three respondents suggesting the net worth
provisions be included in the regulations also suggest that the
``minimum net worth as stated in the current rule be continued.'' CCC's
required net worth and the method of calculating net worth relate
closely to the type of commodity program that each storage agreement
supports and the industry served. The different methods for required
net worth amounts can be more effectively dealt within in each storage
agreement rather than in the regulations.
Two warehouse associations suggested that CCC include a provision
in the regulation that CCC provide a 120-day public notice of changes
to any provision of CCC storage agreements. Both respondents state that
the 120-day time-period is similar to the time period required in the
proposed rule for notice of cancellation of bonds or letters of credit.
CCC disagrees with this recommendation because such a requirement would
unnecessarily delay needed changes to agreements. Nonetheless, CCC
acknowledges that when a major rewrite of a CCC storage agreement is
planned a Notice will be published in the Federal Register. However,
storing commodities for CCC is voluntary, and a warehouse operator
always has the option of terminating the agreement.
CCC received two comments in support of the provision in the
proposed rule that proposed removing the possibility of a warehouse
operator obtaining legal liability insurance as an alternative to
meeting minimum net worth requirements.
Comments on Other Sections
Two comments support the provisions regarding adequate firefighting
equipment, and one comment suggested adding a provision making fire
insurance mandatory for those warehouses with a CSA. Warehouse
operators are not required to insure CCC-owned commodities. However,
CCC storage agreements address the requirements of insuring warehouse-
stored commodities pledged as collateral. Because an insurance
provision is in CCC storage agreements, a provision in this regulation
would be unnecessary and redundant; thus, the comment was not adopted.
CCC will determine whether such insurance is needed to protect its
interest as a prudent lender depending on the facts and circumstances
at the time the agreements are in force.
One comment specifically addressed proposed Sec. 1423.4(b) and the
requirement to use pre-numbered warehouse receipts. The respondent
suggests ``the language be further modified to state that warehouses
may only use pre-assigned warehouse receipt numbers'' to reflect the
practice of numbering electronic receipts. CCC agrees with this
suggestion and added wording in this rule to address electronic receipt
practices.
Two comments addressed section 1423.4(d)(2) regarding the 120-day
cancellation notice for leases. One respondent expressed concern that
``some warehouse operators may not be able to negotiate such terms.''
Another respondent suggested that CCC ``specify in the regulations the
specific lease terms which are most important to securing approval.''
The 120-day notice is a CCC requirement designed to address CCC's
operational needs under the Processed Commodities Storage Agreement
(PCSA). Because not all operational needs of CCC programs are the same,
CCC will not require a 120-day notice for all agreements as provided in
the proposed rule, but will address each agreement's operational need
within the terms and conditions of each agreement.
One respondent asked that wording in section 1423.8 be amended to
more closely resemble the wording from the previous regulations. The
previous regulation stated, ``CCC will approve the warehouse if the
warehouseman establishes that the causes for CCC's rejection of
approval have been remedied.'' The wording of the proposed rule for
this section stated, ``* * * CCC may reconsider a warehouse for
approval when the warehouse operator establishes that the reasons for
rejection have been remedied * * *''. The respondent stated, ``This
change represents a shift in the requirements burden of proof in a
rejection situation and also relieves the CCC from any requirement that
it approve a warehouse that has remedied its deficiencies.'' It was not
CCC's intent to change to a new standard for reconsideration allowing
CCC to refuse to act; therefore, CCC will maintain the word ``will'' in
this final rule.
One respondent asked that Sec. 1423.2(b) more clearly address
temporary storage conditions. CCC has revised this section to only
state in general terms the authority to administer this section. CCC
will address its requirements to hold an agreement for prompt shipment
[[Page 35773]]
and short term handling of commodities within the applicable agreement.
Definitions
Several respondents asked that specific wording associated with
cotton flow (receiving period, non-receiving period, staged, and
satisfactory record of performance) be defined, that qualitative items
(e.g. good state of repair, etc.) be moved from the definition of
warehouse to another section, and whether electronic documents are
considered ``in writing.'' CCC has addressed the issue of cotton flow
in its CSA and will not include related definitions in this regulation.
CCC agrees that the qualitative items contained in the definition of a
warehouse should be placed elsewhere and will now be included in
section 1423.4, which will contain a more detailed requirement. And,
CCC considers electronically-signed documents as if the document were
signed ``in writing.''
Executive Order 12866
This rule has been determined to be ``Not Significant'' under
Executive Order 12866 and has not, therefore, been reviewed by the
Office of Management and Budget (OMB).
Federal Assistance Programs
The title and number of the Federal assistance programs, as found
in the Catalog of Federal Domestic Assistance, to which this rule
applies are:
Commodity Loans and Loan Deficiency Payments, 10.051.
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this rule because CCC is not required by 5 U.S.C. 553 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 in
accordance 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 FSA's
regulations for compliance with NEPA, 7 CFR part 799. To the extent
these authorities may apply, CCC has concluded that this rule is
categorically excluded from further environmental review as evidenced
by the completion of an environmental evaluation. No extraordinary
circumstances or other unforeseeable factors exist which would require
preparation of an environmental assessment or environmental impact
statement. A copy of the environmental evaluation is available for
inspection and review upon request.
Executive Order 12988
This rule has been reviewed in accordance with Executive Order
12988, Civil Justice Reform. In accordance with this Executive Order:
(1) All State and local laws and regulations that are in conflict with
this rule will be preempted; (2) except as specifically stated in this
rule, no retroactive effect will be given to this rule; and (3)
administrative proceedings in accordance with 7 CFR part 780 must be
exhausted before seeking judicial review.
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 3015, subpart V,
published at 48 FR 29115 (June 24, 1983).
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does
not apply to this rule because CCC is not required by 5 U.S.C. 553 or
any other law to publish a notice of rulemaking for the subject matter
of this rule. Further, this rule contains no unfunded mandates as
defined in sections 202 and 205 of UMRA.
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 CCC 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 the warehousing matters
covered by this rule are fully implemented for the public to conduct
business with CCC electronically. Documents also may be obtained by
mail or fax.
List of Subjects in 7 CFR Part 1423
Agricultural commodities, Approval of warehouses, Dairy products,
Feed grains, Oilseeds, Price support programs, Processed commodities,
Surplus agricultural commodities.
0
For the reasons set forth in the preamble, 7 CFR part 1423 is revised
to read as follows:
PART 1423--COMMODITY CREDIT CORPORATION APPROVED WAREHOUSES
Sec.
1423.1 Applicability.
1423.2 Administration.
1423.3 Definitions.
1423.4 General requirements.
1423.5 Application requirements.
1423.6 Financial information documentation requirements.
1423.7 Net worth alternatives.
1423.8 Approval or rejection.
1423.9 Examination of warehouses.
1423.10 Exceptions for United States Warehouse Act licensed
warehouses.
1423.11 Reserved.
1423.12 Application, inspection, and annual agreement fees.
1423.13 Appeals, suspensions, and debarment.
Authority: 15 U.S.C. 714b and 714c.
Sec. 1423.1 Applicability.
(a) This part sets forth the terms and conditions for approval of a
warehouse operator by the Commodity Credit Corporation (CCC) to store
and handle CCC interest commodities, which are owned by CCC and, as may
be required under parts 1421, 1427 and 1435 of this title, with respect
to commodities pledged as security for a loan made by CCC. CCC may
require that a warehouse enter into a storage agreement under this part
to store such commodities. The execution of such a storage agreement by
CCC does not constitute a commitment that CCC will use the warehouse.
(b) By entering into a storage agreement with CCC, the warehouse
operator agrees to comply with the terms and conditions of the storage
agreement.
Sec. 1423.2 Administration.
On behalf of CCC, the Farm Service Agency (FSA) will administer
this part under the supervision of the Deputy Administrator for
Commodity Operations (Deputy Administrator), FSA.
Sec. 1423.3 Definitions.
Agreement means agreements covering storage and handling of any
such commodity CCC may determine appropriate for storage.
KCCO means the FSA, Kansas City Commodity Office.
Warehouse means a building, structure, or other protected
enclosure, in good state of repair, and adequately equipped to receive,
handle, store, preserve, and deliver the applicable commodity.
Warehouse operator means an individual, partnership, corporation,
association, or other legal entity engaged
[[Page 35774]]
in the business of storing or handling for hire, or both, the
applicable commodity.
Sec. 1423.4 General requirements.
(a) Unless otherwise provided in this part, approved warehouse
operators must maintain a current and valid license for the kind of
storage operation for which the warehouse operator seeks approval if
such a license is required by State or local laws or regulations and
maintain accurate and complete inventory and operating records.
(b) Approved warehouse operators may only use pre-numbered
warehouse receipts, or pre-assigned ranges of numbers for electronic
warehouse receipts as set forth in the agreement, and may only use pre-
numbered scale tickets, if applicable, as CCC may approve.
(c) In addition, the warehouse operator must:
(1) Be in compliance with state and local laws regarding fire
safety;
(2) Furnish a copy of any written lease agreement to CCC with the
application. All leases are subject to CCC approval; and
(3) Have sufficient employees and management with technical
qualifications and skills in the warehousing business regarding the
commodities subject to the agreement.
(d) Unless otherwise provided in this part, each approved warehouse
shall:
(1) Be maintained under the control of the warehouse operator;
(2) Be maintained in a good state of repair; and
(3) Maintain adequate equipment to receive, handle, store, preserve
and deliver the applicable commodity.
Sec. 1423.5 Application requirements.
To apply for approval under this part, a warehouse operator shall
submit to CCC the following:
(a) An application as prescribed by CCC for the applicable
commodity storage agreement;
(b) Evidence of compliance with Sec. 1423.4;
(c) Current financial information sufficient to meet the
requirements of Sec. 1423.6;
(d) For State licensed or non-licensed warehouse operators, a
sample copy of the warehouse operator's warehouse receipts or
electronic warehouse receipt record descriptor when applicable; and
(e) Such other documents or information as CCC may require to make
a determination that the warehouse operator can comply with the
provisions of this part.
Sec. 1423.6 Financial information documentation requirements.
To be approved under this part, a warehouse operator shall submit a
current financial statement at the time of application, and annually
thereafter, as provided for in the applicable storage agreement.
Sec. 1423.7 Net worth alternatives.
Warehouse operators with net worth equal to or greater than the
minimum net worth required, but less than the total net worth for the
commodity involved in the particular agreement, may satisfy the net
worth deficiency by furnishing one of the following:
(a) A bond which:
(1) Is executed by a surety approved by the U.S. Department of the
Treasury so long as the surety maintains someone authorized to accept
service of legal process in the State where the warehouse is located.
(2) Is executed on either a bond form obtained from CCC, or which
is furnished under State law or operational rules for non-governmental
supervisory agencies, if approved by CCC, so long as CCC determines
that such alternative bond:
(i) Provides adequate protection to CCC;
(ii) Has been executed by a surety approved by the U.S. Department
of the Treasury or has an acceptable blanket rider and endorsement
executed by such a surety with the liability of the surety under such
rider or endorsement being the same as that of the surety under the
original bond; and
(iii) Is effective for at least 1 year and cannot be canceled
without 120 days notice to CCC. Excess coverage on a bond for one
warehouse will not be accepted by CCC against insufficient bond
coverage on other warehouses;
(b) Cash and negotiable securities. Any such cash or negotiable
securities accepted by CCC will be returned to the warehouse operator
when the period for which coverage was required has ended and CCC
determines there is no liability under the storage agreement;
(c) An irrevocable letter of credit meeting CCC requirements that
is effective for at least 1 year and cannot be canceled without 120
days notice to CCC. The issuing bank must be a commercial bank insured
by the Federal Deposit Insurance Corporation or a financial institution
subject to the Farm Credit Act, or
(d) Other alternative instruments and forms of financial assurance
as the Deputy Administrator determines appropriate to secure the
warehouse operator's compliance with this section.
Sec. 1423.8 Approval or rejection.
(a) CCC will notify warehouse operators approved under this part in
writing. Such approval does not relieve the warehouse operator of any
obligation under any agreement to CCC or any other agency of the United
States, and does not obligate CCC to use the warehouse.
(b) CCC will notify the warehouse operator of rejection under this
part in writing. The notification will state the cause(s) for
rejection. Except for rejections due to the requirements of Sec.
1423.4(c)(5), CCC will reconsider a warehouse for approval when the
warehouse operator establishes that the reasons for rejection have been
remedied or requests reconsideration of the action and presents to the
Director, KCCO, in writing, information in support of such request. The
warehouse operator may, if dissatisfied with the Director's
determination, obtain a review of the determination and an informal
hearing by submitting a request with the Deputy Administrator. Appeals
shall be as prescribed in part 780 of this title.
Sec. 1423.9 Examination of warehouses.
Before approval, and while a storage agreement is in effect, a
warehouse must be examined by a person designated by CCC periodically
to determine compliance with this part. CCC or any other agency of USDA
shall, at any time, have the right to inspect the warehouse storage
facilities and any applicable records. Inspection or examination by CCC
does not absolve the warehouse operator of any failure to comply with
this part that CCC does not discover. Failure to allow access to
facilities as required under this paragraph will result in rejection or
revocation of approval.
Sec. 1423.10 Exceptions for United States Warehouse Act licensed
warehouses.
The financial requirements, net worth alternatives and examination
provisions of this part do not apply if the warehouse operator is
licensed under the U.S. Warehouse Act (USWA) for such commodities, but
an examination under this part will be made of such a warehouse
whenever CCC determines such action is necessary to protect its
interests.
Sec. 1423.11 Reserved.
Sec. 1423.12 Application, inspection, and annual agreement fees.
Each warehouse operator not licensed under USWA shall pay to CCC a
fee or fees, including an application fee, inspection fee, and an
annual agreement fee for each warehouse approved by
[[Page 35775]]
CCC or for which approval is sought. The terms and conditions of such
fees will be set forth in the applicable agreement.
Sec. 1423.13 Appeals, suspensions, and debarment.
(a) After initial approval, warehouse operators may request that
CCC reconsider adverse actions when the warehouse operator establishes
that the reasons for the action have been remedied or requests
reconsideration of the action and presents to the Director, KCCO, in
writing, information in support of such request. The warehouse operator
may, if dissatisfied with the Director's determination, obtain a review
of the determination and an informal hearing by submitting a request to
the Deputy Administrator. Appeals shall be as prescribed in part 780 of
this title, and under such regulations the warehouse operator shall be
considered as a ``participant.''
(b) Suspension and debarment actions taken under this part shall be
conducted in accordance with part 1407 of this chapter. After
expiration of the suspension or debarment period, a warehouse operator
may, at any time, apply for approval under this part.
Signed at Washington, DC, on June 7, 2006.
Glen L. Keppy,
Acting Executive Vice President, Commodity Credit Corporation.
[FR Doc. E6-9834 Filed 6-21-06; 8:45 am]
BILLING CODE 3410-05-P