Extra Long Staple Cotton Prices, 67342-67345 [05-22082]

Agencies

• DEPARTMENT OF AGRICULTURE
• Commodity Credit Corporation

[Federal Register Volume 70, Number 214 (Monday, November 7, 2005)]
[Rules and Regulations]
[Pages 67342-67345]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-22082]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1427

RIN 0560-AH36


Extra Long Staple Cotton Prices

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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SUMMARY: This rule finalizes an interim final rule published June 20, 
2005 that was effective August 5, 2005, amending the Extra Long Staple 
(ELS) Cotton Competitiveness Payment Program of the Commodity Credit 
Corporation (CCC). The interim rule changed the ELS cotton price used 
to calculate the payment rate from the ``average domestic spot price 
quotation for base quality U.S. Pima cotton'' to the ``American Pima 
c.i.f. Northern Europe'' price. The change was made to reduce the cost 
to the Federal Government of operating the program by incorporating a 
reference price more indicative of actual ELS cotton world market 
prices. This final rule makes changes from the interim final rule in 
the prices used to calculate the payment rate from ``American Pima 
c.i.f. Northern Europe'' and ``c.i.f. Northern Europe'' price quotes to 
``U.S. Pima C/F Far East'' and ``C/F Far East,'' respectively. This 
change is made in response to comments and for other reasons as 
discussed.

DATES: Effective November 4, 2005. The first announcement of a payment 
rate under the new price mechanism will be on November 10, 2005.

FOR FURTHER INFORMATION CONTACT: Steve Neff, Economic and Policy 
Analysis Staff, Farm Service Agency, United States Department of 
Agriculture, 1400 Independence Avenue, SW., AG STOP 0515, Washington, 
DC 20250-0515; Phone: (202) 720-7954; e-mail: Steve.Neff@usda.gov.

SUPPLEMENTARY INFORMATION:

Background

    In an interim final rule published June 20, 2005 (70 FR 35367) the 
Commodity Credit Corporation (CCC) changed the regulations governing 
how payment rates are calculated under its Extra Long Staple (ELS) 
Cotton Competitiveness Payment Program to change the price used for the 
calculation from the ``average domestic spot price quotation for base 
quality U.S. Pima cotton,'' or ``U.S. spot quotes,'' to the ``American 
Pima c.i.f. Northern Europe quote.'' Before the interim rule, the ELS 
payment rate was the difference between U.S. spot prices, as reported 
by the Department of Agriculture (USDA), Agricultural Marketing Service 
(AMS), and the lowest foreign quote, c.i.f. Northern Europe, as 
published by the trade publication Cotton Outlook, adjusted to U.S. 
location and quality. This change was made because payments to ELS 
producers calculated using the old price had sharply increased program 
outlays. For example, the payment rate, which averaged a record high of 
16.46 cents per pound in 2004, averaged 80.48 cents per pound for 7 
weeks in February and March, 2005. Consequently, fiscal year 2005 
outlays through March, 2005, normally budgeted for $50-55 million per 
year, exceeded $150 million.
    The increase in the payment rate could be attributed principally to 
increases in U.S. spot market quotes. The market for ELS cotton is 
susceptible to price swings because it is a thin market. ELS production 
of 736,000 bales in 2004 was only 4 percent of total U.S. cotton 
production and 90 percent of ELS is produced in the San Joaquin Valley 
of California. The ELS market also has relatively few participants. For 
example, two trading companies received nearly 60 percent of the 
payments under this program in fiscal years 2003 and 2004. Further, 
growing conditions in 2004 contributed to a short supply of high-
quality ELS cotton, excess moisture led to color deterioration and 
lower grade classification. These circumstances exposed a program 
weakness which allowed high prices and high payment rates to influence 
each other with no market-like, self-correcting mechanism. AMS collects 
transaction data from market participants whose payments depend on the 
reported prices. If a sale is made at a relatively low price, the 
merchant has no incentive to report that transaction. With a high 
payment rate in effect for a week, the merchant could bid more for 
existing supplies and report higher transaction prices to AMS, which 
led to a higher payment rate in the following week. With the higher 
payment rate, the merchant could source from the United States and 
remain competitive in international markets.
    The interim final rule's intent was to reduce future payment rates 
by comparing foreign quotes to quotes for American Pima c.i.f. Northern 
Europe to determine the payment rate. American Pima c.i.f. Northern 
Europe was determined to be the most valid price measure for this 
program because it was a comparison of foreign and U.S. quotes from the 
same source within the same geographical area. This measure is net of 
the payment rate and based on the export market. FSA believed that this 
measure was appropriate because 90 percent of U.S.-produced ELS cotton 
is exported. According to our analysis, the payment rate calculated in 
this manner would have resulted in a payment of 20.69 cents per pound 
for the first week of April, about a quarter of the rate CCC actually 
paid.

Public Comment

    Section 1601(c) of the Farm Security and Rural Investment Act of 
2002 (2002 Act) provided that the regulations needed to implement Title 
I of the 2002 Act, which includes this rule, shall be promulgated 
without regard to the notice and comment provisions of 5 U.S.C. 553 or 
the Statement of Policy of the Secretary of Agriculture effective July 
24, 1971, relating to notices of proposed rulemaking and public 
participation in rulemaking. Therefore, the rule was issued as an 
interim final rule and was effective immediately. Nonetheless, the 
Agency requested and accepted public comments.

Discussion of Public Comments

    Eight public comments were received. Two letters supporting the 
interim final rule were received from Congress--one from the Chairman 
of the Senate Committee on Agriculture, Nutrition & Forestry; one from 
the Chairman of the House Committee on Agriculture. Also, separate 
letters were received from two cotton industry groups, the National 
Cotton Council and Supima, supporting the interim rule. These groups 
also joined in a letter signed by five organizations recommending the 
shift to a Far East price quote basis discussed below.

Price Quotes Used To Calculate Payments

    A comment from a U.S. cotton spinner urged the Agency to change 
both price quotes used to calculate payments from the ``American Pima 
c.i.f. Northern Europe'' adopted in the interim final rule and the 
foreign price quote used for comparison, ``c.i.f. Northern Europe,'' to 
``U.S. Pima C/F Far East'' and ``C/F Far East,'' respectively. This 
change was needed, the commenter suggested, because ``very little 
cotton, and especially very little American Pima (ELS cotton), is

[[Page 67343]]

exported to Europe.'' Another comment received, a joint letter signed 
by the National Cotton Council, Supima, Amcot (the international sales 
agency of American cotton growers), the American Cotton Shippers 
Association, and the Western Cotton Shippers Association, also 
suggested that the change to a Far East basis by CCC ``would be a 
logical approach.''
    As suggested by commenters, this rule changes CCC's regulation to a 
Far East price basis. FSA agrees that the ``U.S. Pima C/F Far East'' 
and ``C/F Far East'' quotes are the best quotes for determining program 
payments mainly because, as one respondent indicated, U.S. exports of 
ELS cotton are preponderantly to Asian destinations. From 2000 through 
2004, the share of ELS exports to Europe averaged 13.5 percent, 
compared to 76 percent to the Far East and South Asia. A further reason 
for this price change is that Cotton Outlook has announced that it 
would stop publishing the Northern Europe quotations. Thus, the price 
quote required in CCC regulations soon will no longer be available. 
Accordingly, the final rule adopts the commenters suggestion and 
changes the price quotes required by the regulation from ``American 
Pima c.i.f. Northern Europe'' and ``c.i.f. Northern Europe'' quotes 
published by Cotton Outlook to ``U.S. Pima C/F Far East'' and ``C/F Far 
East,'' respectively, as published by Cotlook Limited, publisher of 
Cotton Outlook. This change in price quotes will not measurably alter 
the economic impacts and government outlay results expected from the 
interim rule.

Executive Order 12866

    This rule is issued in conformance with Executive Order 12866, was 
determined to be not significant and has not been reviewed by the 
Office of Management and Budget.

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. 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 preempts 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 35 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 responsibilities among the various levels of government.

Government Paperwork Elimination Act

    CCC and FSA are 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 https://www.sc.egov.usda.gov for downloading. 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.

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 in 7 CFR Part 1427

    Agricultural commodities, Cotton, Price support programs, Reporting 
and record keeping requirements.


0
For the reasons set out in the preamble, 7 CFR part 1427 is amended as 
follows:

PART 1427--COTTON

0
1. The authority citation continues to read as follows:

    Authority: 7 U.S.C. 7231-7237 and 7931 et seq.; 15 U.S.C. 714b, 
714c.

Subpart G--Extra Long Staple (ELS) Cotton Competitiveness Payment 
Program

0
2. Revise subpart G to read as follows:

Subpart G--Extra Long Staple (ELS) Cotton Competitiveness Payment 
Program


Sec.  1427.1200  Applicability.

    (a) These regulations set forth the terms and conditions under 
which CCC shall make payments to eligible domestic users and exporters 
of extra long staple cotton who have entered into an ELS Cotton 
Domestic User/Exporter Agreement with CCC.
    (b) CCC will issue payments to domestic users and exporters in any 
week following a consecutive 4-week period in which:

[[Page 67344]]

    (1) The LFQ is less than the USPFE; and
    (2) Adjusted LFQ is less than 134 percent of the current crop year 
loan level for the base quality U.S. Pima cotton.
    (c) CCC shall prescribe the forms and information collections 
necessary in administering the ELS cotton competitiveness payment 
program. Additional terms and conditions for the program are set forth 
in the ELS Cotton Domestic User/Exporter Agreement.


Sec.  1427.1201  [Reserved]


Sec.  1427.1202  Definitions.

    The following definitions apply as used in this subpart:
    Consumption means the use of eligible ELS cotton by a domestic user 
in the manufacture in the United States of cotton products.
    Cotton product means any product containing cotton fibers that 
result from the use of an eligible bale of ELS cotton in manufacturing.
    Current shipment price means, during the period in which two daily 
price quotations are available for the LFQ for the foreign growth, 
quoted C/F Far East, the price quotation for cotton for shipment no 
later than August/September of the current calendar year.
    ELS means Extra Long Staple.
    Forward shipment price means, during the period in which two daily 
price quotations are available for the LFQ for foreign growths, quoted 
C/F Far East, the price quotation for cotton for shipment no earlier 
than October/November of the current calendar year.
    LFQ means, during the period in which only one daily price 
quotation is available for the growth, the lowest average for the 
preceding Friday through Thursday week of the price quotations for 
foreign growths of ELS cotton, quoted cost and freight (C/F) Far East, 
after each respective average is adjusted for quality differences 
between the respective foreign growth and U.S. Pima, of the base 
quality.
    (1) Adjusted LFQ means the LFQ adjusted to reflect the estimated 
cost of transportation between an average U.S. location and destination 
ports in the Far East.
    (2) LFQc means the preceding Friday through Thursday average of the 
current shipment prices for the lowest adjusted foreign growth, C/F Far 
East.
    (3) LFQf means the preceding Friday through Thursday average of the 
forward shipment prices for the lowest adjusted foreign growth, quoted 
C/F Far East.
    USPFE means the Friday through Thursday weekly average of the price 
quotation for base quality U.S. Pima cotton, as determined by CCC for 
purposes of administering this subpart, C/F Far East.
    (1) USPFEc means the preceding Friday through Thursday average of 
the current shipment prices for U.S. Pima cotton, C/F Far East.
    (2) USPFEf means the preceding Friday through Thursday average of 
the forward shipment prices for U.S. Pima cotton, C/F Far East.


Sec.  1427.1203  Eligible ELS cotton.

    (a) For the purposes of this subpart, eligible ELS cotton is 
domestically produced baled ELS cotton that is:
    (1) Opened by an eligible domestic user on or after October 1, 
1999, or
    (2) Exported by an eligible exporter on or after October 1, 1999, 
during a Friday through Thursday period in which a payment rate 
determined under Sec.  1427.1207 is in effect, and that meets the 
requirements of paragraphs (b) and (c) of this section;
    (b) Eligible ELS cotton must be either:
    (1) Baled lint, including baled lint classified by USDA's 
Agricultural Marketing Service as Below Grade; or
    (2) Loose.
    (c) Eligible ELS cotton must not be:
    (1) ELS for which a payment, under the provisions of this subpart, 
has been made available;
    (2) Imported ELS cotton;
    (3) Raw, unprocessed motes;
    (4) Textile mill wastes; or
    (5) Semi-processed or re-ginned, processed motes.


Sec.  1427.1204  Eligible domestic users and exporters.

    (a) For the purposes of this subpart, the following persons shall 
be considered eligible domestic users and exporters of ELS cotton:
    (1) A person regularly engaged in the business of opening bales of 
eligible ELS cotton to manufacturing such cotton into cotton products 
in the United States (a domestic user), who has entered into an 
agreement with CCC to participate in the ELS Cotton Competitiveness 
Payment Program; or
    (2) A person, including a producer or a cooperative marketing 
association approved under part 1425 of this chapter, regularly engaged 
in selling eligible ELS cotton for exportation from the United States 
(an exporter), who has entered into an agreement with CCC to 
participate in the ELS Cotton Competitiveness Payment Program.
    (b) Payment applications must contain the documentation required by 
this subpart, an ELS Cotton Domestic User/Exporter Agreement and 
additional information that may be requested by CCC.


Sec.  1427.1205  ELS Cotton Domestic User/Exporter Agreement.

    (a) Payments under this subpart shall be made available to eligible 
domestic users and exporters who have entered into an ELS Cotton 
Domestic User/Exporter Agreement with CCC and who have complied with 
the terms and conditions in this subpart, the ELS Cotton Domestic User/
Exporter Agreement and CCC-issued instructions.
    (b) ELS Cotton Domestic User/Exporter Agreements may be obtained 
from CCC. To participate in the program authorized by this subpart, 
domestic users and exporters must execute the ELS Cotton Domestic User/
Exporter Agreement and forward the original and one copy to CCC.


Sec.  1427.1206  Form of payment.

    Payments under this subpart shall be made available in the form of 
commodity certificates issued under part 1401 of this chapter, or in 
cash, at the option of the participant, as CCC determines and 
announces.


Sec.  1427.1207  Payment rate.

    (a) The payment rate for payments made under this subpart shall be 
determined as follows:
    (1) Beginning the Friday on or following August 1 and ending the 
week in which the LFQc, the LFQf, the USPFEc, and the USPFEf prices 
first become available, the payment rate shall be the difference 
between the USPFE and the LFQ in the fourth week of a consecutive 4-
week period in which the USPFE exceeded the LFQ each week, and the 
adjusted LFQ was less than 134 percent of the current crop year loan 
level for U.S. base quality Pima cotton in all weeks of the 4-week 
period; and
    (2) Beginning the Friday-through-Thursday week after the week in 
which the LFQc, the LFQf, the USPFEc, and the USFEf prices first become 
available and ending the Thursday following July 31, the payment rate 
shall be the difference between the USPFEc and the LFQc in the fourth 
week of a consecutive 4-week period in which the USPFEc exceeded the 
LFQc each week, and the adjusted LFQc was less than 134 percent of the 
current crop year loan level for base quality U.S. Pima in all weeks of 
the 4-week period. If either or both the USPFEc and the LFQc are not 
available, the payment rate may be the difference between the USPFEf 
and the LFQf.
    (b) Whenever a 4-week period under paragraph (a) of this section 
contains a combination of LFQ, LFQc, and LFQf for only one to three 
weeks, such as may occur in the spring when the LFQ is succeeded by the 
LFQc and the LFQf

[[Page 67345]]

(spring transition), and at the start of a new marketing year when the 
LFQc and the LFQf are succeeded by the LFQ (marketing year transition), 
under paragraphs (a)(1) and (a)(2) of this section, during both the 
spring transition and the marketing year transition periods, the LFQc 
and USPFEc, in combination with the LFQ and USPFE, shall, to the extent 
practicable, be considered during such 4-week periods to determine 
whether a payment is to be issued. During both the spring transition 
and the marketing year transition periods, if either or both USPFEc 
price and the LFQc are not available, the USPFEf and the LFQf in 
combination with the USPFE price and LFQ shall be taken into 
consideration during such 4-week periods to determine whether a payment 
is to be issued.
    (c) For purposes of this subpart, regarding the determination of 
the USPFE, USPFEc, USPFEf, the LFQ, the LFQc, and the LFQf:
    (1) If daily quotations are not available for one or more days of 
the 5-day period, the available quotations during the period will be 
used;
    (2) If none of the USPFE, USPFEc, or USPFEf prices is available, or 
if none of the LFQ, LFQc, or LFQf is available, the payment rate shall 
be zero and shall remain zero unless and until sufficient USPFE prices 
or the LFQ again becomes available, the USPFE, USPFEc, or USPFEf price 
exceeds the LFQ, the LFQc, or the LFQf, as the case may be, and the 
LFQ, the LFQc, or the LFQf, as the case may be, adjusted for 
transportation, is less than 134 percent of the current crop year loan 
rate for base quality U.S. Pima for 4 consecutive weeks.
    (d) Payment rates for loose lint that is of a suitable quality, 
without further processing, for spinning, papermaking or bleaching, 
shall be based on a percentage of the basic rate for baled lint, as 
specified in the ELS Cotton Domestic User/Exporter Agreement.


Sec.  1427.1208  Payment.

    (a) Payments under this subpart shall be determined by multiplying:
    (1) The payment rate, determined under Sec.  1427.127, by
    (2) The net weight (gross weight minus the weight of bagging and 
ties) determined under paragraph (b) of this section, of eligible ELS 
cotton bales that an eligible domestic user opens or an eligible 
exporter exports during the Friday through Thursday period following a 
week in which a payment rate is established.
    (b) For the purposes of this subpart, the net weight shall be based 
upon:
    (1) For domestic users, the weight on which settlement for payment 
of the ELS cotton was based (landed mill weight);
    (2) For exporters, the shipping warehouse weight or the gin weight 
if the ELS cotton was not placed in a warehouse, of the eligible cotton 
unless the exporter obtains and pays the cost of having all the bales 
in the shipment re-weighed by a licensed weigher and furnishes a copy 
of the certified weights.
    (c) For the purposes of this subpart, eligible ELS cotton will be 
considered:
    (1) Consumed by the domestic user on the date the bale is opened 
for consumption; and
    (2) Exported by the exporter on the date that CCC determines is the 
date on which the cotton is shipped for export.
    (d) Payments under this subpart shall be made available upon 
application for payment and submission of supporting documentation, as 
required by this subpart, CCC instructions, and the ELS Cotton Domestic 
User/Exporter Agreement.

    Signed in Washington, DC, on October 24, 2005.
Michael Yost,
Acting Executive Vice President, Commodity Credit Corporation.
[FR Doc. 05-22082 Filed 11-4-05; 8:45 am]
BILLING CODE 3410-05-P