Storage, Handling, and Ginning Requirements for Cotton Marketing Assistance Loan Collateral, 51422-51428 [E6-14370]

Agencies

• DEPARTMENT OF AGRICULTURE
• Commodity Credit Corporation

[Federal Register Volume 71, Number 168 (Wednesday, August 30, 2006)]
[Rules and Regulations]
[Pages 51422-51428]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14370]


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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 www.sc.egov.usda.gov for downloading. The regulation is available at 
FSA's Price Support Division Internet site at 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