[Federal Register Volume 61, Number 139 (Thursday, July 18, 1996)]
[Rules and Regulations]
[Pages 37544-37625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17486]



[[Page 37543]]


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Part II





Department of Agriculture





_______________________________________________________________________



Office of the Secretary



Farm Service Agency



Commodity Credit Corporation



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7 CFR Part 2 et al.



1996 Farm Bill: Implementation of Farm Program Provisions; Final Rule

  Federal Register / Vol. 61, No. 139 / Thursday, July 18, 1996 / Rules 
and Regulations  

[[Page 37544]]



DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 2

Farm Service Agency

7 CFR Parts 718, 719, 720, 729, 790, 791, 793, 796

Commodity Credit Corporation

7 CFR Parts 1400, 1401, 1402, 1405, 1412, 1413, 1421, 1425, 1427, 
1430, 1434, 1435, 1446, 1468, 1470, 1477, 1478, 1479, 1497, 1498

RIN 0560-AE81


Implementation of the Farm Program Provisions of the 1996 Farm 
Bill

AGENCIES: Farm Service Agency, Commodity Credit Corporation; USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule implements farm program provisions required by 
Title I of the Federal Agriculture Improvement and Reform Act of 1996 
(the 1996 Act). The primary issues concern: changes to the dairy, 
sugar, and peanut programs; the establishment of production flexibility 
contracts for producers of wheat, feed grains, upland cotton, and rice 
that specify the terms and conditions for receiving payments from the 
Commodity Credit Corporation (CCC); statutory payment limitation 
provisions; implementation of marketing assistance loans, reduced loan 
repayment rates, and loan deficiency payments; and a cap on Cotton User 
Marketing Certificate payments.
    This action will also: amend Chapter II to delegate authority to 
implement these programs from the Secretary to the Under Secretary for 
Farm and Foreign Agricultural Services and to the Administrator, Farm 
Service Agency (FSA) and to correct an erroneous reference to an 
existing delegation with respect to the Administrator, Foreign 
Agricultural Service (FAS); reorganize Chapter VII to consolidate the 
regulations in a more efficient manner, to free parts for future use 
and to remove obsolete provisions; and reorganize Chapter XIV so that 
the regulations of separate agencies that operate through CCC are 
located and organized in separate and identifiable parts.
    This regulation will complete many of the actions being taken by 
FSA as part of the National Performance Review Initiative to eliminate 
unnecessary regulations and improve those that remain in force.

EFFECTIVE DATE: July 12, 1996.

FOR FURTHER INFORMATION CONTACT: David Winningham, Director, Regulatory 
Review Group, FSA, USDA, Stop 0572, 1400 Independence Ave. SW, 
Washington, D.C. 20250-0572, Telephone: (202) 720-5457.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule is issued in conformance with Executive Order 12866 
and has been determined to be economically significant and has been 
reviewed by the Office of Management and Budget.

Cost-Benefit Assessment

    A cost-benefit assessment of the implementation of commodity 
programs provided under the 1996 Act was completed. Most of the impact 
on the farm sector is due to Title I provisions (Agricultural Market 
Transition Act of 1996). However, the cost-benefit assessment also 
incorporates, but does not separately analyze, the effects of the 
implementation of Title II (Agricultural Trade) and Title III 
(Conservation) provisions.
    The assessment is based, in part, on analyses of supply, demand, 
and price conditions and trends in agricultural commodity markets 
conducted by the U.S. Department of Agriculture (USDA). Several USDA 
agencies conduct these analyses, which are coordinated through USDA's 
Interagency Commodity Estimates Committees. The Committees are composed 
of senior analysts and are responsible for publishing official USDA 
supply, demand, and price estimates/forecasts. Weather, trade policy, 
and economic uncertainties surrounding production and use projections 
can change these forecasts.
    The 1996 Act was signed into law on April 4, 1996. The fiscal year 
(FY) 1997 President's Budget baseline estimates, based on supply and 
demand conditions as of January 1996 assumed an extension of 1995 
program provisions as provided by the Agricultural Act of 1949, as 
amended (the 1949 Act) prior to enactment of the 1996 Act. The primary 
amendments to the 1949 Act which are incorporated in this analysis are 
the provisions of the Food, Agriculture, Conservation and Trade Act of 
1990 (the 1990 Act) and related budget reconciliation acts in 1990 and 
1993.
    The 1996 Act replaces target prices, deficiency payments, and 
acreage reduction programs with fixed, but declining, payments to 
producers of contract commodities (wheat, corn, grain sorghum, barley, 
oats, upland cotton, and rice). Contract payments are based on 
historical acreage on the farm and will not change if acreage or market 
prices change. In general, producers with production flexibility 
contracts are given total flexibility to plant any crop on the farm, 
except fruits and vegetables. However, participating producers must 
comply with wetland and conservation requirements under Title XII of 
the Food Security Act of 1985.
    The 1996 Act accelerates the trend of the previous two major farm 
acts toward greater market orientation, which gradually reduced the 
Government's influence in the agricultural sector. The reduced role of 
Government programs may make the sector more vulnerable to supply and/
or demand shocks, but the increased planting flexibility and 
elimination of production adjustment programs allow producers to 
respond more rapidly. Thus, alternative production and marketing 
strategies that manage risk could increase in importance.
    In aggregate, the national level of acreage planted to most of the 
major field crops under the 1996 Act is expected to be nearly the same 
as under the FY 1997 President's Budget baseline assuming continuation 
of the 1995 program provisions. However, the increased planting 
flexibility may result in a shift at the farm level and regionally to 
take advantage of differences in comparative advantage in production of 
specific crops. Plantings of the eight major field crops are expected 
to average only about 600,000 acres less compared with the baseline, 
due largely to the decoupling of payments from planting decisions and 
the freeing-up of haying and grazing restrictions. The 1996 Act will 
have little effect on fruits and vegetables because planting 
limitations are similar to the 1949 Act.
    Total outlays for the contract commodities and marketing assistance 
loan commodities under the 1996 Act are estimated at $36.8 billion, 
about $23.0 billion higher than under the FY 1997 President's Budget 
baseline assuming continuation of the 1995 program provisions. This 
largely reflects higher contract commodity payments compared with 
projected deficiency payments under the FY 1997 President's Budget 
baseline.
    Net farm income (including crop and livestock sectors) during the 
1996-2002 calendar years is expected to be about $15 billion higher 
under the 1996 Act than under the FY 1997 President's Budget baseline. 
This largely reflects higher Government payments to farmers under the 
1996 Act as production flexibility contract payments exceed

[[Page 37545]]

projected deficiency payments. Additionally, changes in the timing of 
payments to farmers provide an additional boost to farm income in the 
first year of the program--pushing 1996 net income up about $4 billion. 
However, net farm income is up by less than the increase in Government 
payments due to changes in the dairy and peanut programs. Crop sector 
receipts are down slightly under the 1996 Act due to lower plantings 
and production of the eight major commodities. Livestock sector 
receipts are lower due primarily to lower dairy sector receipts. Cash 
production expenses are up slightly due to increases in net cash rents, 
which offset lower crop production expenses from lower plantings.
    Farmland values are higher under the 1996 Act compared with the FY 
1997 President's Budget, reflecting the capitalized value of higher 
income. Land values average about 3 percent higher under the 1996 Act 
compared with FY 1997 President's Budget estimates.
    Consumer costs are expected to be only slightly lower under the 
1996 Act. Because grain prices, on average, are expected to be 
essentially unaffected, no appreciable change in grain-based food 
product costs, such as cereal and meat products, is expected.
    The livestock sector, excluding dairy, is expected to benefit 
modestly from the 1996 Act because there are no restrictions on acreage 
that may be hayed or grazed, and, on average, feed prices are expected 
to be about unchanged. However, in aggregate, the net impact on 
nondairy livestock prices and production is negligible. Alternatively, 
the 1996 Act can be compared to a ``no program'' baseline. Under the 
1996 Act, contract commodity payments represent a large portion of the 
benefits received by producers and there are few planting restrictions. 
The major differences between a no-program scenario (if the CRP and 
export programs were continued) and the 1996 Act are that producers 
would no longer receive contract commodity payments of about $35.9 
billion and would no longer be subject to farm conservation and wetland 
protection requirements. The loss in farm income would likely entail 
substantial short-term adjustments and financial stress. However, over 
the longer term, a no-program scenario is expected to have little or no 
impact on supply, demand, and prices compared with the 1996 Act for 
most commodities except for peanuts, sugar, and, in the initial years 
of the period, dairy.
    Plantings would be expected to decrease marginally with little or 
no change in market prices. Farm income would likely be lower, but lost 
revenue from eliminating contract commodity payments would be partially 
offset by lower cash rents. Land values would be lower if there were no 
program. In the aggregate, compared with a no-program scenario, impacts 
of the 1996 Act on the livestock industry, input industry, consumers, 
and the general economy would be minimal in the long run. However, 
impacts in some sectors, such as those dependent on the peanut program 
and sugar program, may be more significant.
    The economic impacts of the peanut program provisions of the 1996 
Act, including eliminating the peanut quota floor (which is addressed 
in a separate rule), reducing the quota price support level, and 
requiring the program to operate at no net cost are expected to reduce 
producers' revenue by $1.5 billion from 1996 to 2002, while taxpayers 
are expected to benefit by avoiding costs of $0.5 billion compared with 
the FY 1997 President's Budget baseline. Consumers benefit from lower 
prices. Quota lease and capitalized values of the quota are also 
expected to decline.
    Under a ``no peanuts program'' scenario, producer prices would 
decline, resulting in gains to first buyers of peanuts of $150 to $160 
million annually, compared with the 1996 provisions. Over the 7-year 
life of the program, the capitalized gain to first buyers would total 
about $800 million, assuming a 10 percent capitalization rate. Beet 
sugar production under the 1996 Act is expected to expand slightly 
faster than under the FY 1997 President's Budget baseline because of 
the elimination of domestic marketing allotments. Production of raw 
cane sugar is expected to be the same. Sugar imports are forecast to be 
somewhat lower under the 1996 Act reflecting the increase in beet sugar 
production. Based on the FY 1997 President's Budget baseline, the sugar 
program is expected to offer nonrecourse loans in most years covered by 
the 1996 Act because the tariff rate quota is expected to be above 1.5 
million short tons, raw value. Sugar prices are not expected to change 
significantly on average because supply is expected to be unchanged 
from the FY 1997 President's Budget baseline. The 1996 Act is expected 
to increase Federal revenues by $49 million over FY's 1996-2002, 
compared with the FY 1997 President's Budget baseline, by increasing 
assessments on sugar marketed.
    One study estimated, under the assumptions of a low initial world 
price for raw sugar, averaging 7.5 cents per pound, and unilateral 
elimination of the U.S. sugar program, that the U.S. program increased 
the domestic sugar price by an average of 13 cents per pound from 1984 
to 1989. The study estimated that this domestic price premium cost U.S. 
sweetener users $2.8 billion per year; increased returns to sugarcane 
growers, sugar beet growers, and sweetener processors by $2.1 billion; 
increased returns to foreign quota holders by $403 million; and cost 
other foreign sugar suppliers $2.3 billion (by lowering the world 
price); and benefitted foreign consumers $2.2 billion (1988 dollars).
    Another study estimated that trade liberalization by the U.S., the 
European Economic Union, China, and the former Soviet Union in sugar 
would result in a domestic price of 22.4 cents per pound, which is 
about the current domestic price under existing U.S. trade 
restrictions. Since beet sugar production costs are lower than raw cane 
sugar production and refining costs in the United States, very little 
disruption of the domestic sugar industry would be expected with 
multilateral deregulation of the world sugar market.
    In the dairy sector, milk production is expected to be lower 
compared with the FY 1997 President's Budget baseline as dairy farmers 
respond to lower milk prices. Consumers benefit from lower milk and 
dairy product prices as product clears through the marketplace as the 
support program is being phased out by January 1, 2000. Cash receipts 
in the dairy sector are lower under the 1996 Act, also a result of the 
price support program being phased out. Lower farm milk prices are only 
partially offset by the elimination of the assessment on all milk 
marketings that became effective on May 1, 1996.
    Lower producer prices under a ``no dairy program'' scenario would 
result in gains to first buyers of milk of about $175 million per year 
over the 7-year period, FY 1996-2002, compared with the new program. 
Most of the gains to first buyers would occur during the first half of 
the period, before the support program is eliminated. Lower farm-level 
prices for milk could provide a temporary windfall to manufacturers and 
retailers of milk and dairy products, but competitive pressures would 
be expected eventually to lead to much of the reduction in producer 
prices being passed on to retail consumers.
    The 1996 Act provides the Secretary some limited implementation 
options. Alternative options, reasons for selecting a particular 
option, and

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analyses of the individual commodity sector impacts of the 1996 Act, 
compared with FY 1997 President's Budget, are presented in the 
assessment.
    For further information, the following individuals may be contacted 
regarding the different parts of the assessment:

Part I--Contract Commodity Payment, Marketing Assistance Loan, and 
Related Provisions of the Agricultural Market Transition Act (Contact: 
Philip Sronce, 202-720-2711)
Part II--Sugar (Contact: Dan Colacicco, 202-720-6733)
Part III--Dairy (Contact: John Mengel, 202-720-6733)
Part IV--Peanuts (Contact: Verner Grise, 202-720-5291)

Federal Assistance Programs

    The titles and numbers of the Federal assistance programs, as 
found in the Catalog of Federal Domestic Assistance, to which this 
final rule applies are: Commodity Loans and Purchases-10.051; Cotton 
Production Stabilization-10.052; Feed Grain Production 
Stabilization-10.055; Wheat Production Stabilization-10.058; Rice 
Production Program-10.065; and Conservation Reserve Program-10.069.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule because the Office of the Secretary, FSA and 
CCC are not required by 5 U.S.C. 553 or any other provision of law to 
publish a notice of proposed rulemaking with respect to the subject 
matter of this rule.

Environmental Evaluation

    It has been determined by an environmental evaluation that this 
action will have no significant impact on the quality of the human 
environment. Therefore, neither an environmental assessment nor an 
Environmental Impact Statement is needed.

Executive Order 12778

    The final rule has been reviewed in accordance with Executive Order 
12778. The provisions of this final rule preempt State laws to the 
extent such laws are inconsistent with the provisions of this rule. The 
provisions of this rule are not retroactive. Before any judicial action 
may be brought concerning the provisions of this rule, the 
administrative remedies 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 3015, subpart V, 
published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates

    The provisions of Title II of the Unfunded Mandates Reform Act of 
1995 are not applicable to this rule because the Office of the 
Secretary, FSA and CCC are not required by 5 U.S.C. 553 or any other 
provision of law to publish a notice of proposed rulemaking with 
respect to the subject matter of this rule.

Small Business Regulatory Enforcement Fairness Act of 1996

    Section 161(d) of the 1996 Act requires that the regulations 
necessary to implement Title I of the 1996 Act must be issued within 90 
days of enactment and that such regulations shall be issued without 
regard to the notice and comment provisions of 5 U.S.C. 553. These 
regulations affect the immediate planting and marketing decisions of an 
extraordinarily large number of agricultural producers. In addition, 
with respect to the revision of 7 CFR part 2, 5 U.S.C. 553 specifically 
provides that rules relating to agency organization may be published 
without the issuance of a general notice of proposed rulemaking. 
Accordingly, as authorized by section 808 of the Small Business 
Regulatory Enforcement Fairness Act of 1996, Pub. L. 104-121, this rule 
is effective upon publication in the Federal Register.

Background

1. Part 2  Delegations of Authority by the Secretary of Agriculture and 
General Officers of the Department

    Delegations of authority are made from the Secretary to the Under 
Secretary for Farm and Foreign Agricultural Services and from the Under 
Secretary for Farm and Foreign Agricultural Services to the 
Administrator, FSA, to formulate policies and administer programs 
authorized by Title I of the 1996 Act. In addition, an erroneous 
delegation is corrected and obsolete delegations are removed.

2. Part 718  Reporting and Maintaining Farm Records and General 
Compliance Provisions

    The regulations regarding the determination of acreage and 
compliance, such as requirements for acreage reports, are amended to 
conform to the program changes required by the 1996 Act. As a result of 
the broad planting flexibility under the new regulations producers will 
no longer be required to submit acreage reports on the production on 
the farms. Reporting will only be required regarding the planting of 
fruits and vegetables in order to receive production flexibility 
contract payments. Producers who seek marketing assistance loans shall 
file an acreage report, before harvest, on the production to be used 
for the marketing assistance loan. No additional voluntary reporting by 
producers will be considered for the purpose of determining benefits 
under future programs. Section 718.7 is reorganized to reduce its size 
and improve clarity. Also, internal agency procedures are removed from 
the regulations and obsolete references are updated or removed. Parts 
719--Reconstitution of Farms, Allotments, Normal Crop Acreage, and 
Preceding Year Planted Acreage, 720--General Policy and 
Interpretations, 790--Incomplete Performance Based Upon Action or 
Advice of an Authorized Representative of the Secretary, 791--Authority 
to Make Payments When There Has Been a Failure to Comply Fully With the 
Program, 793--Rule of Fractions, and 796--Denial of Program Eligibility 
for Controlled Substance Violations are consolidated into part 718 for 
efficiency and ease of use.

3. Part 729  Peanuts

    The 1996 Act amended the Agricultural Adjustment Act of 1938 (the 
1938 Act) to provide a poundage quota program for the 1996 through 2002 
crops of peanuts. Quota matters under the 1938 Act will be addressed in 
a separate rule. This rule amends part 729 to implement the provision 
of section 155 of the 1996 Act dealing with peanut marketing 
assessments. The price support provisions of section 155 will be 
addressed in the portion of this rule amending part 1446.
    Under section 155(g)(1) of the 1996 Act, the Secretary is directed 
to collect a nonrefundable marketing assessment on peanuts produced in 
each of the 1996 through 2002 crops on all peanuts marketed and 
considered marketed in the same manner as the assessment previously 
collected under provisions of the 1949 Act. The per-pound basis for the 
assessment as a percentage of the national average quota or additional 
peanut loan rate for the applicable crop is, for producers, 0.6 percent 
for the 1996 crop and 0.65 percent for the 1997 through 2002 crops, 
and, for the first purchaser, 0.55 percent for each of the 1996 through 
2002 crop years. Sections 155(d)(4) and (7) of the 1996 Act provide 
further that the amounts of the assessments not required to offset 
losses in area quota marketing pools shall be transferred to the 
Treasury.
    Further, section 155(d)(8) of the 1996 Act requires that the 
marketing

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assessment collected from producers be increased if the offsets, as 
provided in part 1446 of this title, are not sufficient to cover losses 
in an area quota pool. The increased assessment will be in an amount 
determined by the Secretary to be necessary to cover such losses and 
shall apply to the quota peanuts produced in the marketing area covered 
by that pool.
    Accordingly, this rule amends Sec. 729.316, and adds a new 
Sec. 729.317. Any shortfall in additional assessments made to cover 
losses will be made up in increased assessments in subsequent years. 
Any excess collections from increased assessments to cover losses shall 
be held by the Secretary to cover net losses in the pool in subsequent 
years in the same marketing area.

4. Part 1400  Payment Limitation and Payment Eligibility

    This rule clarifies the existing policy and implements the payment 
limitation and eligibility requirements of the 1996 Act. The payment 
limitation and eligibility provisions formerly found at parts 1497 and 
1498 are combined and revised in a new part 1400. The 1996 Act provides 
a $40,000 limitation per fiscal year on payments made to a person under 
one or more production flexibility contracts, a $50,000 limitation on 
the total of adjustments made pursuant to sections 113(c)(1) and 
113(c)(2) of the 1996 Act and paid to person under one or more 
flexibility contracts, and a $75,000 limitation on the amount of 
marketing loan gains and loan deficiency payments a person may receive. 
The 1996 Act applies the payment limitation and payment eligibility 
requirements and restrictions of the Food Security Act of 1985 to 
payments made under production flexibility contracts, marketing loan 
gains, and loan deficiency payments. This rule will also update 
regulations providing that persons who are not U.S. citizens are not 
eligible for farm program payments, and make other minor changes to 
enhance the implementation of the 1996 Act.

5. Parts 1401 and 1470  Commodity Certificates, In Kind Payments, and 
Other Forms of Payment

    Chapter XIV provides regulations for programs operated by the 
Commodity Credit Corporation (CCC). Currently, three agencies operate 
programs under CCC: the Farm Service Agency (FSA), the Natural 
Resources Conservation Service (NRCS), and the Foreign Agricultural 
Service (FAS). Currently, regulations for each agency are not all co-
located. The chapter will be reorganized to combine and unify each 
agency's regulations in easily identifiable parts, as follows:

Parts 1400-1409  General CCC Regulations and Policies
Parts 1410-1464  FSA
Parts 1465-1479  NRCS
Parts 1480-1499  FAS
Part 1470 is thus redesignated as part 1401.

6. Part 1402  Policy for Certain Commodities Available for Sale

    This final rule amends part 1402 to delete the requirement that 
general sales offering information will be issued on a monthly basis.

7. Part 1405  Loans, Purchases and Other Operations

    This final rule implements changes to Sec. 1405.1 by incorporating 
the additional 1 percent interest requirement set forth for CCC loans, 
and reserves Sec. 1405.5. Also, the rule implements crop insurance 
requirements and contract violation provisions set forth by the 1996 
Act.

8. Part 1412  Production Flexibility Contracts for Wheat, Feed Grain, 
Rice, Upland Cotton

    This final rule sets forth the rules and regulation for a new 
Federal farm subsidy program. In the past, payments were determined by 
taking into consideration the acreage planted to a crop and acreage 
devoted to a conserving use. In addition, payments were only made when 
the price of a commodity fell below an established (``target'') price 
set forth in the 1949 Act. The new program decouples farm program 
payments from program crop planting requirements. This rule allows 
farms having a 1996 crop acreage base established for one or more of 
the following crops: wheat, corn, barley, grain sorghum, oats, cotton 
and rice (``contract commodities'') to be enrolled under a Production 
Flexibility Contract for a period of 7 years. A producer may enroll the 
farm and one or more contract commodities in a 7-year contract. 
Contract payments are calculated by multiplying 85 percent of the 
contract acreage times the farm program payment yield for the crop 
times the payment rate for the crop.
    The major provisions of these regulations include the following 
provisions. Farms with previous years' crop acreage bases established 
on a rotation basis for a crop shall have 1996 crop acreage bases for 
the crop established by dividing the sum of planted and considered 
planted acreage for the rotation cycle by the number of years in the 
rotation cycle. The sign-up period for the program begins May 20, 1996, 
and ends August 1, 1996. A producer on an enrolled farm may plant any 
crop, including crops other than the contract commodity, on acreage 
normally devoted to a contract commodity crop except for certain fruits 
and vegetables, for which limitations are set forth in this regulation. 
Tobacco may be planted on contract acreage; however, tobacco acreage on 
a farm cannot exceed that farm's tobacco quota or allotment. Any 1996 
crop acreage bases on a farm not enrolled by August 1, 1996, shall not 
be eligible to be enrolled after that date unless such crop acreage 
base is released upon expiration of a Conservation Reserve Program 
(CRP) contract that expires or is voluntarily terminated after August 
1, 1996. Producers who violate a Production Flexibility Contract may be 
denied benefits under the Production Flexibility Contract for its 
duration, depending on the nature of the violation. No acreage 
reduction program requirements apply to this program. The regulations 
also provide that landowners must provide fair treatment to 
sharecroppers and tenants in order for the landowner to receive program 
benefits.

9. Part 1421  Loans and Loan Deficiency Payments for Grains and 
Similarly Handled Commodities

    Part 1421 provided price support loan and loan deficiency payments 
for the 1991 and subsequent crops of wheat, feed grains, rice, 
oilseeds, and loans for farm-stored peanuts. The 1996 Act continues to 
authorize loan and loan deficiency payments for these commodities from 
1996 through 2002. The 1996 Act does not authorize the following: (1) 
purchase agreements; (2) farmer-owned reserve (FOR); (3) a rice 
marketing certificate program; (4) loans for high moisture barley; (5) 
loans and loan deficiency payments for rye; and (6) loan extensions. 
This rule removes these references from part 1421. The 1996 Act changes 
the repayment rate for rice loan and loan deficiency payments and the 
maturity date for oilseeds. Provisions of part 1421 have been amended 
as necessary to delete price support terminology; and to reflect the 
reorganization of the Department of Agriculture (USDA) pursuant to the 
Department of Agriculture Reorganization Act of 1994, Public Law 103-
354, 7 U.S.C. 6991.
    Rules for the Rice Marketing Certificate Program are deleted.

10. Part 1425  Cooperative Marketing Associations

    This rule implements changes in the regulations for cooperative 
marketing

[[Page 37548]]

associations (CMA's) that obtain loan and loan deficiency payments on 
behalf of their members for the 1996 through 2002 crop years. The 1996 
Act does not authorize: (1) loans and loan deficiency payments for rye 
and honey; (2) wool and mohair payments; and (3) purchase agreements. 
This rule removes rye, honey, wool, and mohair as approved commodities, 
removes purchase agreement provisions, deletes price support 
terminology, makes changes necessary to reflect the reorganization of 
USDA, and removes definitions found elsewhere in this title. The term 
``cooperative'' is amended to CMA.

11. Part 1427  Cotton Loan Programs

    The 1996 Act sets forth the statutory authority for the cotton loan 
program. This rule makes amendments to part 1427 that will incorporate 
applicable provisions of the 1996 Act, provide greater clarity, and 
remove obsolete provisions. The provisions of these regulations are 
generally the same as regulations in effect with regard to the 1991 
through 1995 crops.
    However, Sec. 1427.7(a) has been amended to remove the provisions 
for 8-month extensions of upland cotton and extra long staple cotton 
nonrecourse loans. The 1996 Act prohibits extensions for all loans 
authorized under the 1996 Act. CCC will continue the provisions for 8-
month loan extensions for the 1995 upland cotton crop. Sections 1427.8 
and 1427.11(g) and (h) have been amended to remove the provisions that 
the amount of the loan shall be reduced by the amount of any unpaid 
warehouse receiving charges, warehouse storage charges in excess of 60 
days, or charges for new bale ties. However, Sec. 1427.13(e) has been 
added to require the producer, if the producer elects to forfeit cotton 
to CCC, to pay to CCC all warehouse receiving and storage charges that 
accrued on such forfeited cotton prior to the date such cotton is 
tendered for loan.
    Section 1427.19 has been amended to modify the repayment level for 
upland cotton loans beginning with the 1996 crop. The 1996 Act removed 
the minimum repayment rate of 70 percent of the national average loan 
rate. Under the 1996 Act, upland cotton loans may be repaid at the 
lesser of: (1) the loan level and charges, plus interest; or (2) the 
adjusted world price. In addition, Sec. 1427.19 has been amended to 
clarify when CCC will pay warehouse storage charges to permit upland 
cotton loans to be repaid at the adjusted world price. Report language 
accompanying the 1996 Act provides that current policy for establishing 
the repayment rate for upland cotton should be continued, including 
crediting storage costs against the repayment amount. Accordingly, the 
regulations provide that producers will be responsible for paying 
storage costs, except when producers repay a loan at a lower rate when 
the adjusted world price of upland cotton is less than the total of the 
principal amount of the loan plus accrued interest and storage costs 
accruing after the cotton was pledged as collateral for the loan. This 
is the same procedure as was used in prior years. However, producers 
will now be responsible for storage charges accruing before the loan 
was obtained.
    Section 1427.24 has been reserved. The 1996 Act does not authorize 
recourse loans except for recourse seed cotton loans, which are covered 
in subpart D of this part.
    Section 1427.100 is amended to set forth changes to the upland 
cotton user marketing certificate program. A proposed rule was 
published in the Federal Register on March 13, 1996, at 61 FR 10289, 
requesting comments on a proposal to address bunching of export sales 
under the upland cotton user marketing certificate (Step 2) program by 
setting the exporter payment rate on the date the cotton is shipped. 
Comments were also solicited on several alternative policies to fix 
bunching such as prohibiting sales through third parties or to foreign 
affiliates, or requiring exporters to provide evidence of a bona fide 
export sales contract, identify the end user, or disclose the amount of 
the Step 2 payment applied to the sales price.
    The 30-day public comment period ended on April 12, 1996. A total 
of 123 comments were received from 85 producers, nine ginners, seven 
regional producer associations, five producer co-ops, five U.S. textile 
manufacturers, five shippers, the Embassy of Australia, and six 
national organizations including the American Cotton Shippers 
Association (ACSA), the National Cotton Council (NCC), the NCC Producer 
Steering Committee, the American Textile Manufacturers Institute 
(ATMI), the National Cotton Ginner's Association (NCGA) and the 
Cottongrowers Warehouse Association (CWA).
    One hundred and thirteen comments supported the proposal, including 
all 85 producers, nine ginners, and five producer co-ops as well as six 
regional producer associations, four textile manufacturers, the NCC 
Producer Steering Committee, NCGA, CWA and ATMI. The following reasons 
for supporting the proposal were cited by one or more of those who 
commented: solves the bunching problem, fixes an otherwise good 
program; maintains competitiveness in both domestic and export markets; 
brings the program closer in line with the original legislative intent; 
puts exporters and domestic mills on an equal basis; removes the 
incentive for exporters to bunch; limits program abuse; limited 
transportation facilities would make bunching under this proposal too 
hard and expensive to control; results in a return to normal marketing 
practices; gives exporters an incentive to ship U.S. cotton on optional 
origin contracts; and enables exporters to be competitive on future 
sales.
    ACSA, the Embassy of Australia, one regional producer association 
and four shippers opposed the proposal. The following reasons were 
cited by one or more of those who commented: compromises the 
competitiveness feature of the Step 2 program by decoupling the payment 
rate from the sale date; could result in bunching, disrupt shipping, 
and cause congestion at ports and container terminals; will not 
increase sales of U.S. cotton in foreign markets; does not remove the 
potential for Step 2 to produce a high value payment rate, unrelated to 
the market, and may require further changes in the future to fix any 
unintended effects; increases the reporting burden on program 
participants and USDA; is a give-away program providing the exporter 
with a windfall profit; will generate negative publicity; may 
indirectly subsidize foreign buyers who compete with U.S. textile mills 
if export contracts include agreements that pass on to buyers all or 
part of any Step 2 payment received by the exporter; the U.S. Treasury 
would not receive income tax revenue on payments shared with foreign 
buyers; may result in higher cotton imports under Step 3 (import 
quota), which would lower producer prices; and shippers would be the 
only entities to reap the benefits of the program.
    Several other comments on the proposed rule were received. One 
textile manufacturer indicated that the Step 2 program should be for 
mills only, but if exporters were included, the payment rate should be 
set only when the final destination is declared. ACSA and two shippers 
recommended that the Step 2 program be discontinued for exporters. The 
Embassy of Australia recommended that the Step 2 program be eliminated 
entirely. Although NCC supported a rule change to address bunching, the 
organization could not achieve unanimity among the seven industry 
segments on a specific solution, so NCC could not endorse the proposal. 
One shipper commented that the Step 2 program is fundamentally flawed 
and

[[Page 37549]]

cannot be fixed by this or any other proposal.
    Several comments about alternative policies were received. The NCC 
Producer Steering Committee and three regional producer associations 
stated that basing the exporter payment rate on the date the final 
destination is declared would also solve the bunching problem. The 
Embassy of Australia indicated that, like the proposal, the alternative 
policies listed in the proposed rule would likely have negative, 
unintended consequences. One regional cotton producer association 
recommended that USDA continue to study alternatives to improve Step 2.
    As pointed out in several comments, the proposal would decouple the 
exporter payment rate from the sales date. However, to derive a fair 
solution to bunching, the interests of all participants must be 
weighed. Although the legislative intent was to make U.S. cotton 
competitive, Step 2 was not intended to favor one subset of 
participants over another in the process. In the past, U.S. mills and 
exporters without foreign affiliates have been at somewhat of a 
disadvantage vis-a-vis exporters with foreign affiliates. Mills cannot 
lock in payments until the cotton is actually consumed, whereas under 
current procedures, exporters lock in their payment rate on the sale 
date, which can be months before the cotton is actually shipped. 
Exporters with foreign affiliates have a greater capacity to do this 
than exporters without such affiliates. To leave existing rules in 
place for exporters would continue to place these groups at a 
disadvantage. Also, the 1996 Act put a $701 million cap on Step 2 
payments for fiscal years 1996 through 2002. The proposed rule would 
make access among participants to Step 2 payments more equitable.
    Disruptions in the infrastructure caused by exporters' trying to 
bunch their exports are not anticipated. Due to the physical 
limitations of the transportation system, exporters will not be able to 
bunch exports to the extent they were able to bunch sales contracts.
    The recordkeeping and reporting burden on both program participants 
and CCC would be reduced significantly under the proposed rule. 
Exporters would only report to CCC those exports made during a week a 
payment rate was in effect. There would no longer be a need to track 
current-crop/forward-crop shipment data nor would the requirement to 
register sales cancellations and replacements be retained. Also, as a 
result of changes to the exporter side, CCC has determined that 
domestic mills would no longer have to report as much data about their 
consumption during weeks in which the payment rate is zero. Adopting 
this proposal would simplify program administration for CCC and all 
program participants.
    ACSA, which represents a large segment of the U.S. shipping 
industry, called for the removal of exporters from the Step 2 program. 
One shipper stated that the provisions of the new farm bill should 
provide ``all tools necessary to compete in foreign markets.'' CCC has 
no authority to exclude exporters from the Step 2 program or to 
eliminate the Step 2 program. Whenever certain price conditions occur, 
CCC is obligated by law to issue Step 2 payments to program 
participants who have signed an agreement. Since new agreements must be 
signed in order to continue to participate in the program, exporters or 
domestic mills who believe that participation in the program will not 
serve their interests may elect to not sign.
    The 1996 Act Statement of Managers directed the Secretary to 
eliminate the bunching problem to the extent practicable without 
significantly disrupting normal marketing processes in domestic and 
export markets. The industry did not offer alternatives except to 
suggest that basing the exporter payment rate on the date the final 
destination of the cotton is declared would solve the bunching problem.
    As one comment pointed out, the proposal may not remove the 
potential for high payment rates. However, bunching, not high payment 
rates, was identified in the proposed rule as the problem to be 
addressed. The payment rate calculation is designed to close the gap 
between U.S. and world prices, which may at times be significant. If a 
high payment rate occurred, mills and exporters would have equal access 
to payments under the proposed rule.
    Under current rules, with the payment rate determined as of the 
date of sale, bunching of sales in the Step 2 program may have given 
foreign mills an advantage over domestic mills by giving foreign mills 
access to U.S. cotton with high Step 2 payments. Although it is true 
that under the proposed rule foreign buyers will still benefit as 
exporters pass on to them all or part of the Step 2 payment, the 
elimination of bunching should prevent the fixation of season-high Step 
2 payment rates on large volumes of exports, as has been observed in 
past years. Overall, the program should be fairer to U.S. mills.
    After considering these comments, this rule adopts as final the 
proposed rule published on March 13, 1996. However, because new 
legislation was enacted on April 4, 1996, two additional changes to the 
Step 2 regulations are incorporated into the final rule. First, the 
1996 Act extended the Step 2 program through July 31, 2003, and second, 
the legislation provided that total expenditures for the program during 
fiscal years 1996 through 2002 shall not exceed $701,000,000. 
Obligations incurred by CCC to exporters under this program before 
April 5, 1996, are not subject to this funding restriction. Obligations 
incurred by CCC on or after April 5, 1996, are subject to the 
$701,000,000 restriction.
    CCC has determined that cotton contracted for delivery after 
September 30, 1996, by eligible exporters will be covered under the new 
regulations and the terms and conditions of the revised agreement. 
Exporters will be eligible to receive Step 2 payments on such cotton if 
they sign a new agreement and if a payment rate is in effect during the 
week the cotton is exported. However, if, prior to July 18, 1996, a 
positive payment rate was secured for cotton sold for delivery after 
September 30, 1996, CCC will make payments to eligible exporters in 
accordance with the terms and conditions of CCC-1045 (4-15-94) Revision 
2. Any payments made on cotton contracted for delivery after September 
30, 1996, will count against the $701,000,000 statutory limit.
    The new rules will become effective on July 18, 1996. To continue 
to participate in the Step 2 program, exporters and domestic users must 
sign and return the revised agreement to CCC.

12. Part 1430  Dairy Products

    The amendments to the dairy regulations made by this rule address 
requirements of the 1996 Act regarding: (1) The price support level for 
milk; (2) ineligibility of certain products for price support purchase 
when State-allowed manufacturing allowances exceed certain levels; (3) 
the Dairy Refund Program; (4) the deletion of regulations for the Dairy 
Termination Program; (5) a future recourse loan program for milk 
products; and (6) technical revisions to part 1430 to reflect a recent 
USDA reorganization. The 1996 Act addresses a number of other dairy 
issues, such as milk promotion, export programs, and Federal marketing 
orders. Other rules and/or notices regarding those subjects will be 
issued as appropriate.
    Section 141 of the 1996 Act authorizes the Milk Price Support 
Program from May 1, 1996, through December 31, 1999. Authority for 
price support previously provided by section 204 of the 1949 Act, as 
amended by the Food, Agriculture, Conservation, and

[[Page 37550]]

Trade Act of 1990 (the 1990 Act), was repealed as of May 1, 1996. Milk 
prices are to be supported through the purchase of butter, nonfat dry 
milk and cheese. Under the 1996 Act, the levels of support for milk 
containing 3.67 percent milkfat are: $10.35 per hundredweight during 
calendar year 1996, $10.20 per hundredweight during calendar year 1997, 
$10.05 per hundredweight during calendar year 1998, and $9.90 per 
hundredweight during calendar year 1999.
    Provisions for price support, previously codified at Sec. 1430.282, 
have been deleted and Sec. 1430.2 has been added to implement the 1996 
Act provisions. Section 1430.1 has been added to provide the 
definitions for Subpart A--Price Support Program for Milk.
    Section 141 of the 1996 Act further provides that: (1) The CCC 
support purchase prices for each of the products of milk (butter, 
cheese, and nonfat dry milk) announced by CCC shall be the same for all 
of that product sold by persons offering to sell the product to CCC, 
and (2) the purchase prices shall be sufficient to enable plants of 
average efficiency to pay producers, on average, a price that is not 
less than the rate of price support in effect for milk. The Secretary 
may allocate the rate of price support between the purchase prices for 
butter and nonfat dry milk in a manner that will result in the lowest 
level of CCC expenditures, or achieve such other objectives as the 
Secretary considers appropriate. The Secretary may make such 
adjustments not more than twice during a calendar year. Purchase 
announcements will reflect these provisions.
    Also, however, Sec. 1430.3 is added to provide that CCC will 
suspend the purchase of butter, cheese and nonfat dry milk from plants 
in a State that provides, through its regulation of milk prices, 
manufacturing allowances in excess of those authorized by section 145 
of the 1996 Act. The maximum manufacturing allowances allowed by 
section 145 are: (1) $1.65 per hundredweight for milk manufactured into 
butter and nonfat dry milk; and (2) $1.80 per hundredweight for milk 
manufactured into cheese. The new regulation also specifies appeal 
procedures.
    The Dairy Refund Program, as authorized by section 204(h) of the 
1949 Act, provided for a reduction in the price dairy producers receive 
and a method by which they could obtain a refund. Section 141(g) of the 
1996 Act repeals section 204 of the 1949 Act, effective May 1, 1996. 
However, section 141(e)(1) of the 1996 Act authorizes a refund of the 
total reduction in a producer's price during calendar year 1996 to 
producers who provide evidence that they did not increase total milk 
marketings in calendar year 1996 compared to their total marketings in 
calendar year 1995. Section 1430.362 is added to provide for refunds of 
1996 reductions in price and to clarify procedures and ongoing policies 
regarding refund payments and producer eligibility.
    Also, rules for the Dairy Termination Program (DTP) are deleted 
from part 1430 because the contract periods for DTP contracts have 
expired. This will not affect rights and liabilities under any DTP 
contract.
    The Recourse Loan Program for Commercial Processors of Dairy 
Products is authorized by section 142 of the 1996 Act, and becomes 
effective on January 1, 2000. The program will offer recourse loans to 
commercial processors of eligible dairy products to assist in the 
management of inventories of eligible dairy products and to assure a 
degree of price stability for the dairy industry. These eligible dairy 
products are cheddar cheese, butter, and nonfat dry milk. The loan 
rates will reflect a milk equivalency value of $9.90 per hundredweight 
of milk containing 3.67 percent butterfat. The parties receiving the 
loans will be liable for full repayment of the loan principal and 
interest. Regulations have been added at subpart C of part 1430 to 
provide for this program.
    Finally, provisions of part 1430 have been amended as necessary to 
reflect the reorganization of USDA.

13. Part 1434  General Price Support Regulations for Honey

    The 1996 Act did not authorize loan and loan deficiency payment 
programs for the 1996 and subsequent crops of honey. This action will 
remove the regulations for the program.

14. Part 1435  Sugar Program

    Section 156 of the 1996 Act repeals section 206 of the 1949 Act and 
institutes new sugar loan and marketing assessment programs. The 
regulations governing the administration of the sugar loan program will 
be extended through the 2002 crop year and changed to reflect the 
changes mandated by the 1996 Act, which are as follows:
    (1) Section 156(a) requires the national loan rate for raw cane 
sugar to be fixed at 18 cents per pound;
    (2) Section 156(b) requires the national loan rate for refined beet 
sugar to be fixed at 22.90 cents per pound;
    (3) Section 156(e) requires the Secretary to offer recourse loans 
unless the tariff-rate quota (TRQ) is established at, or increased to, 
a level above 1.5 million short tons, raw value, at which time CCC must 
offer nonrecourse loans and convert any existing recourse loans to 
nonrecourse loans; and
    (4) Section 156(g) requires a penalty of 1 cent per pound, raw 
value, for raw cane sugar and 1.072 cents per pound of refined beet 
sugar to be assessed on the forfeiture of sugar pledged as collateral 
for nonrecourse loans.
    Section 156(c) requires the Secretary to reduce the loan rates if 
the major sugar producing nations reduce their support for their 
domestic sugar industries more than their commitments as part of the 
Uruguay Round Agreements Act. CCC will promulgate new regulations 
should such a reduction occur.
    This rule also eliminates redundancies, clarifies terms, and 
simplifies the Sugar Loan Program regulations. These regulations are 
also modified to reflect the 1996 Act's authorization of the loan 
program through the 2002 crop year. The definitions in Secs. 1435.101, 
1435.201, and 1435.401 are consolidated into Sec. 1435.2. Definitions 
of recourse and nonrecourse loans and the tariff-rate quota have been 
added. All references to the Deputy Administrator for State and County 
Operations (DASCO) are changed to the Deputy Administrator for Farm 
Programs (DAFP) to reflect the reorganization of USDA.
    Part 1435 is renumbered to reflect the complete reorganization of 
the part. A new section on loan types, Sec. 1435.102, is added to 
reflect the availability of recourse loans and nonrecourse loans. The 
fixed national loan average rates are listed in Sec. 1435.103. Section 
1435.104 is expanded to consolidate requirements previously found in 
Sec. 1435.7 and Sec. 1435.9. Supplemental loans remain limited to sugar 
produced from sugarcane or sugar beets harvested during July, August, 
and September. Storage facility requirements are now set forth in 
Sec. 1435.108. Section 1435.107, Settlement and Foreclosure, has been 
organized to reflect the differences between the settlements of 
nonrecourse loans and recourse loans. The bonding and other provisions 
of Sec. 1435.11 that required loan recipients to provide CCC with 
financial assurances that producers would be paid the minimum grower 
payments have been deleted from the regulations.
    Section 156(f) of the 1996 Act requires sugar marketing assessments 
to increase 25 percent for the fiscal years (FY) 1997 through 2003. The 
assessment on raw cane sugar increases from 1.1 percent to 1.375 
percent of the loan rate for raw

[[Page 37551]]

cane sugar, or an increase from 0.198 cents to 0.2475 cents per pound 
in FY 1997. The assessment on refined beet sugar increases from 1.1794 
percent to 1.47425 percent of the loan rate for raw cane sugar. Since 
the raw cane sugar loan rate is fixed at 18 cents per pound, the 
assessment rate increases from 0.2123 cents to 0.2654 cents per pound, 
refined basis. If the raw cane sugar loan rate were to be reduced, the 
marketing assessments would be reduced accordingly and put forth in 
revised regulations.
    Section 156(h) of the 1996 Act extends the information reporting 
requirements through the 2002 crop year. The suspension of sugar 
marketing allotments permits the simplification of the information 
reporting regulations. The exhibits containing the reporting forms have 
been removed from the revised regulations.
    Section 171(a)(1)(E) of the 1996 Act suspends sugar marketing 
allotments for the 1996 through 2002 crop years. The regulations 
regarding sugar marketing allotments are removed because the crop year 
ends June 30, 1996, and the deadline for announcing marketing 
allotments for this fiscal year has passed.
    Section 171(b)(1)(j) suspends section 401(e)(2) of the 1949 Act, 
which provides for benefits to be paid to producers in the event of 
bankruptcy or insolvency of processors. The regulations regarding 
protection for sugar beet and sugarcane producers are, therefore, 
removed.

15. Part 1446  Peanuts

    The 1996 Act amends the 1938 Act and the 1949 Act to provide, for 
the 1996 through 2002 crop years, the peanut price support program and 
for the contracting, handling and disposing of additional peanuts. The 
peanut price support regulations that relate to the making of 
warehouse-stored price support loans on peanuts and other activities 
are found at part 1446. The peanut marketing, storage, handling and 
disposition requirements for peanuts for the 1991 through 1995 crops 
shall continue to be governed by the regulations codified at part 1446, 
as of January 1, 1996.
    This rule also implements provisions of section 155 of the 1996 Act 
dealing with peanut warehouse-stored loans, contract additional 
peanuts, peanut handler operations and other matters. Specifically, 
this rule changes the peanut regulations in part 1446 regarding these 
provisions as follows:
    1. In Sec. 1446.103, the definition of ``eligible producer'' has 
been changed, in accordance with provisions of the 1996 Act, to provide 
that, under the conditions stated in the section, producers who pledge 
100 percent of the crop as loan collateral for 2 consecutive years may 
not be eligible for price support.
    2. In Sec. 1446.103, the definition of ``Support rate--National 
Average'' has been changed to reflect the new statutorily set national 
average price support rate for quota peanuts of $610.00 per ton.
    3. In Sec. 1446.307, the disaster transfer provisions for producers 
who transfer Segregation 2 or Segregation 3 peanuts from additional 
loan pools to quota loan pools have been changed, as required by the 
1996 Act, by limiting the quantity of peanuts eligible for such a 
transfer to 25 percent of the total farm quota pounds, excluding pounds 
transferred in the fall and by reducing the support rate on such 
transferred peanuts to 70 percent of the quota support rate for the 
marketing year in which the transfers occur.
    4. In Sec. 1446.308(a)(2), the New Mexico pool eligibility 
requirements have been changed, as required by the 1996 Act, by adding 
a clause that controls the quantity of Valencia peanuts that are 
physically produced in Texas that may be placed in the New Mexico pools 
based on amounts previously produced in Texas on farms administratively 
located in New Mexico.
    5. In Sec. 1446.308 the rules have been amended to implement new 
provisions of the 1996 Act relating to the recovery of losses in area 
quota loan pools, including provisions for increased marketing 
assessments to make the peanut program a ``no-net-cost'' program.
    6. Miscellaneous changes to the regulatory text have been made as a 
result of the USDA reorganization, the need to update references to 
forms and to change dates, and for technical and grammatical 
sufficiency.

16. Part 1468  Wool and Mohair

    The National Wool Act of 1954, as amended, terminated the Wool and 
Mohair program effective December 31, 1995. This action will remove the 
regulations for the program.

17. Parts 1477, 1478, and 1479  Disaster Payment Program for 1990 and 
Subsequent Crops, Tree Assistance Program, and Forage Assistance 
Program

    Authority for these programs has expired. Parts 1477, 1478, and 
1479 are therefore removed.

Paperwork Reduction Act

    As provided in section 161(d) of the 1996 Act, the Paperwork 
Reduction Act is not applicable to these regulations. However, the 
forms necessary to conduct these programs have been submitted for 
clearance to the Office of Management and Budget under the provisions 
of 44 U.S.C. chapter 35.

List of Subjects

7 CFR Part 2

    Authority delegations (Government agencies).

7 CFR Part 718

    Acreage inspection, Acreage measurement, Acreage reporting, 
Compliance, Controlled substance violation, Crop insurance requirement, 
Delegations of Authority, Eminent domain, Farm Constitution, Finality 
rule, Reconstituting farms, Signature requirements, Substantive change, 
Tolerance, Transfer of allotments and quotas, Variances.

7 CFR Part 729

    Peanuts, Penalties, Poundage quotas, Reporting and recordkeeping 
requirements.

7 CFR Part 1400

    Aliens, Production Flexibility Contracts for Wheat, Feed Grains, 
Rice, and Upland Cotton, Price Support programs

7 CFR Part 1405

    Federal crop insurance, Loan programs-agriculture, Price support 
programs.

7 CFR Part 1412

    Production Flexibility Contracts for Wheat, Feed Grain, Rice, 
Upland Cotton.

7 CFR Part 1421

    Grains, Loan programs/agriculture, Oilseeds, Peanuts, Price support 
programs, Reporting and recordkeeping requirements, Soybeans, Surety 
bonds, Warehouses.

7 CFR Part 1425

    Cooperatives, Financial requirements, Loan and loan deficiency 
payment programs--agriculture, Reporting and recordkeeping 
requirements.

7 CFR Part 1427

    Cotton loan programs/agriculture, Packaging and containers, 
Marketing certificate programs, Price support programs, Reporting and 
recordkeeping requirements, Surety bonds, Warehouses.

[[Page 37552]]

7 CFR Part 1430

    Agriculture, Assessment, Dairy products, Manufacturing allowances, 
Milk, Price support program, Recourse loans.

7 CFR Part 1434

    Honey, Loan program--agriculture, Reporting and recordkeeping 
requirements.

7 CFR Part 1435

    Loan programs/agriculture, Reporting and recordkeeping 
requirements, Sugar.

7 CFR Part 1446

    Loan programs--agriculture, Peanuts, Price support programs, 
Reporting and recordkeeping requirements, Warehouses.

7 CFR Part 1468

    Assistance grant program--agriculture, Livestock, Mohair, Reporting 
and recordkeeping requirements, Wool.

    For the reasons set out in the preamble, 7 CFR Chapters I, VII and 
XIV are amended as set forth below.

PART 2--DELEGATIONS OF AUTHORITY BY THE SECRETARY OF AGRICULTURE 
AND GENERAL OFFICERS OF THE DEPARTMENT

    1. The authority citation for Part 2 is revised to read as follows:

    Authority: Sec. 212(a), Pub. L. 103-354, 108 Stat. 3210, 7 
U.S.C. 6912(a)(1); 5 U.S.C. 301; Reorganization Plan No. 2 of 1953; 
3 C.F.R. 1949-1953 Comp., p. 1024.

    2. Section 2.16(a)(1) is amended by adding a new paragraph 
(a)(1)(xxiv) to read as follows:


Sec. 2.16  Under Secretary for Farm and Foreign Agricultural Services.

    (a) * * *
    (1) * * *
    (xxiv) Formulate policies and administer programs authorized by 
Title I of the Federal Agriculture Improvement and Reform Act of 1996.
* * * * *
    3. Section 2.16 is amended by removing and reserving paragraphs 
(a)(3)(xxix) and (a)(3)(xxx).
    4. Section 2.42(a) is amended by adding paragraph (a)(44) to read 
as follows:


Sec. 2.42  Administrator, Farm Service Agency.

    (a) * * *
* * * * *
    (44) Formulate policies and administer programs authorized by Title 
I of the Federal Agriculture Improvement and Reform Act of 1996.
* * * * *
    5. Section 2.42(a)(43) is amended by removing the term ``charge'' 
and inserting the term ``arrange'' in its place.


Sec. 2.43  [Amended]

    6. Section 2.43 is amended by removing and reserving paragraphs 
(a)(29) and (a)(30).
    7. Chapter VII is amended by revising part 718 to read as follows:

PART 718--PROVISIONS APPLICABLE TO MULTIPLE PROGRAMS

Subpart A--General Provisions

Sec.
718.1  Applicability.
718.2  Definitions.
718.3  State committee responsibilities.
718.4  Authority for farm entry and providing information.
718.5  Delegations of authority.
718.6  Signature requirements and time limitations.
718.7  Failure to fully comply.
718.8  Incomplete performance based upon action or advice of an 
authorized representative of the Secretary.
718.9  Finality rule.
718.10  Rule of fractions.
718.11  Denial of benefits.
718.12  Furnishing maps.

Subpart B--Determination of Acreage and Compliance

718.101  Measurements.
718.102  Acreage reports.
718.103  Late-filed reports.
718.104  Revised reports.
718.105  Tolerance, variances, and adjustments for tobacco.
718.106  Acreages.
718.107  Skip rows and strip crops.
718.108  Deductions.
718.109  Adjustments.
718.110  Notice of determined acreage.
718.111  Redetermination.

Subpart C--Reconstitution of Farms, Allotments, Quotas, and Acreages

718.201  Farm constitution.
718.202  Guides for determining the land constituting a farm.
718.203  County committee action to reconstitute a farm.
718.204  Reconstitutions of allotments, quotas, and acreages.
718.205  Rules for determining farms, allotments, quotas, and 
acreages when reconstitution is made by division.
718.206  Rules for determining allotments, quotas, and acreages when 
reconstitution is made by combination.
718.207  Eminent domain acquisitions.
718.208  Exempting Federal prison farms and Federal wildlife 
refuges.
718.209  Transfer of allotments and quotas--State public lands.

    Authority: 7 U.S.C. 1373, 1374, 7201 et seq.; and 15 U.S.C. 714b 
and 714c.

Subpart A--General Provisions


Sec. 718.1  Applicability.

    (a) This part is applicable to all programs set forth in Chapters 
VII and XIV of this title which are administered by the Farm Service 
Agency (FSA).
    (b) The provisions of this part will be administered under the 
general supervision of the Administrator, FSA, and shall be carried out 
in the field by State and county FSA committees (State and county 
committees).
    (c) State and county committees, and representatives and employees 
thereof, do not have authority to modify or waive any of the provisions 
of the regulations of this part.
    (d) The State committee shall take any action required by these 
regulations which has not been taken by the county committee. The State 
committee shall also:
    (1) Correct, or require a county committee to correct, any action 
taken by such county committee which is not in accordance with the 
regulations of this part; or
    (2) Require a county committee to withhold taking any action which 
is not in accordance with the regulations of this part.
    (e) No provisions or delegation herein to a State or county 
committee shall preclude the Administrator, FSA, or a designee, from 
determining any question arising under the program or from reversing or 
modifying any determination made by a State or county committee.
    (f) The Deputy Administrator may authorize State and county 
committees to waive or modify deadlines and other requirements in cases 
where lateness or failure to meet such other requirements does not 
adversely affect the operation of the program.


Sec. 718.2  Definitions.

    Except as provided in individual parts of chapters VII and XIV of 
this title, the following terms shall be as defined herein:
    Administrative variance (AV) means the amount by which the 
determined acreage may exceed the effective allotment and be considered 
in compliance with program regulations.
    Agricultural Use means devoting the land to annual or perennial 
crops, including conserving uses, pasture, aquaculture or plantings of 
trees for any purpose. Land may be left fallow, but weeds must be 
controlled.
    Allotment means an acreage for a commodity allocated to a farm in 
accordance with the Agricultural Adjustment Act of 1938, as amended.
    Allotment crop means any crop for which acreage allotments are

[[Page 37553]]

established pursuant to parts 723 and 729 of this chapter.
    Combination means consolidation of two or more farms or parts of 
farms into one farm.
    Contract acreage means the quantity of acres enrolled in a contract 
in accordance with part 1412 of this title.
    Contract commodity means a crop of wheat, corn, grain sorghum, 
oats, barley, upland cotton, or rice.
    Controlled substances means the term as set forth in accordance 
with 21 CFR part 1308.
    County means the County or parish of a State. For Alaska, Puerto 
Rico and the Virgin Islands, a county shall be an area designated by 
the State committee with the concurrence of the Deputy Administrator.
    Crop of economic significance means a crop that has contributed in 
the previous year, or is expected to contribute in the current crop 
year, 10 percent or more of the total expected value of all crops grown 
by the producer. However, notwithstanding the preceding sentence, if 
the total expected liability under the catastrophic risk protection 
endorsement is equal to or less than the administrative fee required 
for the crop, such crop will not be considered a crop of economic 
significance.
    Crop reporting date means date established by the Administrator, 
FSA, representing the final date by which the farm operator, farm 
owner, or properly authorized agent must report applicable crop acreage 
for the report to be considered timely filed.

Cropland

    (1) Means land which the county committee determines meets any of 
the following conditions:
    (i) Is currently being tilled for the production of a crop for 
harvest;
    (ii) Is not currently tilled, but it can be established that such 
land has been tilled in a prior year and is suitable for crop 
production;
    (iii) Is currently devoted to a one- or two-row shelterbelt 
planting, orchard, or vineyard;
    (iv) Is in terraces, that, were cropped in the past, even though 
they are no longer capable of being cropped;
    (v) Is in sod waterways or filter strips planted to a perennial 
cover; or
    (vi) Is preserved as cropland in accordance with part 704 or 1410 
of this title.
    (2) Land classified as cropland shall be removed from such 
classification upon a determination by the county committee that the 
land is:
    (i) No longer used for agricultural production;
    (ii) No longer suitable for production of crops;
    (iii) Subject to a restrictive easement or contract that prohibits 
its use for the production of crops unless otherwise authorized by the 
regulation of this chapter;
    (iv) No longer preserved as cropland in accordance with the 
provisions of part 704 or 1410 of this title and does not meet the 
conditions in paragraphs (1)(i) through (1)(vi) of this definition; or
    (v) Devoted to trees (other than those set forth in accordance with 
part 704 or 1410 of this title, one- or two-row shelterbelt plantings, 
orchards, or vineyards) which were planted in the preceding year except 
that land planted to trees or devoted to ponds, lakes, or tanks from 
September 1 through December 31 of the preceding year shall retain its 
cropland classification for the succeeding year, and in the current 
year shall retain its cropland classification for the current year.
    Current year means the year for which applicable allotments, 
quotas, and acreages, or other program determinations are established 
for that program. For controlled substance violations, the year that 
contains the date of actual conviction.
    Deputy Administrator means Deputy Administrator for Farm Programs, 
Farm Service Agency, U.S. Department of Agriculture or a designee.
    Determination means a decision issued by a State, county or area 
FSA committee or the employees of such a committee that affects a 
participant's participation in a program administered by FSA.
    Determined acreage means that acreage established by a 
representative of the Department of Agriculture by use of official 
acreage, digitizing or planimetering areas on the photograph or other 
photographic image, or computations from scaled dimensions or ground 
measurements.
    Division means the division of a farm into two or more farms or 
parts of farms.
    Entity means a corporation, joint stock company, association 
limited partnership, irrevocable trust, estate, charitable 
organization, or other similar organization including any such 
organization participating in the farming operation as a partner in a 
general partnership, a participant in a joint venture, a grantor of a 
revocable trust, or as a participant in a similar organization.
    Family member means an individual to whom a person is related as 
spouse, lineal ancestor, lineal descendant, or sibling, including:
    (1) Great grandparent;
    (2) Grandparent;
    (3) Parent;
    (4) Child, including legally adopted children;
    (5) Great grandchildren;
    (6) Sibling of the family member in the farming operation; and
    (7) Spouse of a person listed in paragraphs (1) through (6) of this 
definition.
    Farm means land that is being operated by one producer with 
equipment, labor, accounting system and management substantially 
separate from that of any other unit. Land on which tenants provide 
their own labor and equipment shall not be considered a separate farm.
    Farm inspection (spot-check) means an inspection by an authorized 
FSA representative using aerial or ground compliance to determine the 
extent of producer adherence to program requirements.
    Farm number means serial number assigned to a farm by the county 
committee for the purpose of identification.
    Farm program payment yield means the yield for a crop which is 
determined in accordance with part 1413 of this title as in effect on 
January 2, 1996.
    Farmland means the sum of the cropland, forest, and other land on 
the farm.
    Field means a part of a farm which is separated from the balance of 
the farm by permanent boundaries such as fences, permanent waterways, 
woodlands, and croplines in cases where farming practices make it 
probable that such cropline is not subject to change, or other similar 
features.
    Ground measurement means the distance between 2 points on the 
ground, obtained by actual use of a chain tape, or other measuring 
device, that is expressed in chains and links.
    Joint operation means a general partnership, joint venture, or 
other similar business organization.
    Landlord means one who rents or leases farmland to another.
    Measurement service means a measurement of acreage or farm-stored 
commodities performed by a representative of FSA and paid for by the 
producer requesting the measurement.
    Measurement service guarantee means a guarantee provided when a 
producer requests and pays for an authorized FSA representative to 
measure acreage for FSA and CCC program participation unless the 
producer takes action to adjust the measured acreage. If the producer 
has taken no such action, and the measured acreage is later discovered 
to be

[[Page 37554]]

incorrect, the acreage determined pursuant to the measurement service 
will be used for program purposes for that program year.
    Measurement service after planting means determining a crop or 
designated acreage after planting but before the farm operator files a 
report of acreage for the crop.
    Minor child means an individual who is under 18 years of age. Court 
proceedings conferring majority on an individual under 18 years of age 
will not change such an individual's status as a minor.
    Nonagricultural commercial or industrial use means land that is no 
longer suitable for producing annual or perennial crops, including 
conserving uses, or forestry products.
    Normal planting period means that period during which the crop is 
normally planted in the county, or area within the county, with the 
expectation of producing a normal crop.
    Normal row width means the normal distance between rows of the crop 
in the field, but not less than 30 inches for all crops.
    Operator means an individual, entity, or joint operation who is 
determined by the county committee as being in general control of the 
farming operations on the farm during the current year.
    Owner means one who has legal ownership of farmland, including one:
    (1) Who is buying farmland under a contract for deed;
    (2) Who has a life-estate in the property; or
    (3) (i) For purposes of enrolling a farm in a program authorized by 
Chapters VII and XIV of this title one who has purchased a farm in a 
foreclosure proceeding and:
    (A) The redemption period has not passed; and
    (B) The original owner has not redeemed the property.
    (ii) One who meets the provisions of paragraph (3)(i) of this 
definition shall be entitled to receive benefits in accordance with 
such a program only to the extent the owner complies with all program 
requirements.
    Partial reconstitution means a reconstitution that is made 
effective in the current year for some crops, but is not made effective 
in the current year for other crops, which results in having two or 
more farm numbers for the same farm.
    Participant means one who participates in, or receives payments or 
benefits in accordance with any of the programs administered by FSA.
    Pasture means land that is used to, or has the potential to, 
produce food for grazing animals.
    Person means an individual, or an individual participating as a 
member of a joint operation or similar operation, a corporation, joint 
stock company, association, limited stock company, limited partnership, 
irrevocable trust, revocable trust together with the grantor of the 
trust, estate, or charitable organization including any entity 
participating in the farming operation as a partner in a general 
partnership, a participant in a joint venture, a grantor of a revocable 
trust, or a participant in a similar entity, or a State, political 
subdivision or agency thereof. To be considered a separate person for 
the purpose of this part, the individual or other legal entity must:
    (1) Have a separate and distinct interest in the land or the crop 
involved;
    (2) Exercise separate responsibility for such interest; and
    (3) Be responsible for the cost of farming related to such interest 
from a fund or account separate from that of any other individual or 
entity.
    Producer means an owner, operator, landlord, tenant, or 
sharecropper, who shares in the risk of producing a crop and who is 
entitled to share in the crop available for marketing from the farm, or 
would have shared had the crop been produced. A producer includes a 
grower of hybrid seed.
    Production flexibility contract means a contract entered in 
accordance with part 1412 of this title.
    Prohibited plants means marijuana (cannabis sativa), opium poppies 
(papaver somniferum), coca bushes (erythroxylum coca), cacti of the 
genus lophophora and other drug producing plants, the planting or 
harvesting of which is prohibited by Federal or State law.
    Random inspection means an examination of a farm by an authorized 
representative of FSA selected as a part of an impartial sample to 
determine the adherence to program requirements.
    Quota means the pounds allocated to a farm for a commodity in 
accordance with the Agricultural Adjustment Act of 1938, as amended.
    Reconstitution means a change in the land constituting a farm as a 
result of combination or division.
    Reported acreage means the acreage reported by the farm operator, 
farm owner, or a properly authorized agent on form FSA-578, Report of 
Acreage, or other form designated by the Deputy Administrator.
    Required inspection means an examination by an authorized 
representative of FSA of a farm specifically selected by application of 
prescribed rules to determine the producer's adherence to program 
requirements or to verify the farm operator's, farm owner's, or 
properly authorized agent's report.
    Secretary means the Secretary of Agriculture of the United States, 
or a designee.
    Sharecropper means one who performs work in connection with the 
production of a crop under the supervision of the operator and who 
receives a share of such crop for its labor.
    Skip-row or strip-crop planting means a cultural practice in which 
strips or rows of the crop are alternated with strips of idle land or 
another crop.
    Staking and referencing means determining an acreage before 
planting by:
    (1) Measuring a delineated area on photography or computing the 
chains and links from ground measurement and sketching the field or 
subdivision of a field; and,
    (2) Staking and referencing the area on the ground.
    Standard deduction means an acreage that is excluded from the gross 
acreage in a field because such acreage is considered as being used for 
farm equipment turn-areas. Such acreage is established by application 
of a prescribed percentage of the area planted to the crop in lieu of 
measuring the turn area.
    State means each of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, the Virgin Islands of the United 
States, American Samoa, the Commonwealth of the Northern Mariana 
Islands, or the Trust Territory of the Pacific Islands.
    Subdivision means a part of a field that is separated from the 
balance of the field by temporary boundary, such as a cropline which 
could be easily moved or will likely disappear.
    Tenant means:
    (1) One who rents land from another in consideration of the payment 
of a specified amount of cash or amount of a commodity; or
    (2) One (other than a sharecropper) who rents land from another 
person in consideration of the payment of a share of the crops or 
proceeds therefrom.
    Tolerance means for marketing quota crops, and peanuts, a 
prescribed amount within which the reported acreage may differ from the 
determined acreage and still be considered as correctly reported.
    Tract means a unit of contiguous land under one ownership which is 
operated as a farm or part of a farm.
    Tract combination means the combining of two or more tracts if the 
tracts have common ownership and are contiguous.

[[Page 37555]]

    Tract division means the dividing of a tract into two or more 
tracts because of a change in ownership or operation.
    Turn-area means the area across the ends of crop rows which is used 
for operating equipment necessary to the production of a row crop (also 
called turnrow, headland, or endrow).


Sec. 718.3  State committee responsibilities.

    (a) The State committee shall, with respect to county committees:
    (1) Take any action required of the county committee which the 
county committee fails to take in accordance with this part;
    (2) Correct or require the county committee to correct any action 
taken by such committee which is not in accordance with this part;
    (3) Require the county committee to withhold taking any action 
which is not in accordance with this part;
    (4) Review county office rates for producer services to determine 
equity between counties;
    (5) Determine, based on cost effectiveness, which counties will use 
aerial compliance methods and which counties will use ground 
measurement compliance methods; or
    (6) Adjust the per acre rate for acreage in excess of 25 acres to 
reflect the actual cost involved when performing measurement service 
from aerial slides.
    (b) The State committee shall submit to the Deputy Administrator 
for Farm Programs, requests to deviate from deductions prescribed in 
Sec. 718.108 of this part, or the error amount or percentage for 
refunds of redetermination costs as prescribed in Sec. 718.111.


Sec. 718.4  Authority for farm entry and providing information.

    (a) The provsions of this section are applicable to any farm 
enrolled in a program authroized by Chapter XIV of this title, all 
farms on which peanuts are planted for harvest (part 729 of this 
chapter), and all farms that have an effective tobacco allotment or 
quota (part 723 of this chapter).
    (b) To ascertain compliance by producers to the regulations 
specified in paragraph (a), a representative of FSA may enter any farm 
specified in such paragraph. An owner, operator or producer on a farm 
may refuse the FSA representative entry to the farm and request FSA to 
provide written authorization for the entry. If entry is not allowed 
within 30 days of such written notification:
    (1) All program benefits otherwise available with respect to such 
farm in accordance with such regulations shall be denied;
    (2) The person objecting to the entry shall pay all costs 
associated with cost of the inspection by FSA of the farm;
    (3) The entire crop production on the farm will be considered to be 
in excess of the quota established for the farm; and
    (4) With respect to tobacco produced on such farm, the farm 
operator must furnish proof of disposition of:
    (i) Burley and flue-cured tobacco which is in addition to the 
production shown on the marketing card issued with respect to such 
farm; and
    (ii) Other kinds of tobacco produced on the farm and no credit will 
be given for disposing of any excess tobacco other than properly 
identified by a marketing card unless such tobacco is disposed of in 
the presence of a representative of FSA in accordance with 
Sec. 718.109.
    (c) If an owner or operator of a farm refuses to furnish reports or 
data which are necessary to determine benefits in accordance with the 
regulations specified in paragraph (a) or FSA determines that the 
report or data was erroneously provided through the lack of good faith 
by the operator or owner, all benefits will be denied with respect to 
the farm which would otherwise be available in accordance with the 
program under which the report or data is requested.


Sec. 718.5  Delegations of authority.

    The State committee or State Executive Director, as authorized by 
the Deputy Administrator may, in accordance with instructions issued, 
exercise the authority provided in this part in cases where the total 
of any payments and benefits extended under Chapters VII and XIV of 
this title does not exceed:
    (a) $5,000 for cases subject to Sec. 718.8; or
    (b) $25,000 for cases subject to Sec. 718.9.


Sec. 718.6  Signature requirements and time limitations.

    (a) When a program authorized by this chapter and parts 1410 and 
1412 of this title requires the signature of a producer; landowner; 
landlord; or tenant, a husband or wife may sign all such FSA or CCC 
documents on behalf of the other spouse, unless such other spouse has 
provided written notification to FSA and CCC that such action is not 
authorized. The notification must be provided to the county FSA office 
which administers FSA and CCC programs with respect to each farm.
    (b) Except a husband or wife may not sign a document on behalf of a 
spouse with respect to:
    (1) Program documents required to be executed in accordance with 
part 3 of this title and part 704 of this chapter;
    (2) Easements entered into under part 1410 of this title;
    (3) Form FSA-211, Power of Attorney and Form FSA-211-1, Power of 
Attorney for Husband and Wife; and
    (4) Such other program documents as determined by FSA or CCC.
    (c) Whenever the final date prescribed in any of the regulations in 
this title for the performance of any act falls on a Saturday, Sunday, 
national holiday, State holiday on which the office of the county or 
State Farm Service Agency committee having primary cognizance of the 
action required to be taken is closed, or any other day on which the 
cognizant office is not open for the transaction of business during 
normal working hours, the time for taking required action shall be 
extended to the close of business on the next working day. Or in case 
the action required to be taken may be performed by mailing, the action 
shall be considered to be taken within the prescribed period if the 
mailing is postmarked by midnight of such next working day. Where the 
action required to be taken is within a prescribed number of days after 
the mailing of notice, the day of mailing shall be excluded in 
computing such period of time.


Sec. 718.7  Failure to fully comply.

    In any case in which the failure of a producer to fully comply with 
the terms and conditions of a program authorized by this chapter 
precludes the making of price support to such producer, the Deputy 
Administrator for Farm Programs may authorize the making of such price 
support in such amounts as determined to be equitable in relation to 
the seriousness of the failure if the regulations of this title 
authorizing the program specifically authorize such action. The 
provisions of this part shall only be applicable to producers who are 
determined to have made a good faith effort to comply fully with the 
terms and conditions of the program and rendered substantial 
performance.


Sec. 718.8  Incomplete performance based upon action or advice of an 
authorized representative of the Secretary.

    (a) Notwithstanding any other provision of the law, performance 
rendered in good faith based upon action of, or information provided 
by, any authorized representative of a County or State Farm Service 
Agency Committee, may be accepted by the Administrator, FSA (Executive 
Vice President, CCC), the Associate Administrator, FSA (Vice President,

[[Page 37556]]

CCC), or the Deputy Administrator for Farm Programs, FSA (Vice 
President, CCC), as meeting the requirements of the applicable program, 
and benefits may be extended or payments may be made therefor in 
accordance with such action or advice to the extent it is deemed 
desirable in order to provide fair and equitable treatment.
    (b) The provisions of this section shall be applicable only if a 
producer relied upon the action of a county or State committee or an 
authorized representative of such committee or took action based on 
information provided by such representative. The authority provided in 
this part does not extend to cases where the producer knew or had 
sufficient reason to know that the action or advice of the committee or 
its authorized representative upon which they relied was improper or 
erroneous, or where the producer acted in reliance on their own 
misunderstanding or misinterpretation of program provisions, notices, 
or advice.


Sec. 718.9  Finality rule.

    (a) A determination by a State or county committee made on or after 
October 13, 1994, becomes final and binding 90 days from the date the 
application for benefits has been filed, and supporting documentation 
required to be supplied by the producer as a condition for eligibility 
for the particular program has been filed unless one of the following 
conditions exist:
    (1) The participant has requested an administrative review of the 
determination in accordance with the provisions of part 780 of this 
chapter;
    (2) The determination was based on misrepresentation, false 
statement, fraud, or willful misconduct by or on behalf of the 
participant;
    (3) The determination was modified by the Administrator, FSA, or 
the Executive Vice President, CCC; or
    (4) The participant had reason to know that the determination was 
erroneous.
    (b) Should an erroneous determination become final under the 
provisions of this section, it shall only be effective through the year 
in which the error was found and communicated to the participant.


Sec. 718.10  Rule of fractions.

    (a) Rounding of fractions shall be done after the completion of the 
entire computation which is being made. In making mathematical 
determinations all computations shall be carried to two decimal places 
beyond the required number of decimal places as specified in the 
regulations governing each program. In rounding, fractional digits of 
49 or less beyond the required number of decimal places shall be 
dropped; if the fractional digits beyond the required number of decimal 
places are 50 or more, the figure sat the last required decimal place 
shall be increased by ``1'' as follows:

------------------------------------------------------------------------
          Required decimal                Computation          Result   
------------------------------------------------------------------------
Whole numbers......................  6.49 (or less).......        6     
                                     6.50 (or more).......        7     
Tenths.............................  7.649 (or less)......        7.6   
                                     7.650 (or more)......        7.7   
Hundredths.........................  8.8449 (or less).....        8.84  
                                     8.8450 (or more).....        8.85  
Thousandths........................  9.63449 (or less)....        9.634 
                                     9.63450 (or more)....        9.635 
10 thousandths.....................  10.993149 (or less)..       10.9931
                                     10.993150 (or more)..       10.9932
------------------------------------------------------------------------

    (b) The acreage of each field or subdivision computed for tobacco 
and CCC disaster assistance programs shall be recorded in acres and 
hundredths of an acre, dropping all thousandths of an acre. The acreage 
of each field or subdivision computed for crops, except tobacco, shall 
be recorded in acres and tenths of an acre, rounding all hundredths of 
an acre to the nearest tenth.


Sec. 718.11  Denial of Benefits.

    (a) For the purposes of this section, a person means an individual.
    (b) Any person convicted under Federal or State law of planting 
cultivating, growing, producing, harvesting, or storing a controlled 
substance as defined in 21 CFR part 1308 shall be ineligible for:
    (1) With respect to any commodity produced by such person that crop 
year, and during the four succeeding crop years any price support loan 
available in accordance with parts 1446 and 1464 of this title;
    (2) Any payment made under any Act; and
    (3) A payment made under the Commodity Credit Corporation Charter 
Act (15 U.S.C. 714b and 714c) for the storage of an agricultural 
commodity that is produced during such crop year, or any of the four 
succeeding crop years by such person.
    (c) If any person denied benefits under this part is a beneficiary 
of a trust, benefits for which the trust is eligible shall be reduced, 
for the appropriate period, by a percentage equal to the total interest 
of the beneficiary in the trust.


Sec. 718.12   Furnishing maps.

    The cost of furnishing reproductions of photographs, mosaics and 
maps is free upon request to the farm operator, owner, Federal Crop 
Insurance Corporation (FCIC) and reinsured companies, Natural Resources 
Conservation Service (NRCS) and other Federal or State Agencies 
performing their official duties in making FSA and related program 
determinations. To all others, reproductions shall be made available at 
the rate FSA determines will cover the cost of making such items 
available.

Subpart B--Determination Of Acreage and Compliance


Sec. 718.101   Measurements.

    (a) Measurement services include, but are not limited to, measuring 
land and crop areas, quantities of farm-stored commodities, and 
appraising the yields of crops when required for program administration 
purposes. The county committee shall provide measurement service if the 
producer requests such service and pays the cost, except that service 
shall not be provided to determine total acreage of a crop when the 
request is made:
    (1) After the established final reporting date for the applicable 
crop except as provided in Sec. 718.103;.
    (2) After the farm operator has furnished the county office 
production evidence when required for program administration purposes 
except as provided in this subpart; or
    (3) In connection with a late-filed report of acreage, unless there 
is evidence of the existence and use made of the crop, the lack of the 
crop or a disaster condition affecting the crop.
    (b) The acreage requested to be measured by staking and referencing 
shall not exceed the effective farm allotment for marketing quota crops 
or acreage of a crop that is limited to a specific number of acres to 
meet any program requirement.
    (c) When a producer requests, pays for, and receives written notice 
that measurement services have been furnished, the measured acreage 
shall be guaranteed to be correct and used for all program purposes for 
the current year even though an error is later discovered in the 
measurement thereof, if the producer has taken action with an economic 
significance based on the measurement service, and the entire crop 
required for the farm was

[[Page 37557]]

measured. If the producer has not taken action with an economic 
significance based on the measurement service, the producer shall be 
notified in writing that an error was discovered and the nature and 
extent of such error. In such cases, the corrected acreage will be used 
for determining program compliance for the current year.
    (d) When a measurement service reveals acreage in excess of the 
permitted acreage by more than the allowable tolerance, the producer 
must destroy the excess acreage and pay for an authorized employee of 
FSA to verify destruction, in order to keep the measurement service 
guarantee.


Sec. 718.102   Acreage reports.

    (a) In order to be eligible for benefits, participants in the 
programs specified in paragraph (b)(1) through (3) of this section and 
those who are subject to the regulations cited in paragraph (b)(4) and 
(5) of this section must submit accurate information as required by 
these provisions.
    (b)(1) Participants in the program authorized by part 1412 of this 
title must report the acreage of fruits and vegetables planted for 
harvest on a farm enrolled in such program;
    (2) Participants in the programs authorized by parts 1421 and 1427 
of this title must report the acreage planted to a commodity for 
harvest for which a marketing assistance loan or loan deficiency 
payment is requested; and
    (3) Participants in the programs authorized by parts 704 and 1410 
of this title must report the use of the land enrolled in such 
programs;
    (4) Participants in the programs authorized by parts 723 and 1464 
of this title (except burley tobacco producers) must report the acreage 
planted to tobacco by kind (except burley tobacco) on all farms that 
have an effective allotment or quota greater than zero; and
    (5) Participants in the programs authorized by parts 729 and 1446 
of this title must report the acreage planted to peanuts by type.
    (c) The reports required under paragraph (a) of this section shall 
be timely filed by the farm operator, farm owner, or a duly authorized 
representative with the county committee by the final reporting date 
applicable to the crop as established by the county committee and State 
committee.
    (d) Peanut producers shall provide the county office evidence of 
disposition of any peanuts that are kept on the farm, including:
    (1) Type and quantity for use for seed on any farm in which the 
producer has an interest; and
    (2) Type, quantity, names, and addresses of purchases for peanuts 
sold or given to others.
    (e) Peanut producers shall provide the county office information 
for acquisition of seed peanuts from other sources, including:
    (1) Name and address of person who sold or gave producer the 
peanuts;
    (2) Type, farmer's stock or shelled basis, and quantity; and
    (3) Acquisition date.


Sec. 718.103   Late filed reports.

    (a) A farm operator's report may be accepted after the established 
date for reporting if evidence is still available for inspection which 
may be used to make a determination with respect to the existence and 
use made of the crop, the lack of the crop or a disaster condition 
affecting the crop.
    (b) The farm operator shall pay the cost of a farm visit by an 
authorized FSA employee unless the County Committee has determined that 
failure to report in a timely manner was beyond the producer's control.


Sec. 718.104   Revised reports.

    (a) The farm operator may revise a report of acreage with respect 
to 1996 and subsequent years to change the acreage reported if the 
county committee determines that the revision does not have an adverse 
impact on the program and the acreage has not already been determined 
by FSA.
    (b) Revised reports shall be filed and accepted:
    (1) At any time for all crops if evidence exists for inspection and 
determination of the existence and use made of the crop, the lack of 
the crop, or a disaster condition affecting the crop; and
    (2) If the requirements of paragraph (a) have been met and the 
producer was in compliance with all other program requirements by the 
applicable established crop reporting date.


Sec. 718.105   Tolerances, variances, and adjustments for tobacco.

    (a) Tolerance or variance for tobacco is the amount by which the 
determined acreage may differ from the reported acreage or allotment 
and still be considered in compliance with program requirements.
    (b) Tolerance rules apply to those fields for which a staking and 
referencing was performed but such acreage was not planted according to 
those measurements or when a measurement service is not requested for 
acreage destroyed to meet program requirements. Tolerance rules do not 
apply to:
    (1) Official fields when the entire field is devoted to one crop;
    (2) Those fields for which staking and referencing was performed 
and such acreage was planted according to those measurements; or
    (3) The adjusted acreage for farms using measurement after planting 
which have a determined acreage greater than the marketing quota crop 
allotment.
    (c) An administrative variance is applicable to all marketing quota 
crop acreages. Marketing quota crop acreages as determined in 
accordance with this part shall be deemed in compliance with the 
effective farm allotment or program requirement when the determined 
acreage does not exceed the effective farm allotment by more than an 
administrative variance determined as follows:
    (1) For all kinds of tobacco subject to marketing quotas, except 
dark air-cured and fire-cured the larger of 0.1 acre or 2 percent of 
the allotment; and
    (2) For dark air-cured and fire-cured tobacco, an acreage based on 
the effective acreage allotment as provided in the table as follows:

------------------------------------------------------------------------
                                                          Administrative
    Effective acreage allotment is within this range         variance   
------------------------------------------------------------------------
0.01 to 0.99............................................           0.01 
1.00 to 1.49............................................           0.02 
1.50 to 1.99............................................           0.03 
2.00 to 2.49............................................           0.04 
2.50 to 2.99............................................           0.05 
3.00 to 3.49............................................           0.06 
3.50 to 3.99............................................           0.07 
4.00 to 4.49............................................           0.08 
4.50 and up.............................................           0.09 
------------------------------------------------------------------------

    (d) A tolerance applies to tobacco other than flue-cured or burley, 
if the determined acreage exceeds the allotment by more than the 
administrative variance but by not more than the tolerance. Such excess 
acreage of tobacco may be adjusted to the effective farm acreage 
allotment to avoid marketing quota penalties or receive price support.


Sec. 718.106   Acreages.

    (a) If an acreage has been established by a representative of FSA 
for an area delineated on an aerial photograph, such acreage will be 
recognized by the county committee as the official acreage for the area 
until such time as the boundaries of such area are changed. When 
boundaries not visible on the aerial photograph are established from 
data furnished by the producer, such acreage shall not be recognized as 
official acreage until the boundaries are verified by an authorized 
representative of FSA.

[[Page 37558]]

    (b) Measurements of any row crop shall extend beyond the planted 
area by the larger of 15 inches or one-half the distance between the 
rows.
    (c) The entire acreage of a field or subdivision of a field devoted 
to a crop shall be considered as devoted to the crop subject to any 
allowable deduction or adjustment credit except as otherwise provided 
in this part.


Sec. 718.107   Skip rows and strip crops.

    (a) To be considered under the skip row provisions of this section 
the field must be planted in a uniform planting pattern and the number 
of rows planted between skips cannot exceed 36 rows. If more than one 
pattern is used within a field, the area planted to each pattern will 
be considered a subdivision.
    (b) The entire acreage of the field or subdivision shall be 
considered as devoted to the crop where the crop is planted in strips 
of two or more rows and the strips of idle land are less than 64 inches 
wide, except where cotton is planted in skip row patterns:
    (1) If the distance between the rows is 30 inches the strips of the 
idle land are less than 60 inches wide; or
    (2) If the distance between the rows is 32 inches or wider and the 
strips of idle land are at least 60 inches but less than 64 inches, the 
producer has the option to consider the crop as either solid planted or 
skip row if the producer has a history of planting 32-inch or wider 
rows.
    (c) The county committee shall determine if the producer has a 
history of 32-inch or wider rows by verifying that cotton acreage has 
been planted in 32-inch or wider rows in past years and reported on the 
acreage report, or reported to other State or Federal Agencies.
    (d) If the strips of idle land are too wide to be classified as 
solid planted in accordance with paragraph (b) of this section the 
acreage of the strips planted to the crop, including one-half the 
distance between the rows of the crop but not less than 15 inches 
beyond the outside rows of the crop in each strip, shall be considered 
as devoted to the crop.
    (e) When one crop is alternating with another crop, the entire 
acreage of the field or subdivision shall be considered as devoted to 
the crop being measured where such crop is planted in strips of one or 
more rows and the strips of the other crop are less than 64 inches.
    (f) If strips of the alternating crop are too wide to be considered 
solid planted in accordance with paragraph (b) of this section and if 
the alternating crop:
    (1) Has substantially the same growing season as the crop being 
measured, only the acreage planted to the crop being measured, 
including the smaller of one-half the distance between the strips of 
the crop being measured or 30 inches shall be considered as being 
devoted to the crop being measured; or
    (2) Does not have substantially the same growing season as the crop 
being measured, then the acreage of the crop being measured shall be 
determined in accordance with paragraph (b) or (c) of this section.
    (g) When the crops are planted in single wide rows, the entire 
acreage of the field or subdivision shall be considered as devoted to 
the crop where the distance between the rows of such crop is less than 
64 inches. If the distance between the rows of the crop is at least 64 
inches, only 64 inches in width for each row shall be considered as 
being devoted to the crop.


Sec. 718.108   Deductions.

    (a) Any contiguous area which is not devoted to the crop being 
measured and which is not part of a skip-row pattern under Sec. 718.107 
shall be deducted from the acreage of the crop if such area meets the 
following minimum national standards or requirements:
    (1) A minimum width of 30 inches;
    (2) For tobacco, three-hundredths acre, except that turn areas, 
terraces, permanent irrigation and drainage ditches, sod waterways, 
noncropland, and subdivision boundaries each of which is at least 30 
inches in width may be combined to meet the 0.03-acre minimum 
requirement; or
    (3) For all other crops and land uses, one-tenth acre. Turn areas, 
terraces, permanent irrigation and drainage ditches, sod waterways, 
noncropland, and subdivision boundaries each of which is at least 30 
inches in width and each of which contain 0.1 acre or more may be 
combined to meet any larger minimum prescribed for a State in 
accordance with this subpart.
    (b) If the area not devoted to the crop is located within the 
planted area, the part of any perimeter area that is more than 33 links 
in width will be considered to be an internal deduction if the standard 
deduction is used.
    (c) A standard deduction of 3 percent of the area devoted to a row 
crop and zero percent of the area devoted to a close-sown crop may be 
used in lieu of measuring the acreage of turn areas.


Sec. 718.109   Adjustments.

    (a) The farm operator or other interested producer having excess 
tobacco acreage (other than flue-cured or burley) may adjust an acreage 
of the crop in order to avoid a marketing quota penalty if such person:
    (1) Notifies the county committee of such election within 15 
calendar days after the date of mailing of notice of excess acreage by 
the county committee; and
    (2) Pays the cost of a farm visit to determine the adjusted acreage 
prior to the date the farm visit is made.
    (b) The farm operator may adjust an acreage of tobacco (except 
flue-cured and burley) by disposing of such excess tobacco prior to the 
marketing of any of the same kind of tobacco from the farm. The 
disposition shall be witnessed by a representative of FSA and may take 
place before, during, or after the harvesting of the same kind of 
tobacco grown on the farm. However, no credit will be allowed toward 
the disposition of excess acreage after the tobacco is harvested but 
prior to marketing, unless the county committee determines that such 
tobacco is representative of the entire crop from the farm of the kind 
of tobacco involved.


Sec. 718.110   Notice of measured acreage.

    Written notice of measured acreage shall be on Form FSA-468, Notice 
of Determined Acreage, when mailed to the farm operator and shall 
constitute notice to all interested producers on the farm.


Sec. 718.111   Redeterminations.

    (a) A redetermination of crop acreage, appraised yield, or farm-
stored production for a farm may be initiated by the county committee, 
State committee, or Deputy Administrator at any time. Such 
redeterminations may also be initiated by a producer who has an 
interest in the farm upon filing a request within 15 calendar days 
after the date of the notice furnished the farm operator in accordance 
with Sec. 718.109 or Sec. 718.110 or within 5 calendar days after the 
initial appraisal of the yield of a crop or before any of the farm-
stored production is removed from storage and upon payment of the cost 
of making such redetermination. A redetermination shall be undertaken 
in the manner prescribed by the Deputy Administrator. Such 
redetermination shall be used in lieu of any prior determination.
    (b) The county committee shall refund the payment of the cost for a 
redetermination when, because of an error in the initial determination:
    (1) The appraised yield is changed by at least the larger of:
    (i) Five percent or 5 pounds for cotton;
    (ii) Five percent or 1 bushel for wheat, barley, oats, and rye; or
    (iii) Five percent or 2 bushels for corn and grain sorghum; or

[[Page 37559]]

    (2) The farm stored production is changed by at least the smaller 
of 3 percent or 600 bushels; or
    (3) The acreage of the crop is:
    (i) Changed by at least the larger of 3 percent or 0.5 acre; or
    (ii) Considered to be within program requirements.

Subpart C--Reconstitution of Farms, Allotments, Quotas, and 
Acreages


Sec. 718.201   Farm constitution.

    (a) Land which has been properly constituted under prior 
regulations shall remain so constituted until a reconstitution is 
required under paragraph (c) of this section. The constitution and 
identification of land as a farm for the first time and the subsequent 
reconstitution of a farm made hereafter, shall include all land 
operated by one person as a single farming unit except that it shall 
not include:
    (1) After August 1, 1996, land subject to a production flexibility 
contract with land not subject to a production flexibility contract;
    (2) Land under separate ownership unless the owners agree in 
writing;
    (3) Land under a lease agreement of less than 1 year duration;
    (4) Land in different counties when the tobacco allotments or 
quotas established for the land involved cannot be transferred from one 
county to another county by lease, sale, or owner. However, this 
paragraph shall not apply if:
    (i) All of the land is owned by one person and operated by one 
person and all such land is contiguous;
    (ii) Two or more tracts are located in counties that are contiguous 
in the same State and are owned by the same person if:
    (A) A burley tobacco quota is established for one or more of the 
tracts; and
    (B) The county committee determines that the tracts will be 
operated as a single farming unit as set forth in Sec. 718.202; or
    (iii) Because of a change in operation, tracts or parts of tracts 
will be divided from the parent farm that currently has land in more 
than one county, and there is no change in operation and ownership of 
the remainder of the farm, or if there is a change in ownership, the 
new owner agrees in writing to the constitution of the farm.
    (5) Federally owned land;
    (6) State-owned wildlife land unless the former owner has 
possession of the land under a leasing agreement;
    (7) Land constituting a farm which is declared ineligible to be 
enrolled in a program under the regulations governing the program;
    (8) For land subject to production flexibility contracts, land 
located in counties that are not contiguous. However, this subparagraph 
shall not apply if:
    (i) Counties are divided by a river;
    (ii) Counties do not touch because of a correction line adjustment; 
or
    (iii) The land is within 20 miles, by road, of other land that will 
be a part of the farming unit; and
    (9) With respect to peanut poundage quotas, land across:
    (i) County lines when the quotas established for the land involved 
cannot be transferred; or
    (ii) State lines.
    (b)(1) If all land on the farm is physically located in one county, 
the farm records shall be administratively located in such county. If 
there is no FSA office in the county or the county offices have been 
consolidated, the farm shall be administratively located in the 
contiguous county most convenient for the farm operator.
    (2) If the land on the farm is located in more than one county, the 
farm shall be administratively located in either of such counties as 
the county committees and the farm operator agree. If no agreement can 
be reached, the farm shall be administratively located in the county 
where the principal dwelling is situated, or where the major portion of 
the farm is located if there is no dwelling.
    (c) A reconstitution of a farm either by division or by combination 
shall be required whenever:
    (1) A change has occurred in the operation of the land after the 
last constitution or reconstitution and as a result of such change the 
farm does not meet the conditions for constitution of a farm as set 
forth in paragraph (b) except that no reconstitution shall be made if 
the county committee determines that the primary purpose of the change 
in operation is to establish eligibility to transfer allotments subject 
to sale or lease;
    (2) The farm was not properly constituted under the applicable 
regulations in effect at the time of the last constitution or 
reconstitution;
    (3) An owner requests in writing that the owner's land no longer be 
included in a farm which is composed of tracts under separate 
ownership;
    (4) The county committee determines that the farm was reconstituted 
on the basis of false information furnished by the owner or farm 
operator;
    (5) The county committee determines that the tracts of land 
included in a farm are not being operated as a single farming unit;
    (6) An owner of a farm, constituted as a single farming unit prior 
to 1978, which is comprised of land located in two or more counties for 
which there is a quota or allotment established for such farm and such 
quota or allotment is subject to lease and transfer restrictions across 
county lines, requests in writing that the farm be reconstituted by 
dividing the tracts. The resulting farms shall be administratively 
serviced by the county office serving the county in which the land is 
geographically located; or
    (7) Land is sold for or devoted to nonagricultural commercial or 
industrial uses; however, a reconstitution is not required and 
allotments, quotas and acreages may remain with the farm if either of 
the following apply:
    (i) The land is already devoted to residential, recreational, 
industrial or commercial buildings; or
    (ii) The owner would qualify to use the landowner designation 
method of division in accordance with Sec. 718.205 or the allotments 
and quotas can be transferred by sale or owner in accordance with this 
part and parts 723 or 729 of this chapter and the owner of the parent 
farm and the purchaser file a signed written memorandum of 
understanding before Form FSA-476 or Form MQ-24 is issued, stating that 
the land will be devoted immediately or within 3 years to:
    (1) Nonagricultural commercial uses; or
    (2) Recreational, residential, industrial or non-farm commercial 
uses.
    (d) Notwithstanding the provisions of paragraphs (c)(1) through 
(c)(7), a reconstitution shall not be approved if the county committee 
determines that the primary purpose of the reconstitution is to:
    (1) Circumvent the provisions of part 12 of this title; or
    (2) Circumvent any other chapter of this title.


Sec. 718.202   Determining the land constituting a farm.

    (a) In determining the constitution of a farm, consideration shall 
be given to provisions such as ownership and operation. For purposes of 
this part, the following rules shall be applicable to determining what 
land is to be included in a farm.
    (b) A minor shall be considered to be the same owner or operator as 
the parent or court-appointed guardian (or other person responsible for 
the minor child) unless:
    (1) The minor child is a producer on a farm;

[[Page 37560]]

    (2) Neither the minor's parents nor guardian has any interest in 
the minor's farm or production from the farm;
    (3) The minor establishes and maintains a separate household from 
the parent or guardian;
    (4) Personally carries out the farming activities in the operation; 
and
    (5) Maintains a separate accounting for the farming operation.
    (c) Notwithstanding paragraph (b) of this section, a minor shall 
not be considered to be the same owner or operator as the parent or 
court-appointed guardian if the minor's interest in the farming 
operation results from being the beneficiary of an irrevocable trust 
and ownership of the property is vested in the trust or the minor.
    (d) A life estate tenant shall be considered to be the owner of the 
property for their life.
    (e) A trust shall be considered to be an owner with the beneficiary 
of the trust; except a trust can be considered a separate owner or 
operator from the beneficiary, if the trust:
    (1) Has a separate and distinct interest in the land or crop 
involved;
    (2) Exercises separate responsibility for the separate and distinct 
interest; and
    (3) Maintains funds and accounts separate from that of any other 
individual or entity for the interest.


Sec. 718.203   County committee action to reconstitute a farm.

    Action to reconstitute a farm may be initiated by the county 
committee, the farm owner, or the operator with the concurrence of the 
owner of the farm. Any request for a farm reconstitution shall be filed 
with the county committee.


Sec. 718.204   Reconstitution of allotments, quotas, and acreages.

    (a) Farms shall be reconstituted in accordance with this subpart 
when it is determined that the land areas are not properly constituted 
and, to the extent practicable, shall be based on the facts and 
conditions existing at the time the change requiring the reconstitution 
occurred.
    (b) Reconstitutions of farms subject to a production flexibility 
contract in accordance with part 1412 of this title will be effective 
for the current year if initiated on or before July 1 of the fiscal 
year.
    (c) For tobacco and peanut farms, a reconstitution will be 
effective for the current year for each crop for which the 
reconstitution is initiated before the planting of such crop begins or 
would have begun.
    (d) Notwithstanding the provisions of paragraph (b) and (c) of this 
section, a reconstitution may be effective for the current year if the 
county committee, with the concurrence of the State committee, 
determines that the purpose of the request for reconstitution is not to 
perpetrate a scheme or device the effect of which is to avoid the 
statutes and regulations governing commodity programs found in this 
title.


Sec. 718.205   Rules for determining farms, allotments, quotas, and 
acreages when reconstitution is made by division.

    (a) The methods for dividing farms, allotments, quotas, and 
acreages in order of precedence, when applicable, are estate, 
designation by landowner, contribution, agricultural use, cropland, and 
history. The proper method shall be determined on a crop by crop basis.
    (b)(1) The estate method is the proration of allotments, quotas, 
and acreages for a parent farm among the heirs in settling an estate. 
If the estate sells a tract of land before the farm is divided among 
the heirs, the allotments, quotas, and acreages for that tract shall be 
determined by using one of the methods provided in paragraphs (c) 
through (g) of this section.
    (2) Allotments, quotas, and acreages shall be divided in accordance 
with a will, but only if the county committee determines that the terms 
of the will are such that a division can reasonably be made by the 
estate method.
    (3) If there is no will or the county committee determines that the 
terms of a will are not clear as to the division of allotments, quotas, 
and acreages, such allotments, quotas, and acreages shall be 
apportioned in the manner agreed to in writing by all interested heirs 
or devisees who acquire an interest in the property for which such 
allotments, quotas, and acreages have been established. An agreement by 
the administrator or executor shall not be accepted in lieu of an 
agreement by the heirs or devisees.
    (4) If allotments, quotas, and acreages are not apportioned in 
accordance with the provisions of paragraph (b)(2) or (3) of this 
section, the allotments, quotas, and acreages shall be divided pursuant 
to paragraphs (d) through (g) of this section, as applicable.
    (c)(1) If the ownership of a tract of land is transferred from a 
parent farm, the transferring owner may request that the county 
committee divide the allotments, quotas, and acreages, including 
historical acreage that has been doublecropped, between the parent farm 
and the transferred tract, or between the various tracts if the entire 
farm is sold to two or more purchasers, in a manner designated by the 
owner of the parent farm subject to the conditions set forth in 
paragraph (c)(4) of this section. In the case of land subject to a 
Wetlands Reserve Program easement or Emergency Wetlands Reserve Program 
easement, the parent farm shall retain the allotments, quotas, and 
acreages.
    (2) If the county committee determines that allotments, quotas, and 
acreages cannot be divided in the manner designated by the owner 
because of the conditions set forth in paragraph (c)(4) of this 
section, the owner shall be notified and permitted to revise the 
designation so as to meet the conditions in paragraph (c)(4) of this 
section. If the owner does not furnish a revised designation of 
allotments, quotas, and acreages within a reasonable time after such 
notification, or if the revised designation does not meet the 
conditions of paragraph (c)(4) of this section, the county committee 
will prorate the allotments, quotas, and acreages in accordance with 
paragraphs (d) through (g) of this section.
    (3) If a parent farm is composed of tracts, under separate 
ownership, each separately owned tract being transferred in part shall 
be considered a separate farm and shall be constituted separately from 
the parent farm using the rules in paragraphs (d) through (g) of this 
section, as applicable, prior to application of the provisions of this 
paragraph.
    (4) A landowner may designate, as provided in this paragraph, the 
manner in which allotments, quotas, and acreages are divided.
    (i) The transferring owner and transferee shall file a signed 
written memorandum of understanding of the designation with the county 
committee before the farm is reconstituted and before a subsequent 
transfer of ownership of the land. The landowner shall designate the 
allotments, quotas, and acreage that shall be permanently reduced when 
the sum of the allotments, quotas, and acreages exceeds the cropland 
for the farm.
    (ii) Where the part of the farm from which the ownership is being 
transferred was owned for a period of less than 3 years, the 
designation by landowner method shall not be available with respect to 
the transfer unless the county committee determines that the primary 
purpose of the ownership transfer was other than to retain or to sell 
allotments or quotas. In the absence of such a determination, and if 
the farm contains land which has been owned for less than 3 years, that 
part of the farm which has been owned for less than 3 years shall be 
considered as a separate farm and the allotments or

[[Page 37561]]

quotas, shall be assigned to that part in accordance with paragraphs 
(d) through (g) of this section. Such apportionment shall be made prior 
to any designation of allotments and quotas, with respect to the part 
which has been owned for 3 years or more.
    (5) The designation by landowner method is not applicable to:
    (i) Burley tobacco quotas; or
    (ii) Crop allotments or quotas which are restricted to transfer 
within the county by lease, sale, or by owner, when the land on which 
the farm is located is in two or more counties.
    (6) The designation by landowner method may be applied at the 
owner's request to land owned by any Indian Tribal Council which is 
leased to two or more producers for the production of any crop of a 
commodity for which an allotment, quota, or acreage has been 
established. If the land is leased to two or more producers, an Indian 
Tribal Council may request that the county committee divide the 
allotments, quotas, and acreages between the applicable tracts in the 
manner designated by the Council. The use of this method shall not be 
subject to the conditions of paragraph (c)(4).
    (d) (1) The contribution method is the proration of a parent farm's 
allotments, quotas, and acreages to each tract as the tract contributed 
to the allotments, quotas, or acreages at the time of combination and 
may be used when the provisions of paragraphs (b) and (c) of this 
section do not apply. The contribution method shall be used to divide 
allotments and quotas for a farm that resulted from a combination which 
became effective during the 6-year period before the crop year for 
which the reconstitution is effective. This method for dividing 
allotments and quotas shall be used beyond the 6-year period if FSA 
records are available to show the amount of contribution.
    (2) The county committee determines with the concurrence of the 
State committee or representative thereof, that the use of the 
contribution method would not result in an equitable distribution of 
allotments and quotas, considering available land, cultural operations, 
and changes in type of farming. The contribution method shall not be 
used in cases involving the division of allotment or quota for any 
commodity for which there was no allotment or quota established at the 
time of the combination.
    (e) The agricultural use method is the proration of contract 
acreage to the tracts being separated from the parent farm in the same 
proportion that the agricultural and related activity land for each 
tract bears to the agricultural and related activity land for the 
parent farm. This method of division shall be used if the provisions of 
paragraphs (b) through (d) of this section do not apply.
    (f) (1) The cropland method is the proration of allotments and 
quotas to the tracts being separated from the parent farm in the same 
proportion that the cropland for each tract bears to the cropland for 
the parent farm. This method shall be used if the provisions of 
paragraphs (b) through (d) of this section do not apply unless the 
county committee determines that a division by the history method would 
result in allotments and quotas which are more representative than if 
the cropland method is used after taking into consideration the 
operation normally carried out on each tract for the commodities 
produced on the farm.
    (2) The cropland method shall not be used to divide contract 
acreage.
    (g)(1) The history method is the proration of allotments and quotas 
to the tracts being separated from the farm on the basis of the 
allotments and quotas determined to be representative of the operations 
normally carried out on each tract. The county committee may use the 
history method of dividing allotments and quotas when it:
    (i) Determines that this method would result in the proration of 
allotments and quotas, more representative than the cropland method of 
division of the operation normally carried out on each tract; and
    (ii) Obtains written consent of all owners to use the history 
method.
    (2) Notwithstanding any other provision of this section, the county 
committee may waive the requirement for written consent of the owners 
for dividing allotments and quotas if the county committee determines 
that the use of the cropland method would result in an inequitable 
division of the parent farm's allotments and quotas and the use of the 
history method would provide more favorable results for all owners.
    (3) The history method shall not be used to divide contract 
acreage.
    (h) (1) Allotments, quotas, and acreages apportioned among the 
divided tracts pursuant to paragraphs (d), (e), (f) and (g) of this 
section may be increased or decreased with respect to a tract by as 
much as 10 percent of the allotment, quota, or acreage determined under 
such subsections for the parent farm if:
    (i) The owners agree in writing; and
    (ii) The county committee determines the method used did not 
provide an equitable distribution considering available land, cultural 
operations, and changes in the type of farming conducted on the farm. 
Any increase in an allotment, quota, or acreage with respect to a tract 
pursuant to this paragraph shall be offset by a corresponding decrease 
for such allotments, quotas or acreages established with respect to the 
other tracts which constitute the farm.
    (2) Farm program payment yields calculated for the resulting farms 
of a division performed according to paragraphs (d) through (g) may be 
increased or decreased if the county committee determines the method 
used did not provide an equitable distribution considering available 
land, cultural operations, and changes in the type of farming conducted 
on the farm. Any increase in a farm program payment yield on a 
resulting farm shall be offset by a corresponding decrease on another 
resulting farm of the division.
    (i) If a farm with burley tobacco quota is divided through 
reconstitution and one or more of the farms resulting from the division 
are apportioned less than 1,000 pounds of burley tobacco quota, the 
owners of such farms shall take action as provided in part 723 of this 
chapter to comply with the 1,000 pound minimum by July 1 of the current 
year or the quota shall be dropped. Exceptions to this are farms 
divided:
    (1) Among family members;
    (2) By the estate method; and
    (3) When no sale or change in ownership of land occurs.


Sec. 718.206  Rules for determining allotments, quotas, and acreages 
when reconstitution is made by combination.

    When two or more farms or tracts are combined for a year, that 
year's allotments, quotas, and acreages, with respect to the combined 
farm or tract, as required by applicable commodity regulations, shall 
not be greater than the sum of the allotments, quotas, and acreages for 
each of the farms or tracts comprising the combination, subject to the 
provisions of Sec. 718.204(a)(3).


Sec. 718.207  Eminent domain acquisitions.

    (a) This section provides a uniform method for reallocating 
allotments and quotas, with respect to land involved in eminent domain 
acquisitions. Such allotments and quotas, in accordance with this 
section, may be pooled for the benefit of the owner who is displaced 
from the acquired farm by eminent domain acquisition. Such pooling 
shall be for a 3-year period from the date of displacement or during 
such other period as the displaced owner may request for the transfer 
of allotments and quotas, from the pool to other farms owned by such 
person.
    (b) An eminent domain acquisition is a taking of title to land, or 
the taking of

[[Page 37562]]

an impoundment easement to impound water on the land, or the taking of 
a flowage easement to intermittently flood the land, consummated with 
respect to land which is, or could be, so taken under the power of 
eminent domain by a Federal, State, or other agency. Such acquisition 
may be by court proceedings to condemn the land or by negotiation 
between the agency and the owner. An acquisition by an agency with 
respect to land not subject to the agency's power of eminent domain 
shall not be an eminent domain acquisition for purposes of this 
section. All land acquired by an agency for the intended project, 
including surrounding land not needed for the project but acquired as a 
package acquisition, shall be considered to be in the eminent domain 
acquisition if the agency expended funds for the package acquisition on 
the basis of its power of eminent domain.
    (c) For purposes of this section, owner means the person, or 
persons in a joint ownership, having title to the land for a period of 
at least 12 months immediately prior to the date of transfer of title 
or grant of the impoundment or flowage easement under the eminent 
domain acquisition. If such person or persons have owned the land for 
less than such 12-month period, they may, nevertheless, be considered 
the owner if the State committee determines that such person or persons 
acquired the land for the purpose of carrying out farming operations 
and not for the purpose of obtaining status as an owner under this 
section. However, no person shall be considered the owner if he 
acquired the land subject to an eminent domain acquisition under an 
outstanding contract to an agency or an option by an agency or subject 
to pending condemnation proceedings. In any case where the current 
titleholders cannot be considered the owner for the purpose of this 
section, the State committee shall determine the person or persons who 
previously had title to the land and who qualify for status as the 
owner under the criteria in this paragraph.
    (d) The owner shall be considered displaced from a farm which is 
subject to an eminent domain acquisition on the date:
    (1) The owner loses possession of the land;
    (2) The owner is voluntarily displaced if a binding contract for 
acquisition has been executed;
    (3) The owner, in the case of a flowage easement, determines it is 
no longer practical to conduct farming operations on the land; or
    (4) The owner loses possession of the land as lessee under a lease 
from the agency or its designee if the lease provided uninterrupted 
possession to the owner from the date of acquisition to the end of the 
lease or extensions of the lease.
    (e) The owner shall notify the county committee in writing of the 
eminent domain acquisition and furnish the date of displacement within 
30 days so that allotments and quotas may be pooled in accordance with 
this section. Failure to so notify the county committee shall result in 
the loss of the ability of the owner to extend the 3-year period of the 
pool.
    (f) Whenever the county committee determines, by notice from the 
owner or otherwise, that an owner has been displaced from the farm, the 
county committee shall establish a pool for the allotments and quotas 
eligible for pooling under this section for a 3-year period beginning 
on the date of displacement. Pooled allotments and quotas shall be 
considered fully planted and, for each year in the pool, shall be 
established in accordance with applicable commodity regulations.
    (g) Pooling is not permitted or required:
    (1) If the county committee determines that an agency has authority 
under its eminent domain powers to acquire a farm for the continued 
production of an allotment or quota and does so acquire a farm only for 
such purpose and files a written notice with the county committee of 
the county in which the farm is located at the time of acquisition 
designating the allotment and quota to be produced on the farm, there 
shall be no pooling of such allotment and quota. Such farm allotments 
and quotas shall be established for the farm in accordance with 
applicable commodity regulations. For acreages, there shall be no 
pooling of the acreage under any circumstances if an agency acquires 
land and retains the land in an agricultural or related activity;
    (2) If the displaced owner files written notice with the county 
committee of an intention to waive the right to have all the allotments 
and quotas or any part thereof pooled and the county committee 
determines that the displaced owner has not been coerced to waive such 
right, the allotments and quotas shall be retained on the agency 
acquired land;
    (3) If an agency acquires part of a farm for non-farming purposes 
and the cropland on the land so acquired represents less than 15 
percent of the total cropland on the farm, the allotments and quotas 
shall be retained on the portion of the farm not acquired by the agency 
and shall not be pooled;
    (4) If an agency acquires part of a farm for non-farming purposes 
and the cropland on the land so acquired represents 15 percent or more 
of the total cropland on a farm, the allotments and quotas attributable 
to the acquired land shall be retained on the portion of the farm not 
acquired by the agency if the owner files a written request with the 
county committee for such retention. The amount of an allotment and 
quota which may be retained on the farm cannot exceed the land devoted 
to an agricultural or related activity. Allotments and quotas which are 
not retained shall be pooled; or
    (5) If, prior to pooling, an owner files a request to transfer the 
allotments and quotas to other farms in the same county which are owned 
by such owner, the county committee may approve a direct transfer 
without the formal establishment of a pool. Such transfer shall be 
subject to the requirements of paragraph (j) of this section. This 
paragraph shall govern the release and reapportionment of pooled 
allotments and quotas notwithstanding other provisions of applicable 
commodity regulations.
    (h) Pooled allotments and quotas may be released on an annual basis 
by the owner to a county committee during any year for which allotments 
and quotas are pooled and not otherwise transferred from the pool. The 
county committee may reapportion the released allotments and quotas to 
other farms in the same county that have allotments or quotas for the 
same commodity. Pooled allotments and quotas shall not be released on a 
permanent basis or surrendered after release to the State committee for 
reapportionment in other counties. Reapportionment shall be on the 
basis of past acreage of the commodity, land, labor, and equipment 
available for the production of the commodity, crop rotation practices, 
and other physical factors affecting the production of the commodity. 
Pooled allotments and quotas which are released shall be considered to 
have been fully planted in the pool and not on the farm to which such 
allotments and quotas are reapportioned.
    (i) Pooled allotments and quotas that may be transferred on a 
permanent or temporary basis by sale, lease, or by owner designation 
may be transferred permanently from the pool by the owner or 
temporarily for the duration of the pooled allotment or quota, subject 
to the terms and conditions for such transfers in the applicable 
commodity regulations. The transfer of tobacco acreage allotment or 
marketing quota shall be approved acre for acre.

[[Page 37563]]

    (j) (1) The displaced owners may request a transfer of all or part 
of the pooled allotments and quotas to any other farm in the United 
States which is owned by the displaced owner, but only if there are 
farms in the receiving county with allotments and quotas, for the 
particular commodity or, if there are no such farms, the county 
committee determines that farms in the receiving county are suited for 
the production of the commodity. For purposes of this paragraph:
    (i) Receiving farm means the farm to which transfer from the pool 
is to be made;
    (ii) Receiving State and county committee mean those committees for 
the State and county in which the receiving farm is located; and
    (iii) Transferring State and county committees mean those 
committees for the State and county in which the agency acquired farm 
is located.
    (2) The displaced owner shall file with the receiving county 
committee written application for transfer of an allotment and quota 
from the pool within 3 years after the date of displacement. The 
application shall contain a certification from the owner that no 
agreement has been made with any person for the purpose of obtaining an 
allotment or quota from the pool for a person other than for the 
displaced owner. The owner shall attach to the application all 
pertinent documents pertaining to the current ownership or purchase of 
land and any leasing arrangements, such as the deed of trust or 
mortgage, a warranty deed, a note, sales agreement, and lease.
    (3) The receiving county committee shall consider each application 
and determine whether the transfer from the pool shall be approved. 
Before an application is acted upon by the receiving county committee, 
the owner shall personally appear before the receiving county committee 
after reasonable notice, bring any additional pertinent documents as 
may be requested for examination by the receiving county committee, and 
answer all pertinent questions bearing on the proposed transfer. Such 
personal appearance requirement may be waived if the receiving county 
committee determines from facts presented to it on behalf of the owner 
that such personal appearance would unduly inconvenience the owner on 
account of illness or other good cause and such personal appearance 
would serve no useful purpose. Any action by the receiving county 
committee shall be subject to the approval required under paragraph 
(j)(5) of this section.
    (4) The transfer from the pool will be approved by the receiving 
county committee only if the county committee determines that the owner 
has made a normal acquisition of the receiving farm for the purpose of 
bona fide ownership to reestablish farming operations. The elements of 
such an acquisition shall include, but are not limited to, the 
following:
    (i) Appropriate legal documents must establish title to the 
receiving farm;
    (ii) If the displaced owner was the operator of the acquired farm 
at the date of displacement, such owner must personally operate and be 
the operator of the receiving farm for the first year that the 
allotment and quota is transferred;
    (iii) If the displaced owner was not the operator of the acquired 
farm at the date of displacement and was not a producer on that farm 
because the leasing or rental agreement provided for cash, fixed rent, 
or standing rent payment, such owner shall not be required to operate 
personally and be the operator of the receiving farm, but at least 75 
percent of the allotments for the receiving farm must be planted on the 
receiving farm during the first year of the transfer. With respect to a 
commodity for which a quota is applicable but for which there is no 
acreage allotment, an acreage which is equal to the result of dividing 
the quota transferred to the receiving farms by the receiving farm's 
yield, multiplied by 75 percent must be planted during the first year 
of the transfer;
    (iv) If the displaced owner was not the operator of the acquired 
farm at the date of displacement but was a producer on that farm at the 
date of displacement as the result of having received a share of the 
crops produced on the acquired farm, such displaced owner shall not be 
required to be the operator of the receiving farm but must be a 
producer on the receiving farm during the first year that an allotment 
or quota is transferred;
    (v) The contractual arrangements between the displaced owner and 
the seller of the receiving farm must not contain a requirement that 
the receiving farm be leased to the seller or a person designated by or 
subject to the control of the seller. The seller or a person designated 
by or subject to the control of the seller may not lease the receiving 
farm for the first year the allotment or quota is transferred; and
    (vi) The contractual arrangements under which the receiving farm 
was purchased or leased must be customary in the community where the 
receiving farm is located with respect to purchase price and timing and 
amount of purchase or rental payments.
    (5) The approval by the receiving county committee of a transfer 
from the pool under this paragraph shall be effective upon concurrence 
by the State committee of the State where the receiving farm is located 
(the receiving State committee). Notwithstanding any other provision of 
this section, the receiving State committee may authorize a transfer 
from the pool in any case where the owner presents evidence 
satisfactory to the receiving State committee that:
    (i) The eligibility requirements of paragraph (j)(4) (ii), (iii) 
and (iv) of this section cannot be met without substantial hardship 
because of illness, old age, multiple farm ownership, or lack of a 
dwelling on the farm to which an allotment or quota is to be 
transferred; or
    (ii) The owner has made a normal acquisition of the receiving farm 
for the purpose of bona fide ownership to reestablish farming 
operations for the displaced owner, even if the farm is leased to the 
seller of the farm for the first year for which the allotment or quota 
is transferred.
    (6) Upon completion of all necessary approvals under this 
paragraph, the receiving county committee shall issue an appropriate 
notice of allotment and quota under the applicable commodity 
regulations, taking into consideration the land, labor, and equipment 
available for the production of the commodity, crop rotation practices, 
and the soil and other physical factors affecting the production of the 
commodity. For purposes of determining the amount of the allotment and 
quota available for transfer, the receiving county committee shall 
consider the receiving tract as a separate ownership. The acreage 
transferred from the pool shall not exceed the allotments and quotas, 
most recently established for the acquired farm placed in the pool. 
When all or a part of the allotment and quota placed in the pool is 
transferred and used to establish or increase the allotment and quota 
for other farms owned or purchased by the owner, all of the 
proportionate part of the past acreage history for the acquired farm 
shall be transferred to and considered for purposes of future 
allotments and quotas to have been planted on the receiving farm for 
which an allotment and quota, are established or increased under this 
section. If only a part of the available allotment and quota is 
transferred from the pool, the remaining part of the allotment and 
quota, shall remain in the pool for transfer to other farms of the 
owner until all such

[[Page 37564]]

allotments and quotas have been transferred or until the period of 
eligibility for establishing or increasing allotments and quotas under 
this section has expired.
    (7) If any allotment or quota is transferred under this section and 
it is later determined by the receiving county or State committee, or 
by the Deputy Administrator, that the transfer was obtained by 
misrepresentation by or on behalf of the owner, or that the conditions 
of paragraph (j)(4) of this section are not met, the allotment and 
quota for the receiving farm shall be reduced for each year the 
transfer purportedly was in effect by the amount attributable to the 
allotment or quota transferred from the pool. If the time period for 
the transfer of the allotment or quota from the pool has not expired, 
the amount of allotment or quota initially transferred from the pool 
shall be returned to the pool after the period of time has expired in 
which the displaced owner could exercise the right of administrative 
review. Any cancellation of the transfer of an allotment or quota by 
the receiving county committee shall be subject to approval by the 
receiving State committee. The receiving county committee shall issue a 
notice of any marketing quota and penalty as may be required in 
accordance with applicable commodity regulations.
    (8) If the displaced owner files a request for transfer of pooled 
allotments or quotas, within the prescribed period for filing such 
request, but the request for transfer is filed during a year in which 
all or a part of the pooled allotments or quotas were released to the 
transferring county committee pursuant to paragraph (h), the 
application for transfer will be processed in the usual manner but the 
amount of the commodity released shall not be effective on the 
receiving farm until the succeeding year. When a request for transfer 
of pooled allotment or quota involves a transfer from one State to 
another, the receiving State committee shall obtain information from 
the transferring State committee as to whether any part of the 
allotment or quota for which the transfer is requested has been 
released to the transferring county committee for the current year.
    (k)(1) When the displaced owner leases part but not all of the 
agency acquired land, such part shall be constituted as a separate farm 
on the date of the displacement of the owner from the land not so 
leased.
    (2) If a parent farm consists of separate ownership tracts, each 
such tract being acquired in whole or in part shall be considered as a 
separate farm for purposes of paragraphs (g) (3) and (4) of this 
section.
    (3) If a portion of a farm is acquired by an agency and the owner 
is displaced therefrom, the acquired portion shall be constituted as a 
separate farm on the date of displacement unless the allotments and 
quotas are retained on the portion not acquired as provided in 
paragraphs (g) (3) and (4) of this section, in which case the farm 
shall not be reconstituted but the farmland and cropland data shall be 
corrected on all appropriate records for the parent farm.
    (l)(1) The displaced owner may file with the county committee a 
written designation of beneficiary of the rights in the allotments and 
quotas attributable to the acquired land in the event of the death of 
the displaced owner, and may revise such designation from time to time. 
The beneficiary of a deceased owner may exercise the right to continue 
a lease or negotiate a lease with the agency or its designee, the 
regular transfer rights with respect to farms owned by such 
beneficiary, and the release, sale, lease, and owner transfer rights 
under this section.
    (2) If the displaced owner does not file a designation of 
beneficiary under paragraph (l)(1) and the displaced owner dies before 
displacement or after pooling occurs, the following persons shall be 
considered the beneficiary with the rights provided under paragraph 
(l)(1) of this section:
    (i) The surviving joint owner of the farm where two persons own the 
farm as joint tenants with right of survivorship; and
    (ii) The persons who succeed to the deceased displaced owner's 
interest under a will or by intestate succession. However, in the case 
of intestate succession, the person shall be limited to the surviving 
spouse, parent, sibling or child of the deceased displaced owner. In 
the settlement of the estate of the deceased displaced owner, the heirs 
may file a written agreement with the county committee for the division 
of the deceased displaced owner's rights under this section.
    (m)(1) No transfer from the pool under paragraph (h), (i), or (j) 
of this section shall be approved if there remains any unpaid marketing 
quota penalty due with respect to the marketing of the commodity from 
the acquired farm by the displaced owner, or if any of the commodity 
produced on the agency acquired farm has not been accounted for as 
required under applicable commodity regulations.
    (2) If an allotment or quota for an acquired farm next established 
after the data of displacement would have been reduced because of false 
or improper identification of the commodity produced on or marketed 
from the farm, or as the result of a false acreage report, the 
allotment or quota shall be reduced in the pool in accordance with the 
applicable commodity regulations.


Sec. 718.208  Exempting federal prison farms and Federal wildlife 
refuges.

    A marketing penalty shall not be assessed with respect to any 
commodity which is produced on a Federal prison farm or Federal 
wildlife refuge. This exception does not apply to penalties incurred by 
an individual who has a separate interest in a crop which is subject to 
marketing quotas and was produced on a Federal prison farm or Federal 
wildlife refuge.


Sec. 718.209  Transfer of allotments and quotas--State public lands.

    (a) Transfers of allotments and quotas between farms in the same 
county may be permitted where both farms are lands owned by the State.
    (b) An application requesting the transfer of one or more of the 
allotments and quotas on a farm entirely comprised of lands owned by a 
State shall be filed with the county committee by the State. The 
application shall identify the farms as being within the same county, 
show that each farm is entirely comprised of lands owned by the State, 
and list the allotments and quotas requested to be transferred. 
Additional information with respect to the present operations on the 
farms, including all leasing arrangements, shall also be set forth in 
the application.
    (c) The State committee shall establish the closing date for filing 
applications under paragraph (b) of this section for each year which 
shall be no later than the general planting date in the county for the 
commodity involved in the transfer.
    (d)(1) Each transfer of an allotment and quota under this section 
shall be adjusted for differences in farm productivity if the yield 
projected for the year the transfer is to take effect for the farm to 
which transfer is made exceeds by more than ten percent the yield 
projected for the year the transfer is to take effect for the farm from 
which transfer is made. The county committee shall determine the amount 
of the allotment and quota to be transferred where a productivity 
adjustment is required to be made by dividing:
    (i) The product of the yield for the farm from which the transfer 
is made and the acreage to be transferred from such farm, by
    (ii) The yield for the farm to which the transfer is made.
    (2) Acreage for the farm receiving the allotment or quota shall be 
adjusted by

[[Page 37565]]

the same percentage as the allotment or quota being transferred is 
adjusted. The amount of the allotment and quota and related acreage 
transferred from the farm from which the transfer is made shall be the 
full amount, but the amount of all allotment or quota and related 
acreage for the farm to which the transfer is made shall be the 
adjusted amount.
    (e) The amount of allotment and quota on a farm after a transfer 
under this section is made shall not exceed the average amount of 
allotment or quota of at least three farms with acreage of cropland 
similar to the farm receiving the transfer in the community having the 
applicable allotment acreage and quota on these farms.
    (f) Each transfer of any allotment and quota shall be subject to 
the condition that an acreage equal to the allotment and quota 
transferred, before any productivity adjustment, shall be devoted to 
and maintained in permanent vegetative cover on the farm from which the 
transfer is made. The acreage to be devoted to and maintained in 
permanent vegetative cover with respect to quota crops shall be 
determined by dividing the quota transferred by the yield of the farm 
from which the quota is transferred.
    (g) Transfer of an allotment and quota under this section shall 
only be approved if:
    (1) The county committee determines that a timely filed application 
has been received and that the provisions of this section have been 
met; and
    (2) A representative of the State committee also determines that 
the provisions of this section have been met. If such a transfer is 
approved, the county committee shall issue revised notices of the 
allotment or quota for each farm affected by the transfer. If a county 
committee obtains evidence that the conditions applicable to any 
transfer under this section have not been met, a report of the facts 
shall be made to the State committee. If the State committee determines 
that such conditions have not been met, the transfer will be canceled, 
and the allotment and quota shall be retransferred to the original 
farm. Where cancellation and retransfer is required, the county 
committee shall issue revised notices of the allotment or quota showing 
the reasons for the cancellation of the transfer.

PART 729--PEANUTS

    8. The authority citation for part 729 continues to read as 
follows:

    Authority: 7 U.S.C. Chapters 1301, 1357 et seq., 1372, 1373, 
1375; and 7 U.S.C. Chapter 1445c-3.

    9. For the reason set out in the preamble, Sec. 729.316 is revised 
to read as follows:


Sec. 729.316  Marketing assessments.

    (a) Subject to adjustments in accordance with Sec. 729.317, a 
nonrefundable marketing assessment shall, in the amount provided for in 
this section, be due on each pound of farmers stock peanuts marketed or 
considered marketed by a producer, including marketings by pledging 
peanuts as collateral for a price support loan. The per pound 
assessment as a percentage of the applicable national average quota or 
additional peanut loan rate, shall be an amount equal to:
    (1) 1.15 percent for the 1996 crop; and
    (2) 1.2 percent for the 1997 through 2002 crops.
    (b) Collections and payment of marketing assessments. The first 
purchaser of peanuts shall:
    (1) Collect from the producer a marketing assessment equal to the 
quantity of peanuts acquired multiplied by:
    (i) In the case of the 1996 crop, a per pound amount equal to .6 
percent of the national average loan rate; and
    (ii) In the case of each of the 1997 through 2002 crops, a per 
pound amount equal to .65 percent of the applicable national average 
loan rate.
    (2) In addition to the amount collected under paragraph (1) of this 
section, pay a marketing assessment in an amount equal to the quantity 
of peanuts acquired multiplied by .55 percent of the applicable 
national average loan rate.
    (c) Private marketings. For all peanuts retained on the farm for 
seed or other uses or marketed by such producer to any person outside 
the United States or marketed in private marketings through a retail or 
wholesale outlet to any person who is not required to register as a 
handler in accordance with part 1446 of this title, the producer shall 
pay a marketing assessment equal to the full amount determined by 
multiplying the per pound amount provided in paragraph (a) of this 
section by the gross weight of the peanuts if they are uninspected 
farmers stock peanuts or, if inspected, the net weight of such peanuts. 
If such peanuts are shelled before they are marketed, the quantity 
marketed shall be converted to a farmers stock equivalent as consistent 
with this part, for purposes of determining the amount of assessment 
that is due.
    (d) Loan collateral peanuts. With respect to peanuts that are 
pledged as collateral for a price support loan through an approved 
warehouse, an assessment shall be:
    (1) Determined and paid by multiplying the net weight of such 
peanuts by the applicable per pound amount provided in paragraph (b)(1) 
of this section for private sales and deducting the total from the loan 
value of such peanuts before other deductions may be made for any other 
reason; and
    (2) Further determined and paid by multiplying the net weight of 
such peanuts, when sold from the price support inventory, by the 
applicable per pound amount provided in paragraph (b)(2) of this 
section for private sales and collecting that amount from the person 
who acquires such peanuts from the applicable association or from the 
CCC.
    (e) Remittance of marketing assessments. With respect to marketing 
assessments as provided in:
    (1) Paragraph (b) of this section, such assessments shall be 
remitted in a manner prescribed by the Deputy Administrator. To avoid a 
penalty, as prescribed in this section, the marketing assessments due 
with respect to any lot of peanuts acquired directly from a producer 
must be remitted during the 15 days that follow the week in which the 
data from the applicable Form FSA-1007 is due to be transmitted to FSA 
in accordance with the provisions in part 1446 of this title. For 
purposes of this section a week shall be the 168 hour period that 
begins at 12:01 a.m. local time on any Sunday and the postmark on the 
envelope in which such marketing assessment is remitted may be the 
basis for determining whether the marketing assessment was remitted 
timely;
    (2) Paragraph (c) of this section, such assessments shall be 
remitted, within 10 days after the date such peanuts are marketed, and 
shall be remitted to the county FSA office that serves the county in 
which the farm is administratively located. Peanuts that are retained 
on the farm for seed or other use, shall be considered marketed at the 
time the certification of marketings is filed or due to be filed at the 
county FSA office, whichever is earlier;
    (3) Paragraph (d)(1) of this section, such assessments shall be 
credited by the association to the appropriate account of the CCC and 
in accordance with instructions issued by the Executive Vice President, 
CCC; and
    (4) Paragraph (d)(2) of this section, such assessment shall be paid 
at the time and in the manner prescribed in the applicable:
    (i) Sales announcements for sales of farmers stock peanuts by CCC;
    (ii) Sales announcement or other similar document issued by the

[[Page 37566]]

association for association sales of loan stocks of farmers stock 
peanuts; and
    (iii) Storage contract for farmers stock peanuts purchased by a 
handler when peanuts are purchased by such handler in accordance with 
the ``immediate buyback'' provisions set forth in Sec. 1446.309.
    (f) Penalties. If any person fails to collect, pay or timely remit 
the assessment required by this section, the person shall be liable in 
addition to principal and interest, for a penalty determined by 
multiplying the quantity of peanuts involved by 10 percent of the per 
pound national average quota support rate for the applicable crop year.
    10. Sec. 729.317 is added to subpart C to read as follows:


Sec. 729.317  Increased marketing assessments.

    (a) Applicability. If area quota pool losses are not otherwise 
covered by the offsets prescribed by part 1446 of this title, and the 
transfer of marketing assessments collected in accordance with 
provisions of this part, the marketing assessment for quota peanut 
producers shall be:
    (1) Increased by an amount needed by CCC to cover such losses; and
    (2) Collected as determined by CCC on all quota peanuts marketed in 
the next marketing year in the area covered by the quota pool which had 
the loss.
    (b) Insufficient collections. If the amount of such increased 
assessments collected on the marketing of quota peanuts in any year is 
less than the amount needed to cover the accumulated net pool losses 
for any crop, there shall be an increased assessment in subsequent 
years until the amount needed is collected.
    (c) Excess collections. If the increased amount of assessments, as 
provided in this section, collected on the marketing of quota peanuts 
for any year is greater than the amount needed for the purpose for 
which the collection is made, the excess amount shall be retained to 
offset any losses which may occur in quota pools within that marketing 
area in subsequent years.
    (d) Collection procedures. Unless otherwise specified by CCC, the 
collection procedures for the increased assessments shall be as 
provided for in Sec. 729.316 and the assessment rates of Sec. 729.316 
shall be increased accordingly.

Parts 719, 720, 790, 791, 793, and 796--[REMOVED]

    11. Parts 719, 720, 790, 791, 793, and 796 are removed.
    12. Chapter XIV is revised by adding part 1400 to read as follows:

PART 1400--PAYMENT LIMITATION AND PAYMENT ELIGIBILITY

Subpart A--General Provisions

Sec.
1400.1 Applicability.
1400.2 Administration.
1400.3 Definitions.
1400.4 Indian tribal ventures.
1400.5 Scheme or device.
1400.6 Commensurate contributions.
1400.7 Joint and several liability.
1400.8 Equitable adjustments.
1400.9 Appeals.
1400.10 Paperwork Reduction Act assigned number.

Subpart B--Person Determinations

1400.100 Timing for determining status of persons.
1400.101 Limited partnerships, limited liability partnerships, 
limited liability companies, corporations and other similar 
entities.
1400.102 Joint operations.
1400.103 Trusts.
1400.104 Estates.
1400.105 Husband and wife.
1400.106 Minor children.
1400.107 States, political subdivisions, and agencies thereof.
1400.108 Charitable organizations.
1400.109 Changes in farming operations.

Subpart C--Actively Engaged in Farming Determinations

1400.201 General provisions for determining whether an individual or 
entity is actively engaged in farming.
1400.202 Individuals.
1400.203 Joint operations.
1400.204 Limited partnerships, limited liability partnerships, 
limited liability companies, corporations and other similar 
entities.
1400.205 Trusts.
1400.206 Estates.
1400.207 Landowners.
1400.208 Family members.
1400.209 Sharecroppers.
1400.210 Deceased and incapacitated individuals.
1400.211 Persons not considered to be actively engaged in farming.
1400.212 Hybrid seed producers.

Subpart D--Permitted Entities

1400.301 Limitation on the number of entities through which an 
individual or entity may receive a payment and required 
notification.

Subpart E--Cash Rent Tenants

1400.401 Eligibility.

Subpart F--Foreign Persons

1400.501 Eligibility.
1400.502 Notification.

    Authority: 7 U.S.C. 1308, 1308-1, and 1308-2; 16 U.S.C. 3834.

Subpart A--General Provisions


Sec. 1400.1  Applicability.

    (a) All of the provisions of this part are applicable to the 
following programs and any other programs as may be provided for in 
individual program regulations:
    (1) The programs authorized by part 1412 of this chapter;
    (2) Any program authorized by parts 1421 and 1427 of this chapter 
under which a gain is realized by a producer from repaying a marketing 
assistance loan for a commodity at a lower rate than the original loan 
rate established for the commodity, and any program that authorizes the 
making of a loan deficiency payment with respect to a commodity;
    (3)(i) The program authorized by parts 704 and 1410 of this title 
with respect to the Conservation Reserve Program (CRP) rental payments 
made in accordance with a contract entered into on or after August 1, 
1988. For contracts entered into before August 1, 1988, in accordance 
with such contracts, the person may elect to have the provisions of 
this part apply to such contract by notifying the county committee in 
writing of such election. Such election shall be irrevocable.
    (ii) The regulations set forth at part 795 of this title are 
applicable to CRP contracts entered into before December 22, 1987, and 
to CRP contracts entered into on or after such date and before August 
1, 1988, if the person has not made the election specified in paragraph 
(a)(3)(i) of this section.
    (iii) This part is not applicable to rental payments made in 
accordance with a CRP contract if such payments are made to a State, 
political subdivision, or agency thereof in connection with agreements 
entered into under a special conservation reserve enhancement program 
carried out by such State, political subdivision, or agency thereof 
that has been approved by the Secretary, or a designee of the 
Secretary.
    (iv) With respect to inherited land, this part is not applicable to 
rental payments made in accordance with a CRP contract if such payments 
are made to an individual heir who has succeeded to such contract. Such 
land must have been subject to the CRP contract at the time it is 
inherited by the individual.
    (b) Only the provisions of subparts A and B are applicable to the 
Agricultural Conservation Program (ACP) authorized under part 701 of 
this title.
    (c) This part shall be applied to the programs specified in 
paragraph (a)(2) of this section on a crop year basis; and with respect 
to the programs specified

[[Page 37567]]

in paragraphs (a)(1) and (3) and (b) of this section on a fiscal year 
basis.
    (d) This part shall be used to determine whether individuals and 
entities are to be treated as one person or as separate persons for the 
purpose of applying the respective payment limitation provisions 
applicable to the programs specified in this section and to such other 
programs as may be provided in individual program regulations.
    (e) In cases in which more than one provision of this part are 
applicable, the provision which is most restrictive shall apply.
    (f) Payments shall not be subject to the payment limitation 
provisions if they are made to:
    (1) Public schools with respect to land owned by a public school 
district; or
    (2) A State with respect to land owned by a State that is used to 
maintain a public school.
    (g) The following amounts are the limitations on payments per 
person per applicable period for each payment.

------------------------------------------------------------------------
                                                         Limitation per 
                     Payment type                       program year or 
                                                          fiscal year   
------------------------------------------------------------------------
Production Flexibility Contract......................        \1\ $40,000
Production Flexibility Contract......................         \2\ 50,000
Marketing Loan Gain..................................         \3\ 75,000
Loan deficiency......................................  .................
CRP..................................................             50,000
ACP cost-share.......................................              3,500
Non-Insured Crop Disaster Assistance Program (NAP)...           100,000 
------------------------------------------------------------------------
\1\ Annual payment amount.                                              
\2\ Amounts made in accordance with section 113(c) of the Federal       
  Agriculture Improvement and Reform Act of 1996.                       
\3\ The total of marketing loan gains and loan deficiency payments      
  cannot exceed $75,000 per crop year.                                  

Sec. 1400.2  Administration.

    (a) The regulations in this part will be administered under the 
general supervision and direction of the Executive Vice President, 
Commodity Credit Corporation (CCC), and the Administrator, Farm Service 
Agency (FSA). In the field, the regulations in this part will be 
administered by the FSA State and county committees (herein referred to 
as ``State and county committees,'' respectively).
    (b) State executive directors, county executive directors and State 
and county committees do not have authority to modify or waive any of 
the provisions of this part.
    (c) The State committee may take any action authorized or required 
by this part to be taken by the county committee which has not been 
taken by such committee. The State committee may also:
    (1) Correct or require a county committee to correct any action 
taken by such county committee that is not in accordance with this 
part; or
    (2) Require a county committee to withhold taking any action that 
is not in accordance with this part.
    (d) No delegation herein to a State or county committee shall 
preclude the Executive Vice President, CCC, and the Administrator, FSA, 
or a designee, from determining any question arising under this part or 
from reversing or modifying any determination made by a State or county 
committee.
    (e) The initial ``actively engaged in farming'' and ``person'' 
determinations shall be made within 60 days after the producer files 
the required forms and any other supporting documentation needed in 
making such determinations. If the determination is not made within 60 
days, the producer will receive a determination for that program year 
that reflects the determination sought by the producer unless the 
Deputy Administrator determines that the producer did not follow the 
farm operating plan that was presented to the county or State committee 
for such year.
    (f) Initial determinations concerning the provisions of this part 
shall not be made by a county FSA office with respect to any farm 
operating plan that is for a joint operation with more than five 
members.


Sec. 1400.3  Definitions.

    (a) The terms defined in part 718 of this chapter shall be 
applicable to this part and all documents issued in accordance with 
this part, except as otherwise provided in this section.
    (b) The following definitions shall also be applicable to this 
part:
    Active personal labor. Active personal labor is personally 
providing physical activities necessary in a farming operation, 
including activities involved in land preparation, planting, 
cultivating, harvesting, and marketing of agricultural commodities in 
the farming operation. Other physical activities include those physical 
activities required to establish and maintain conserving cover crops on 
conserving use and CRP acreages and those physical activities necessary 
in livestock operations.
    Active personal management. Active personal management is 
personally providing:
    (1) The general supervision and direction of activities and labor 
involved in the farming operation; or
    (2) Services (whether performed on-site or off-site) reasonably 
related and necessary to the farming operation, including:
    (i) Supervision of activities necessary in the farming operation, 
including activities involved in land preparation, planting, 
cultivating, harvesting, and marketing of agricultural commodities, as 
well as activities required to establish and maintain conserving cover 
crops on conserving use and CRP acreage and activities required in 
livestock operations;
    (ii) Business-related actions, which include discretionary decision 
making;
    (iii) Evaluation of the financial condition and needs of the 
farming operation;
    (iv) Assistance in the structuring or preparation of financial 
reports or analyses for the farming operation;
    (v) Consultations in or structuring of business-related financing 
arrangements for the farming operation;
    (vi) Marketing and promotion of agricultural commodities produced 
by the farming operation;
    (vii) Acquiring technical information used in the farming 
operation; and
    (viii) Any other management function reasonably necessary to 
conduct the farming operation and for which service the farming 
operation would ordinarily be charged a fee.
    Alien. Any person not a citizen or national of the United States.
    Lawful Alien. Any person who is not a citizen or national of the 
United States but who is admitted into the United States for permanent 
residence under the Immigration and Nationality Act and possesses a 
valid Alien Registration Receipt Card (Form I-551 or I-151).
    (2) [Reserved]
    Capital. Capital consists of the funding provided by an individual 
or entity to the farming operation in order for such operation to 
conduct farming activities. In determining whether an individual or 
entity has contributed capital, in the form of funding, to the farming 
operation, such capital must have been derived from a fund or account 
separate and distinct from that of any other individual or entity 
involved in such operation. Capital does not include the value of any 
labor or management that is contributed to the farming operation or any 
outlays for land or equipment. A capital contribution may be a direct 
out-of-pocket input of a specified sum or an amount borrowed by the 
individual or entity.
    (1) With respect to a farming operation conducted by an individual, 
a joint operation in which the capital is contributed by a member of 
the joint operation or an entity, such capital contributed to meet the 
requirements of:

[[Page 37568]]

    (i) Section 1400.201(b) must be contributed directly by the 
individual or entity and must not be acquired as a result of a loan 
made to, guaranteed, or secured by:
    (A) Any other individual, joint operation, or entity that has an 
interest in such farming operation;
    (B) Such individual, joint operation, or entity by any other 
individual, joint operation, or entity that has an interest in such 
farming operation; or
    (C) Any other individual, joint operation, or entity in whose 
farming operation such individual, joint operation, or entity has an 
interest; and
    (ii) Sections 1400.6 and 1400.201(d) must be contributed directly 
by the individual or entity and if acquired as a result of a loan made 
to, guaranteed, or secured by the individuals, joint operations, or 
entities listed in paragraphs (1)(i)(A) through (1)(i)(C) of this 
definition, the loan must bear the prevailing interest rate; and
    (2) With respect to a farming operation conducted by a joint 
operation in which the capital is contributed by such joint operation, 
such capital contributed to meet the requirements of:
    (i) Section 1400.201(b) must be contributed directly by the joint 
operation and must not be acquired as a result of a loan made to, 
guaranteed, or secured by:
    (A) Any individual, entity, or other joint operation that has an 
interest in such farming operation, including either joint operation's 
members;
    (B) Such joint operation by any individual, entity, or other joint 
operation that has an interest in such farming operation; or
    (C) Any individual, entity, or other joint operation in whose 
farming operation such joint operation has an interest.
    (ii) Sections 1400.6 and 1400.201(d) must be contributed directly 
by the joint operation and if acquired as a result of a loan made to, 
guaranteed, or secured by the individuals, entities, or joint 
operations listed in paragraphs (2)(i)(A) through (2)(i)(C) of this 
definition, the loan must bear the prevailing interest rate.
    Entity. An entity is a corporation, joint stock company, 
association, limited partnership, limited liability partnership, 
limited liability company, irrevocable trust, revocable trust, estate, 
charitable organization, or other similar organization, including any 
such organization participating in the farming operation as a partner 
in a general partnership, a participant in a joint venture, a grantor 
of a revocable trust, or as a participant in a similar organization.
    Equipment. Equipment is the machinery and implements needed by the 
farming operation to conduct activities of the farming operation, 
including machinery and implements involved in land preparation, 
planting, cultivating, harvesting, or marketing of the crops involved. 
Equipment also includes machinery and implements needed to establish 
and maintain conserving cover crops on conserving use and CRP acreages 
and those needed to conduct livestock operations.
    (1) With respect to a farming operation conducted by an individual, 
entity or joint operation in which the equipment is contributed by a 
member of the joint operation, such equipment contributed to meet the 
requirements of:
    (i) Section 1400.201(b) must be contributed directly by the 
individual or entity and must not be acquired as a result of a loan 
made to, guaranteed, or secured by:
    (A) Any other individual, joint operation, or entity that has an 
interest in such farming operation.
    (B) Such individual, joint operation, or entity by any other 
individual, joint operation, or entity that has an interest in such 
farming operation; or
    (C) Any other individual, joint operation, or entity in whose 
farming operation such individual, joint operation, or entity has an 
interest.
    (ii) Sections 1400.6 and 1400.201(d) must be contributed directly 
by the individual or entity and if acquired as a result of a loan made 
to, guaranteed, or secured by the individuals, joint operations, or 
entities listed in paragraphs (1)(i)(A) through (1)(i)(C) of this 
definition, the loan must bear the prevailing interest rate.
    (2) With respect to a farming operation conducted by a joint 
operation in which the equipment is contributed by such joint 
operation, such equipment contributed to meet the requirements of:
    (i) Section 1400.201(b) must be contributed directly by the joint 
operation and must not be acquired as a result of a loan made to, 
guaranteed, or secured by:
    (A) Any individual, entity, or other joint operation that has an 
interest in such farming operation, including either joint operation's 
members.
    (B) Such joint operation by any individual, entity, or other joint 
operation that has an interest in such farming operation; or
    (C) Any individual, entity, or other joint operation in whose 
farming operation such joint operation has an interest; and
    (ii) Sections 1400.6 and 1400.201(d) must be contributed directly 
by the joint operation and if listed as a result of a loan made to, 
guaranteed, or secured by the individuals, entities, or joint 
operations provided in paragraphs (2)(i)(A) through (2)(i)(C) of this 
definition, the loan must bear the prevailing interest rate.
    (3) Such equipment may be leased from any source. If such equipment 
is leased from another individual or entity with an interest in the 
farming operation, such equipment must be leased at a fair market 
value.
    Family member. The term family member means an individual to whom 
another member in the farming operation is related as lineal ancestor, 
lineal descendant, or sibling, including spouses of those individuals 
who do not make a significant contribution to the farming operation 
themselves.
    Farming operation. A farming operation is a business enterprise 
engaged in the production of agricultural products that is operated by 
an individual, entity, or joint operation and is eligible to receive 
payments, directly or indirectly, under one or more of the programs 
specified in Sec. 1400.1. An entity or individual may have more than 
one farming operation if such individual or entity is a member of one 
or more joint operations.
    Interest in a Farming Operation. An individual, entity or joint 
operation has an interest in a farming operation if the individual, 
entity or joint operation:
    (1) Owns or rents the land;
    (2) Has an interest in the agricultural commodities produced; or
    (3) Is a member of a joint operation that either owns or rents the 
land or has an interest in the agricultural commodities produced.
    Irrevocable trust. All trusts shall be considered to be revocable 
trusts, except a trust may be considered to be an irrevocable trust if 
it is a trust:
    (1) That may not be modified or terminated by the grantor;
    (2) In the corpus of which the grantor does not have any future, 
contingent or remainder interest; and
    (3) If established after January 1, 1987, that does not provide for 
the transfer of the corpus of the trust to the remainder beneficiary in 
less than 20 years from the date the trust is established except in 
cases where the transfer is contingent upon either the remainder 
beneficiary achieving at least the age of majority or the death of the 
grantor or income beneficiary.
    Joint operation. A joint operation is a general partnership, joint 
venture, or other similar business organization.

[[Page 37569]]

    Land. Land is farmland that meets the specific requirements of the 
applicable program.
    (1) With respect to a farming operation conducted by an individual, 
a joint operation in which the land is contributed by a member of the 
joint operation, or an entity, such land contributed to meet the 
requirements of:
    (i) Section 1400.201(b) must be contributed directly by the 
individual or entity and must not be acquired as a result of a loan 
made to, guaranteed, or secured by:
    (A) Any other individual, joint operation, or entity that has an 
interest in such farming operation;
    (B) Such individual, joint operation, or entity by any other 
individual, joint operation, or entity that has an interest in such 
farming operation; or
    (C) Any other individual, joint operation, or entity in whose 
farming operation such individual, joint operation, or entity has an 
interest; and
    (ii) Sections 1400.6 and 1400.201(d) must be contributed directly 
by the individual or entity and if acquired as a result of a loan made 
to, guaranteed, or secured by the individuals, joint operations, or 
entities listed in paragraphs (1)(i)(A) through (1)(i)(C) of this 
definition, the loan must bear the prevailing interest rate; and
    (2) With respect to a farming operation conducted by a joint 
operation in which the land is contributed by such joint operation, 
such land contributed to meet the requirements of:
    (i) Section 1400.201(b) must be contributed directly by the joint 
operation and must not be acquired as a result of a loan made to, 
guaranteed, or secured by:
    (A) Any individual, entity, or other joint operation that has an 
interest in such farming operation, including either joint operation's 
members;
    (B) Such joint operation by any individual, entity, or other joint 
operation that has an interest in such farming operation; or
    (C) Any individual, entity, or other joint operation in whose 
farming operation such joint operation has an interest; and
    (ii) Sections 1400.6 and 1400.201(d) must be contributed directly 
by the joint operation and if acquired as a result of a loan made to, 
guaranteed, or secured by the individuals, entities, or joint 
operations provided in paragraphs (2)(i)(A) through (2)(i)(C) of this 
definition, the loan must bear the prevailing interest rate.
    (3) Such land may be leased from any source. If such land is leased 
from another individual or entity with an interest in the farming 
operation, such land must be leased at a fair market value.
    Payment. A payment includes:
    (1) Payments made in accordance with part 1412 of this chapter;
    (2) Loan gains and loan deficiency payments made in accordance with 
parts 1421 and 1427 of this chapter;
    (3) CRP annual rental payments made in accordance with parts 704 of 
this title and 1410 of this chapter;
    (4) ACP cost-share payments made in accordance with part 701 of 
this title;
    (5) Non-Insured Crop Disaster Assistance Program (NAP) payments; 
and
    (6) With respect to other programs, any payments designated in 
individual program regulations.
    Payment, loan, or benefit. A payment, loan, or benefit made in 
accordance with the 1996 Act, the CCC Charter Act, or Subtitle D of the 
1985 Act, which results in a direct expenditure by the CCC or any other 
agency of the Federal Government, including a payment made in 
accordance with part 1401 of this title. Such term does not include the 
establishment of contract acreages, farm program payment yields, 
acreage allotments, marketing quotas, and similar program provisions.
    Permitted entity. A permitted entity is an entity designated 
annually by an individual that is to receive a payment, loan, or 
benefit under a program specified in Sec. 1400.1(a).
    Person. (1) A person is:
    (i) An individual, including any individual participating in a 
farming operation as a partner in a general partnership, a participant 
in a joint venture, or a participant in a similar entity;
    (ii) A corporation, joint stock company, association, limited 
partnership, limited liability partnership, limited liability company, 
irrevocable trust, revocable trust combined with the grantor of the 
trust, estate, or charitable organization, including any such entity or 
organization participating in the farming operation as a partner in a 
general partnership, a participant in a joint venture, a grantor of a 
revocable trust, or as a participant in a similar entity; and
    (iii) A State, political subdivision, or agency thereof.
    (2) In order for an individual or entity, other than an individual 
or entity that is a member of a joint operation, to be considered a 
separate person for the purposes of this part, in addition to other 
provisions of this part, the individual or entity must:
    (i) Have a separate and distinct interest in the land or the crop 
involved;
    (ii) Exercise separate responsibility for such interest; and
    (iii) Maintain funds or accounts separate from that of any other 
individual or entity for such interest.
    (3) With respect to an individual or entity that is a member of a 
joint operation, such individual or entity will have met the 
requirements of paragraph (2) of this definition if the joint operation 
meets the requirements of such paragraph.
    (4) Any cooperative association of producers that markets 
commodities for producers shall not be considered a person with respect 
to the commodities so marketed for producers.
    Public school. A public school is a primary, elementary, secondary 
school, college, or university that is directly administered under the 
authority of a governmental body or that receives a predominant amount 
of its financing from public funds.
    Sharecropper. An individual who performs work in connection with 
the production of the crop under the supervision of the operator and 
who receives a share of such crop in return for the provision of such 
labor.
    Significant contribution. A significant contribution is the 
provision of the following to a farming operation by an individual or 
entity:
    (1)(i) With respect to land, capital, or equipment contributed by 
an individual or entity, a contribution that has a value at least equal 
to 50 percent of the individual's or entity's commensurate share of:
    (A) The total value of the capital necessary to conduct the farming 
operation;
    (B) The total rental value of the land necessary to conduct the 
farming operation;
    (C) The total rental value of the equipment necessary to conduct 
the farming operation; or
    (ii) If the contribution by an individual or entity consists of any 
combination of land, capital, and equipment, such combined contribution 
must have a value at least equal to 30 percent of the individual's or 
entity's commensurate share of the total value of the farming 
operation;
    (2) With respect to active personal labor, an amount which is the 
smaller of:
    (i) 1,000 hours per calendar year; or
    (ii) 50 percent of the total hours that would be necessary to 
conduct a farming operation that is comparable in size to such 
individual's or entity's commensurate share in the farming operation;

[[Page 37570]]

    (3) With respect to active personal management, activities that are 
critical to the profitability of the farming operation, taking into 
consideration the individual's or entity's commensurate share in the 
farming operation; and
    (4) With respect to a combination of active personal labor and 
active personal management, when neither contribution individually 
meets the requirements of paragraphs (2) and (3) of this definition, a 
combination of active personal labor and active personal management 
that, when viewed together, results in a critical impact on the 
profitability of the farming operation in an amount at least equal to 
either the significant contribution of active personal labor or active 
personal management as provided in paragraphs (2) and (3) of this 
definition.
    Substantial amount of active personal labor. Substantial amount of 
active personal labor means the provision of active personal labor in 
an amount that is the smaller of:
    (1) 1,000 hours per calendar year; or
    (2) 50 percent of the total hours that would be necessary to 
conduct a farming operation that is comparable in size to such 
individual's or entity's commensurate share in the farming operation.
    Substantial beneficial interest. A substantial beneficial interest 
in an entity is an interest of 10 percent or more. In determining 
whether such an interest equals at least 10 percent, all interests in 
the entity that are owned by an individual or entity directly or 
indirectly through such means as ownership of a corporation that owns 
the entity shall be taken into consideration. In order to ensure that 
the provisions of this part are not circumvented by an individual or 
entity, the Deputy Administrator may determine that an ownership 
interest requirement of less than 10 percent shall be applied to such 
individual or entity.
    Total value of the farming operation. The total value of the 
farming operation is the total of the costs, excluding the value of 
active personal labor and active personal management contributed by a 
person who is a member of the farming operation, needed to carry out 
the farming operation for the year for which the determination is made.


Sec. 1400.4  Indian tribal ventures.

    An individual American Indian who receives payments through other 
than an Indian tribal venture is required to certify that they will not 
accrue total payments, including payments made to the Indian tribal 
venture and to the individual American Indian, in excess of the 
applicable payment limitation for programs specified in Sec. 1400.1.


Sec. 1400.5  Scheme or device.

    (a) All or any part of the payment otherwise due a person on all 
farms in which the person has an interest may be withheld or be 
required to be refunded if the person adopts or participates in 
adopting a scheme or device designed to evade this part or that has the 
effect of evading this part. Such acts shall include, but are not 
limited to:
    (1) Concealing information that affects the application of this 
part;
    (2) Submitting false or erroneous information; or
    (3) Creating fictitious entities for the purpose of concealing the 
interest of a person in a farming operation.
    (b) If the Deputy Administrator determines that a person has 
adopted a scheme or device to evade, or that has the purpose of 
evading, the provisions of sections 1001, 1001A, or 1001C of the 1985 
Act such person shall be ineligible to receive payments under the 
programs specified in Sec. 1400.1 with respect to the year for which 
such scheme or device was adopted and the succeeding year.


Sec. 1400.6  Commensurate contributions.

    In order to be considered eligible to receive payments under the 
programs specified in Sec. 1400.1 an individual or entity specified in 
Secs. 1400.202 through 1400.210 must have:
    (a) A share of the profits or losses from the farming operation 
that is commensurate with the individual's or entity's contribution to 
the operation; and
    (b) Contributions to the farming operation that are at risk.


Sec. 1400.7  Joint and several liability.

    If two or more individuals or entities are considered to be one 
person and the total payment received is in excess of the applicable 
payment limitation provision, such individuals or entities shall be 
jointly and severally liable for any liability that arises therefrom. 
The provisions of this section shall be applicable in addition to any 
liability that arises under a criminal or civil statute.


Sec. 1400.8  Equitable adjustments.

    Actions taken by an individual or an entity in good faith on action 
or advice of an authorized representative of the Deputy Administrator 
may be accepted as meeting the requirements of this part to the extent 
the Deputy Administrator deems necessary to provide fair and equitable 
treatment to such individual or entity.


Sec. 1400.9  Appeals.

    (a) Any person may obtain reconsideration and review of 
determinations made under this part in accordance with the appeal 
regulations set forth at part 780 of this title. With respect to such 
appeals, the applicable reviewing authority shall:
    (1) Schedule a hearing with respect to the appeal within 45 days 
following receipt of the written appeal; and
    (2) Issue a determination within 60 days following the hearing.
    (b) The time limitations provided in paragraph (a) shall not apply 
if:
    (1) The appellant, or the appellant's representative, requests a 
postponement of the scheduled hearing;
    (2) The appellant, or the appellant's representative, requests 
additional time following the hearing to present additional information 
or a written closing statement;
    (3) The appellant has not timely presented information to the 
reviewing authority; or
    (4) An investigation by the Office of Inspector General is ongoing 
or a court proceeding is involved that affects the amount of payments a 
person may receive.
    (c) If the deadlines provided in paragraphs (a) and (b) of this 
section are not met, the relief sought by the producer's appeal will be 
granted for the applicable crop year unless the Deputy Administrator 
determines that the producer did not follow the farm operating plan 
initially presented to the county committee for the year that is the 
subject of the appeal.
    (d) An appellant may waive the provisions of paragraphs (a) and (b) 
of this section.


Sec. 1400.10  Paperwork Reduction Act assigned number.

    The information collection requirements contained in this part have 
been approved by the Office of Management and Budget (OMB) under the 
provisions of 44 U.S.C. Chapter 35 and have been assigned OMB control 
number 0560-0096.

Subpart B--Person Determinations


Sec. 1400.100  Timing for determining status of persons.

    (a) Except as otherwise set forth in this part, for the 1996 
program or fiscal year, the status of an individual or entity on July 
12, 1996, shall be the basis on which determinations are made in 
accordance with this part. Except as otherwise set forth in this part, 
for 1997 and subsequent years, the status of an individual or entity on 
April 1 of the applicable program or fiscal year, shall

[[Page 37571]]

be the basis on which determinations are made in accordance with this 
part.
    (b) Actions taken by an individual or entity after the applicable 
status date set forth in paragraph (a) of this section, but on or 
before the final harvest date of the last contract commodity in the 
area, as determined by the Deputy Administrator, shall not be used to 
determine whether there has been an increase in the number of persons 
for the applicable program or fiscal year. Actions taken by a person 
after the status date set forth in paragraph (a) of this section, but 
on or before the harvest of the last contract commodity in the area, 
shall be used to determine whether there has been a decrease in the 
number of persons for the applicable program or fiscal year.


Sec. 1400.101  Limited partnerships, limited liability partnerships, 
limited liability companies, corporations and other similar entities.

    (a) A limited partnership, limited liability partnership, limited 
liability company, corporation, or other similar entity shall be 
considered to be a person separate from an individual partner, 
stockholder, or member except that a limited partnership, limited 
liability partnership, limited liability corporation, corporation, or 
other similar entity in which more than 50 percent of the interest in 
such limited partnership, limited liability partnership, limited 
liability corporation, corporation, or other similar entity is owned by 
an individual (including the interest owned by the individual's spouse, 
minor children, and trusts for the benefit of such minor children) or 
by an entity shall not be considered as a separate person from such 
individual or entity.
    (b) If the same two or more individuals or entities own more than 
50 percent of the interest in each of two or more limited partnerships, 
corporations, or other similar entities engaged in farming, all such 
limited partnerships, limited liability partnership, limited liability 
company, corporations, or other similar entities shall be considered to 
be one person.
    (c) The percentage share of the interest in a limited partnership, 
limited liability partnership, limited liability company, corporation, 
or other similar entity that is owned by an individual or other entity 
shall be determined as of the status date set forth in paragraph (a) of 
this section. If a partner, stockholder, or member acquires an interest 
in the limited partnership, corporation, or other similar entity after 
such date, and on or before the harvest of the last contract commodity 
in the area as determined by the Deputy Administrator, the amount of 
any such interest shall be included in determining the total ownership 
interest of such partner, stockholder, or member.
    (d) Where there is only one class of stock or other similar unit of 
ownership, an individual's or entity's percentage share of the limited 
partnership, limited liability partnership, limited liability company, 
corporation, or other similar entity shall be based upon the 
outstanding shares of stock or other similar unit of ownership held by 
the individual or entity and compared to the total outstanding shares 
of stock or other similar unit of ownership. If the limited 
partnership, limited liability partnership, limited liability company, 
corporation, or other similar entity has more than one class of stock 
or other unit of ownership, the percentage share of the limited 
partnership, limited liability partnership, limited liability company, 
corporation, or other similar entity owned by an individual or entity 
shall be determined by the Deputy Administrator on the basis of market 
quotations. If market quotations are lacking or are too scarce to be 
recognized, such percentage share shall be determined by the Deputy 
Administrator on the basis of all relevant factors affecting the fair 
market value of such stock or other unit of ownership, including the 
various rights and privileges that are attributed to each such class.


Sec. 1400.102  Joint operations.

    Members of joint operations may be separately treated as a person 
in accordance with the requirements of this part. However, members of a 
joint operation may request to be jointly treated as one person for the 
purposes of this part.


Sec. 1400.103  Trusts.

    (a) A trust shall be considered to be a person separate from the 
individual income beneficiaries of the trust except that a trust that 
has a sole income beneficiary shall not be considered to be a separate 
person from such income beneficiary.
    (b) Where two or more irrevocable trusts have common income 
beneficiaries (including a spouse and minor children) with more than a 
50 percent interest, all such trusts shall be considered to be one 
person.
    (c) A revocable trust and the grantor of such revocable trust shall 
be considered to be one person.


Sec. 1400.104  Estates.

    If the deceased individual had lived and would have been considered 
to be one person with respect to an heir, the estate shall also be 
considered to be one person with such heir.


Sec. 1400.105  Husband and wife.

    (a) With respect to any married couple, the husband and wife shall 
be considered to be one person except that a husband and wife, who:
    (1) Prior to their marriage were separately engaged in unrelated 
farming operations, will be determined to be separate persons with 
respect to such farming operations so long as such operations remain 
separate and distinct from any farming operation conducted by the other 
spouse; or
    (2) Except as provided in paragraph (b), do not hold, directly or 
indirectly, a substantial beneficial interest in more than one entity 
(including themselves) engaged in farm operations that also receive 
payments as a separate person from either spouse, the spouses may be 
considered as separate persons if each spouse otherwise meets the 
requirements under this part to be considered a separate person and is 
otherwise eligible to receive payment.
    (b) With respect to any interest in an estate, for 2 program years 
after the program year in which the individual died, a husband and wife 
shall not be considered as having an interest in an entity to the 
extent resulting from such interest in an estate for purposes of 
determining persons.


Sec. 1400.106  Minor children.

    (a) Except as provided in paragraph (b) of this section, a minor, 
including a minor who is the beneficiary of a trust or who is an heir 
of an estate, and the parent or any court-appointed person such as a 
guardian or conservator who is responsible for the minor shall be 
considered to be one person.
    (b) A minor may be considered to be a separate person from the 
minor's parent or any court appointed person such as a guardian or 
conservator who is responsible for the minor, if the minor is a 
producer on a farm and the minor's parent or any court appointed person 
such as guardian or conservator who is responsible for the minor does 
not have any interest in the farm on which the minor is a producer or 
in any production from such farm. In addition the minor must:
    (1) Have established and maintain a separate household from the 
minor's parents or any court-appointed person such as a guardian or 
conservator who is responsible for the minor and such minor personally 
carries out the farming activities with respect to the minor's farming 
operation for which there is a separate accounting; or

[[Page 37572]]

    (2) Not live in the same household as such minor's parent and:
    (i) Be represented by a court-appointed guardian or conservator who 
is responsible for the minor; and
    (ii) Have ownership of the farm vested in the minor.
    (c) A person shall be considered to be a minor until the age 18 is 
reached. Court proceedings conferring majority on a person under 18 
years of age will not change such person's status as a minor.


Sec. 1400.107  States, political subdivisions, and agencies thereof.

    A State, political subdivision and agencies thereof shall be 
considered to be one person.


Sec. 1400.108  Charitable organizations.

    A charitable organization, including a club, society, fraternal or 
religious organization, shall be considered to be a separate person to 
the extent that such an entity is engaged in the production of crops as 
a separate person, except where the land or the proceeds from the 
farming operation may transfer to an entity that exercises control or 
authority over such organization.


Sec. 1400.109  Changes in farming operations.

    Any change in a farming operation that would increase the number of 
persons to which the provisions of this part apply must be bona fide 
and substantive. If bona fide, the following shall be considered to be 
substantive changes in the farming operation:
    (a) The addition of a family member to a farming operation in 
accordance with Sec. 1400.208, except that such an addition will not 
affect the status of any other individual or entity that is added to 
the farming operation;
    (b) With respect to a landowner only, a change from a cash rent to 
a share rent;
    (c) An increase through the acquisition of cropland not previously 
involved in the farming operation of approximately 20 percent or more 
in the total cropland involved in the farming operation, if such 
cropland has planting history of an amount at least normal for the 
area;
    (d) A change in ownership by sale or gift of a significant amount 
of equipment from an individual or entity who previously has been 
engaged in a farming operation to an individual or entity who has not 
been involved in such operation. The sale or gift of equipment will be 
considered to be bona fide and substantive only if the transferred 
amount of such equipment is commensurate with the new individual's or 
entity's share of the farming operation;
    (e) A change in ownership by sale or gift of a significant amount 
of land from an individual or entity who previously has been engaged in 
a farming operation to an individual or entity who has not been 
involved in such operation. The sale or gift of land will be considered 
to be substantive only if the transferred amount of such land is 
commensurate with the new individual's or entity's share of the farming 
operation.

Subpart C--Actively Engaged in Farming Determinations


Sec. 1400.201  General provisions for determining whether an individual 
or entity is actively engaged in farming.

    (a) To be considered a person who is eligible to receive payments 
with respect to a particular farming operation, a person must be an 
individual or entity actively engaged in farming with respect to such 
operation.
    (b) Actively engaged in farming means, except as otherwise provided 
in this part, that the individual or entity, independently makes a 
significant contribution to a farming operation, of:
    (1) Capital, equipment, or land, or a combination of capital, 
equipment, or land; and
    (2) Active personal labor or active personal management, or a 
combination of active personal labor and active personal management.
    (c) In determining if the individual or entity is actively 
contributing a significant amount of active personal labor or active 
personal management the following factors shall be taken into 
consideration:
    (1) The types of crops and livestock produced by the farming 
operation;
    (2) The normal and customary farming practices of the area; and
    (3) The total amount of labor and management necessary for such a 
farming operation in the area.
    (d) In order to be considered to be actively engaged in farming an 
individual or entity specified in Secs. 1400.202 through 1400.210 must 
have:
    (1) A share of the profits or losses from the farming operation 
commensurate with the individual's or entity's contribution to the 
operation; and
    (2) Contributions to the farming operation that are at risk.


Sec. 1400.202  Individuals.

    An individual shall be considered to be actively engaged in farming 
with respect to a farming operation if the individual makes a 
significant contribution of:
    (a) Capital, equipment, or land, or a combination of capital, 
equipment, or land; and
    (b) Active personal labor or active personal management, or a 
combination of active personal labor and active personal management.


Sec. 1400.203  Joint operations.

    (a) A member of a joint operation shall be considered to be 
actively engaged in farming with respect to a farming operation if the 
member makes a significant contribution of:
    (1) Capital, equipment, or land or a combination of capital, 
equipment, or land; and
    (2) Active personal labor or active personal management or a 
combination of active personal labor and active personal management.
    (b) If a joint operation separately makes a significant 
contribution of capital, equipment, or land, or a combination of 
capital, equipment, or land, and the joint operation meets the 
provisions of Sec. 1400.201(d), the members of the joint operation who 
make a significant contribution of active personal management, or a 
combination of active personal labor and active personal management to 
the farming operation shall be considered to be actively engaged in 
farming with respect to such farming operation.


Sec. 1400.204  Limited partnerships, limited liability partnerships, 
limited liability companies, corporations and other similar entities.

    A limited partnership, limited liability partnership, limited 
liability company, corporation, or other similar entity shall be 
considered to be actively engaged in farming with respect to a farming 
operation if:
    (a) The entity separately makes a significant contribution to the 
farming operation of capital, equipment, or land, or a combination of 
capital, equipment, or land; and
    (b) The partners, stockholders, or members collectively make a 
significant contribution, whether compensated or not compensated, of 
active personal labor, active personal management, or a combination of 
active personal labor and active personal management to the farming 
operation. The combined beneficial interest of all the partners, 
stockholders, or members providing active personal labor or active 
personal management, or a combination of active personal labor and 
active personal management must be at least 50 percent.


Sec. 1400.205  Trusts.

    A trust shall be considered to be actively engaged in farming with 
respect to a farming operation if:

[[Page 37573]]

    (a) The entity separately makes a significant contribution to the 
farming operation of capital, equipment, or land, or a combination of 
capital, equipment, or land;
    (b) The income beneficiaries collectively make a significant 
contribution of active personal labor or active personal management, or 
a combination of active personal labor and active personal management 
to the farming operation. The combined interest of all the income 
beneficiaries providing active personal labor or active personal 
management, or a combination of active personal labor and active 
personal management must be at least 50 percent;
    (c) The trust has provided a tax identification number of the trust 
unless the trust is a revocable trust and the grantor is the sole 
income beneficiary; and
    (d) The trust has provided a copy of the trust agreement to the 
county committee unless the trust is a revocable trust.


Sec. 1400.206  Estates.

    (a) For 2 program years after the program year in which an 
individual dies the individual's estate shall be considered to be 
actively engaged in farming if:
    (1) The estate makes a significant contribution of either:
    (i) Capital, equipment, or land; or
    (ii) A combination of capital, equipment, or land; and
    (2) The personal representative or heirs of the estate collectively 
make a significant contribution of either:
    (i) Active personal labor or active personal management; or
    (ii) A combination of active personal labor and active personal 
management.
    (b) After the period set forth in paragraph (a) of this section, 
the deceased individual's estate shall not be considered to be actively 
engaged in farming unless, on a case by case basis, the Deputy 
Administrator determines that the estate has not been settled primarily 
for the purpose of obtaining program payments.


Sec. 1400.207  Landowners.

    A person who is a landowner, including landowners with an undivided 
interest in land, making a significant contribution of owned land to 
the farming operation, shall be considered to be actively engaged in 
farming with respect to such owned land, if the landowner receives rent 
or income for such use of the land based on the land's production or 
the operation's operating results. A landowner also includes a member 
of a joint operation if the joint operation holds title to land in the 
name of the joint operation and if the joint operation or its members 
submit adequate documentation to determine that, upon dissolution of 
the joint operation, the title to the land owned by the joint operation 
will revert to such member of such joint operation.


Sec. 1400.208  Family members.

    With respect to a farming operation conducted by persons, a 
majority of whom are individuals who are family members, an adult 
family member who makes a significant contribution of active personal 
management, active personal labor, or a combination of active personal 
labor and active personal management shall be considered to be actively 
engaged in farming.


Sec. 1400.209  Sharecroppers.

    A sharecropper who makes a significant contribution of active 
personal labor to the farming operation shall be considered to be 
actively engaged in farming.


Sec. 1400.210  Deceased and incapacitated individuals.

    The determining authority shall take into consideration the 
circumstances involving individuals who have died or become 
incapacitated during the program year or fiscal year, as applicable. If 
the individual dies or is incapacitated before a determination is made 
that the individual is ``actively engaged in farming,'' the 
representative of the deceased individual's estate or the incapacitated 
individual, or other person if necessary, must provide the determining 
authority information to verify that such individual did make a 
conscious effort to and would have been determined to be actively 
engaged in farming if not for the individual's death or incapacitation. 
If the individual dies or is incapacitated after being determined to be 
``actively engaged in farming,'' the determining authority shall allow 
such determination to be in effect for that program year or fiscal 
year, as applicable. However, the following year such individual or the 
individual's estate must meet all necessary requirements in order to be 
determined to be ``actively engaged in farming'' for that year.


Sec. 1400.211  Persons not considered to be actively engaged in 
farming.

    An individual or entity who does not satisfy all of the provisions 
of Secs. 1400.202 through 1400.210 and a landowner who rents land to a 
farming operation for cash or a crop share guaranteed as to the amount 
of the commodity shall not be considered to be actively engaged in 
farming.


Sec. 1400.212  Hybrid seed producers.

    The existence of a hybrid seed contract for a producer shall not be 
taken into account when making an actively engaged in farming 
determination with respect to such producer. However, such producer 
must satisfy all other applicable provisions of this part.

Subpart D--Permitted Entities


Sec. 1400.301  Limitation on the number of entities through which an 
individual or entity may receive a payment and required notification.

    (a) An individual may receive a payment under a program specified 
in Sec. 1400.1(a) either directly or indirectly from no more than three 
permitted entities. An individual who receives such a payment shall 
notify the county committee in the county in which such individual 
maintains a farming operation whether or not the farming operation is 
to be considered a permitted entity. An individual may only receive 
such payments as a result of a farming operation conducted by:
    (1) The individual and by no more than two entities in which the 
individual holds a substantial beneficial interest; or
    (2) No more than three entities in which the individual holds a 
substantial beneficial interest.
    (b) Except for entities specified in paragraph (c) of this section, 
each entity entering into a contract or agreement under a program 
specified in Sec. 1400.1(a) shall, by the date the contract or 
agreement is submitted to the county committee, notify in writing:
    (1) Each individual or other entity that acquires or holds an 
interest in such entity of the requirements and limitations provided in 
this part; and
    (2) The county committee of the name and social security number of 
each individual and the name and taxpayer identification number of each 
entity that holds or acquires a substantial beneficial interest in such 
entity.
    (c) Entities shall not be subject to the provisions of paragraph 
(b) of this section if, as determined by the Deputy Administrator:
    (1) Because of the number of members of such entity no member is 
likely to have a substantial beneficial interest in such entity; and
    (2) Such provisions would cause undue financial hardship on such 
entity.
    (d)(1) An individual or entity that holds a substantial beneficial 
interest in more than the number of permitted

[[Page 37574]]

entities specified in paragraph (a) of this section for which a 
contract or agreement has been submitted to the county committee shall 
notify the county committee in writing, in each county in which they 
conduct a farming operation, of those entities that shall be considered 
as permitted entities by a date as determined by the Deputy 
Administrator following the date the contract or agreement was 
submitted to the county committee.
    (2) The remaining entities in which the individual or entity holds 
a substantial beneficial interest shall be notified that such entity is 
subject to reductions in the payments earned by the remaining entity. 
Such a reduction shall be made in an amount that bears the same 
relationship to the full payment that the individual's interest in the 
entity bears to all interests in the entity. The remaining entity's 
members shall have the opportunity to adjust among themselves their 
proportionate shares of the program benefits in the designated entity 
or entities before such reductions are made.
    (e) If an individual or entity fails to make such a notification as 
specified in paragraph (d) of this section, all entities in which the 
individual or entity holds a substantial beneficial interest shall be 
subject to a reduction in payments in the manner specified in paragraph 
(d)(2).

Subpart E--Cash Rent Tenants


Sec. 1400.401  Eligibility.

    (a) Any tenant that is actively engaged in farming in accordance 
with the provisions of subpart C and conducts a farming operation in 
which the tenant rents the land for cash, for a crop share guaranteed 
as to the amount of the commodity, or by any arrangement in which the 
tenant does not compensate the landlord by cash or a crop share, and 
receives benefits, with respect to such land under a program specified 
in Sec. 1400.1(a) shall be ineligible to receive any payment with 
respect to such cash-rented land unless the tenant makes a significant 
contribution to the farming operation of:
    (1) Active personal labor; or
    (2) Active personal management and equipment. If such equipment is 
leased by the tenant from:
    (i) The landlord, the lease must reflect the fair market value of 
the equipment leased; and
    (ii) The same individual or entity that is providing hired labor to 
the farming operation, the contracts for the lease of the equipment and 
for the hired labor must be two separate contracts that reflect the 
fair market value of the leased equipment and the hired labor and the 
tenant must exercise complete control over the use of a significant 
amount of the equipment during the current crop year.
    (b) [Reserved]

Subpart F-- Foreign Persons


Sec. 1400.501  Eligibility.

    (a) Any person who is not a citizen of the United States or a 
lawful alien shall be ineligible to receive payments, loans and 
benefits, with respect to any commodity produced, or land set aside 
from production, on a farm that is owned or operated by such person 
unless such person is an individual who is providing land, capital, and 
a substantial amount of active personal labor on such farm.
    (b)(1) A corporation or other entity shall be ineligible to receive 
payments, loan, and benefits if more than 10 percent of the beneficial 
ownership of the entity is held by persons who are not citizens of the 
United States or lawful aliens unless each foreign individual who is a 
stockholder or other type of member provides a substantial amount of 
active personal labor in the production of crops on a farm owned or 
operated by such an entity. However, upon the written request of the 
entity, the Deputy Administrator may make payments in an amount 
determined by the Deputy Administrator to be representative of the 
percentage interest of the entity that is owned by citizens of the 
United States and lawful aliens or foreign stockholders or other type 
of member who provide a significant contribution of active personal 
labor in the production of crops on a farm owned or operated by such 
entity.
    (2) In determining whether more than 10 percent of the beneficial 
ownership of an entity is held by persons who are not citizens of the 
United States or by lawful aliens, the beneficial ownership interest 
shall be the higher of the amount of such interest on:
    (i) The date the applicable program contract or agreement is 
executed by the entity; or
    (ii) Any other date prior to the final harvest date that is 
determined and announced by the Deputy Administrator to be normal in 
the area for the applicable program crop.
    (3) A corporation or other entity shall inform the county committee 
of any increase in such ownership that occurs after the applicable 
program contract or agreement is executed.
    (4) In the event of an increase in such ownership after a payment, 
loan, or benefit has been made, the entity shall refund such payment, 
loan, or benefit.
    (5) Where there is only one class of stock or other similar unit of 
ownership, an individual's or entity's percentage share of the limited 
partnership, corporation or other similar entity shall be based upon 
the outstanding shares of stock or other similar unit of ownership held 
by the individual or entity and compared to the total outstanding 
shares of stock or other similar unit of ownership. If the limited 
partnership, corporation or other similar entity has more than one 
class of stock or other unit of ownership, the percentage share of the 
limited partnership, corporation or other similar entity owned by an 
individual or entity shall be determined by the Deputy Administrator on 
the basis of market quotations. If market quotations are lacking or are 
too scarce to be recognized, such percentage share shall be determined 
by the Deputy Administrator on the basis of all relevant factors 
affecting the fair market value of such stock or other unit of 
ownership, including the various rights and privileges that are 
attributed to each such class.
    (c) A citizen of the United States, lawful alien, or entity that is 
not subject to this part who is in lawful possession, through a lease 
or otherwise, of a farm owned by an individual or entity who is subject 
to this part may receive a payment, loan, and benefit without regard to 
this part.


Sec. 1400.502  Notification.

    (a) Any entity, whether foreign or domestic, that executes a 
program contract or agreement under which a payment, loan, or benefit 
may be available must provide written notification to the county 
committee in the county where the entity conducts its farming operation 
if:
    (1) Any individual, group of individuals, entity, or group of 
entities holds more than a 10 percent beneficial interest in such 
entity; and
    (2) Such individual, group of individuals, entity, or group of 
entities, in accordance with Sec. 1400.501, are ineligible to receive a 
payment, loan and benefit.
    (b) Such written notification must, if known, include the name and 
social security number or taxpayer identification number of such 
individual or entity and of all individuals and entities that hold a 
beneficial interest.
    (c) The failure of the entity to provide this information will 
result in the ineligibility of the entity to receive any payment, loan, 
or benefit.

PARTS 1497 AND 1498--[REMOVED]

    13. Parts 1497 and 1498 are removed.

[[Page 37575]]

    14. Part 1470 is redesignated as part 1401.
    15. Part 1402 is revised to read as follows:

PART 1402--POLICY FOR CERTAIN COMMODITIES AVAILABLE FOR SALE

Sec.
1402.1  General
1402.2  Submission of offers, terms, and conditions
1402.3  Information
1402.4  Other Sales

    Authority: 7 U.S.C. 7285; 15 U.S.C. 714b and 714c.


Sec. 1402.1  General

    To facilitate trade in private trade channels, the Commodity Credit 
Corporation (CCC) will disseminate general sales offering information 
in the CCC Sales List which is published in press release form. The CCC 
Sales List will be revised and republished as necessary. CCC reserves 
the right to make any amendments deleting or adding to the provisions 
of the CCC Sales List or changing prices or methods of sale, including 
but not limited to, changes in the minimum prices and carrying charges. 
These lists are issued for the purpose of public information and do not 
constitute an offer to sell by CCC or an invitation for offers to 
purchase from CCC. The CCC Sales List will set forth either the prices 
or the pricing basis at which commodity holdings of CCC are available 
for sale for unrestricted or restricted use, and for export. 
Information concerning barter and credit will also be included. To be 
placed on the mailing list for the CCC Sales List press release, 
requests should be made to the Director, Warehouse and Inventory 
Division, Stop 0553, 1400 Independence Avenue, SW, Washington, DC 
20250-9860.


Sec. 1402.2  Submission of offers, terms, and conditions

    CCC will entertain offers from prospective buyers for the purchase 
of any commodities on the CCC Sales List. Offers accepted by CCC will 
be subject to terms and conditions prescribed by CCC. These terms 
include, among others, payment by cash or irrevocable letter of credit 
before delivery of the commodity, removal of the commodity from CCC 
storage within a reasonable period of time, and, in sales for export, 
proof of exportation.


Sec. 1402.3  Information

    The terms and conditions of sale with respect to any commodity 
appearing on the CCC Sales List will be furnished upon request 
addressed to the Director, Warehouse and Inventory Division, Stop 0553, 
1400 Independence Avenue, SW, Washington, DC 20250-9860.


Sec. 1402.4  Other Sales

    The general policy of CCC of making sales on a competitive or 
negotiated basis will continue to apply to all sales not covered by 
this announcement. Inquiries with respect to such sales may be 
addressed to the Director, Warehouse and Inventory Division, Stop 0553, 
1400 Independence Avenue, SW, Washington, DC 20250-9860.
    16. Part 1405 is revised to read as follows:

PART 1405--LOANS, PURCHASES, AND OTHER OPERATIONS

Sec.
1405.1  Interest.
1405.2  Basic rule of fractions.
1405.3  Effect of changes in regulations.
1405.4  Delegations of authority.
1405.5  Notice and comment.
1405.6  Crop insurance requirement.

    Authority: 15 U.S.C. 714b and 714c.


Sec. 1405.1  Interest.

    (a) Except as may otherwise be determined by CCC as provided in 
individual program regulations, program contracts or such other means 
as deemed appropriate by CCC the rate of interest that is applicable to 
CCC loans shall be equal to the rate of interest charged by the U.S. 
Treasury for funds borrowed by CCC on the date the loan is disbursed by 
CCC, plus 1 percent. This rate of interest shall be in effect until the 
earlier of the maturity of the loan or the next January 1.
    (b) The rate of interest applicable to all CCC loans that are 
outstanding as of January 1 of any year shall be adjusted as of such 
date to equal the rate of interest charged by the U.S. Treasury for 
funds borrowed by CCC on such date, plus 1 percent. This rate shall be 
in effect until the earlier of the maturity of the loan or the next 
January 1. The rate of interest applicable to CCC loans as of January 1 
of any year shall be announced by CCC by press release or other means.


Sec. 1405.2  Basic rule of fractions.

    Fractions shall be rounded in accordance with the provisions of 7 
CFR part 718.


Sec. 1405.3  Effect of changes in regulations.

    Unless otherwise indicated, the regulations in effect in this 
chapter as of April 4, 1996, shall continue to apply to the 1991 
through 1995 crops of agricultural commodities, to milk produced on or 
before May 1, 1996, and to contracts entered into prior to any 
amendments to this chapter after that date.


Sec. 1405.4  Delegations of authority.

    The delegations of authority relating to the CCC programs and 
activities are set forth in the by-laws of CCC and in dockets approved 
by the CCC Board of Directors. Copies of the By-laws and the dockets 
may be obtained from the Secretary of CCC.


Sec. 1405.5  Notice and comment.

    The level of loans, purchases and payments made in accordance with 
the programs set forth in this chapter shall be determined without 
regard to the notice and comment provisions of 5 U.S.C. 553.


Sec. 1405.6  Crop insurance requirement.

    (a) To be eligible for any benefits or payments under 7 CFR parts 
1410, 1412, 1421, 1427, 1435, 1443, 1446, or 1464, the producer must 
obtain at least the catastrophic level of insurance for each crop of 
economic significance in which the producer has an interest or provide 
a written waiver to the Secretary that waives any eligibility for 
emergency crop loss assistance in connection with the crop, if 
insurance is available in the county for the crop. In meeting this 
requirement, the producer may:
    (1) Obtain at least the catastrophic level of crop insurance in all 
counties for each crop of economic significance in which the producer 
has an interest;
    (2) Obtain at least the catastrophic level of crop insurance for 
some, but not all, crops of economic significance for which the 
producer has an interest, and sign a waiver; or
    (3) Sign a waiver that waives any eligibility for crop loss 
assistance in connection with the producer's crop.
    (b) Crop of economic significance. The term ``crop of economic 
significance'' means a crop that has contributed in the previous year, 
or is expected to contribute in the current crop year, 10 percent or 
more of the total expected value of all crops grown by the producer. 
However, notwithstanding the preceding sentence, if the total expected 
liability under the catastrophic risk protection endorsement is equal 
to or less than the administrative fee required for the crop, such crop 
will not be considered a crop of economic significance.
    17. Part 1412 is added to read as follows:

PART 1412--PRODUCTION FLEXIBILITY CONTRACTS FOR WHEAT, FEED GRAINS, 
RICE, AND UPLAND COTTON

Subpart A--General Provisions

Sec.
1412.101  Applicability.
1412.102  Administration.

[[Page 37576]]

1412.103  Definitions.
1412.104  Performance based upon advice or action of county or state 
committee.
1412.105  Appeals.

Subpart B--Production Flexibility Contract Terms and Enrollment 
Provisions

1412.201  Production flexibility contract.
1412.202  Eligible producers.
1412.203  Notification of eligible contract acreage.
1412.204  Reconstitutions.
1412.205  Reducing contract acreage.
1412.206  Planting flexibility.
1412.207  Succession-in-interest to a production flexibility 
contract.
Subpart C--Financial Considerations Including Sharing Production 
Flexibility Payments
1412.301  Limitation of Production Flexibility Contract Payments.
1412.302  Contract Payment Provisions.
1412.303  Sharing of Contract Payments.
1412.304  Provisions Relating to Tenants and Sharecroppers.

Subpart D--Contract Violations and Diminution of Payments

1412.401  Contract Violations.
1412.402  Violations of Highly Erodible Land and Wetland 
Conservation Provisions.
1412.403  Violations Regarding Controlled Substances.
1412.404  Contract Liability.
1412.405  Misrepresentation and Scheme or Device.
1412.406  Offsets and Assignments.
1412.407  Certification.

Subpart E--Production Flexibility and Conservation Reserve Programs

1412.501  Timing for Enrollment and Termination of Production 
Flexibility of Contracts.

    Authority: 7 U.S.C. 7201 et seq.; and 15 U.S.C. 714b and 714c.

Subpart A--General Provisions


Sec. 1412.101  Applicability.

    The Federal Agriculture Improvement and Reform Act of 1996 (1996 
Act) provides producers on farms with 1996 wheat, corn, barley, grain 
sorghum, oats, upland cotton and rice crop acreage bases the 
opportunity to enter into Production Flexibility Contracts with the 
Commodity Credit Corporation (CCC) for the years 1996 through 2002. 
Producers who participate in the program must fully comply with the 
terms of the production flexibility contracts and this part, and in 
return will receive production flexibility payments.


Sec. 1412.102  Administration.

    (a) The program is administered under the general supervision of 
the Executive Vice-President, CCC, and shall be carried out by State 
and county Farm Service Agency (FSA) committees (herein called State 
and county committees).
    (b) State and county committees, and representatives and their 
employees, do not have authority to modify or waive any of the 
provisions of the regulations of this part.
    (c) The State committee shall take any action required by the 
regulations of this part that the county committee has not taken. The 
State committee shall also:
    (1) Correct, or require a county committee to correct any action 
taken by such county committee that is not in accordance with the 
regulations of this part; or
    (2) Require a county committee to withhold taking any action that 
is not in accordance with this part.
    (d) No provision or delegation to a State or county committee shall 
preclude the Executive Vice President (Administrator, FSA), or a 
designee, from determining any question arising under the program or 
from reversing or modifying any determination made by a State or county 
committee.
    (e) The Deputy Administrator may authorize State and county 
committees to waive or modify deadlines, except statutory deadlines, 
and other program requirements in cases where lateness or failure to 
meet such other requirements does not adversely affect operation of the 
program.
    (f) A representative of CCC may execute a form CCC-478, ``1996 
through 2002 Production Flexibility Contract'' only under the terms and 
conditions determined and announced by the Executive Vice President, 
CCC. Any contract that is not executed in accordance with such terms 
and conditions, including any purported execution prior to the date 
authorized by the Executive Vice President, CCC, is null and void.


Sec. 1412.103  Definitions.

    The definitions set forth in this section shall be applicable for 
all purposes of administering the Production Flexibility Program. The 
terms defined in parts 718 of this title and 1400 of this chapter shall 
also be applicable, except where those definitions conflict with the 
definitions set forth in this section.
    Annual payment amount is the amount to be paid under a contract in 
effect for each fiscal year with respect to a contract commodity and 
equals the product of:
    (1) 85 percent of the enrolled contract acreage multiplied by
    (2) The payment yield multiplied by
    (3) The payment rate except that the total of such payments shall 
not exceed $40,000 per person in accordance with part 1400 of this 
chapter.
    Contract means forms CCC-478 and CCC-478 Appendix.
    Contract acreage means a quantity of acres enrolled in a contract.
    Contract commodity means wheat, corn, grain sorghum, barley, oats, 
upland cotton, and rice.
    Contract payment means a payment made under this part pursuant to a 
production flexibility contract.
    Corn means field corn or sterile high-sugar corn. Popcorn, corn 
nuts, blue corn, sweet corn, and corn varieties grown for decoration 
uses are not corn.
    Dry peas means Austrian, wrinkled seed, green, yellow, and 
Umatilla.
    Eligible acreage means the crop acreage base that would have been 
established for a contract commodity in accordance with regulations in 
effect on January 1, 1996, at part 1413 of this chapter. If a crop has 
a designated crop-rotation crop acreage base for 1995, the 1996 crop 
acreage base established for such crop is determined by averaging 
planted and considered planted acreages determined in accordance with 
part 1413 of this chapter as it was in effect on January 1, 1996, 
taking into consideration the number of years in the most recent 
rotation cycle. The sum of the crop acreage bases for a farm cannot 
exceed the cropland for the farm, less cropland enrolled in the 
Conservation Reserve Program in accordance with parts 704 and 1410 of 
this title, except to the extent that such excess is due to an 
established practice of double cropping on the farm in accordance with 
regulations in effect as of January 1, 1996, at part 1413 of this 
chapter.
    Grain sorghum means grain sorghum of a feed grain or dual purpose 
variety (including any cross that, at all stages of growth, has most of 
the characteristics of a feed grain or dual purpose variety). Sweet 
sorghum is not considered a grain sorghum.
    Oilseeds means acreages of soybeans, sunflower seed, rapeseed, 
canola, safflower, flaxseed, mustard seed, or, if designated by CCC, 
other oilseeds, planted for harvest as seed, or volunteer acreages of 
such crops from which the seed is harvested.
    Owner means an owner as defined in part 718 of this title and, only 
for purposes of enrolling a farm in the program authorized by this part 
or taking any subsequent action to maintain the eligibility of the 
farm, any agency of the Federal Government; however, such agency shall 
not be eligible to receive any payment made pursuant to such contract.

[[Page 37577]]

    Payment rate means the annual payment rate determined and announced 
by CCC.
    Payment yield means the payment yield established for the crop of a 
contract commodity for the farm in accordance with the regulations in 
effect on January 1, 1996, at part 1413 of this chapter. CCC shall 
adjust the payment yield to reflect the additional payments made in 
accordance with Sec. 1413.15 of such regulations.
    Rice means rice excluding sweet, glutinous, or candy rice such as 
Mochi Gomi.
    Upland cotton means planted and stub cotton that is produced from 
other than pure strain varieties of the Barbadense species, any hybrid 
thereof, or any other variety of cotton in which one or more of these 
varieties predominate. For program purposes, brown lint cotton is 
considered upland cotton.


Sec. 1412.104  Performance based upon advice or action of county or 
State committee.

    The provisions of Sec. 718.8 of this title are applicable to this 
part.


Sec. 1412.105  Appeals.

    A producer may obtain reconsideration and review of any adverse 
determination made under this part in accordance with the appeal 
regulations found at parts 11 and 780 of this title.

Subpart B--Production Flexibility Contract Terms and Enrollment 
Provisions


Sec. 1412.201  Production flexibility contract.

    (a) CCC shall offer to enter into a 7-year contract with an 
eligible producer on a farm having eligible acreage.
    (b) A transfer (or change) in the interest of an owner or producer 
subject to a contract in the contract acreage covered by the contract 
shall result in the termination of the contract with respect to the 
acreage, unless the transferee or owner of the acreage agrees to assume 
all obligations under the contract. The termination shall be effective 
on the date of the transfer or change.


Sec. 1412.202  Eligible producers.

    Producers eligible to enter into a contract are:
    (a) An owner of a farm who assumes all or a part of the risk of 
producing a crop;
    (b) A producer (other than an owner) on a farm with a share-rent 
lease for such farm, regardless of the length of the lease, if the 
owner enters into the same contract;
    (c) A producer (other than an owner) on an eligible farm who rents 
such farm under a lease expiring on or after September 30, 2002, in 
which case the owner is not required to enter into the contract;
    (d) A producer (other than an owner) on an eligible farm who cash 
rents such farm under a lease expiring before September 30, 2002. The 
owner of such farm may also enter into the same contract. If the 
producer elects to enroll less than 100 percent of the crop acreage 
bases in the contract, the consent of the owner is required;
    (e) An owner of an eligible farm who cash rents such farm and the 
lease term expires before September 30, 2002, if the tenant declines to 
enter into a contract. In the case of an owner covered by this 
paragraph, contract payments shall not begin under a contract until the 
lease held by the tenant ends; and
    (f) An owner or producer described in paragraphs (a) through (e) 
regardless of whether the owner or producer purchased catastrophic risk 
protection in accordance with part 1405 of this chapter.


Sec. 1412.203  Notification of eligible contract acreage.

    The owner, and operator and all producers on a farm shall be 
notified in writing of the number of acres eligible for enrollment in a 
contract.


Sec. 1412.204  Reconstitutions.

    Farms shall be reconstituted in accordance with part 718 of this 
title.


Sec. 1412.205  Reducing contract acreage.

    (a) A permanent reduction of all or a portion of a farm's contract 
acreage or eligible contract acreage shall be allowed at the written 
request of the owner to the county committee on Form CCC-505.
    (b) If the producers convert contract acreage to a non-agricultural 
commercial or industrial use, the contract acreage shall be reduced 
accordingly.


Sec. 1412.206  Planting flexibility.

    (a) For the 1996 through 2002 crop years, any crop may be planted 
on contract acreage on a farm, except as limited in paragraph (c) of 
this section. Any crop may be planted on cropland in excess of the 
contract acreage.
    (b) Contract acreage may be hayed or grazed at any time.
    (c) Planting fruits and vegetables (except lentils, mung beans, and 
dry peas), is prohibited on contract acreage, except:
    (1) A producer may double crop fruits or vegetables with a contract 
commodity in any region described in paragraph (d) of this section, in 
which case contract payments will not be reduced. Double cropping for 
purposes of this section means planting for harvest fruits or 
vegetables in cycle on the same acres with a contract commodity planted 
for grain or lint in a 12 month period under weather conditions normal 
for the region and being able to repeat the same cycle in the following 
12 month period;
    (2) On a farm that the county committee determines has a history of 
planting fruits or vegetables, in which case contract payments shall be 
reduced in accordance with paragraph (e) of this section;
    (3) By a producer that the county committee determines a history of 
fruit or vegetables as the simple average of the sum of a specific 
fruit or vegetable planted for harvest by the producer during the years 
1991 through 1995, excluding any year in which a fruit or vegetable was 
not planted, in which case contract payments shall be reduced in 
accordance with paragraph (e); or
    (4) On a farm with a 1995 rotation designation crop acreage base 
established in accordance with part 1413 of this title as in effect on 
January 1, 1996, and the producers on the farm planted fruits or 
vegetables as a part of the rotation, in which case there will be no 
reduction in contract payments if the acreage of fruits and vegetables 
continue to be planted in the same rotation cycle with contract 
commodities, the acreage of fruits and vegetables is not increased, and 
an annual acreage report is filed for the farm.
    (d) For purposes of this part, the following counties have been 
determined to be regions having a history of doublecropping contract 
commodities with fruits or vegetables. State committees have 
established the following counties as regions within their respective 
States:

Alabama

    Baldwin, Barbour, Butler, Chambers, Chilton, Clarke, Covington, 
Cullman, Geneva, Greene, Jackson, Jefferson, Lee, Madison, Mobile, 
Montgomery, Randolph, Sumter, Talladega, Walker, and Washington.

Alaska

    None.

Arkansas

    Ashley, Benton, Clay, Conway, Crawford, Cross, Drew, Franklin, 
Independence, Jackson, Lawrence, Lee, Lincoln, Little River, Logan, 
Miller, Perry, Poinsett, Pope, Prairie, Pulaski, Sebastian, and 
Woodruff.

[[Page 37578]]

Arizona

    Cochise, Graham, Greenlee, LaPaz, Maricopa, Pima, Pinal, and Yuma.

California

    Alameda, Amador, Butte, Colusa, Contra Costa, Fresno, Glenn, 
Imperial, Kern, Kings, Madera, Merced, Riverside, Sacramento, San 
Benito, San Joaquin, Santa Clara, Siskiyou, Solano, Stanislaus, Sutter, 
Tehama, Tulare, Yolo, and Yuba.

Caribbean Office

    None.

Connecticut

    None.

Colorado

    None.

Delaware

    Kent, New Castle, and Sussex.

Florida

    All counties.

Georgia

    Appling, Atkinson, Bacon, Baker, Baldwin, Banks, Ben Hill, Berrien, 
Bleckley, Brooks, Bryan, Bulloch, Burke, Calhoun, Candler, Catoosa, 
Chatham, Clay, Clinch, Coffee, Colquitt, Columbia, Cook, Crisp, 
Decatur, Dodge, Dooly, Dougherty, Early, Echols, Effingham, Emanuel, 
Evans, Floyd, Forsyth, Franklin, Glascock, Grady, Hart, Houston, Irwin, 
Jeff Davis, Jefferson, Jenkins, Johnson, Jones, Lamar, Lanier, Lauren, 
Lee, Liberty, Long, Lowndes, McDuffie, Macon, Miller, Mitchell, Monroe, 
Montgomery, Morgan, Peach, Pierce, Pike, Pulaski, Putnam, Randolph, 
Richmond, Schley, Screven, Seminole, Stephens, Sumter, Tattnall, 
Telfair, Terrell, Thomas, Tift, Toombs, Treutlen, Turner, Twiggs, 
Upson, Ware, Warren, Washington, Wayne, Webster, Wheeler, Wilcox, 
Wilkinson, and Worth.

Hawaii

    None (no CAB's).

Idaho

    None.

Illinois

    Calhoun, Clark, Crawford, Edgar, Effingham, Gallatin, Iroquois, 
Kankakee, Lawrence, Madison, Marion, Mason, Monroe, St. Clair, Union, 
Vermilion and White.

Indiana

    Allen, Bartholemew, Gibson, Hamilton, Knox, LaGrange, Lake, 
Madison, Miami, Posey, Sullivan, Vandenberg, and Warrick.

Iowa

    Louisa.

Kansas

    None.

Kentucky

    Clinton and Wayne.

Louisiana

    Avoyelles, Franklin, Grant, Rapides, and Morehouse.

Maine

    None.

Maryland

    Baltimore, Caroline, Carroll, Dorchester, Kent, Queen Annes, 
Somerset, Talbot, Wicomico, and Worcester.

Massachusetts

    None.

Michigan

    None.

Minnesota

    None.

Mississippi

    Calhoun, Carroll, Covington, Holmes, Jefferson Davis, Lowndes, 
Marshall, Monroe, Montgomery, and Prentiss.

Missouri

    Barton, Butler, Cape Girardeau, Dade, Dunklin, Jasper, Lawrence, 
Mississippi, New Madrid, Newton, Ripley, Scott, and Stoddard.

Montana

    None.

Nebraska

    None.

Nevada

    Clark.

New Jersey

    Burlington, Cumberland, Gloucester, Mercer, Middlesex, Monmouth, 
Salem.

New Hampshire

    None.

New Mexico

    Curry, Dona Ana, Eddy, Hidalgo, Lea, Luna, Quay, Roosevelt, San 
Juan, and Sierra.

New York

    Orange and Suffolk.

North Carolina

    Beaufort, Bladen, Brunswick, Cabarrus, Camden, Carteret, Chowan, 
Cleveland, Columbus, Craven, Cumberland, Currituck, Davidson, Davie, 
Duplin, Edgecombe, Franklin, Granville, Greene, Harnett, Hertford, 
Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Lincoln, Martin, Mecklenburg, 
Moore, Nash, New Hanover, Northampton, Onslow, Pamlico, Pasquotank, 
Pender, Perquimans, Pitt, Richmond, Robeson, Rockingham, Rutherford, 
Sampson, Scotland, Stanly, Stokes, Tyrell, Union, Warren, Washington, 
Watauga, Wayne, Wilkes, Wilson, and Yadkin.

North Dakota

    None.

Ohio

    Auglaize, Brown, Henry, Logan, Morgan, Muskingham, and Wood.

Oklahoma

    Adair, Alfalfa, Beckham, Blaine, Bryan, Caddo, Canadian, Carter, 
Cherokee, Cotton, Custer, Delaware, Dewey, Ellis, Garfield, Garvin, 
Grady, Grant, Greer, Harmon, Haskell, Hughes, Jackson, Kay, Kingfisher, 
Kiowa, LeFlore, Logan, McClain, McIntosh, Major, Marshall, Mayes, 
Muskogee, Noble, Nowata, Okmulgee, Osage, Pawnee, Payne, Pittsburg, 
Pottawatomie, Roger Mills, Rogers, Sequoyah, Stephens, Tillman, Tulsa, 
Wagoner, Washita, Woods, and Woodward.

Oregon

    Benton, Linn, Morrow, and Umatilla.

Pennsylvania

    Adams, Allegheny, Beaver, Bucks, Centre, Chester, Columbia, 
Cumberland, Delaware, Franklin, Lancaster, Luzerne, Mifflin, 
Montgomery, Montour, Northumberland, Schuylkill, Snyder, Union, 
Wyoming, and York.

Rhode Island

    None.

South Carolina

    All counties.

South Dakota

    None.

Tennessee

    Bledsoe, Cannon, Carroll, Claiborne, Coffee, Crockett, Dyer, 
Greene, Hardeman, Haywood, Jefferson, Knox, Lake, Lauderdale, Lincoln, 
Madison, Meigs, McMinn, Pickett, Rhea, Robertson, and Union.

Texas

    Anderson, Armstrong, Atascosa, Bailey, Baylor, Briscoe, Brooks, 
Cameron, Castro, Cherokee, Cochran, Collingsworth, Cottle, Crosby, 
Dallam, Deaf Smith, Dimmit, Duval, Floyd,

[[Page 37579]]

Foard, Frio, Gaines, Hale, Hall, Hartley, Haskell, Hidalgo, Jim Hogg, 
Jim Wells, Kinney, Kleberg, Knox, Lamb, Lubbock, Maverick, Medina, 
Moore, Motley, Nacogdoches, Oldam, Panola, Parmer, Pecos, Randall, 
Rusk, San Patricio, Starr, Swisher, Terry, Uvalde, Webb, Wilbarger, 
Willacy, Yoakum, Zapata, and Zavala.

Utah

    Davis and Weber.

Vermont

    None.

Virginia

    Accomack, Augusta, Botetourt, Brunswick, Campbell, Charlotte, 
Chesapeake, Cumberland, Dinwiddie, Halifax, Hanover, Isle of Wight, 
King and Queen, King William, Lunenburg, Mecklenburg, Middlesex, 
Nelson, New Kent, Northampton, Nottoway, Page, Pittsylvania, Powhatan, 
Prince George, Richmond, Rockbridge, Rockingham, Shenandoah, 
Southampton, Stafford, Suffolk, Sussex, Virginia Beach, and 
Westmoreland.

Washington

    Adams, Benton, Clark, Cowlitz, Franklin, Grant, Klickitat, Lewis, 
Skagit, and Yakima.

West Virginia

    Mason and Putnam.

Wisconsin

    Brown, Calumet, Chippewa, Columbia, Dane, Dodge, Dunn, Eau Claire, 
Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Kenosha, 
Marquette, Racine, Richland, Rock, St. Croix, Sauk, Walworth, Waushara, 
and Winnebago.

Wyoming

    None.
    (e) For each acre a producer plants to fruits or vegetables on 
contract acreage under paragraphs (c)(2) or (3) of this section, 1 acre 
will not be used in determining the contract payment. The calculation 
for this reduction is based on the contract crop with the lowest 
payment amount per acre. Reductions will be prorated among all 
producers based on each producer's share of the total payment for the 
farm. Such producers may adjust the reduction in payments as they agree 
upon.
    (f) Fruits and vegetables include but are not limited to all nuts 
except peanuts, certain fruit-bearing trees and: acerola (barbados 
cherry), antidesma, apples, apricots, aragula, artichokes, asparagus, 
atemoya, (custard apple), avocados, babaco papayas, bananas, beans 
(except soybeans, mung, adzuki, faba, and lupin), beets--other than 
sugar, blackberries, blackeye peas, blueberries, bok choy, 
boysenberries, breadfruit, broccoflower, broccolo-cavalo, broccoli, 
brussel sprouts, cabbage, cai lang, caimito, calabaza, carambola (star 
fruit), calaboose, carob, carrots, cascadeberries, cauliflower, 
celeriac, celery, chayote, cherimoyas (sugar apples), canary melon, 
cantaloupes, cardoon, casaba melon, cassava, cherries, chickpeas/
garbanzo beans, chinese bitter melon, chicory, chinese cabbage, chinese 
mustard, chinese water chestnuts, chufes, citron, citron melon, coffee, 
collards, cowpeas, crabapples, cranberries, cressie greens, crenshaw 
melons, cucumbers, currants, cushaw, daikon, dasheen, dates, dry edible 
beans, dunga, eggplant, elderberries elut, endive, escarole, etou, 
feijoas, figs, gai lien, gailon, galanga, genip, gooseberries, 
grapefruit, grapes, guambana, guavas, guy choy, chinese mustard, 
honeydew melon, huckleberries, jackfruit, jerusalem artichokes, jicama, 
jojoba, kale, kamut, kenya, kiwifruit, kohlrabi, kumquats, leeks, 
lemons, lettuce, limequats, limes, lobok, loganberries, longon, 
loquats, lotus root, lychee (litchi), mandarins, mangos, marionberries, 
mongosteen, mar bub, melongene, mesple, mizuna, moqua, mulberries, 
murcotts, mushrooms, mustard greens, nectarines, ny Yu, okra, 
olallieberries, olives, onions, opo, oranges, papaya, paprika, parsnip, 
passion fruits, peaches, pears, peas, all peppers, persimmon, persian 
melon, pimentos, pineapple, pistachios, plantain, plumcots, plums, 
pomegranates, potatoes, prunes, pummelo, pumpkins, quinces, radiochio, 
radishes, raisins, raisins (distilling), rambutan, rape greens, rapini, 
raspberries, recao, rhubarb, rutabaga, santa claus melon, salsify, 
saodilla, sapote, savory, scallions, shallots, shiso, spinach, squash, 
strawberries, suk gat, swiss chard, sweet corn, sweet potatoes, 
tangelos, tangerines, tangos, tangors, taniers, taro root, tau chai, 
teff, tindora, tomatillos, tomatoes, turnips, turnip greens, 
watercress, watermelons, white sapote, and yam.
    (g) Fruits or vegetables planted on contract acreage for green 
manure, haying, or grazing are not considered as planted to fruits or 
vegetables, but producers planting fruits and vegetables for such 
purposes shall pay a fee to cover the cost of a farm visit, in 
accordance with part 718 of this title, to verify that the crop has not 
been harvested.


Sec. 1412.207  Succession-in-Interest to a production flexibility 
contract.

    (a) A person may succeed to the contract if there has been a change 
in the operation of a farm, such as:
    (1) A sale of land;
    (2) A change of operator or producer, including a change in a 
partnership that increases or decreases the number of partners; or
    (3) A foreclosure, bankruptcy, or involuntary loss of the farm 
after enrollment in a production flexibility contract.
    (b) A succession in interest to the contract is not permitted if 
CCC determines that the change results in a violation of the landlord-
tenant provisions set forth at Sec. 1412.303, or otherwise defeats the 
purpose of the program.
    (c) If a producer who is entitled to a contract payment dies, 
becomes incompetent, or is otherwise unable to receive the contract 
payment, the CCC will make the payment in accordance with part 707 of 
this title.
    (d) A producer or owner must inform the county committee of changes 
in interest by:
    (1) August 31 of the current fiscal year, if producers on the 
contract remain the same, but payment shares change; or
    (2) 30 days after the change is made on the farm but no later than 
August 31, if a new producer is being added to the contract.
    (e) In any case in which payment has previously been made to a 
predecessor, such payment shall not be paid to the successor. If the 
predecessor refunds an advance contract payment, such producer shall 
not be assessed interest in accordance with part 1403 of this chapter.

Subpart C--Financial Considerations Including Sharing Production 
Flexibility Payments


Sec. 1412.301  Limitation of production flexibility contract payments.

    The sum total of annual contract payment amounts shall not exceed 
the amounts specified in part 1400 of this chapter.


Sec. 1412.302  Contract payment provisions.

    (a) A producer may request 50 percent of each fiscal year's 
contract payment as an advance payment.
    (b) At the option of the producer, for fiscal year 1997 and each 
subsequent fiscal year, 50 percent of the annual contract payment shall 
be made on December 15 or January 15, as requested by the producer. In 
order to receive an advance payment the producers on the

[[Page 37580]]

farm must be in compliance with all of the requirements of the contract 
at the time of the advance payment.
    (c) A final contract payment shall be made not later than September 
30 of each of the fiscal years 1996 through 2002.
    (d) If a producer declines to accept, or is determined to be 
ineligible for all or any part of the producer's share of the 
production flexibility payment computed for the farm in accordance with 
the provisions of this section:
    (1) The payment or portions thereof shall not become available for 
any other producer; and
    (2) The producer shall refund to CCC any amounts representing 
payments that exceed the payments determined by CCC to have been earned 
under the program authorized by this part. Part 1403 of this chapter 
shall be applicable to all unearned payments.


Sec. 1412.303  Sharing of contract payments.

    (a) Each eligible producer on a farm shall be given the opportunity 
to enroll in a contract and receive contract payments determined fair 
and equitable as agreed to by the producers on the farm and approved by 
the county committee.
    (1) Producers must provide a copy of their written lease to the 
county committee, and, in the absence of a written lease, must provide 
to the county committee a complete written description of the terms and 
conditions of any oral agreement or lease.
    (2) A lease will be considered a cash lease if the lessor receives 
only a sum certain cash payment, or a fixed quantity of the crop (for 
example, cash, pounds, or bushels per acre).
    (3) If a lease contains provisions that require the payment of rent 
on the basis of the amount of crop produced or the proceeds derived 
from the crop, or the interest such producer would have had if the crop 
had been produced, or combination thereof, such agreement shall be 
considered to be a share lease.
    (4) If a lease provides for both a cash payment and a share of the 
crop or proceeds, the county committee will determine a normal cash 
lease amount by crop for the area. If the guaranteed production or cash 
lease payment is equal to or exceeds the normal cash lease established 
by the county committee for the area, then the lease shall be 
considered to be a cash lease.
    (5) If the lease is a cash lease, the landlord is not eligible for 
a contract payment.
    (6) For a lease providing both a cash payment and a share of the 
crop or proceeds, if the cash guarantee is less than the normal cash 
guarantee for the area, the lease shall be considered a share lease.
    (b) When contract acreage is leased on a share basis, neither the 
landlord nor the tenant shall receive 100 percent of the contract 
payment for the farm.
    (1) A landowner may receive up to 100 percent of the contract 
payment if no lease exists with respect to the contract acreage. The 
leasing of grazing or haying privileges is not considered cash leasing.
    (2) [Reserved]
    (c) The county committee shall approve a contract for enrollment 
and approve the division of payment when all of the following apply:
    (1) The landowners, tenants and sharecroppers sign the contract and 
agree to the payment shares shown on the contract;
    (2) The county committee determines that the interests of tenants 
and sharecroppers are being protected; and
    (3) That the division of payments is not done in a manner to 
circumvent the provisions of part 1400 of this chapter.


Sec. 1412.304  Provisions relating to tenants and sharecropper.

    (a) Contract payments shall not be made by CCC if:
    (1) The landlord or operator has adopted a scheme or device for the 
purpose of depriving any tenant or sharecropper of the payments to 
which such person would otherwise be entitled under the program. If any 
of such conditions occur or are discovered after payments have been 
made, all or any such part of the payments as the State committee may 
determine shall be refunded to CCC; or
    (2) The landlord terminated a lease in violation of state law as 
determined by a state court.
    (b) If the landowners, tenants and sharecroppers on a farm fail to 
reach an agreement regarding the division of contract payments for a 
fiscal year, the county committee shall make the payment at a later 
date if all persons eligible to receive a share of the contract 
payment, have executed a contract no later than September 30 of that 
fiscal year and subsequently agree to the division of contract payment.

Subpart D--Contract Violations and Diminution in Payments


Sec. 1412.401  Contract violations.

    (a) Except as provided in paragraph (b) of this section, if a 
producer subject to a contract violates a requirement of the contract 
specified in Secs. 1412.201(6)(c), 1412.402, 1412.403, and 1412.405, 
the Deputy Administrator shall terminate the contract with respect to 
the producer on each farm in which the producer has an interest. Upon 
such termination, the producer shall forfeit all rights to receive 
future contract payments on each farm in which the producer has an 
interest and shall refund all contract payments received by the 
producer during the period of the violation, plus interest with respect 
to the contract payments as determined in accordance with part 1403 of 
this chapter.
    (b) If the county committee determines that a violation is not 
serious enough to warrant termination of the contract under paragraph 
(a) of this section, the county committee may require the producer 
subject to the contract either, or both of the following:
    (1) Refund to CCC that part of the contract payments received by 
the producer during the period of the violation, plus interest 
determined in accordance with part 1403 of this chapter; and
    (2) If there is a violation of Sec. 1412.206, accept a reduction in 
the amount of current and future contract payments that is equal to the 
sum proportionate to the severity of:
    (i) Market value of the fruit and vegetables planted on each 
contract acreage; and
    (ii) The contract payment for each such acre.
    (iii) Producers who do not plant a crop on contract acreage must 
protect any such land from weeds and erosion, including providing 
sufficient cover if determined necessary by the county committee. The 
first violation of this provision by a producer will result in a 
reduction in the producer's payment for the farm by an amount equal to 
3 times the cost of maintenance of the acreage, but not to exceed 50 
percent of the payment for the farm for that fiscal year. The second 
violation of this provision will result in a reduction in the payment 
for the farm by an amount equal to 3 times the cost of maintenance of 
the acreage, not to exceed the payment for the farm for that fiscal 
year.


Sec. 1412.402  Violations of highly erodible land and wetland 
conservation provisions.

    The provisions of part 12 of this title, apply to this part.


Sec. 1412.403  Violations regarding controlled substances.

    The provisions of Sec. 718.12 of this title apply to this part.


Sec. 1412.404  Contract liability.

    All producers receiving a share of the contract payment are jointly 
and severally liable for contract violations and resulting repayments.

[[Page 37581]]

Sec. 1412.405  Misrepresentation and scheme or device.

    (a) A producer who is determined to have erroneously represented 
any fact affecting a program determination made in accordance with this 
part shall not be entitled to contract payments and must refund all 
payments, plus interest determined in accordance with part 1403 of this 
chapter.
    (b) A producer who is determined to have knowingly:
    (1) Adopted any scheme or device that tends to defeat the purpose 
of the program;
    (2) Made any fraudulent representation; or
    (3) Misrepresented any fact affecting a program determination shall 
refund to CCC all payments, plus interest determined in accordance with 
part 1403 of this chapter received by such producer with respect to all 
contracts. The producer's interest in all contracts shall be 
terminated.


Sec. 1412.406  Offsets and assignments.

    (a) Except as provided in paragraph (b) of this section, any 
payment or portion thereof to any person shall be made without regard 
to questions of title under State law and without regard to any claim 
or lien against the crop, or proceeds thereof, in favor of the owner or 
any other creditor except agencies of the U.S. Government. The 
regulations governing offsets and withholdings found at part 1403 of 
this chapter shall be applicable to contract payments.
    (b) Any producer entitled to any payment may assign any payments in 
accordance with regulations governing assignment of payment found at 
part 1404 of this chapter.


Sec. 1412.407  Certification.

    As a condition of eligibility for contract payments, the operator 
or owner must timely submit a report of fruit and vegetable acreage in 
accordance with part 718 of this title. If such operator or owner does 
not report all of the fruits and vegetables planted on contract 
acreage, the contract shall be terminated with respect to such farm 
unless the provisions of Sec. 1412.40(b)(1) and (2) are applicable.

Subpart E--Production Flexibility and Conservation Reserve Programs


Sec. 1412.501  Timing for enrollment and termination of production 
flexibility contracts.

    (a) At the beginning of each fiscal year, the Secretary shall allow 
an eligible producer on a farm with acreage enrolled in a Conservation 
Reserve Program contract in accordance with parts 704 or 1410 of this 
title that terminates after August 1, 1996, to enter into or modify an 
existing production flexibility contract if such land otherwise would 
have been eligible for enrollment under this part as of August 1, 1996.
    (b) A production flexibility contract shall begin with the 1996 
crop of a contract commodity or in the case of acreage that was 
enrolled in the Conservation Reserve Program, the date the production 
flexibility contract was entered into or modified to include the 
acreage previously subject to the Conservation Reserve Program 
contract.
    (c) All contracts shall terminate on September 30, 2002, unless 
terminated at an earlier date by mutual consent of all parties.
    (d) A contract for farms whose Conservation Reserve Program 
contract terminates after August 1, 1996, shall be signed by a producer 
no later than November 30 of the fiscal year following the fiscal year 
the Conservation Reserve Program contract is terminated.
    (e) A Conservation Reserve Program contract that is terminated:
    (1) In fiscal year 1996, if the effective date of the Conservation 
Reserve Program contract termination is earlier than August 1, 1996, 
and the land that was subject to the Conservation Reserve Program 
contract is enrolled in a production flexibility contract, the owner or 
producer is eligible to receive both the 1996 production flexibility 
contract payment and a prorated Conservation Reserve Program payment.
    (2) In fiscal years 1997 through 2002, if a conservation reserve 
contract is terminated, and the land that was subject to the 
conservation reserve contract is enrolled in a production flexibility 
contract, the owner or producer may elect to receive either the 
production flexibility contract payments or a prorated Conservation 
Reserve Program payment, but not both.

PART 1413--[REMOVED]

    18. Part 1413 is removed.

PART 1421--GRAINS AND SIMILARLY HANDLED COMMODITIES

    19. The authority citation for 7 CFR Part 1421 is revised to read 
as follows:

    Authority: 7 U.S.C. 7231-7235, 7237; and 15 U.S.C. 714b and 
714c.

    20. The subpart consisting of Secs. 1421.1 through 1421.32 and the 
subpart heading are revised, the subpart heading preceding 
Sec. 1421.200 and Sec. 1421.200 are revised, and Secs. 1421.201 through 
1421.217 are removed, as set forth below:
Subpart--Loan and Loan Deficiency Payment Regulations for the 1996 
Through 2002 Crops of Wheat, Feed Grains, Rice, Oilseeds (Canola, 
Flaxseed, Mustard Seed, Rapeseed, Safflower, Soybeans, and Sunflower 
Seed), and Farm-Stored Peanuts
Sec.
1421.1  Applicability.
1421.2  Administration.
1421.3  Definitions.
1421.4  Eligible producers.
1421.5  General eligibility requirements.
1421.6  Maturity dates.
1421.7  Adjustment of basic loan rates.
1421.8  Approved storage.
1421.9  Warehouse receipts.
1421.10  Warehouse charges.
1421.11  Liens.
1421.12  Fees, charges, and interest.
1421.13  [Reserved]
1421.14  [Reserved]
1421.15  Loss or damage to the commodity.
1421.16  Personal liability of the producers.
1421.17  Farm-stored commodities.
1421.18  Warehouse-stored loans.
1421.19  Liquidation of loans.
1421.20  Release of the commodity pledged as collateral for a loan.
1421.21  [Reserved]
1421.22  Settlement.  
1421.23  Foreclosure.
1421.24  Protein determinations.
1421.25  Loan repayments.
1421.26  Transfer of farm-stored loan to warehouse-stored 
association loan.
1421.27  Producer-handler purchases of additional peanuts pledged as 
collateral for a loan.
1421.28  Required producer-handler records and supervision of farm-
stored additional peanuts pledged as collateral for a loan or 
purchased by a producer-handler from loan.
1421.29  Loan deficiency payments.
1421.30  Death, incompetency, or disappearance.
1421.31  Recourse loans.
1421.32  Handling payments and collections not exceeding $9.99.

Subpart--Loan and Loan Deficiency Payment Regulations for the 1996 
through 2002 Crops of Wheat, Feed Grains, Rice, Oilseeds (Canola, 
Flaxseed, Mustard Seed, Rapeseed, Safflower, Soybeans, and 
Sunflower Seed), and Farm-Stored Peanuts


Sec. 1421.1  Applicability.

    (a) The regulations of this subpart are applicable to the 1996 
through 2002 crops of barley, corn, grain sorghum, oats, peanuts, rice, 
wheat, and oilseeds as set forth in Sec. 1421.3. These regulations set 
forth the terms and conditions under which loans shall be entered into 
and loan deficiency payments made by the Commodity Credit Corporation 
(CCC). Additional terms and conditions are set forth in the note and 
security agreement and the loan deficiency payment application that 
must be executed by a producer to receive loans and loan deficiency

[[Page 37582]]

payments. All loans made under this subpart are nonrecourse unless as 
noted in Sec. 1421.31. With respect to warehouse-stored loans for 
peanuts, loans shall be made in accordance with part 1446 of this 
chapter.
    (b) Basic county loan rates, the schedule of premiums and 
discounts, and forms that are used in administering loans and loan 
deficiency payments for a crop of a commodity are available in State 
and county FSA offices (State and county offices, respectively). The 
forms for use in connection with the programs in this section shall be 
prescribed by CCC.
    (c)(1) Loans and loan deficiency payments shall be available as 
provided in this part with regard to barley, corn, grain sorghum, oats, 
oilseeds, and wheat produced in the United States.
    (2) Loans and loan deficiency payments shall be available only with 
respect to rice produced in the continental United States.
    (3) Farm-stored loans shall be available only with respect to 
farmer stock peanuts, as defined in part 1446 of this chapter, that are 
produced in the United States and that are also of a type specified in 
part 729 of this title.
    (d) Loans and loan deficiency payments shall not be available with 
respect to any commodity produced on land owned or otherwise in the 
possession of the United States if such land is occupied without the 
consent of the United States.


Sec. 1421.2  Administration.

    (a) The loan and loan deficiency payment program that is applicable 
to a crop of a commodity shall be administered under the general 
supervision of the Executive Vice President, CCC (Administrator, FSA) 
and shall be carried out in the field by State and county FSA 
committees (State and county committees, respectively).
    (b) State and county committees, and representatives and employees 
thereof, do not have the authority to modify or waive any of the 
provisions of the regulations of this part.
    (c) The State committee shall take any action required by these 
regulations that has not been taken by the county committee. The State 
committee shall also:
    (1) Correct, or require a county committee to correct, an action 
taken by such county committee that is not in accordance with the 
regulations of this part; or
    (2) Require a county committee to withhold taking any action that 
is not in accordance with the regulations of this part.
    (d) No provision or delegation herein to a State or county 
committee shall preclude the Executive Vice President, CCC, or a 
designee or the Administrator, FSA, or a designee, from determining any 
question arising under the program or from reversing or modifying any 
determination made by a State or county committee.
    (e) The Deputy Administrator for Farm Programs, FSA, may authorize 
State and county committees to waive or modify deadlines and other 
program requirements in cases where lateness or failure to meet such 
other requirements does not affect adversely the operation of the loan 
and loan deficiency payment program.
    (f) A representative of CCC may execute loans and loan deficiency 
payment applications and related documents only under the terms and 
conditions determined and announced by CCC. Any such document that is 
not executed in accordance with such terms and conditions, including 
any purported execution before the date authorized by CCC, shall be 
null and void.


Sec. 1421.3  Definitions.

    The definitions set forth in this section shall be applicable for 
all purposes of program administration. The terms defined in part 718 
of this title and parts 1412, 1425, and 1427 of this chapter shall also 
be applicable, except where those definitions conflict with the 
definitions set forth in this section.
    Basic loan rate means the loan rate established by CCC for a 
commodity before any adjustment for premiums and discounts.
    Charges means all fees, costs, and expenses incurred in insuring, 
carrying, handling, storing, conditioning, and marketing the commodity 
tendered to CCC for loan. Charges also include any other expenses 
incurred by CCC in protecting CCC's or the producer's interest in such 
commodity.
    High moisture commodities means corn and grain sorghum normally 
harvested and intended to be stored or marketed in a high moisture 
condition.
    Loan deficiency quantity means the eligible quantity that was 
certified by the producer as eligible to be pledged as collateral for a 
loan, for which the producer elected to forgo obtaining the loan.
    Loan quantity means the quantity on which the loan was disbursed 
shown on the note and security agreement.
    Oilseeds means any crop of soybeans, sunflower seed, canola, 
rapeseed, safflower, flaxseed, mustard seed, and other oilseeds as 
determined and announced by CCC.


Sec. 1421.4  Eligible producers.

    (a) An eligible producer of a crop of a commodity shall be a person 
(i.e., an individual, partnership, association, corporation, estate, 
trust, State or political subdivision or agency thereof, or other legal 
entity) that:
    (1) Produces such a crop as a landowner, landlord, tenant, or 
sharecropper, or in the case of rice, furnishes land, labor, water, or 
equipment for a share of the rice crop;
    (2) Meets the requirements of this part; and
    (3) Meets the requirements of parts 12, 718, 1405, 1412, and 1446 
of this title.
    (b) A receiver or trustee of an insolvent or bankrupt debtor's 
estate, an executor or an administrator of a deceased person's estate, 
a guardian of an estate of a ward or an incompetent person, and 
trustees of a trust shall be considered to represent the insolvent or 
bankrupt debtor, the deceased person, the ward or incompetent, and the 
beneficiaries of a trust, respectively, and the production of the 
receiver, executor, administrator, guardian, or trustee shall be 
considered to be the production of the person or estate represented by 
the receiver, executor, administrator, guardian, or trustee. Loan or 
loan deficiency payment documents executed by any such person will be 
accepted by CCC only if they are legally valid and such person has the 
authority to sign the applicable documents.
    (c) A minor who is otherwise an eligible producer shall be eligible 
to receive loans or loan deficiency payments only if the minor meets 
one of the following requirements:
    (1) The right of majority has been conferred on the minor by court 
proceedings or by statute;
    (2) A guardian has been appointed to manage the minor's property 
and the applicable loan or loan deficiency payment documents are signed 
by the guardian;
    (3) Any note signed by the minor is cosigned by a person determined 
by the county committee to be financially responsible; or
    (4) A bond is furnished under which a surety guarantees to protect 
CCC from any loss incurred for which the minor would be liable had the 
minor been an adult.
    (d)(1) Two or more producers may obtain a single joint loan with 
respect to commodities that are stored in the same farm storage 
facility. Two or more producers may obtain individual loans with 
respect to their share of the commodity that is stored commingled in

[[Page 37583]]

a farm storage facility with commodities owned by other producers if 
such other producers execute Form CCC-665 that provides that such 
producers shall obtain the permission of a representative of the county 
committee before removal of any quantity of the commodity from the 
storage facility. All producers who store a commodity in a farm storage 
facility in which commodities that have been pledged as collateral for 
a loan shall be liable for any damage incurred by CCC with respect to 
the deterioration or unauthorized removal or disposition of such 
commodities in accordance with Sec. 1421.17.
    (2) Two or more producers may obtain a single joint loan with 
respect to commodities that are stored in an approved warehouse if the 
warehouse receipt that is pledged as collateral for the loan is issued 
jointly to such producers.
    (3) If more than one producer executes a note and security 
agreement with CCC, each such producer shall be jointly and severally 
liable for the violation of the terms and conditions of the note and 
the regulations set forth in this part. Each such producer shall also 
remain liable for repayment of the entire loan amount until the loan is 
fully repaid without regard to such producer's claimed share in the 
commodity pledged as collateral for the loan. In addition, such 
producer may not amend the note and security agreement with respect to 
the producer's claimed share in such commodities, or loan proceeds, 
after execution of the note and security agreement by CCC.
    (e)(1) The county committee may deny a producer a loan on farm-
stored commodities if the producer has:
    (i) Been convicted of a criminal act;
    (ii) Has made a misrepresentation, with respect to acquiring a 
farm-stored loan or in the maintenance of the commodity pledged as 
security for a farm-stored loan; or
    (iii) Failed to protect adequately the interests of CCC in the 
commodity pledged as security for a farm-stored loan.
    (2) In such cases, the producer shall be ineligible for subsequent 
farm-stored loans unless the county committee determines that the 
producer will adequately protect CCC's interest in the commodity that 
would be pledged as collateral for such a loan. A producer who is 
denied a farm-stored loan will be eligible to pledge a commodity as 
collateral for a warehouse-stored loan.
    (f) Warehouse-stored loans may be made to a warehouse operator who, 
acting on behalf and with the authorization of a producer, tenders to 
CCC warehouse receipts issued by such warehouse operator for a 
commodity produced by such warehouse operator only in those States 
where the issuance and pledge of such warehouse receipts is valid under 
State law.
    (g) An approved cooperative marketing association (CMA) may obtain 
a loan on the eligible production of such commodity or loan deficiency 
payment with respect to such commodity on behalf of the members of the 
CMA who are eligible to receive loans and loan deficiency payments with 
respect to a crop of a commodity. For purposes of this subpart and in 
applicable loan and loan deficiency payment forms, the term producer 
includes an approved CMA.
    (h) With respect to peanuts tendered to CCC for loan, a producer 
must also meet the provisions of part 1446 of this title. Before 
obtaining a farm-stored loan with respect to additional peanuts, a 
producer must register as a handler with the State FSA office of the 
State in which the producer's farm is located.
    (i)(1) Two or more producers may obtain a single joint loan 
deficiency payment with respect to commodities that are stored in the 
same farm storage facility. Two or more producers may obtain individual 
loan deficiency payments with respect to their share of the commodity 
that is stored commingled in a farm storage facility with commodities 
owned by other producers. All producers who store a commodity in a farm 
storage facility in which commodities for which a loan deficiency 
payment has been requested shall be liable for any damage incurred by 
CCC with respect to incorrect certification of such commodities in 
accordance with Sec. 1421.16.
    (2) Two or more producers may obtain a single joint loan deficiency 
payment with respect to commodities that are stored in an approved or 
unapproved warehouse if the acceptable documentation representing an 
eligible commodity for which a loan deficiency payment is requested is 
completed jointly for such producers.
    (3) Each producer who is a party to a joint loan deficiency payment 
will be jointly and severally responsible and liable for the breach of 
the obligations set forth in the loan deficiency payment documents and 
in the applicable regulations in this subpart.


Sec. 1421.5  General eligibility requirements.

    (a) A producer must, unless otherwise authorized by CCC, request 
loans and loan deficiency payments at the county office that, in 
accordance with part 718 of this title, is responsible for 
administering programs for the farm on which the commodity was 
produced. An approved CMA must, unless otherwise authorized by CCC, 
request loans and loan deficiency payments at the location designated 
by CCC. An eligible producer who produces a crop of barley, corn, grain 
sorghum, oats, rice, or wheat on a farm covered by a production 
flexibility contract shall be eligible for a loan on any production of 
that commodity. In the case of oilseeds, any production produced by an 
eligible producer shall be eligible for a loan. To receive loans or 
loan deficiency payments for a crop of a commodity, a producer must 
execute a note and security agreement or loan deficiency payment 
application on or before:
    (1) January 31 of the year following the year in which the crop of 
peanuts is normally harvested for additional peanuts pledged as 
collateral for a farm-stored loan;
    (2) March 31 of the year following the year in which the following 
crops are normally harvested: quota peanuts pledged as collateral for a 
farm-stored loan, barley, canola, flaxseed, oats, rapeseed, and wheat;
    (3) April 30 of the year following the year in which the crop of 
peanuts is harvested for quota peanuts tendered for purchase; or
    (4) May 31 of the year following the year in which the following 
crops are normally harvested: corn, grain sorghum, mustard seed, rice, 
safflower, soybeans, and sunflower seed.
    (b)(1) To be eligible to receive loans or loan deficiency payments, 
commodities must be tendered to CCC by an eligible producer and must be 
eligible and in existence when approved by CCC. To be eligible to 
receive loans, commodities must also be stored in approved storage at 
the time of disbursement of loan proceeds. The commodity must not have 
been sold, nor any sales option on such commodity granted, to a buyer 
under a contract that provides that the buyer may direct the producer 
to pledge the commodity to CCC as collateral for a loan or to obtain a 
loan deficiency payment. Such commodities must also be merchantable for 
food, feed, or other uses determined by CCC and must not contain 
mercurial compounds, toxin producing molds, or other substances 
poisonous to humans or animals. Notwithstanding any other provision of 
this part, such commodities that contain vomitoxin levels of 5 or less 
parts per million or contain levels of more than 5 parts per million, 
may be eligible for a nonrecourse or recourse loan, respectively. Corn 
containing aflatoxin levels not exceeding 20 parts

[[Page 37584]]

per billion may be eligible for a nonrecourse loan.
    (2) The determination of class, grade, grading factors, milling 
yields, and other quality factors, including the determination of type, 
quality and quantity for peanuts:
    (i) With respect to barley, canola, corn, flaxseed, grain sorghum, 
oats, rice, soybeans, sunflower seed for extraction of oil, and wheat, 
shall be based upon the Official United States Standards for Grain and 
the Official United States Standards for Rice as applied to rough rice 
whether or not such determinations are made on the basis of an official 
inspection. The costs of an official grade determination may be paid by 
CCC. The grade and grading requirements that are used in administering 
loans and loan deficiency payments for the commodities in this 
paragraph are available in State and county offices.
    (ii) With respect to a crop of mustard seed, rapeseed, safflower 
seed, and sunflower seed used for a purpose other than to extract oil, 
shall be based on quality requirements established and announced by 
CCC, whether or not such determinations are made on the basis of an 
official inspection. The costs of an official quality determination may 
be paid by CCC. The quality requirements that are used in administering 
loans and loan deficiency payments for the oilseeds in this paragraph 
are available in State and county offices.
    (iii) With respect to peanuts, shall be determined at the time of 
delivery to CCC by a Federal-State Inspector authorized or licensed by 
the Secretary.
    (3) Corn pledged as collateral for a farm-stored loan may be ear or 
shelled corn, but may not be ground ear corn. If the collateral is ear 
corn, the producer must:
    (i) Before delivery to CCC, shell such corn without cost to CCC; 
and
    (ii) Before removal of the commodity for shelling, have the 
approval of CCC in accordance with Sec. 1421.20. Corn pledged as 
collateral for a warehouse-stored loan must be shelled corn.
    (4) When a quantity of a commodity is determined by weight, the 
following shall apply:
    (i) A bushel of barley shall be 48 pounds of barley free of 
dockage;
    (ii) A bushel of corn shall be 56 pounds of shelled corn;
    (iii) A bushel of oats shall be 32 pounds of oats;
    (iv) Quantities of peanuts shall be determined in tons and 
hundredths of a ton;
    (v) Quantities of farm-stored rice shall be in whole units of 100 
pounds of rice;
    (vi) A bushel of soybeans shall be 60 pounds of soybeans with no 
more than 1 percent foreign material;
    (vii) A bushel of grain sorghum shall be 56 pounds of grain sorghum 
free of dockage;
    (viii) A bushel of wheat shall be 60 pounds of wheat free of 
dockage;
    (ix) Quantities of farm-stored canola, flaxseed, mustard seed, 
rapeseed, safflower seed, and sunflower seed shall be determined in 
whole units of 100 pounds of the respective commodity;
    (x) A bushel of canola shall be 50 pounds of canola free of 
dockage;
    (xi) A bushel of flaxseed shall be 56 pounds of flaxseed free of 
dockage;
    (xii) A bushel of mustard seed shall be 54 pounds of mustard seed 
free of dockage;
    (xii) A bushel of rapeseed shall be 50 pounds of rapeseed free of 
dockage;
    (xiv) A bushel of safflower seed shall be 40 pounds of safflower 
seed free of dockage; and
    (xv) A bushel of sunflower seed shall be 28 pounds of sunflower 
seed free of foreign material.
    (5) With respect to farm-stored loans and loan deficiency payments, 
all determinations of weight and quality, except as otherwise agreed to 
by CCC, shall be determined at the time of delivery of the commodity to 
CCC or at the time the loan deficiency payment application is filed.
    (c)(1) To be eligible to receive loans or loan deficiency payments, 
a producer must have the beneficial interest in the commodity that is 
tendered to CCC for a loan or loan deficiency payment. The producer 
must always have had the beneficial interest in the commodity unless, 
before the commodity was harvested, the producer and a former producer 
whom the producer tendering the commodity to CCC has succeeded had such 
an interest in the commodity. Commodities obtained by gift or purchase 
shall not be eligible to be tendered to CCC for loans or loan 
deficiency payments. Heirs who succeed to the beneficial interest of a 
deceased producer or who assume the decedent's obligations under an 
existing loan or loan deficiency payment shall be eligible to receive 
loans and loan deficiency payments whether succession to the commodity 
occurs before or after harvest so long as the heir otherwise complies 
with the provisions of this part.
    (2) A producer shall not be considered to have divested the 
beneficial interest in the commodity if the producer retains control, 
title, and risk of loss in the commodity, including the right to make 
all decisions regarding the tender of such commodity to CCC for loans 
or loan deficiency payments, and the producer:
    (i) Executes an option to purchase, whether or not a payment is 
made by the potential buyer for such option to purchase, with respect 
to such commodity if all other eligibility requirements are met and the 
option to purchase contains the following provision:

    Notwithstanding any other provision of this option to purchase, 
title, risk of loss, and beneficial interest in the commodity, as 
specified in 7 CFR part 1421, shall remain with the producer until 
the buyer exercises this option to purchase the commodity. This 
option to purchase shall expire, notwithstanding any action or 
inaction by either the producer or the buyer, at the earlier of: (1) 
The maturity of any CCC loan which is secured by such commodity; (2) 
the date the CCC claims title to such commodity; or (3) such other 
date as provided in this option

or

    (ii) Enters into a contract to sell the commodity if the producer 
retains title, risk of loss, and beneficial interest in the commodity 
and the purchaser does not pay to the producer any advance payment 
amount or any incentive payment amount to enter into such contract 
except as provided in part 1425 of this chapter.
    (3) If loans and loan deficiency payments are made available to 
producers through an approved CMA 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 CMA or its 
member CMA's, except as otherwise provided in this section. Commodities 
delivered to such a CMA shall not be eligible to receive loans or loan 
deficiency payments 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.
    (d)(1) A producer may, before the final date for obtaining a loan 
for a commodity, re-offer as collateral for such a loan any commodity 
that had been previously pledged as collateral for a loan, except with 
respect to:
    (i) Commodities that have been acquired in accordance with part 
1401 of this chapter;
    (ii) Commodities that have been redeemed at a rate that is less 
than the loan rate as determined in accordance with Sec. 1421.25; and
    (iii) Commodities for which a payment has been made in accordance 
with Sec. 1421.29.
    (2) The commodity re-offered as security for the subsequent loan 
shall

[[Page 37585]]

have the same maturity date as the original loan.
    (e) Producers who redeem loan collateral at the lower loan 
repayment rate in accordance with Sec. 1421.25 or, in lieu of receiving 
a loan receive a loan deficiency payment in accordance with 
Sec. 1421.29, shall provide CCC with:
    (1) Evidence of production of the collateral such as sales receipts 
or other written documentation acceptable to CCC; or
    (2) The storage location of the collateral that has not been 
otherwise disposed of and allow CCC access to such collateral; and
    (3) Permission to inspect, examine, and make copies of the records 
and other written data as deemed necessary to verify the eligibility of 
the producer and commodity.
    (f) Producers who redeem loan collateral or receive a loan 
deficiency payment for a commodity in accordance with paragraph (e) of 
this section must provide evidence of production acceptable to CCC 
before the final loan availability date of the crop year for such 
commodity following the crop year for which the loan or loan deficiency 
payment was made. Production evidence includes but is not limited to:
    (1) Evidence of sales;
    (2) Load summary or assembly sheets;
    (3) Warehouse receipts issued by a warehouse that is approved 
according to Sec. 1421.8(b) or by a warehouse that is not approved; and
    (4) Quantities determined by measurement at CCC's discretion.
    (g) If the producer fails to provide acceptable evidence of 
production as required in paragraph (e)(1) of this section, such 
producer shall be required to repay the market gain or loan deficiency 
payment and charges, plus interest.
    (h) The loan documents shall not be presented for disbursement 
unless the commodity subject to the note and security agreement is an 
eligible commodity, in existence, and is in approved storage. If the 
commodity was not either an eligible commodity, in existence, or in 
approved storage at the time of disbursement, the total amount 
disbursed under the loan and charges plus interest shall be refunded 
promptly by the producer.
    (i) CCC shall limit the total loan quantity for a loan disbursement 
or loan deficiency quantity for a loan deficiency payment based on a 
subsequent increase in the quantity of eligible commodity by the final 
loan availability date to 100 percent of the outstanding quantity of 
such loan or loan deficiency payment application. A producer may obtain 
a separate loan or loan deficiency payment before the final loan 
availability date for the commodity for quantities in excess of 100 
percent of such quantity if such quantities are an otherwise eligible 
commodity.


Sec. 1421.6  Maturity dates.

    (a)(1) All loans shall mature on demand by CCC and with respect to:
    (i) All commodities, except peanuts and loan collateral transferred 
in accordance with Sec. 1421.17(c) and (d), no later than the last day 
of the 9th calendar month following the month in which the note and 
security agreement is filed in accordance with Sec. 1421.5(a) and 
approved; and
    (ii) Peanuts, April 30 of the year following the year the commodity 
is normally harvested.
    (2) CCC may at any time accelerate the loan maturity date by 
providing the producer notice of such acceleration at least 30 days in 
advance of the accelerated maturity date.
    (3) The request for a loan shall not be approved until all 
producers having an interest in the collateral sign the note and 
security agreement and CCC approves such note and security agreement.
    (b) If a producer fails to settle the loan in accordance with 
paragraph (a) of this section within 30 days from the maturity date of 
such loan, or other reasonable time period as established by CCC, a 
claim for the loan amount and charges plus interest shall be 
established. CCC shall:
    (1) Inform the producer before the maturity date of the loan of the 
date by which the loan must be settled or a claim will be established 
in accordance with part 1403 of this title; and
    (2) If the producer delivers the loan collateral in accordance with 
Sec. 1421.22 after a claim is established:
    (i) Determine the value of the settlement for such collateral in 
accordance with Sec. 1421.22;
    (ii) Waive interest on the loan amount that accrued before the 
establishment of the claim with respect to the settlement value of the 
quantity delivered from the date such loan proceeds were disbursed 
through the loan maturity date. Interest that accrues after the 
establishment of the claim shall not be waived; and
    (iii) Reduce the outstanding claim amount arising from the loan by 
the amount of the settlement value of the quantity delivered plus the 
amount of interest that was waived.


Sec. 1421.7  Adjustment of basic loan rates.

    (a) Basic loan rates for a commodity may be established on a State, 
regional, or county basis and may be adjusted by CCC to reflect quality 
and location applicable to the commodity and as otherwise provided in 
this section.
    (b) The basic loan rates for the wheat, corn, barley, oats, grain 
sorghum, rice, peanuts, soybean, canola, flaxseed, mustard seed, 
rapeseed, safflower, and sunflower seed crops will be determined by CCC 
and made available at State and county offices.
    (c)(1) With respect to all commodities except peanuts and rice, 
warehouse-stored loans shall be disbursed at levels based on the basic 
county loan rate for the county where the commodity is stored, adjusted 
for the schedule of premiums and discounts established for the 
commodity on the basis of quality factors set forth on warehouse 
receipts or supplemental certificates and for other quality factors, as 
determined and announced by CCC.
    (2) With respect to rice, warehouse-stored loans shall be disbursed 
at levels based on the milling yields times the whole and broken kernel 
loan rates, adjusted for the schedule of discounts on the basis of 
quality factors set forth on warehouse receipts or supplemental 
certificates and for other quality factors, as determined and announced 
by CCC.
    (3) With respect to commodities moved from one warehouse to another 
in accordance with the terms and conditions prescribed by CCC on Form 
CCC-699, Reconcentration Agreement and Trust Receipt, the loan rate 
will be adjusted to reflect the new storage location.


Sec. 1421.8  Approved storage.

    (a) Approved farm storage shall consist of a storage structure 
located on or off the farm (excluding public warehouses) that is 
determined by CCC to be under the control of the producer and to afford 
safe storage of the commodity pledged as collateral for a loan. As may 
be determined and announced by the Executive Vice President, CCC, 
approved farm storage may also include on-ground storage, temporary 
storage structures, or other storage arrangements.
    (b) Approved warehouse storage shall consist of:
    (1) A public warehouse for which a CCC storage agreement for the 
commodity is in effect and that is approved by CCC for price support 
purposes. Such a warehouse is referred to in this subpart as an 
approved warehouse. The names of approved warehouses may be obtained 
from the Kansas City Commodity Office, P.O. Box 419205, Kansas City, 
Missouri 64141-6205, or from State and county offices.
    (2) A warehouse operated by an approved CMA as defined in part 1425 
of this chapter.

[[Page 37586]]

    (c) The approved storage requirements provided in this section may 
be waived by CCC if the producer requests a loan deficiency payment 
pursuant to the loan deficiency payment provisions contained in 
Sec. 1421.29.


Sec. 1421.9  Warehouse receipts.

    (a) Warehouse receipts tendered to CCC with respect to a loan or 
loan deficiency payment must meet the provisions of this section and 
all other provisions of this part, and CCC program documents.
    (b) Warehouse receipts must be issued in the name of the eligible 
producer or CCC. If issued in the name of the eligible producer, the 
receipts must be properly endorsed in blank in order to vest title in 
the holder. Receipts must be issued by an approved warehouse and must 
represent a commodity that is deemed to be stored commingled. The 
receipts must be negotiable and must represent a commodity that is the 
same quantity and quality as the eligible commodity actually in storage 
in the warehouse of the original deposit. However, warehouse receipts 
may be issued by another warehouse if the eligible commodity was 
reconcentrated in accordance with the provisions of Sec. 1421.20(c).
    (c) If the receipt is issued for a commodity that is owned by the 
warehouse operator either solely, jointly, or in common with others, 
the fact of such ownership shall be stated on the receipt. In States 
where the pledge of warehouse receipts issued by a warehouse operator 
on the warehouse operator's commodity is invalid, the warehouse 
operator may offer the commodity to CCC for loan if such warehouse is 
licensed and operating under the U.S. Warehouse Act.
    (d) Each warehouse receipt or accompanying supplemental certificate 
representing a commodity stored in an approved warehouse that has a 
storage agreement with CCC shall indicate that the commodity is insured 
in accordance with such agreement. The cost of such insurance shall not 
be for the account of CCC.
    (e) A separate warehouse receipt must be submitted for each grade 
and class of any commodity tendered to CCC and, with respect to rice, 
such receipt must also state the milling yield of the rice.
    (f)(1) Each warehouse receipt, or a supplemental certificate (in 
duplicate) that properly identifies the warehouse receipt, must be 
issued in accordance with the Uniform Grain and Rice Storage Agreement 
or the U.S. Warehouse Act, as applicable, and must indicate:
    (i) The name and location of the storing warehouse;
    (ii) The warehouse code assigned by CCC;
    (iii) The warehouse receipt number;
    (iv) The date the receipt was issued;
    (v) The type of commodity;
    (vi) The date the commodity was deposited or received;
    (vii) The date to which storage has been paid or the storage start 
date;
    (viii) Whether the commodity was received by rail, truck or barge;
    (ix) The amount per bushel, pound, or hundredweight of prepaid in 
or out charges;
    (x) The signature of the warehouse operator or the authorized 
agent; and
    (xi) For warehouses operating under a merged warehouse code 
agreement (KC-385), the location and county to which the producer 
delivered the commodity.
    (2) In addition to the information specified in paragraph (f)(1) of 
this section, additional commodity specific requirements shall be 
determined by CCC and are available at State and county offices and the 
Kansas City Commodity Office.
    (g) If a warehouse receipt indicates that the commodity tendered 
for loan grades ``infested'' or ``contains excess moisture'', or both, 
the receipt must be accompanied by a supplemental certificate as 
provided in Sec. 1421.18 in order for the commodity to be eligible for 
a loan. The grade, grading factors, and quantity to be delivered must 
be shown on the certificate as follows:
    (1) When the warehouse receipt shows ``infested'' and the commodity 
has been conditioned to correct the infested condition, the 
supplemental certificate must show the same grade without the 
``infested'' designation and the same grading factors and quantity as 
shown on the warehouse receipt.
    (2)(i) When the warehouse receipt shows that the commodity 
contained excess moisture and the commodity has been dried or blended, 
the supplemental certificate must show the grade, grading factors, and 
quantity after drying or blending of the commodity. Such entries shall 
reflect a drying or blending shrinkage as provided in paragraph 
(g)(2)(iv) of this section.
    (ii) When a supplemental certificate is issued in accordance with 
paragraphs (g)(1) and (g)(2)(i) of this section, the grade, grading 
factors and the quantity shown on such certificate shall supersede the 
entries for such items on the warehouse receipt.
    (iii) If the commodity has been dried or blended to reduce the 
moisture content, the quantity specified on the warehouse receipt or 
the supplemental certificate shall represent the quantity after drying 
or blending.
    (iv) For commodities dried or blended in accordance with paragraph 
(g)(2)(iii) of this section, such quantity shall reflect a minimum 
shrinkage in the receiving weight excluding dockage:
    (A) For the following commodities, 1.3 times the percentage 
difference between the moisture content of the commodity received and 
the following percentages for the specified commodity:
    (1) Barley: 14.5 percent;
    (2) Corn: 15.5 percent;
    (3) Grain sorghum: 14.0 percent;
    (4) Oats; 14.0 percent;
    (5) Rice: 14.0 percent;
    (6) Soybeans; 14.0 percent; and
    (7) Wheat: 13.5 percent.
    (B) For the following commodities, 1.1 times the percentage 
difference between the moisture content of the commodity received and 
the following percentages for the specified commodity:
    (1) Canola: 10.0 percent;
    (2) Flaxseed: 9.0 percent;
    (3) Mustard Seed: 10.0 percent;
    (4) Rapeseed: 10.0 percent;
    (5) Safflower Seed: 10.0 percent; and
    (6) Sunflower Seed: 10.0 percent.
    (h)(1) If, in accordance with paragraph (g) of this section, a 
supplemental certificate is issued in connection with a warehouse 
receipt, such certificate must state that no lien for processing will 
be asserted by the warehouse operator against CCC or any subsequent 
holder of such receipt.
    (2) Warehouse receipts and the commodities represented by such 
receipts that are stored in an approved warehouse that is operating in 
accordance with a Uniform Grain and Rice Storage Agreement (UGRSA) may 
be subject to a lien for warehouse charges only to the extent provided 
in Sec. 1421.10. In no event shall a warehouse operator be entitled to 
satisfy such a lien by sale of the commodities when CCC is the holder 
of such receipt.
    (i) Warehouse receipts representing commodities that have been 
shipped by rail or by barge, must be accompanied by supplemental 
certificates completed in accordance with paragraph (f) of this 
section.


Sec. 1421.10  Warehouse charges.

    (a) CCC-approved handling and storage rates that may be deducted 
from loan proceeds are available in State and county offices. Such 
deductions shall be based upon the entries on the warehouse receipt or 
supplemental certificate, but in no case shall be higher than the CCC 
approved rate. No storage deduction shall be made if written evidence 
acceptable to CCC is submitted indicating that:

[[Page 37587]]

    (1) Storage charges through the maturity date have been prepaid; or
    (2) The producer has arranged with the warehouse operator for the 
payment of storage charges through the maturity date and the warehouse 
operator enters an endorsement in substantially the following form on 
the warehouse receipt:

    Storage arrangements have been made by the depositor of the 
grain covered by this receipt through (date through which storage 
has been provided). No lien will be asserted by the warehouse 
operator against CCC or any subsequent holder of the warehouse 
receipt for the storage charges that accrued before the specified 
date.

    (b) The beginning date to be used for computing storage deductions 
on the commodity stored in an approved warehouse shall be the later of 
the following:
    (1) The date the commodity was received or deposited in the 
warehouse;
    (2) The date the storage charges start; or
    (3) The day following the date through which storage charges have 
been paid.
    (c) For commodities delivered to CCC in settlement for a loan, CCC 
shall pay to the producer the warehouse charges for receiving the 
commodity, or in-charges. If the warehouse receipt delivered to CCC in 
settlement for a loan shows that such charges have been paid, CCC shall 
issue such payment to the producer. If the receipt shows that such 
charges have not been paid, the producer will assign such payment to 
the warehouse and CCC shall issue such payment to the warehouse for the 
producer's account.


Sec. 1421.11  Liens.

    (a) The county office shall file or record, as required by State 
law, all security agreements that are issued with respect to 
commodities pledged as collateral for loans. The cost of filing and 
recording shall be paid for by CCC.
    (b) If there are any liens or encumbrances on the commodity, 
waivers that fully protect the interest of CCC must be obtained even 
though the liens or encumbrances are satisfied from the loan proceeds. 
No additional liens or encumbrances shall be placed on the commodity 
after the loan is approved.


Sec. 1421.12  Fees, charges, and interest.

    (a) A producer shall pay a nonrefundable loan service fee to CCC at 
a rate determined by CCC. The amount of such fees are available in 
State and county offices and are shown on the note and security 
agreement.
    (b) Interest that accrues with respect to a loan shall be 
determined in accordance with part 1405 of this chapter. All or a 
portion of such interest may be waived with respect to a quantity of 
commodity that has been redeemed in accordance with Sec. 1421.25 at a 
rate that is less than the principal amount of the loan plus charges 
and interest.
    (c) For each crop of soybeans, the producer, as defined in the 
Soybean Promotion, Research, and Consumer Information Act (7 U.S.C. 
Chapter 6301), shall remit to CCC an assessment that shall be 
determined at the time CCC acquires the commodity, and shall be at a 
rate equal to one-half of 1 percent of the amount determined in 
accordance with Sec. 1421.19.
    (d) Additional fees representing amounts voted on by producers for 
marketing or promotional fees may be deducted from loan proceeds by CCC 
as requested and agreed to by the governing body of such marketing or 
promotional fee and CCC. Deduction of such fees from amounts due 
producers and the payment of such fees to such governing body shall be 
made by CCC in a manner and at such time as determined by CCC.


Sec. 1421.13  [Reserved]


Sec. 1421.14  [Reserved]


Sec. 1421.15  Loss or damage to the commodity.

    The producer is responsible for any loss in quantity or quality of 
the commodity pledged as collateral for a farm-stored loan. CCC shall 
not assume any loss in quantity or quality of the loan collateral for 
farm-stored loans.


Sec. 1421.16  Personal liability of the producers.

    (a) When a producer obtains a commodity loan or requests a loan 
deficiency payment, the producer agrees:
    (1) When signing Form CCC-666, Farm Stored Loan Quantity 
Certification, when applicable, Form CCC-677, Farm Storage Note and 
Security Agreement, and Form CCC-678, Warehouse Storage Note and 
Security Agreement, that the producer will not:
    (i) Provide an incorrect certification of the quantity or make any 
fraudulent representation for the loan; or
    (ii) Remove or dispose of a quantity of commodity that is 
collateral for a CCC farm-stored loan without prior written approval 
from CCC in accordance with Sec. 1421.20;
    (2) When signing Form CCC-666 LDP, Loan Deficiency Payment 
Application and Certification, or CCC-709, Direct Loan Deficiency 
Payment Agreement, as applicable, that the producer will not provide an 
incorrect certification of the quantity or make any fraudulent 
representation for loan deficiency payment purposes; and
    (3) That violation of the terms and conditions of the Form CCC-677, 
Form CCC-678, Form CCC-666 LDP, or Form CCC-709, as applicable, will 
cause harm or damage to CCC in that funds may be disbursed to the 
producer for a quantity of a commodity that is not actually in 
existence or for a quantity on which the producer is not eligible.
    (b) The violations referred to in paragraph (a) of this section are 
defined as follows:
    (1) Incorrect certification is the certifying of a quantity of a 
commodity for the purpose of obtaining a commodity loan or a loan 
deficiency payment in excess of the quantity eligible for such loan or 
loan deficiency payment or the making of any fraudulent representation 
with respect to obtaining loans or loan deficiency payments;
    (2) Unauthorized removal is the movement of any farm-stored loan 
quantity from the storage structure in which the commodity was stored 
or structures that were designated when the loan was approved to any 
other storage structure whether or not such structure is located on the 
producer's farm without prior written authorization from the county 
committee in accordance with Sec. 1421.20, if the movement of loan 
collateral prevents CCC from obtaining the first lien on such 
collateral; and
    (3) Unauthorized disposition is the conversion of any loan quantity 
pledged as collateral for a farm-stored loan without prior written 
authorization from the county committee in accordance with 
Sec. 1421.20.
    (c) The producer and CCC agree that it will be difficult, if not 
impossible, to prove the amount of damages to CCC for the violations in 
accordance with paragraph (b) of this section. Accordingly, if the 
county committee determines that the producer has violated the terms 
and conditions of Form CCC-677, Form CCC-678, Form CCC-666 LDP, or Form 
CCC-709, as applicable, liquidated damages shall be assessed on the 
quantity of the commodity that is involved in the violation. If CCC 
determines the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages will be assessed by multiplying the quantity involved in the 
violation by:
    (i) 10 percent of the loan rate applicable to the loan note or the 
loan

[[Page 37588]]

deficiency payment rate for the first offense; or
    (ii) 25 percent of the loan rate applicable to the loan note or the 
loan deficiency payment rate for the second offense; or
    (2) Did not act in good faith with regard to the violation, or for 
cases other than the first or second offense, liquidated damages will 
be assessed by multiplying the quantity involved in the violation by 25 
percent of the loan rate applicable to the loan note or the loan 
deficiency payment rate.
    (d) For liquidated damages assessed in accordance with paragraph 
(c)(1) of this section, the county committee shall:
    (1) Require repayment of the loan principal applicable to the loan 
quantity incorrectly certified or the loan quantity removed or disposed 
of for loan deficiency payment, the loan deficiency payment rate 
applicable to the loan deficiency quantity incorrectly certified, and 
charges, plus interest applicable to the amount repaid; and
    (2) If the producer fails to pay such amount within 30 days from 
the date of notification, call the applicable loan involved in the 
violation, or for loan deficiency payments, require repayment of the 
entire loan deficiency payment and charges plus interest.
    (e) For liquidated damages assessed in accordance with paragraph 
(c)(2) of this section, the county committee shall call the loan 
involved in the violation, or for loan deficiency payments, require 
repayment of the entire loan deficiency payment and charges plus 
interest.
    (f) The county committee:
    (1) May waive the administrative actions taken in accordance with 
paragraphs (c)(1) and (d) if the county committee determines that:
    (i) The violation occurred inadvertently, accidentally, or 
unintentionally; or
    (ii) The producer acted to prevent spoilage of the commodity.
    (2) Shall not consider the following acts as inadvertent, 
accidental, or unintentional:
    (i) Movement of loan collateral off the farm;
    (ii) Movement of loan collateral from one storage structure to 
another on the farm, except as provided for in Sec. 1421.17(b)(1); and
    (iii) Feeding the loan collateral.
    (3) Shall furnish a copy of its determination to the State 
committee, and the Administrator. If the determination of the county 
committee is not disapproved by either the State committee or the 
Administrator, FSA, or a designee, within 60 calendar days from the 
date the determination is received, such determination shall be 
considered to have been approved.
    (g) If, for any violation in accordance with paragraph (b) of this 
section, the county committee determines that CCC's interest is not or 
will not be protected, the county committee shall call any or all of 
the producer's farm-stored loans, and deny future farm-stored loans and 
loan deficiency payments without production evidence for 24 months 
after the date the violation is discovered. Depending on the severity 
of the violation, the county committee may deny future farm-stored 
loans and loan deficiency payments without production evidence for an 
additional 12 month period.
    (h) If the county committee determines that the producer has 
committed a violation in accordance with paragraph (b), the county 
committee shall notify the producer in writing that:
    (1) The producer has 30 calendar days to provide evidence and 
information regarding the circumstances that caused the violation, to 
the county committee; and
    (2) Administrative actions will be taken in accordance with 
paragraphs (d) or (e) of this section.
    (i) If the loan is called in accordance with this section, the 
producer may not repay the loan at the lower of the loan repayment rate 
in accordance with Sec. 1421.25 and may not utilize the provisions of 
part 1401 of this chapter with respect to such loan.
    (j) Producers who have been refused a farm-stored loan under 
provisions of this section may apply for a warehouse-stored loan.
    (k)(1) If a producer:
    (i) Makes any fraudulent representation in obtaining a loan or loan 
deficiency payment, maintaining, or settling a loan; or
    (ii) Disposes or moves the loan collateral without the approval of 
CCC, such loan shall be payable upon demand by CCC. The producer shall 
be liable for:
    (A) The amount of the loan or loan deficiency payment;
    (B) Any additional amounts paid by CCC with respect to the loan or 
loan deficiency payment;
    (C) All other costs that CCC would not have incurred but for the 
fraudulent representation, the unauthorized disposition or movement of 
the loan collateral;
    (D) Interest on such amounts; and
    (E) Liquidated damages assessed under paragraph (c) of this 
section.
    (2) With regard to amounts due for a loan, the payment of such 
amounts may not be satisfied by:
    (i) The forfeiture of loan collateral to CCC of commodities with a 
settlement value that is less than the total of such amounts; or
    (ii) By repayment of such loan at the lower loan repayment rate as 
prescribed in Sec. 1421.25 and may not utilize the provisions of part 
1401 of this chapter with respect to such loans.
    (3) Notwithstanding any provisions of the note and security 
agreement, if a producer has made any such fraudulent representation or 
if the producer has disposed of, or moved, the loan collateral without 
prior written approval from CCC in accordance with Sec. 1421.20, the 
value of the settlement for such collateral delivered to or removed by 
CCC shall be determined by CCC in accordance with Sec. 1421.22.
    (l) A producer shall be personally liable for any damages resulting 
from a commodity delivered to or removed by CCC containing mercurial 
compounds, toxin producing molds, or other substances poisonous to 
humans or animals.
    (m) If the amount disbursed under a loan or in settlement thereof, 
or loan deficiency payment exceeds the amount authorized by this part, 
the producer shall be liable for repayment of such excess and charges, 
plus interest.
    (n) If the amount collected from the producer in satisfaction of 
the loan is less than the amount required in accordance with this part, 
the producer shall be personally liable for repayment of the amount of 
such deficiency and charges, plus interest.
    (o) In the case of joint loans or loan deficiency payments, the 
personal liability for the amounts specified in this section shall be 
joint and several on the part of each producer signing the note or loan 
deficiency payment application.
    (p) Any or all of the liquidated damages assessed in accordance 
with the provisions of paragraph (c) may be waived as determined by 
CCC.


Sec. 1421.17  Farm-stored commodities.

    (a) The quantity of a commodity that shall be used to determine the 
amount of a farm-stored loan shall not exceed a percentage (the loan 
percentage), as established by the State committee that shall not 
exceed a percentage established by CCC, of the certified or measured 
quantity of the eligible commodity stored in approved farm storage and 
covered by the note and security agreement. The quantity of a commodity 
pledged as security for a farm-storage loan shall be measured or 
certified in accordance with paragraph (e). Farm-stored loans may be 
made on less than the maximum quantity eligible

[[Page 37589]]

for loan at the producer's request. If the loan quantity is reduced by 
the State committee, the county committee, or by request of the 
producer, such reduced quantity shall be the mortgaged quantity on the 
note and security agreement for the commodity in a bin, crib, or lot on 
which the loan is made.
    (1) With respect to additional peanuts, loans shall be made on 100 
percent of the estimated quantity pledged as collateral for a farm-
stored loan.
    (2) With respect to all other commodities, the State committee may 
establish a loan percentage that does not exceed a percentage 
established by CCC or may apply quality discounts to the loan rate, 
each year for each commodity on a Statewide basis or for specified 
areas within the State. Before approving a county committee request to 
establish a different loan percentage, or to apply quality discounts, 
the State committee shall consider conditions in the State or areas 
within a State to determine if the loan percentage should be reduced 
below the maximum loan percentage or the quality discounts should be 
applied to the basic county loan rate to provide CCC with adequate 
protection. Loans disbursed based upon loan percentages previously 
lowered and loan rates adjusted for quality shall not be altered if 
conditions within the State or areas within the State change to 
substantiate removing such reductions; percentages established or loan 
rates adjusted for quality in accordance with this section shall apply 
only to new loans and not to outstanding loans. The factors to be 
considered by the State committee in determining loan percentages or 
the necessity to apply quality discounts shall include but are not 
limited to:
    (i) General crop conditions;
    (ii) Factors affecting quality peculiar to an area within the 
State; and
    (iii) Climatic conditions affecting storability.
    (3) The loan percentages established by the State committee may be 
reduced by the county committee when authorized on an individual farm, 
area, or producer basis when determined to be necessary in order to 
provide CCC with adequate protection. The factors to be considered by 
the county committee in reducing the loan percentages shall include but 
not be limited to:
    (i) The condition or suitability of the storage structure;
    (ii) The condition of the commodity;
    (iii) The hazardous location of the storage structure, such as a 
location that exposes the structure to danger of flood, fire, and theft 
by a person not entrusted with possession of the commodity;
    (iv) Any disagreement with respect to the quantity of the commodity 
to be pledged as collateral for a loan; and
    (v) Such other factors that relate to the preservation or safety of 
the loan collateral.
    (b) If an eligible quantity of a commodity except peanuts, has been 
commingled with an ineligible quantity of the commodity, the commingled 
commodity is not eligible to be pledged as collateral for a loan 
unless:
    (1) The producer, when requesting a loan shall designate all 
structures that may be used for storage of the loan collateral. In such 
cases, the producer is not required to obtain prior written approval 
from the county committee before moving loan collateral from one 
designated structure to another designated structure. In all other 
instances, if the producer intends to move loan collateral from a 
designated structure to another undesignated structure, the producer 
must request prior approval from the county committee. Such approval 
shall be evidenced on Form CCC-687-1 and the eligible or ineligible 
commodity must be measured by a representative of the county office, at 
the producer's expense, before commingling; or
    (2) The producer has made a certification with respect to the 
acreage planted to the commodity that is to be commingled for all farms 
in which the producer has an interest. When certifying to the acreage 
on all farms in which interest is held, the producer must provide 
acceptable evidence of the production and purchase of the commodity 
from which the county committee may determine whether the eligible 
production claimed by the producer is reasonable in relation to the 
production practices on such farm or similar farms in the same county; 
or have either the eligible or ineligible commodity measured by a 
representative of the county office at the producer's expense, before 
commingling. Peanuts pledged as collateral for a loan must be stored 
separately from peanuts produced on any other farm and handled in such 
a manner that only the actual peanuts produced on the farm and on no 
other farm will be delivered to CCC.
    (c) Upon request by the producer before transfer, the county 
committee may approve the transfer of a quantity of a commodity that is 
pledged as collateral for a farm-stored loan to a warehouse-stored loan 
at any time during the loan period.
    (1) Liquidation of the farm-stored loan or part thereof shall be 
made through the pledge of warehouse receipts for the commodity placed 
under warehouse-stored loan and the immediate payment by the producer 
of the amount by which the warehouse-stored loan is less than the farm-
stored loan or part thereof and charges plus interest. The loan 
quantity for the warehouse-stored loan cannot exceed 110 percent of the 
loan quantity transferred from the farm-stored loan.
    (2) Any amounts due the producer shall be disbursed by the county 
office. The maturity date of the warehouse-stored loan shall be the 
maturity date applicable to the farm-stored loan that was transferred.
    (d) Upon request by the producer before the transfer, the county 
committee may approve the transfer of a warehouse-stored loan or part 
thereof to a farm-stored loan at any time during the loan period. 
Quantities pledged as collateral for a farm-stored loan shall be based 
on a measurement by a representative of the county office before 
approving the farm-stored loan. The producer must immediately repay the 
amount by which the farm-stored loan is less than the warehouse-stored 
loan and charges plus interest on the shortage. The maturity date of 
the farm-stored loan shall be the maturity date applicable to the 
warehouse-stored loan that was transferred.
    (e) The quantity of a commodity pledged as security for a farm-
stored loan or for which a loan deficiency payment is requested may be 
determined on the basis of the quantity of the commodity that an 
eligible producer certifies in writing on Form CCC-666 for a loan and 
Form CCC-666 LDP or CCC-709, as applicable, for a loan deficiency 
payment, is eligible to be pledged as collateral and is otherwise 
available for loan or loan deficiency payment purposes.
    (f) If the county committee determines, by measurement or 
otherwise, that the actual quantity serving as collateral for a loan is 
less than the loan quantity, the county committee shall take the 
actions specified in Sec. 1421.16.


Sec. 1421.18  Warehouse-stored loans.

    (a) The quantity of a commodity that may be pledged as collateral 
for a loan shall be the quantity of any eligible commodity delivered to 
CCC for storage at an approved warehouse. Such quantity shall be the 
net weight specified on the warehouse receipt or supplemental 
certificate.
    (b)) To be eligible to be pledged as collateral for a loan, the 
commodity must not be Sample Grade and must meet the requirements of 
Sec. 1421.5 and the commodity eligibility requirements, as determined 
by CCC. These

[[Page 37590]]

requirements are available at State and county offices.


Sec. 1421.19  Liquidation of loans.

    (a) If a producer does not pay to CCC the total amount due in 
accordance with a loan, CCC shall have the right to acquire title to 
the loan collateral and to sell or otherwise take possession of such 
collateral without any further action by the producer. With respect to 
farm-stored loans, the producer may, as CCC determines, deliver the 
collateral for such loan in accordance with instructions issued by CCC. 
CCC will not accept delivery of any quantity of a commodity in excess 
of 110 percent of the outstanding farm-stored loan quantity. If a 
quantity in excess of 110 percent of the outstanding farm-stored loan 
quantity is shown on the warehouse receipt or other documents, the 
producer shall provide replacement warehouse receipts and delivery 
documents. If the warehouse receipt and such other documents applicable 
to the settlement are not replaced showing only the quantity eligible 
for delivery, CCC shall provide for such corrected documents and apply 
charges for such service, if any, to the producer's account as charges 
for settlement on the loan.
    (b) If the producer desires to deliver eligible commodities to CCC 
in satisfaction of the loan, the producer must notify CCC of such 
intention before the loan maturity date by giving written notice to the 
county office that disbursed the proceeds for such loan. If the 
producer fails to deliver such commodities to CCC by the date specified 
on Form CCC-691, Commodity Delivery Notice, and the producer 
subsequently redeems the commodity pledged as collateral for the loan 
before delivery is completed, interest shall continue to be assessed on 
such amount in accordance with part 1405 of this chapter.
    (c) If, either before or after maturity, the commodity is going out 
of condition or is in danger of going out of condition, the producer 
shall so notify the county office and confirm such notice in writing. 
If the county committee determines that the commodity is going out of 
condition or is in danger of going out of condition and the commodity 
cannot be satisfactorily conditioned by the producer and delivery 
cannot be accepted within a reasonable length of time, the county 
committee shall arrange for an inspection and grade and quality 
determination. When delivery is completed, settlement shall be made on 
the basis of such grade and quality determination or on the basis of 
the grade and quality determination made at the time of delivery, 
whichever is higher, for the quantity actually delivered.
    (d) If the producer loses control of the storage structure, or if 
there is insect infestation that cannot be controlled, danger of flood, 
or damage to the storage structure making it unsafe to continue storage 
of the commodity on the farm, the commodity may be delivered before the 
maturity date of the loan upon prior approval of the county committee 
in accordance with paragraph (a). Settlement will be made with the 
producer as provided in Sec. 1421.22.


Sec. 1421.20  Release of the commodity pledged as collateral for a 
loan.

    (a) A producer, when requesting a loan shall designate specific 
storage structures on Form CCC-677, in accordance with 
Sec. 1421.17(b)(1). The producer is not required to request prior 
approval before moving loan collateral between such designated 
structures. Movement of loan collateral to any other structures not 
designated on CCC-677, or the disposal of such loan collateral without 
prior written approval of the county committee, shall subject the 
producer to the administrative actions specified in Sec. 1421.16. A 
producer may at any time obtain the release, in accordance with this 
section, of all or any part of the commodity remaining as loan 
collateral by paying to CCC, with respect to the quantity of the 
commodity released:
    (1) The principal amount of the loan that is outstanding and 
charges plus interest; or
    (2) If CCC so announces, an amount less than the principal amount 
of the loan and charges plus interest under the terms and conditions 
specified by CCC at the time the producer redeems the commodity pledged 
as collateral for such loan in accordance with Sec. 1421.25. The 
producer may request and CCC may approve removal of a quantity of the 
commodity from storage, without the payment to CCC of the loan amount, 
if the principal amount outstanding on such loan before such removal 
does not exceed the maximum loan value of the quantity of the commodity 
remaining in storage after such removal. When the proceeds of the sale 
of the commodity are needed to repay all or a part of a farm-stored 
loan, the producer must request and obtain prior written approval of 
the county office on a form prescribed by CCC in order to remove a 
specified quantity of the commodity from storage. Any such approval 
shall be subject to the terms and conditions set forth in the 
applicable form, copies of which may be obtained by producers at the 
county office. Any such approval shall not constitute a release of 
CCC's security interest in the commodity or release the producer from 
liability for any amounts due and owing to CCC with respect to the loan 
indebtedness if full payment of such amounts is not received by the 
county office. If a producer fails to repay a loan within the time 
period prescribed by CCC for a farm-storage loan and commodity pledged 
as loan collateral has been delivered to a buyer in accordance with 
Form CCC-681-1, Authorization for Delivery of Loan Collateral for Sale, 
such producer may not repay the loan at the rate that is less than the 
loan rate determined in accordance with Sec. 1421.25(a)(1)(ii) or 
(b)(2).
    (b) CCC may allow a producer to establish a loan repayment rate 
determined in accordance with Sec. 1421.25 (a)(1)(ii) or (b)(2) on Form 
CCC-681-1, Authorization for Delivery of Loan Collateral for Sale, 
provided the producer complies with all terms and conditions set forth 
on Form CCC-681-1. If a producer fails to repay a loan within the time 
period prescribed by CCC in accordance with the terms and conditions of 
Form CCC-681-1 and the commodity pledged as collateral for such loan 
has been delivered to a buyer in accordance with Form CCC-681-1, such 
producer may not repay the loan at the rate that is less than the loan 
rate determined in accordance with Sec. 1421.25 (a)(1)(ii) or (b)(2).
    (c)(1) The producer may arrange with the county office for the 
release of all or part of the commodity that is pledged as collateral 
for a warehouse-stored loan at or before the maturity of such loan by, 
with respect to the quantity of the commodity to be released, paying to 
CCC:
    (i) The principal amount of the loan and charges plus interest; or
    (ii) If CCC so announces, an amount less than the principal amount 
of the loan and charges plus interest under the terms and conditions 
specified by CCC at the time the producer redeems the commodity pledged 
as collateral for such loan in accordance with Sec. 1421.25. Each 
partial release of the loan collateral must cover all of the commodity 
represented by one warehouse receipt. Warehouse receipts redeemed by 
repayment of the loan shall be released only to the producer. However, 
such receipts may be released to persons designated in a written 
authorization that is filed with the county office by the producer 
within 15 days before the date of repayment.
    (2) Upon the filing of Form CCC-699, Reconcentration Agreement and 
Trust Receipt, by the producer and warehouse operator, CCC may, during 
the loan period, approve the reconcentration in

[[Page 37591]]

another CCC-approved warehouse of all or part of a commodity that is 
pledged as collateral for a warehouse-stored loan. Any such approval 
shall be subject to the terms and conditions set forth in Form CCC-699, 
Reconcentration Agreement and Trust Receipt.
    (3) A producer may, before the new warehouse receipt is delivered 
to CCC, pay to CCC:
    (i) The principal amount of the loan and charges plus interest and 
applicable charges; or
    (ii) If CCC so announces, an amount less than the principal amount 
of the loan and charges plus interest under the terms and conditions 
specified by CCC at the time the producer redeems the commodity pledged 
as collateral for such loan in accordance with Sec. 1421.25.
    (d) The note and security agreement shall not be released until the 
loan has been satisfied in full.
    (e) If the commodity is moved on a non-workday from storage without 
obtaining prior approval to move such commodity, such removal shall 
constitute unauthorized removal or disposition, as applicable, of such 
commodity unless the producer notifies the county office the next 
workday that such commodity has been moved and such movement is 
approved by CCC.


Sec. 1421.21  [Reserved]


Sec. 1421.22  Settlement.

    (a) The value of the settlement of loans shall be made by CCC on 
the following basis:
    (1) With respect to nonrecourse loans, the schedule of premiums and 
discounts for the commodity:
    (i) If the value of the collateral at settlement is less than the 
amount due, the producer shall pay to CCC the amount of such deficiency 
and charges, plus interest on such deficiency; or
    (ii) If the value of the collateral at settlement is greater than 
the amount due, such excess shall be retained by CCC and CCC shall have 
no obligation to pay such amount to any party.
    (2) With respect to recourse loans, the proceeds from the sale of 
the commodity:
    (i) If the value of the collateral at settlement is less than the 
amount due, the producer shall pay to CCC the amount of such deficiency 
and charges, plus interest on such deficiency; or
    (ii) If the proceeds received from the sale of the commodity are 
greater than the sum of the amount due plus any cost incurred by CCC in 
conducting the sale of the commodity, the amount of such excess shall 
be paid to the producer or, if applicable, to any secured creditor of 
the producer.
    (3) If CCC sells the commodity described in paragraph (a)(1) or 
(a)(2) in settlement of the loan, the sales proceeds shall be applied 
to the amount owed CCC by the producer. The producer shall be 
responsible for any costs incurred by CCC in completing the sale. CCC 
may deduct such amount from the sales proceeds.
    (b) Settlements made by CCC with respect to eligible commodities 
that are acquired by CCC and that are stored in an approved warehouse 
shall be made on the basis of the entries set forth in the applicable 
warehouse receipt, supplemental certificate, and other accompanying 
documents.
    (c)(1) All eligible commodities that are stored in other than 
approved warehouses shall be delivered to CCC in accordance with 
instructions issued by CCC. Settlement for such commodities shall be 
made on the basis of entries set forth in the applicable warehouse 
receipt, supplemental certificate, and other accompanying documents.
    (2) With respect to all commodities, except peanuts, that are 
delivered from other than an approved warehouse, settlement shall be 
made by CCC on the basis of the basic loan rate that is in effect for 
the commodity at the producer's customary delivery point, as determined 
by CCC.
    (3)(i) With respect to peanuts, settlement values for quota and 
additional peanuts shall be determined and announced annually by CCC. 
Settlement shall be made by CCC on the amount computed on the basis of 
net weight and quality of such peanuts with an allowance of 4 percent 
for Virginia type peanuts and an allowance of 3.5 percent for other 
types of peanuts in order to compensate producers for shrinkage during 
storage on peanuts delivered on or after January 31 of the year 
following the year in which the crop was produced less discounts of:
    (A) $2 per ton, net weight, for each full 1 percent of foreign 
material in excess of 15 percent; and
    (B) $10 per ton, net weight, for peanuts containing more than 10 
percent moisture.
    (ii) No allowance for shrinkage shall be made for storage with 
respect to peanuts delivered before February 1 of the year following 
the year in which the crop was produced.
    (iii) If a producer delivers peanuts from a farm to CCC in a 
quantity that would exceed the farm poundage quota when added to the 
peanuts marketed, and considered marketed from the farm as quota 
peanuts, the additional peanut loan rate shall be used with respect to 
such peanuts if CCC determines that the producer made an inadvertent 
error in determining the quantity of peanuts pledged as collateral as 
quota peanuts. If CCC determines that such error was not inadvertent, a 
loan shall not be made available with respect to such quantity and 
marketing quota penalties shall be assessed in accordance with part 729 
of this title.
    (iv) The loan rate for additional peanuts shall be used for all 
peanuts that do not grade Segregation 1 at the time of delivery to CCC 
if the producer does not elect to settle such additional peanuts as 
quota peanuts. If the producer elects to settle such peanuts as quota 
peanuts, the quantity shall not exceed the lesser of:
    (A) The difference between the production of Segregation 1 peanuts 
on the farm and the farm poundage quota; or
    (B) The amount of the under-marketings of quota peanuts as shown on 
the farm marketing card.
    (4) With respect to rice acquired by CCC at a location other than 
an approved warehouse, settlement shall be made on the basis of the 
class, grade, and quality entries set forth in the Federal-State 
inspection certificate and on the basis of the quantity set forth in 
the weight certificates.
    (d) A producer may be required to retain and store the commodity 
that is pledged as collateral for a loan for a period of 60 days after 
the maturity date of a loan without any cost to CCC if CCC is unable to 
take delivery of the commodity. If CCC is unable to take delivery of 
the commodity within the 60-day period after the loan maturity date, 
the producer shall be paid a storage payment upon delivery of the 
commodity to CCC. The storage payment shall be computed at the storage 
rate stated in the applicable CCC storage agreement for the commodity 
in effect at the delivery point where the producer delivers the 
commodity. The period for earning such storage payment shall begin the 
day following the expiration of the 60-day period after such maturity 
date and extend through the earlier of:
    (1) The final date of actual delivery; or
    (2) The final date for delivery as specified in the delivery 
instructions issued to the producer by the county office.
    (e) When a producer is directed by the county office to haul the 
commodity for delivery, except aromatic rice, a greater distance than 
would have been necessary to make delivery to the producer's customary 
delivery point, as determined by CCC, the producer will be allowed 
compensation, as determined by the State committee at a

[[Page 37592]]

rate not to exceed the common carrier truck rate or the rate available 
from local truckers, for hauling the eligible commodity the additional 
distance. In determining the rate of payment for excess hauling, the 
State committee may establish reasonable mileage minimums below which 
producers will not receive compensation for hauling.
    (f)(1) Producers may request trackloading for loan collateral where 
approved warehouse space is not available locally or where KCCO 
determines that it would be to the benefit of CCC. Where local weighing 
facilities are not available or when requested by producers, 
destination weights may be used for settlement purposes. All producers 
loading in the same car must sign an agreement stating the percentage 
share of the total quantity to be credited to each. When requested by 
producers before delivery of the commodity, settlement may be made on 
the basis of destination grades. Such destination grade determination 
for a car shall be applied to the entire quantity of a commodity loaded 
into the same car, regardless of the grade or quality of a commodity 
loaded into the car by any producer.
    (2) A trackloading payment of 19 cents per bushel (or 31.66 cents 
per hundredweight in the case of sorghum, oilseeds, and rice, excluding 
aromatic rice) shall be made to the producer on an eligible commodity 
delivered to CCC under this subsection.
    (g) If a farm-stored commodity is delivered in advance of the 
applicable loan maturity date as provided in Sec. 1421.19, a deduction 
for storage charges shall be made. The deduction shall be made for the 
period from the date of delivery to the applicable maturity date for 
the commodity. Such deduction shall be at the rate charged by the 
warehouse to which the commodity was delivered. No deduction for 
storage charges shall be made for early delivery of a farm-stored 
commodity if the loan maturity date is accelerated by CCC under a 
general acceleration of the maturity date in a particular area.
    (h) A refund of warehouse storage charges will be made by CCC to 
the producer if the maturity date of a warehouse storage loan is 
accelerated by CCC for reasons other than any wrongful act or omission 
on the part of the producer, and the commodity is not redeemed. The 
amount of the storage charges to be refunded shall be computed at the 
lesser of the UGRSA rate or the rate prepaid by the producer for the 
period of unearned storage.
    (i) If a warehouse charges the producer for either the receiving 
charges or the receiving and loading out charges on an eligible 
commodity in an approved warehouse, the producer shall, upon delivery 
to CCC of warehouse receipts representing the commodity stored in such 
warehouse, be reimbursed or given credit by the county office for such 
prepaid charges at the lesser of the UGRSA rate or the rate prepaid by 
the producer. The producer must furnish to the county office, written 
evidence signed by the warehouse operator that such charges have been 
paid.


Sec. 1421.23  Foreclosure.

    (a) Upon maturity and nonpayment of a warehouse-stored loan, title 
to the unredeemed collateral securing the loan shall immediately vest 
in CCC. Upon maturity and nonpayment of farm-stored loan, title to the 
unredeemed collateral securing the loan shall vest in CCC upon demand. 
When CCC acquires title to the unredeemed collateral, CCC shall have no 
obligation to pay for any market value that such collateral may have in 
excess of the loan indebtedness, (the unpaid amount of the note and 
charges plus interest).
    (b) If the total amount due on a farm-stored loan (the unpaid 
amount of the note and charges, plus interest) is not satisfied upon 
maturity, CCC may remove the commodity from storage, and assign, 
transfer, and deliver the commodity or documents evidencing title 
thereto at such time, in such manner, and upon such terms as CCC may 
determine, at public or private sale. Any such disposition may also be 
effected without removing the commodity from storage. The commodity may 
be processed before sale and CCC may become the purchaser of the whole 
or any part of the commodity at either a public or private sale.
    (c) If a farm-stored commodity removed by CCC from storage is sold, 
the value of the settlement for the commodity shall be determined 
according to Sec. 1421.22. If a deficiency exists, the amount of the 
deficiency may be setoff from any payment that would otherwise be due 
the producer from CCC or any other agency of the United States.


Sec. 1421.24  Protein determinations.

    (a) With respect to Hard Red Winter and Hard Red Spring wheat 
tendered to CCC that is stored in an approved warehouse, producers must 
obtain official protein content determinations or, if determined 
acceptable by CCC, protein content determinations arrived at by mutual 
agreement between the producer and the warehouse operator. Costs of 
such determinations shall not be paid by CCC.
    (b) With respect to farm-stored wheat, the basic loan rate shall 
not be adjusted to reflect the protein content.


Sec. 1421.25  Loan repayments.

    (a) Rice market repayments.
    (1) A producer may repay a nonrecourse loan for a 1996 through 2002 
crop of rice at a rate that is the lesser of:
    (i) The loan rate and charges, plus interest determined for a crop; 
or
    (ii) The prevailing world market price, as determined by CCC.
    (2) The prevailing world market price for a class of rice shall be 
determined by the CCC based upon a review of prices at which rice is 
being sold in world markets and a weighting of such prices through the 
use of information such as changes in supply and demand of rice, tender 
offers, credit concessions, barter sales, government-to-government 
sales, special processing costs for coatings or premixes, and other 
relevant price indicators, and shall be expressed in U.S. equivalent 
values f.o.b. vessel, U.S. port of export, per hundredweight as 
follows:
    (i) U.S. grade No. 2, 4 percent broken kernels, long grain milled 
rice;
    (ii) U.S. grade No. 2, 4 percent broken kernels, medium grain 
milled rice; and
    (iii) U.S. grade No. 2, 4 percent broken kernels, short grain 
milled rice.
    (3) Export transactions involving rice and all other related market 
information will be monitored on a continuous basis for the purposes of 
paragraph (2). Relevant information may be obtained for this purpose 
from U.S. Department of Agriculture field reports, international 
organizations, public or private research entities, international rice 
brokers, and any other source of reliable information.
    (4) The prevailing world market price for a class of rice adjusted 
to U.S. quality and location (the adjusted world price (AWP)), that is 
determined in accordance with paragraph (5), shall be applicable to the 
provisions in this section.
    (5) The AWP for each class of rice shall equal the prevailing world 
market price for a class of rice (U.S. equivalent value) as determined 
in accordance with paragraphs (a) (2) and (3) and adjusted to U.S. 
quality and location as follows:
    (i) The prevailing world market price for a class of rice shall be 
adjusted to reflect an f.o.b. mill position by deducting from such 
calculated price an amount that is equal to the estimated national 
average costs associated with:
    (A) The use of bags for the export of U.S. rice, and

[[Page 37593]]

    (B) The transfer of such rice from a mill location to f.o.b. vessel 
at the U.S. port of export with such costs including, but not limited 
to, freight, unloading, wharfage, insurance, inspection, fumigation, 
stevedoring, interest, banking changes, storage, and administrative 
costs.
    (ii) The price determined in accordance with paragraph (a)(5)(i) 
shall be adjusted to reflect the market value of the total quantity of 
whole kernels contained in such milled rice by deducting the world 
value of broken kernels contained therein, with such value of the 
broken kernels to be determined by multiplying the quantity of such 
broken kernels (4% per hundredweight) by the world market value of such 
broken kernels. The world market value of broken kernels shall be based 
upon the relationship of whole and broken kernel world prices as 
estimated from observations of prices at which rice is being sold in 
world markets.
    (iii) The price determined in accordance with (a)(5)(ii) shall be 
adjusted to reflect the per pound market value of whole kernels by 
dividing the price by the quantity of whole milled kernels contained in 
the milled rice (96% per hundredweight).
    (iv) The price determined in accordance with paragraph (a)(5)(iii) 
shall be adjusted to reflect the market value of whole kernels 
contained in 100 pounds of rough rice by multiplying such price by the 
estimated national average quantity of whole kernel rice by class 
obtained from milling 100 pounds of rough rice.
    (v) The price determined in accordance with paragraph (a)(5)(iv) 
shall be adjusted to reflect the total market value of rough rice by:
    (A) Adding to such price:
    (1) The market value of bran contained in the rough rice, computed 
by multiplying the domestic unit market value of bran by the estimated 
national average quantity of bran produced in milling 100 pounds of 
rice; and
    (2) The market value of broken kernels contained in the rough rice, 
computed by multiplying the estimated world market value of broken 
kernels by the estimated national average quantity of broken kernels 
produced in milling 100 pounds of rice;
    (B) Deducting from such price:
    (1) An estimated cost of milling rough rice; and
    (2) An estimated cost of transporting rough rice from farm to mill 
locations.
    (vi) The price determined in accordance with paragraph (a)(5)(v) 
may be adjusted to a whole kernel loan rate basis by deducting the 
estimated world market value of the total quantity of broken kernels 
contained in such rice and dividing the resulting value by the 
estimated national average quantity of milled whole kernels produced in 
milling 100 pounds of rice.
    (6)(i) The adjusted world price for each class for rice, loan rate 
basis, shall be determined by CCC and shall be announced, to the extent 
practicable, on or after 3 p.m. eastern time each Tuesday, but may be 
announced more frequently, as determined by CCC, continuing through the 
later of:
    (A) The last Tuesday of July 2003; or
    (B) The last Tuesday of the latest month the 2002-crop rice loans 
mature.
    (ii) In the event that Tuesday is a non-workday, the determination 
will be made on the next workday, on or after 3 p.m. eastern time.
    (iii) The announced prices will be effective upon announcement and 
will remain in effect for a period as announced by the CCC.
    (7) Notwithstanding any other provision of this section, on the day 
of the announcement of the adjusted world price, between 2 p.m. eastern 
time and the time of the world price announcement, CCC will not accept 
repayments of rice loans at a world market price level not previously 
locked-in, and applications for lock-in of a rice loan repayment rate.
    (b) For 1996 through 2002 crops of barley, corn, grain sorghum, 
oats, wheat, and oilseeds, a producer may repay a nonrecourse loan at a 
rate that is the lesser of:
    (1) The loan rate and charges, plus interest determined for such 
crop; or
    (2) The alternative repayment rate for barley, corn, grain sorghum, 
oats, wheat, and oilseeds.
    (c) To the extent practicable, CCC shall determine and announce the 
alternative repayment rate, based upon the previous day's market prices 
at appropriate U.S. terminal markets as determined by CCC, adjusted to 
reflect quality and location for each crop of a commodity as follows:
    (1) On a weekly basis in each county for oilseeds, except soybeans; 
and
    (2) On a daily basis in each county for barley, corn, grain 
sorghum, oats, soybeans, and wheat.


Sec. 1421.26  Transfer of farm-stored loan to warehouse-stored 
association loan.

    Producers may deliver peanuts under a farm-stored loan to the 
association and obtain loan advances on such peanuts with the prior 
approval of the county office anytime on or before January 31 following 
the calendar year in which the crop was grown. Association advances 
shall be payable jointly to the producer and the CCC and shall be used 
to settle the farm-stored loan.


Sec. 1421.27  Producer-handler purchases of additional peanuts pledged 
as collateral for a loan.

    (a) Producer-handlers may, at any time before loan maturity, 
forfeit their additional peanuts to CCC and immediately repurchase such 
peanuts from CCC by paying the amount necessary under the following 
sales policies:
    (1) For unrestricted use, at a price determined by CCC but, for the 
applicable type, not less than 105 percent of the quota loan rate, if 
purchased before December 31 of the calendar year in which the crop was 
grown, and at not less than 107 percent of the quota loan rate, if 
purchased after December 31 of the calendar year in which the crop was 
grown;
    (2) For edible export, at a price determined by CCC but not less 
than any minimum sales price determined and announced by CCC;
    (3) The 1996 minimum CCC sales price for additional peanuts sold 
for export edible use is $400 per short ton; and
    (4) For crushing (either domestic or export), at a price determined 
by CCC but not less than the additional loan rate for the applicable 
type.
    (b) For purchases on or before January 31 following the calendar 
year in which the crop was grown, the county committee shall determine 
the sale price under the appropriate sales policy specified in 
paragraph (a). Loans will be settled at the county office, and amounts 
collected in excess of that necessary to settle loans will be remitted 
to the association for the respective area. The association will credit 
such amounts to the appropriate loan pool. The producer should be 
listed as a participant in the loan pool for the purpose of determining 
and distributing net gains from the loan pool.
    (c) For purchases after January 31 following the calendar year in 
which the crop was grown, the county committee shall determine the sale 
price under the appropriate sales policy specified in paragraph (a). 
Any amount collected in excess of the loan indebtedness shall accrue to 
CCC.


Sec. 1421.28  Required producer-handler records and supervision of 
farm-stored additional peanuts pledged as collateral for a loan or 
purchased by a producer-handler from loan.

    (a)(1) Each producer-handler shall maintain records as required in 
part 1446 of this chapter for all additional peanuts that are purchased 
and sold for which an ASCS-1007, Inspection

[[Page 37594]]

Certificate and Sales Memorandum, is issued.
    (2) The following records shall be maintained for all peanuts 
purchased from CCC that are not inspected. Each producer-handler shall 
maintain records that show all sales and other disposals of peanuts. 
Such records shall show date of sale, quantity, type, and to whom sold. 
Records shall be maintained in such a manner that will enable the 
county office to readily reconcile quantities sold with all peanuts 
produced by the producer. All records shall be maintained for a period 
of three years following the end of the marketing year in which the 
peanuts were produced.
    (b)(1) The county office shall inspect and account for all 
additional peanuts pledged as collateral for a loan as determined 
necessary by the county committee.
    (2) The county office shall supervise the disposition of all 
additional peanuts purchased for use as seed and not inspected. The 
identical peanuts pledged as collateral for a loan must be disposed of 
and the producer must account for all peanuts that were under 
additional loan. The producer-handler shall request a county office 
representative to supervise the disposition of the peanuts and shall 
give the county office at least 3 working days notice of the date of 
such disposition. The county office shall determine the extent to which 
supervision is needed.
    (3) With respect to additional peanuts on which ASCS-1007 is 
issued, the producer-handler shall be subject to all provisions in part 
1446 of this chapter relating to the disposition of additional peanuts.
    (c) The producer-handler shall pay all costs of supervision, as 
determined by the county committee for county office supervision when 
county office supervision is completed, and or determined by the 
association for peanuts supervised by association representatives when 
association supervision is completed.
    (d) The producer-handler is subject to penalties as provided in 
part 1446 of this chapter with respect to any peanuts purchased in 
accordance with Sec. 1421.27.


Sec. 1421.29  Loan deficiency payments.

    (a) CCC will announce whether loan deficiency payments will be made 
available to producers on a farm for a specific crop for a crop year.
    (b) In order to be eligible to receive loan deficiency payments if 
such payments are made available for a crop, the producer of such 
commodity must:
    (1) Comply with all of the program requirements to be eligible to 
obtain loans in accordance with this part;
    (2) Agree to forego obtaining such loans;
    (3) File and request payment on Form CCC-666 LDP, unless the 
producer enters into an agreement according to paragraph (h), for a 
quantity of an eligible commodity; and
    (4) Otherwise comply with all program requirements.
    (c) The loan deficiency payment rate for a crop shall be the amount 
by which the loan rate for the crop exceeds the rate at which CCC has 
announced that producers may repay their loans in accordance with 
Sec. 1421.25. Such rate shall be the amount determined on the day the 
producer submits a completed request for a loan deficiency payment to 
the county office. When such request is for rice and the request 
provides that the loan deficiency payment rate shall be based on the 
date of delivery, and the documentation of delivery indicates the rice 
was delivered after 3 p.m. eastern time, the loan deficiency payment 
rate in effect after 3 p.m. eastern time of the delivery date shall be 
used. In all other cases for rice where the loan deficiency payment 
rate is based on the delivery date, the payment rate in effect at 
12:00:01 a.m. eastern time of the delivery date shall be used.
    (d) The loan deficiency payment applicable to such crop shall be 
computed by multiplying the loan deficiency payment rate, as determined 
in accordance with paragraph (c), by the quantity of the crop the 
producer is eligible to pledge as collateral for a nonrecourse loan for 
which the loan deficiency payment is requested.
    (e) The total amount of loan deficiency payment a producer may 
receive is limited in accordance with the regulations at part 1400 of 
this chapter.
    (f) CCC will make the loan deficiency payment in accordance with 
paragraph (d). Notwithstanding any provisions in this part, a loan 
deficiency payment may be based on 100 percent of the net eligible 
quantity specified on acceptable evidence of production of the 
commodity certified as eligible for loan deficiency payment if such 
production evidence is provided for such commodity. If such production 
evidence is provided, CCC shall limit such increase in loan deficiency 
payment quantity to 110 percent of the quantity certified as eligible 
for such payment.
    (g) Notwithstanding any other provision of this section, on the day 
of the announcement of the adjusted world price, applications for loan 
deficiency payments for rice that specify the payment rate will not be 
accepted between 2 p.m. eastern time and the time of the world price 
announcement.
    (h) If the producer enters into an agreement with CCC on or before 
the date of harvesting a quantity of an eligible commodity and the 
producer has the beneficial interest in such quantity as specified in 
accordance with Sec. 1421.5(c) on the date the commodity was harvested, 
the loan deficiency payment rate applicable to such commodity would be 
the loan deficiency payment rate based on the date the commodity was 
delivered to the processor, buyer, warehouse, or CMA. In such cases, 
the producer must meet all the other requirements in paragraph (b) on 
or before the final date to apply for a loan deficiency payment in 
accordance with Sec. 1421.5.


Sec. 1421.30  Death, incompetency, or disappearance.

    In case of the death, incompetency, or disappearance of any 
producer who is entitled to the payment of any sum in settlement of a 
loan or loan deficiency payment, payment shall, upon proper application 
to the county office that made the loan or loan deficiency payment, be 
made to the persons who would be entitled to such producer's payment 
under the regulations contained in part 707 of this title.


Sec. 1421.31  Recourse loans.

    (a) CCC shall make recourse loans available to eligible producers 
of high moisture corn and high moisture grain sorghum. Repayment of 
such recourse loans shall be in accordance with the terms and 
conditions set forth by CCC.
    (b) CCC may make recourse loans available to eligible producers 
with respect to commodities not specified in paragraph (a). Repayment 
of such recourse loans shall be in accordance with the terms and 
conditions set forth by CCC when the availability of such recourse 
loans is announced.
    (c) The value of the collateral for settlements described in 
paragraphs (a) and (b) shall be determined by CCC according to 
Sec. 1421.22.


Sec. 1421.32  Handling payments and collections not exceeding $9.99.

    In order to avoid administrative costs of making small payments and 
handling small accounts, amounts of $9.99 or less that are due the 
producer will be paid only upon the producer's request. Deficiencies of 
$9.99 or less, including interest, may be disregarded unless demand for 
payment is made by CCC.

[[Page 37595]]

Subpart--Regulations Governing the Wheat and Feed Grain Farmer-
Owned Reserve Program for 1990 through 1995 Crops


Sec. 1421.200  Administration.

    The Wheat and Feed Grain Farmer Owned Reserve (FOR) Program was not 
reauthorized by Congress for the 1996 crop. Effective for the 1990 
through 1995 crops, the regulations setting forth the applicable terms 
and conditions for the Wheat and Feed Grain Farmer Owned Reserve (FOR) 
Program can be found in the regulations published in 7 CFR Part 1421 as 
of January 1, 1996, shall be applicable for any outstanding FOR loans 
on or after April 4, 1996.

Subpart--Rice Marketing Certificate Program [Removed]

    21. The subpart consisting of Secs. 1421.320 through 1421.324 is 
removed.
* * * * *
    22. Part 1425 is revised to read as follows:

PART 1425--COOPERATIVE MARKETING ASSOCIATIONS

Sec.
1425.1  Applicability.
1425.2  Administration.
1425.3  Definitions.
1425.4  Approval.
1425.5  Confidentiality.
1425.6  Approved CMA's.
1425.7  Suspension and termination of approval.
1425.8  Ownership and control.
1425.9  Charter and bylaw provisions.
1425.10  Financial condition.
1425.11  Operations.
1425.12  Conflict of interest.
1425.13  Uniform marketing agreement.
1425.14  Member business.
1425.15  Vested authority.
1425.16  Payment limitation.
1425.17  Eligible commodity and pooling.
1425.18  Distribution of proceeds.
1425.19  Member CMA's.
1425.20  [Reserved]
1425.21  Records required.
1425.22  Inspection and investigation.
1425.23  Reports.
1425.24  OMB control number assigned pursuant to Paperwork Reduction 
Act.
1425.25  Appeals.

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


Sec. 1425.1  Applicability.

    This part sets forth the terms and conditions that a Cooperative 
Marketing Association (CMA) must meet to obtain from CCC marketing 
assistance loans (loans) and loan deficiency payments on behalf of its 
members for the 1996 and subsequent crops of a commodity. A CMA meeting 
such terms and conditions may obtain loans and loan deficiency payments 
with respect to any crop of an eligible commodity for which a loan and 
loan deficiency payment program is in effect.


Sec. 1425.2  Administration.

    On behalf of CCC, the FSA will administer the provisions of this 
part under the general direction and supervision of the Deputy 
Administrator. In the field, the provisions of this part will be 
administered by the State and county FSA committees.


Sec. 1425.3  Definitions.

    The following definitions set forth in this section shall be 
applicable for all purposes of program administration. The terms 
defined in part 718 of this title and parts 1421 and 1427 of this 
chapter shall also be applicable except where those definitions 
conflict with the definitions in this section.
    Active member means a member who has utilized the services offered 
by a CMA 1 of the 3 preceding CMA fiscal years or such shorter period 
as may be provided in the CMA's articles of incorporation or bylaws.
    Approved cooperative marketing association means a CMA that has 
been approved by CCC to participate in loan and loan deficiency payment 
programs authorized with respect to one or more authorized commodities.
    Authorized commodity means those commodities for which an approved 
CMA may apply for loans, including barley, canola, corn, cotton, 
flaxseed, mustard seed, oats, rapeseed, rice, safflower, seed cotton, 
sorghum, soybeans, sunflower seed, and wheat.
    Eligible commodity means a commodity that meets the eligibility 
requirements applicable to such commodity set forth in Chapter XIV of 
this title that is delivered to, or that is acquired by, a CMA.
    Member means a person who has fully paid for the membership stock 
or earned equity credits; was accepted by the CMA; and is entitled to 
all membership rights including voting and holding office except where 
the law of the State in which the CMA is incorporated provides for 
stock subscribers as members but does not allow them to hold office.


Sec. 1425.4  Approval.

    (a) For a CMA to participate in a loan program with respect to the 
1996 through 2002 crops of authorized commodities, a CMA must submit an 
application for approval with respect to such authorized commodities to 
CCC. An application must include:
    (1) A completed Form CCC-846;
    (2) The latest financial audit of the CMA including any 
accompanying notes, schedules, or exhibits, certified by a certified 
public accountant from the books of original entry as fairly 
representing the financial condition of the CMA;
    (3) A copy of the articles of incorporation or articles of 
association, bylaws, all marketing agreements for eligible commodities, 
and any other document that is requested by CCC with respect to the 
CMA's methods of conducting business that an official of the CMA has 
certified as being current;
    (4) A conflict of interest statement (Form CCC-846-2) from each 
director, officer, and principal employee;
    (5) Resolutions made by the CMA board of directors that provide 
that the CMA will abide by provisions of this part and the 
nondiscrimination provisions thereof;
    (6) A statement of any CMA transactions that have occurred either 
in the year before the initial application for approval is submitted, 
or are contemplated by the CMA as provided in Sec. 1425.12;
    (7) A detailed description of the method by which proceeds from a 
pool of eligible commodities for which loans are obtained will be 
distributed as provided for in Sec. 1425.18; and
    (8) Other information requested by CCC concerning the 
organizational, operational, financial or any other aspect of the CMA 
determined by CCC to be necessary to act upon the application for 
approval.
    (b) An approved CMA must submit, on an annual basis, the following 
information to CCC:
    (1) A completed Form CCC-846-1;
    (2) The CMA's latest complete financial audit;
    (3) The numbers of active and inactive members;
    (4) A statement showing the allocated equity in the CMA owned by 
active members, inactive members, and others, and the un-allocated 
equity in the CMA;
    (5) The names of any members who own in excess of 10 percent of the 
equity of the CMA and the amount owned by each;
    (6) The quantity of each eligible commodity delivered to the CMA 
for marketing and the portion of such commodities received from active 
members during the prior year;
    (7) The quantity of each eligible commodity tendered by the CMA to 
CCC as security for a loan and the quantity of such commodities 
redeemed during the prior year;
    (8) The quantity of each commodity tendered to CCC for loan during 
the prior year; and

[[Page 37596]]

    (9) A statement of any CMA transactions that either have occurred 
in the CMA's prior fiscal year of operations or are contemplated to 
occur in the CMA's current fiscal year as provided for in Sec. 1425.12.
    (c) An approved CMA shall promptly furnish to CCC:
    (1) Any changes in the articles of incorporation, bylaws, and 
marketing agreements of the CMA;
    (2) Any resolutions affecting loan operations;
    (3) Any changes in officers, directors, or principal employees and 
conflict of interest statements in accordance with Sec. 1425.12(d);
    (4) Any change in pooling operations with an explanation of the 
change and why such change was necessary; and
    (5) Additional information as may be requested by CCC at any time 
with respect to the continued approval by CCC of the CMA.
    (d) Approved CMA's must submit revised applications as required by 
this section every 5 years, or more often if CCC requests.
    (e) CMA's applying for approval to participate in the loan program 
for cotton shall execute Form CCC-Cotton G, Cotton Cooperative Loan 
Agreement, with CCC.


Sec. 1425.5  Confidentiality.

    Information submitted to CCC with respect to trade secrets, 
financial or commercial operations, or information concerning the 
financial condition of a CMA, whether for initial approval or continued 
approval, shall be kept confidential by the officers and employees of 
CCC and the Department of Agriculture except to the extent CCC 
determines such disclosures are necessary for the conduct of a loan 
program or such information is required to be disclosed by law.


Sec. 1425.6  Approved CMA's.

     (a) CCC shall, in accordance with the provisions of this part, 
approve a CMA to obtain loans and loan deficiency payments.
     (b) CCC may approve a CMA to participate in a loan program with 
respect to the 1996 through 2002 crop of a commodity as:
    (1) Unconditionally approved; or
    (2) Conditionally approved.
    (c)(1) A CMA may be conditionally approved if CCC determines that 
it has substantially met all the requirements of this part, and the 
failure to meet the remaining requirements is due to reasons beyond the 
control of the CMA and not due to the CMA's negligence; and
    (2) Such CMA must agree in writing to meet all requirements for 
approval set forth in this part within the time period specified by 
CCC. When a CMA can only comply with the regulations by amending its 
articles of incorporation or bylaws at a membership meeting, CCC may 
accept a board of directors' resolution agreeing to recommend to the 
members, at the next meeting of the members, the required changes to 
the articles of incorporation or bylaws as compliance with the 
requirements for approval for purposes of this section. Board 
resolutions in which the CMA agrees to comply with other provisions of 
this part may be accepted by CCC as compliance with the requirements 
for approval for purposes of this section.
    (d) A CMA is approved to participate in a loan program for an 
authorized commodity until such time as the CMA's approval is suspended 
or terminated by CCC.


Sec. 1425.7  Suspension and termination of approval.

    (a) An approved CMA may be suspended by CCC from further 
participation in a loan or loan deficiency payment program if CCC 
determines that the CMA or a member CMA, as specified in Sec. 1425.19:
    (1) Has not operated in accordance with the conditions specified in 
such CMA's application for approval;
    (2) Has not complied with applicable regulations; or
    (3) Has failed to correct deficiencies noted during an 
administrative review or an audit of the CMA's operations with respect 
to a loan program.
    (b) Such suspension may be lifted upon the receipt of documents 
indicating that the CMA has complied with all requirements for 
approval. If such documents are not received within 1 year from the 
date of the suspension, the CMA's approval for participation in a loan 
program will terminate automatically.
    (c)(1) CCC may terminate the approval of the CMA's ability to 
pledge commodities as collateral for CCC loans or loan deficiency 
payments by giving the CMA written notice of such termination.
    (2) An approved CMA may at anytime, upon written notice to CCC, 
voluntarily terminate the CMA's participation in a loan program, 
provided that the CMA does not have any outstanding loans at the time 
of voluntary termination.
    (d) Ten days after the date CCC suspends or terminates the approval 
of a CMA to participate in a loan program or anytime thereafter, CCC 
may, on demand, call all outstanding CCC loans made to the CMA. The 
commodities pledged as collateral for such loans may be redeemed not 
later than the date specified by CCC. If redemption is not made by such 
date, title to the commodity shall vest in CCC and CCC shall have no 
obligation to pay for any market value the commodity may have in excess 
of the principal amount of such loans.


Sec. 1425.8  Ownership and control.

    (a) All approved CMA's must be owned and controlled by active 
members of the CMA.
    (b) The CMA must establish that its active members own more than 50 
percent of the allocated equity of the CMA. Such ownership equity shall 
be in the form of stock, revolving fund certificates, capital, retains 
book credits, or other capital interests issued by the CMA. In 
determining the requisite equity held by active members, the following 
shall be deducted from the amount of equity allocated to each active 
member:
    (1) The allocated equity held by any active member who owns more 
than 10 percent of the CMA's total equity; and
    (2) The allocated equity of any active member that has acquired 
equity as a result of a loan from the CMA unless the member is 
obligated to repay the loan within 1 year.
    (c) The organization and operation of the CMA shall be under the 
control of its active members. A CMA shall be considered to be under 
the control of its active members if more than 50 percent of its 
membership consists of active members.
    (d) All directors must be:
    (1) Active members of the CMA;
    (2) Representatives of active members who are also employed as a 
farm manager or its equivalent (including an officer of a CMA or a 
partner in partnership); or
    (3) Officers, employees, or active members of an active member CMA; 
and
    (4) A director shall be nominated and elected by members except 
when selected to fill the unexpired term of a director so elected.
    (e) An applicant or an approved CMA not under the ownership or 
control, or both, of its active members, may be approved by CCC to 
participate in a loan program if the CMA is able to establish that, by 
retiring the equity of its inactive members or by obtaining new 
members, the CMA can vest ownership and control in its active members, 
as required by this section, by a date specified by CCC.


Sec. 1425.9  Charter and bylaw provisions.

    (a) The articles of incorporation, articles of association, or the 
bylaws of the CMA shall comply with each of the following requirements:

[[Page 37597]]

    (1) The CMA shall hold an annual meeting of members or delegates at 
one or more locations within its operating area that will afford a 
reasonable opportunity for all members or their delegates to attend and 
participate;
    (2) The CMA shall give written notice to each member or delegate, 
of the time, place, and purpose of all regular and special meetings of 
members or delegates; and
    (3) The CMA shall admit to membership every applicant who applies 
for admission for the purpose of participating in the activities of the 
CMA, and is eligible for membership under the statute incorporating the 
CMA.
    (b) A CMA may refuse membership to an applicant whose admission 
would prejudice, hinder, or otherwise obstruct the interests or 
purposes of the CMA.
    (c)(1) Nominations for election of delegates and directors shall be 
made by members.
    (2) Nominations for officers shall be made by elected directors or 
by members when nomination by members is authorized in the CMA's 
articles of incorporation or bylaws.
    (3) Nominations may be made by balloting, nominating committee, 
petition of members, or from the floor, provided that nominations from 
the floor shall be requested in addition to nominations made by a 
nominating committee or by petition.
    (d) The election of directors, delegates, and officers shall be by 
ballot when there are two or more nominees for a position, or there are 
more nominees than there are positions to be filled.
    (e) Each member of the CMA shall have a single vote except that CCC 
may approve another voting method that will adequately protect the 
ownership and control interests of the members of the CMA.
    (f) Voting by proxy shall be prohibited, except if a CMA:
    (1) Determines that voting by proxy is necessary to amend the CMA's 
articles of incorporation, articles of association, or bylaws; and
    (2) Establishes, to the satisfaction of CCC, that the law of the 
State in which the CMA is incorporated permits voting by proxy, but 
does not permit members to vote by mail, with respect to such issue.
    (g) Each member of the CMA shall annually be given a summary 
financial statement of the CMA that is based on an annual audit 
conducted by a certified public accountant.


Sec. 1425.10  Financial condition.

    (a) An approved CMA must be financially able to make financial 
advances to its members and to market commodities of such members.
    (b) The factors that will be considered in determining the 
financial condition of a CMA include:
    (1) The ability of the CMA to meet current obligations, including 
the expenses of marketing the commodities on behalf of its members; and
    (2) The ability of the CMA to make advance payments to its members, 
either from its own funds or through arrangements with financial or 
other institutions.
    (c) The CMA shall be considered to have a sufficient net worth if 
such net worth is equal to the product of an amount per unit for a 
commodity (as set forth in table 1) multiplied by the total number of 
such units of commodity for which the CMA is approved, or requesting 
approval, to participate in loan programs and handled by the CMA during 
the preceding marketing year, or, if the CMA is in its first full 
marketing year of operations, the estimated quantity of such commodity 
that it will handle during such year.
    (1) If the amount of the net worth of the CMA is between 34 and 99 
percent of the amount computed in accordance with paragraph (c), and 
the CMA is determined by CCC to be otherwise financially sound, CCC may 
determine that such CMA meets the requirements of this section. Such a 
determination by CCC may be made if:
    (i) The board of directors of the CMA agrees to retain capital in 
the amount set forth in table 2 with respect to each unit of the 
commodity delivered to the CMA until the net worth of the CMA is at 
least equal to the amount computed in accordance with paragraph (c), 
and
    (ii) The CMA agrees to deduct from pool proceeds the full amount of 
the estimated expenses of handling the commodities received by the CMA.
    (2) The failure to carry out such capital retention agreements 
shall be grounds for suspending a CMA approval.

                                 Table 1                                
------------------------------------------------------------------------
                                                                 Amount 
              Commodity                          Unit           per unit
------------------------------------------------------------------------
Barley...............................  Bushel.................     0.13 
Canola...............................  Hundredweight..........     0.62 
Corn.................................  Bushel.................     0.13 
Cotton...............................  Bale...................     6.40 
Flaxseed.............................  Hundredweight..........     0.62 
Mustard Seed.........................  Hundredweight..........     0.62 
Oats.................................  Bushel.................     0.13 
Rapeseed.............................  Hundredweight..........     0.62 
Rice.................................  Hundredweight..........     0.52 
Safflower............................  Hundredweight..........     0.62 
Seed Cotton (lint basis).............  Pound..................     0.008
Sorghum..............................  Hundredweight..........     0.19 
Soybeans.............................  Bushel.................     0.43 
Sunflower Seed.......................  Hundredweight..........     0.62 
Wheat................................  Bushel.................     0.15 
------------------------------------------------------------------------


                                 Table 2                                
------------------------------------------------------------------------
                                                                 Amount 
              Commodity                          Unit           per unit
------------------------------------------------------------------------
Barley...............................  Bushel.................     0.07 
Canola...............................  Hundredweight..........     0.32 
Corn.................................  Bushel.................     0.07 
Cotton...............................  Bale...................     3.20 
Flaxseed.............................  Hundredweight..........     0.32 
Mustard Seed.........................  Hundredweight..........     0.32 
Oats.................................  Bushel.................     0.07 
Rapeseed.............................  Hundredweight..........     0.32 
Rice.................................  Hundredweight..........     0.26 
Safflower............................  Hundredweight..........     0.32 
Seed Cotton (lint basis).............  Pound..................     0.004
Sorghum..............................  Hundredweight..........     0.10 
Soybeans.............................  Bushel.................     0.22 
Sunflower Seed.......................  Hundredweight..........     0.32 
Wheat................................  Bushel.................     0.08 
------------------------------------------------------------------------

    (d) For the purposes of paragraphs (b) and (c), the net worth of 
the CMA shall be reduced by the value of the amount of any assets or 
funds that are not reflected as a liability of the CMA in the financial 
statement of the CMA and that are:
    (1) Pledged as security, deposited, or otherwise used to secure or 
guarantee any indebtedness of the CMA; or
    (2) Deposited in a restricted account or otherwise used to 
guarantee the performance of an obligation of the CMA.


Sec. 1425.11  Operations.

    (a) A CMA shall establish to the satisfaction of CCC, with respect 
to the commodity for which approval is requested, that the CMA is so 
organized and staffed by individuals employed directly by the CMA that 
it is able to perform contracts with its members and to provide an 
effective marketing operation for its members.
    (b) If a CMA cannot satisfactorily establish that it can provide an 
effective marketing operation for its members, the CMA may enter into a 
marketing agreement with another CMA to market the commodity only if:
    (1) Such marketing agreement is permitted by law;
    (2) The articles of incorporation, articles of association, or 
bylaws of the CMA acquiring the marketing service and the marketing 
agreement such CMA has entered into with its members

[[Page 37598]]

provide the necessary authority to enter into such agreement;
    (3) The CMA acquiring the marketing service is a member of the CMA 
that will provide the marketing service; and
    (4) The CMA that will provide the marketing service has been 
approved under this part to obtain loans for such commodity.
    (c) Any marketing agreement entered into by a CMA in accordance 
with the provisions of paragraph (b), must, as determined by CCC:
    (1) Adequately protect the ownership and control interests of the 
CMA members;
    (2) Be in the best interest of the members of the CMA acquiring the 
service; and
    (3) Require that all proceeds from the marketing operation be 
distributed as provided in Sec. 1425.18.


Sec. 1425.12  Conflict of interest.

    (a) The CMA shall not be approved for participation in loan 
programs unless CCC determines that the CMA's transactions, if any, 
that are of a kind described in this section, have not operated and 
will not operate to the detriment of members of the CMA.
    (b) The CMA shall submit with the initial application for approval, 
and with each recertification, a detailed report concerning all of the 
transactions of the CMA (including transactions involving purchases, 
sales, handling, marketing, insurance, transportation, warehousing, and 
related activities) with the following persons that differ from 
transactions entered into by the CMA with its general membership:
    (1) Any director, officer, or principal employee of the CMA, or any 
of their family members;
    (2) Any partnership from which any person is entitled to receive a 
percentage of the gross profits;
    (3) Any CMA in which any person owns stock;
    (4) Any business entity from which any person receives fees for 
transacting business with or on behalf of the CMA; or
    (5) Any business entity in which an agent, director, officer or 
employee of the CMA was an agent, director, officer or employee of such 
business entity.
    (c) The CMA shall also submit a statement as to whether any 
transactions of the kind described in paragraph (b) are contemplated 
between the date of the application, or the date such information is 
requested to be submitted in accordance with Sec. 1425.4, as 
applicable, and the end of the next marketing year for the authorized 
commodity. If any transactions are contemplated, the CMA shall submit a 
detailed explanation of such contemplated transactions and a statement 
of the reasons for such transactions.
    (d) The CMA shall furnish information, as requested, showing the 
interest or relationship of its directors, officers, and principal 
employees and their family members with persons who engage in any 
business relating to a commodity for which the CMA is approved to 
obtain loans. Such information shall be revised to reflect any change 
in any such interest or relationship.


Sec. 1425.13  Uniform marketing agreement.

    (a) The CMA must enter into a uniform marketing agreement with each 
member who delivers a commodity to an eligible pool for which a loan is 
obtained on any quantity of the commodity in such pool.
    (b) A CMA may provide alternative methods of marketing commodities 
to its members, in addition to the methods set forth in its marketing 
agreement, if the terms and conditions thereof are reasonable to its 
members, and information concerning the use of such methods of 
marketing are made available to all members.
    (c) An approved CMA, when authorized by CCC, may offer additional 
marketing methods to its members on a limited membership basis for a 
period not to exceed 2 crop years before making such marketing method 
available to all members. If such limited marketing method is adopted 
as a permanent marketing method by the CMA, information concerning such 
method and participation in such method shall be made available to all 
members. Such information may be published in the CMA's membership 
publication or included in other written notice mailed to members.


Sec. 1425.14  Member business.

    At least 80 percent of a crop of an authorized commodity that is 
acquired by, or delivered to, the CMA for marketing must be produced by 
its members in order for the CMA to obtain a loan for such crop. CCC 
may, for a period not to exceed 2 years, waive such requirement for a 
CMA if:
    (a) The quantity of such crop acquired by the CMA for marketing, 
from its members, has a value greater than the value of the quantity 
acquired or received from nonmembers for marketing;
    (b) The CMA can establish to the satisfaction of CCC that such 
authorization is necessary for the efficient operation of the CMA; and
    (c) The CMA has a plan, approved by CCC, that CCC determines to be 
in the CMA members' best interest and will bring the CMA into 
compliance with the provisions of this section. Commodities purchased 
or acquired from CCC and processed products acquired from other 
processors or merchandisers shall not be considered in determining the 
volume of member or nonmember business.


Sec. 1425.15  Vested authority.

    An approved CMA shall have the authority to pledge as collateral 
for a loan the commodity delivered to it by its members, to place a 
lien on such commodity, and to market the commodity on behalf of its 
members even though the individual members retain the right, in effect, 
to determine the price at which the commodity can be marketed by the 
CMA.


Sec. 1425.16  Payment limitation.

    Approved CMA's shall monitor marketing loan gains, loan deficiency 
payments, and other payments they receive from CCC on behalf of their 
members and ensure that the sum of the amounts received for each member 
does not exceed the member's payment limitation determined in 
accordance with part 1400 of this chapter.


Sec. 1425.17  Eligible commodity and pooling.

    (a) A CMA may establish separate pools as needed for quantities of 
a commodity.
    (b) Loans will be made available to approved CMA's with respect to 
a quantity of an eligible commodity included in an eligible pool as 
provided in paragraph (e) and the beneficial interest provisions of 
parts 1421 and 1427 of this chapter.
    (c) A pool shall be eligible for loans if:
    (1) All of the commodity included in the pool is eligible for 
loans, except as provided in paragraph (d);
    (2) The eligible commodity in such pool was delivered to the CMA 
for marketing for the benefit of the members of the CMA by members who 
retain the right to share in the proceeds from the marketing of the 
commodity in accordance with Sec. 1425.18.
    (3) Except with respect to a quantity of a commodity pledged as 
collateral for a loan and that is redeemed within 15 work days from the 
date the CMA receives the proceeds from CCC, all of the commodity 
placed in such pool was delivered by members who have agreed to accept 
a payment of the initial advances made available to such producers by 
the CMA with respect to such commodity in accordance with 
Sec. 1425.18(a).

[[Page 37599]]

    (d) If CCC determines that a CMA has inadvertently included in a 
pool a quantity of commodity that is ineligible for loan because of 
grade, quality, bale weight or repacking in the case of cotton, or 
other factors, the remaining quantity of commodity shall remain 
eligible for loan.
    (e) Loans and Loan Deficiency Payments will be available to the CMA 
for the quantity of a commodity stored commingled in an approved 
warehouse equal to the smaller of:
    (1) The quantity of an eligible commodity received from members of 
the CMA; or
    (2) the quantity of commodity that is in the CMA's inventory.
    (f) The CMA must have in inventory a quantity of commodity of each 
class and grade at least equal to the quantity of that commodity of 
each class and grade pledged as loan collateral.
    (g) Loans will be available to the CMA for the quantity of a farm-
stored commodity that is, pursuant to such CMA marketing agreement with 
a member, part of the CMA's pool.
    (h) Except as provided in paragraph (c)(2), loans will be available 
to the CMA for the quantity of the eligible commodity stored identity 
preserved in an approved warehouse that was received from members of 
the CMA and that is in the CMA's inventory at the time the commodity is 
pledged as collateral for a loan.
    (i) Loan eligibility for commingled commodities stored on a farm or 
in a warehouse may be transferred to an approved warehouse.
    (j) Commodities pledged as collateral for CCC loans shall be free 
and clear of all liens and encumbrances based on an approved CMA's 
financial agreements or the CMA shall obtain a completed Form CCC-679, 
Lien Waiver. Approved CMA's shall not take any action to cause a lien 
or encumbrance to be placed on a commodity after a loan is approved.
    (k) If a loan is obtained with respect to any quantity of a crop of 
a commodity that has been pooled, allocations by the CMA of costs and 
expenses among separate pools for the crop of the commodity in a pool 
shall be made in accordance with sound accounting principles and 
practices.
    (l)(1) Any losses incurred by the CMA in the marketing of a crop of 
a commodity for which a loan has not been obtained shall not be 
assessed against the proceeds from the marketing of a crop of a 
commodity included in a pool for which a loan was obtained.
    (2) Except as provided in paragraph (l)(3), losses incurred by the 
CMA in the marketing of a crop of a commodity included in a pool for 
which a loan has been obtained may not be carried forward and applied 
against subsequent crops of commodities included in a pool for which a 
loan is obtained.
    (3) CCC may authorize an approved CMA to carry forward losses 
incurred by the CMA in the marketing of a crop of a commodity included 
in a pool for which a loan has been obtained when CCC determines that 
such action will result in the equitable treatment of all members 
participating in comparable eligible pools in the period needed to 
offset losses and is not contrary to the purposes of the loan program.
    (4) The authorization referred to in paragraph (l) will be approved 
on the basis of a plan, subject to the approval of CCC, for the 
carrying forward of losses submitted by an approved CMA and will be 
continued on the condition that the approved CMA remains in substantial 
compliance with the approved plan, as reflected in periodic progress 
reports.
    (5) Factors that will be considered in determining whether to 
approve such a plan include, but are not limited to, the following:
    (i) The stability of the membership and participation between 
affected pools;
    (ii) the financial condition of the CMA; and
    (iii) whether the loss can reasonably be expected to be amortized 
and recovered from future earnings over the proposed time period.
    (6) The plan submitted by the CMA must include the following:
    (i) A provision for notifying existing and new members of the CMA 
of the plan to deduct eligible pool losses from subsequent eligible 
pool gains; and
    (ii) a procedure for maintaining necessary data and records needed 
to generate periodic progress reports as directed by CCC.
    (7) Any losses incurred subsequent to those contained in the 
approved plan may only be carried forward against subsequent eligible 
pools in accordance with a revised plan that has been approved by CCC 
under the criteria specified in paragraph (e)(3).


Sec. 1425.18  Distribution of proceeds.

    (a)(1) If CCC makes available loans or loan deficiency payments 
with respect to any quantity of the eligible commodity in a pool, the 
proceeds from such loans or loan deficiency payments shall be 
distributed to members participating in such pool on the basis of the 
quantity and quality of the commodity delivered by each member that is 
included in the pool less any authorized charges for services performed 
or paid by the CMA that are necessary to condition the commodity or 
otherwise make the commodity eligible for loans or loan deficiency 
payments. Except with respect to commodities that are pledged as 
collateral for a loan and that are redeemed within 15 work days from 
the date the CMA receives the loan proceeds from CCC, such proceeds 
shall be distributed within 15 work days from such date. Loan 
deficiency payments received from CCC shall be distributed within 15 
work days of receipt from CCC.
    (2) Any advances by the CMA to its members who have a quantity of 
the commodity in the eligible pool for which advances are made prior to 
the pledging of the commodity as security for a CCC loan or used to 
obtain a loan deficiency payment with CCC may be credited by the CMA 
against the distribution required in paragraph (a)(1).
    (b)(1) If loans or loan deficiency payments are obtained from CCC 
for any quantity of the eligible commodity in a pool, all proceeds of 
such pool shall be distributed only to members participating in such 
pool on the basis of the quantity and quality of the commodity 
delivered by each member that is included in such pool.
    (2) Except as provided in paragraph (b)(3), all proceeds from an 
eligible pool for which a loan has been obtained shall not be combined 
with proceeds from ineligible pools for distribution and final 
settlement, and the method of distribution of proceeds shall be as 
specified in the information provided to CCC in accordance with 
Sec. 1425.4(b)(7).
    (3) Sales proceeds from an eligible pool may be combined with sales 
proceeds from ineligible pools or other eligible pools if the proceeds 
from such pools are allocated among the pools according to the quantity 
and quality of the commodity included in such pools.
    (4) Pool proceeds obtained from loans made by CCC shall not be 
combined with proceeds from other eligible or ineligible pools.
    (5) When notified by CCC that pool distributions to a member of any 
eligible pool must be reduced for a program year, farm, or crop, CMA 
shall refrain from making such pool distributions and shall, if 
appropriate, reimburse CCC for such distributions.
    (c) If a CMA has attempted to distribute to its members a part of 
its equity, as defined in Sec. 1425.8, in accordance with the articles 
of incorporation, articles of association or the bylaws of the CMA and 
has given notice of distribution both by publication and personal 
letter addressed to such members, the CMA may provide, to the extent 
permitted by

[[Page 37600]]

the law of the State applicable to such distribution, for reallocation 
of such undistributed equity to its members and patrons on an equitable 
basis if:
    (1) The period of limitation for the payment of debts has run, such 
period to begin on the date the equity to be distributed was declared 
to be payable by the CMA;
    (2) The CMA, 30 days prior to the lapse of the period of limitation 
specified in paragraph (c)(1), has given the affected member notice (by 
certified mail, return receipts requested, at the member's last known 
address as reflected on the books of the CMA) of the amount of equity 
payable to such member(s) and notice that such equity may be 
distributed to other members and patrons if the affected member does 
not make a claim for such equity within the period of limitation 
specified in paragraph (c)(1); and
    (3) No claim for payment of the equity to be distributed has been 
made within the period of limitation described in paragraph (c)(1).


Sec. 1425.19  Member CMA's.

    (a) Except as provided in paragraph (c) for a CMA to obtain loans 
or loan deficiency payments for any quantity of an eligible commodity 
delivered by a member CMA or for a CMA to obtain loans for any quantity 
of an eligible commodity included in the same pool with the commodity 
delivered by a member CMA, the CMA and such member CMA must meet the 
requirements of this paragraph.
    (1) The eligible commodity delivered by the member CMA must be 
produced by the members of such member CMA.
    (2) The member CMA must be authorized to:
    (i) Sell the commodity;
    (ii) Pledge such commodity as collateral for a loan;
    (iii) Place a lien on such commodity; and
    (iv) Deliver such commodity to the CMA for marketing.
    (3) The CMA must either:
    (i) In its articles of incorporation, articles of association, 
bylaws, or marketing agreement, require each such member CMA to meet 
the requirements of this part; or
    (ii) Determine and certify annually to CCC that each such member 
CMA meets the requirements of this part.
    (b) The CMA shall determine and certify annually to CCC that its 
member CMA's that are not subject to paragraph (a) are in compliance 
with the producer ownership, membership meeting, and voting 
requirements of applicable State law.
    (c) An approved CMA is required to meet only the provisions 
contained in paragraphs (a) (1) and (2) with respect to a member CMA 
for whom the member CMA markets the production of the member CMA's 
members in accordance with Sec. 1425.11(b).


Sec. 1425.20  [Reserved]


Sec. 1425.21  Records required.

    (a) An approved CMA and its member CMA's shall maintain a record 
that shows the quantity of commodity that is received from each of its 
members and nonmembers, the date received, the eligibility status for 
loans of each such quantity, the quality factors specified in the 
applicable regulations for the commodity (including class, grade, and 
quality, where applicable), and the quantity to which each applicable 
quality factor applies.
    (b) The CMA shall maintain a record that shows each quantity of 
commodity that is disposed of; and, if sold, the date sold and the 
price received; and the date removed for processing or shipped. Except 
as provided in paragraph (c), inventory shall be allocated in the 
following manner until the entire inventory in a particular pool is 
depleted:
    (1) Commodities that are processed. The inventory of an eligible 
pool or ineligible pool or both eligible and ineligible pools shall be 
adjusted at the time the commodity is withdrawn from inventory for 
processing.
    (2) Commodities not processed. The quantity of a commodity to be 
shipped shall be allocated to an eligible pool, an ineligible pool, or 
a combination of eligible and ineligible pools and the pool inventories 
shall be adjusted accordingly when the commodity is shipped.
    (c) Records of eligible and ineligible pool dispositions need not 
be maintained separately so long as sales proceeds from such pools are 
allocated among the pools according to the quantity and quality of 
commodity included.


Sec. 1425.22  Inspection and investigation.

    (a) The books, documents, papers, and records of the approved CMA, 
member CMA's, and subsidiaries, shall be maintained for a period of 5 
years and shall be made available to CCC for inspection and examination 
at all reasonable times.
    (b) CCC shall have the right at any time after an application is 
received, to examine all books, documents, papers, and determine 
whether the CMA is operating or has operated in accordance with the 
regulations in this part, its articles of incorporation or articles 
association, bylaws, and agreements with producers, the representations 
made by the CMA in its application for approval, and, where applicable, 
its agreements with CCC.


Sec. 1425.23  Reports.

    (a) Approved CMA's shall annually provide CCC with a report to 
applicable county FSA offices. The report shall include all eligible 
and ineligible commodity receipts by FSA farm number for each member.
    (b) Approved CMA's shall at least annually report by commodity and 
by crop the marketing loan gains, loan deficiency payments, and any 
other CCC program payments received on behalf of each producer member.


Sec. 1425.24  OMB control number assigned pursuant to Paperwork 
Reduction Act.

    The information collection requirements contained in these 
regulations (7 CFR part 1425) have been approved by the Office of 
Management and Budget (OMB) under the provisions of 44 U.S.C. Chapter 
35 and have been assigned OMB number 0560-0040.


Sec. 1425.25  Appeals.

    A CMA may obtain reconsideration and review of determinations made 
under this part in accordance with the appeal regulations set forth at 
part 780 of this title.

PART 1427--COTTON

    23. Part 1427 is amended by    designating the subparts and 
revising the headings in the first column to read as shown in the 
second column;

------------------------------------------------------------------------
              Old subpart                          New subpart          
------------------------------------------------------------------------
Subpart--Cotton Loan Program             Subpart A--Regulations for the 
 Regulations.                             Nonrecourse Cotton Loan and   
                                          Loan Deficiency Payment       
                                          Programs.                     
Subpart--Upland Cotton First Handler     Subpart B--Regulations for the 
 Marketing Certificate Program            Upland Cotton First Handler   
 Regulations.                             Marketing Certificate Program.
Subpart--Upland Cotton User Marketing    Subpart C--Regulations for the 
 Certificate Program Regulations.         Upland Cotton User Marketing  
                                          Certificate Program.          

[[Page 37601]]

                                                                        
Subpart--Seed Cotton Loan Program        Subpart D--Regulations for the 
 Regulations.                             Recourse Seed Cotton Loan     
                                          Program.                      
Subpart--Standards for Approval of       Subpart E--Standards for       
 Warehouses for Cotton and Cotton         Approval of Warehouses for    
 Linters.                                 Cotton and Cotton Linters.    
------------------------------------------------------------------------



    24. The authority citation for part 1427 is revised to read as 
follows:

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

    25. Subpart A is revised to read as follows:
Subpart A--Regulations for the Nonrecourse Cotton Loan and Loan 
Deficiency Payment Programs
Sec.
1427.1  Applicability.
1427.2  Administration.
1427.3  Definitions.
1427.4  Eligible producer.
1427.5  General eligibility requirements.
1427.6  Disbursement of loans.
1427.7  Maturity of loans.
1427.8 Amount of loan.
1427.9 Classification of cotton.
1427.10 Approved storage.
1427.11 Warehouse receipt and insurance.
1427.12 Liens.
1427.13 Fees, charges and interest.
1427.14 [Reserved]
1427.15 Special procedure where funds are advanced.
1427.16 Reconcentration of cotton.
1427.17 Custodial offices.
1427.18 Liability of the producer.
1427.19 Repayment of loans.
1427.20 Handling payments and collections not exceeding $9.99.
1427.21 Settlement.
1427.22 Death, incompetency, or disappearance.
1427.23 Cotton loan deficiency payments.
1427.24 [Reserved]
1427.25 Determination of the prevailing world market price and the 
adjusted world price for upland cotton.
1427.26 Paperwork Reduction Act assigned numbers.

Subpart A--Regulations for the Nonrecourse Cotton Loan and Loan 
Deficiency Payment Programs


Sec. 1427.1  Applicability.

    (a) The regulations of this subpart are applicable to the 1996 
through 2002 crops of upland cotton and extra long staple cotton. These 
regulations set forth the terms and conditions under which the 
nonrecourse cotton loan program and the loan deficiency payment program 
shall be administered by the Commodity Credit Corporation (CCC). 
Additional terms and conditions shall be set forth in the note and 
security agreement and loan deficiency payment application which must 
be executed by a producer to receive loans and loan deficiency 
payments.
    (b) The basic loan rates, the schedule of premiums and discounts, 
and forms applicable to the nonrecourse cotton loan and loan deficiency 
payment programs are available in State and county Farm Service Agency 
(FSA) offices (State and county offices, respectively). The forms for 
use in connection with the programs in this subpart shall be prescribed 
by CCC.
    (c) Loans and loan deficiency payments shall not be available for 
any cotton produced on land owned or otherwise in the possession of the 
United States if such land is occupied without the consent of the 
United States.


Sec. 1427.2  Administration.

    (a) The nonrecourse loan and loan deficiency payment programs which 
are applicable to a crop of cotton shall be administered under the 
general supervision of the Executive Vice President, CCC, 
(Administrator, FSA), or a designee and shall be carried out by State 
and county FSA committees (State and county committees, respectively).
    (b) State and county committees, and representatives and employees 
thereof, do not have the authority to modify or waive any of the 
provisions of the regulations of this subpart.
    (c) The State committee shall take any action required by these 
regulations which has not been taken by the county committee. The State 
committee shall also:
    (1) Correct, or require a county committee to correct, an action 
taken by such county committee which is not in accordance with the 
regulations of this subpart; or
    (2) Require a county committee to withhold taking any action which 
is not in accordance with the regulations of this subpart.
    (d) No provision or delegation herein to a State or county 
committee shall preclude the Executive Vice President, CCC 
(Administrator, FSA), or a designee from determining any question 
arising under the cotton loan and loan deficiency payment programs or 
from reversing or modifying any determination made by the State or 
county committee.
    (e) The Deputy Administrator for Farm Programs, FSA, may authorize 
State or county committees to waive or modify deadlines and other 
program requirements in cases where lateness or failure to meet such 
other program requirements does not adversely affect the operation of 
the nonrecourse cotton loan or loan deficiency payment programs.
    (f) A representative of CCC may execute loan note and security 
agreements and loan deficiency payment applications and related 
documents only under the terms and conditions determined and announced 
by CCC. Any such document which is not executed in accordance with such 
terms and conditions, including any purported execution prior to the 
date authorized by CCC, is null and void.


Sec. 1427.3  Definitions.

    The definitions set forth in this section shall be applicable for 
all purposes of program administration regarding the cotton loan and 
loan deficiency payment programs. The terms defined in parts 718 of 
this title and 1412 of this chapter shall also be applicable.
    Approved cooperative marketing association (CMA) means a 
cooperative marketing association approved in accordance with part 1425 
of this chapter which has executed Form CCC-Cotton G, Cotton 
Cooperative Loan Agreement.
    Charges means all fees, costs, and expenses incurred by CCC in 
insuring, carrying, handling, storing, conditioning, and marketing the 
cotton tendered to CCC for loan. Charges also include any other 
expenses incurred by CCC in protecting CCC's or the producer's interest 
in such cotton.
    Cotton clerk means a person approved by CCC to assist producers in 
preparing loan and loan deficiency documents.
    Cotton means upland cotton and extra loan staple cotton meeting the 
definition set forth in the definitions of ``upland cotton'' and 
``extra long staple (ELS) cotton'' in this section, respectively, and 
excludes cotton not meeting such definitions.
    Extra long staple (ELS) cotton means any of the following varieties 
of cotton which is produced in the United States and is ginned on a 
roller gin:
    (1) American-Pima;
    (2) Sea Island;
    (3) Sealand;
    (4) All other varieties of the Barbadense species of cotton, and 
any hybrid thereof; and

[[Page 37602]]

    (5) Any other variety of cotton in which one or more of these 
varieties predominate.
    Financial institution means:
    (1) A bank in the United States which accepts demand deposits; and
    (2) An association organized pursuant to Federal or State law and 
supervised by Federal or State banking authorities.
    Form A loans means a nonrecourse loan executed on Form CCC--Cotton 
A, Cotton Producer's Note and Security Agreement.
    Form G loans means a nonrecourse loan to a CMA on eligible cotton 
delivered to the CMA by eligible members of the CMA.
    Loan servicing agent means a legal entity that enters into a 
written agreement with CCC to act as a loan servicing agent for CCC in 
making and servicing Form A cotton loans. The loan servicing agent may 
perform, on behalf of CCC, only those services which are specifically 
prescribed by CCC including, but not limited to, the following:
    (1) Preparing and executing loan and loan deficiency payment 
documents;
    (2) Disbursing loan and loan deficiency payment proceeds;
    (3) Handling reconcentration of cotton in accordance with 
Sec. 1427.16;
    (4) Accepting loan repayments;
    (5) Handling documents involved with forfeiture of loan collateral 
to CCC; and
    (6) Providing loan, loan deficiency payment, and accounting data to 
CCC for statistical purposes.
    Lint cotton means cotton which has passed through the ginning 
process.
    Seed cotton means cotton which has not passed through the ginning 
process.
    Servicing agent bank means the bank designated as the financial 
institution for a CMA or loan servicing agent.
    Upland cotton means planted and stub cotton which is produced in 
the United States from other than pure strain varieties of the 
Barbadense species, any hybrid thereof, or any other variety of cotton 
which one or more of these varieties predominate.
    Warehouse receipt means a receipt issued with respect to a bale of 
cotton by a warehouse with an existing cotton storage agreement, 
approved by CCC, in accordance with Secs. 1427.1081 through 1427.1089, 
that is:
    (1) A negotiable, machine card type warehouse receipt that is pre-
numbered and pre-punched;
    (2) An electronic warehouse receipt record issued by such warehouse 
recorded in a central filing system or systems maintained in one or 
more locations which are approved by FSA or CCC to operate such system; 
or
    (3) Other such acceptable evidence of title, as determined by CCC.


Sec. 1427.4  Eligible producer.

    (a) An eligible producer of a crop of cotton shall be a person 
(i.e., an individual, partnership, association, corporation, CMA, 
estate, trust, State or political subdivision or agency thereof, or 
other legal entity) which:
    (1) Produces such a crop of cotton as a landowner, landlord, 
tenant, or sharecropper;
    (2) Meets the requirements of this part; and
    (3) Meets the requirements of parts 12 and 718 of this title, and 
parts 1405 and 1412 of this chapter.
    (b) A receiver or trustee of an insolvent or bankrupt debtor's 
estate, an executor or an administrator of a deceased person's estate, 
a guardian of an estate of a ward or an incompetent person, and 
trustees of a trust estate shall be considered to represent the 
insolvent or bankrupt debtor, the deceased person, the ward or 
incompetent, and the beneficiaries of a trust, respectively, and the 
production of the receiver, executor, administrator, guardian, or 
trustee shall be considered to be the production of the person or 
estate represented by the receiver, executor, administrator, guardian, 
or trust. Loan and loan deficiency payment documents executed by any 
such person will be accepted by CCC only if they are legally valid and 
such person has the authority to sign the applicable documents.
    (c) A minor who is otherwise an eligible producer shall be eligible 
to receive loans and loan deficiency payments only if the minor meets 
one of the following requirements:
    (1) The right of majority has been conferred on the minor by court 
proceedings or by statute;
    (2) A guardian has been appointed to manage the minor's property 
and the applicable loan or loan deficiency payment documents are signed 
by the guardian;
    (3) Any note and security agreement or loan deficiency payment 
application signed by the minor is co-signed by a person determined by 
the county committee to be financially responsible; or
    (4) A bond is furnished under which a surety guarantees to protect 
CCC from any loss incurred for which the minor would be liable had the 
minor been an adult.
    (d) Two or more producers may obtain a single joint loan or loan 
deficiency payment with respect to the eligible cotton if the cotton is 
jointly owned by such producers. The cotton in a bale may have been 
produced by two or more eligible producers on one or more farms if the 
bale is not a repacked bale.
    (e) Loans may be made to a warehouse operator who, in the capacity 
of a producer, tenders to CCC warehouse receipts issued by such 
warehouse operator on cotton produced by such warehouse operator only 
in those States where the issuance and pledge of such warehouse 
receipts are valid under State law.
    (f) A CMA may obtain loans and loan deficiency payments on eligible 
cotton on behalf of their members who are eligible to receive loans or 
loan deficiency payments with respect to a crop of cotton. For purposes 
of this subpart, the term ``producer'' includes a CMA.


Sec. 1427.5  General eligibility requirements.

    (a) To receive loans or loan deficiency payments for a crop of 
cotton, a producer must execute a note and security agreement or loan 
deficiency payment application on or before May 31 of the year 
following the year in which such crop is normally harvested.
    (1) Form A loan documents or loan deficiency payment applications 
must be signed by the producer and mailed or delivered to applicable 
county office or loan servicing agent within 15 calendar days after the 
producer signs such documents and within the period of loan 
availability. A producer, except for a CMA, must request loans and loan 
deficiency payments:
    (i) At the county office which, in accordance with part 718 of this 
title, is responsible for administering programs for the farm on which 
the cotton was produced; or
    (ii) From a loan servicing agent.
    (2) Form G loan documents and requests for loan deficiency payments 
by a CMA must be signed by the CMA and delivered to CCC or the 
servicing agent bank within the period of loan availability.
    (b) For a bale of cotton to be eligible for a loan or loan 
deficiency payment, the bale must:
    (1) Be tendered to CCC by an eligible producer;
    (2) Be in existence and in good condition at the time of 
disbursement of the loan or loan deficiency payment proceeds, except as 
provided in Sec. 1427.23(f);
    (3) Be represented by a warehouse receipt meeting the requirements 
of Sec. 1427.11, except as provided in Sec. 1427.23(a)(4);
    (4) Not be false-packed, water-packed, mixed-packed, re-ginned, or 
repacked;

[[Page 37603]]

    (5) Not be compressed to universal density at a warehouse where 
side pressure has been applied;
    (6) Not have been sold, nor any sales option on such cotton 
granted, to a buyer under a contract which provides that the buyer may 
direct the producer to pledge the cotton to CCC as collateral for a 
loan or to obtain a loan deficiency payment;
    (7) Not have been previously sold and repurchased or pledged as 
collateral for a CCC loan and redeemed except as provided in 
Sec. 1427.172(b)(4);
    (8) Not be cotton for which a loan deficiency payment has been 
previously made;
    (9) Weigh at least 325 pounds net weight;
    (10) Be packaged in materials which meet the specifications adopted 
by the Joint Cotton Industry Bale Packaging Committee sponsored by the 
National Cotton Council of America for the applicable crop year or 
which are identified and approved by the Joint Cotton Industry Bale 
Packaging Committee as experimental packaging materials for the 
applicable crop year.
    (i) Copies of the applicable crop year specifications for cotton 
bale packaging materials published by the Joint Cotton Industry Bale 
Packaging Committee are available upon request at the county office and 
at the following address: Joint Cotton Industry Bale Packaging 
Committee, National Cotton Council of America, P.O. Box 12285, Memphis, 
Tennessee 38112. Copies may be inspected at the South Agriculture 
Building, room 4089 A, 1400 Independence Avenue SW., Washington, DC, 
between 8 a.m. and 4:30 p.m., Monday through Friday.
    (ii) Information with respect to experimental packaging material 
may be obtained from the Joint Cotton Industry Bale Packaging 
Committee.
    (11) Be ginned by a ginner:
    (i) Who has entered the tare weight of the bale (bagging and ties 
used to wrap the bale) on the gin bale tag or otherwise furnish 
warehouse operator the tare weight; and
    (ii) Who has entered into CCC-809, Cooperating Ginners' Bagging and 
Bale Ties Certification and Agreement, or certified that the bale is 
wrapped with bagging and bale ties meeting the requirements of 
paragraph (b)(10) and;
    (12) Be production from acreage that has been reported timely in 
accordance with part 718 of this title.
    (c) In addition to the requirements of paragraph (b), for ELS 
cotton the bale must:
    (1) Be a Grade and staple length specified in the schedule of loan 
rates for ELS cotton;
    (2) Not have a micronaire reading of 2.6 or less; and
    (3) Not have noted on the classing record the presence of spindle 
twist, preparation, grass, oil, and/or other extraneous matter.
    (d) In addition to the requirements of paragraph (b), for upland 
cotton the bale must:
    (1) Have been produced on a farm with a production flexibility 
contract in accordance with part 1412 of this chapter;
    (2) Have been graded by using a High Volume Instrument;
    (3) Be a grade, staple length, and leaf specified in the schedule 
of premiums and discounts for grade, staple, and leaf for upland 
cotton;
    (4) Have a strength reading greater than 18 grams per tex, rounded 
to whole grams;
    (5) Have a micronaire specified in the schedule of micronaire 
premiums and discounts for upland cotton;
    (6) Have a extraneous matter specified in the schedule of discounts 
for extraneous matter for upland cotton; and
    (e)(1) To be eligible to receive loans or loan deficiency payments, 
a producer must have the beneficial interest in the cotton which is 
tendered to CCC for a loan or loan deficiency payment. The producer 
must always have had the beneficial interest in the cotton unless, 
before the cotton was harvested, the producer and a former producer 
whom the producer tendering the cotton to CCC has succeeded had such an 
interest in the cotton. Cotton obtained by gift or purchase shall not 
be eligible to be tendered to CCC for loans or loan deficiency 
payments. Heirs who succeed to the beneficial interest of a deceased 
producer or who assume the decedent's obligations under an existing 
loan shall be eligible for loans whether succession to the cotton 
occurs before or after harvest as long as the heir otherwise complies 
with the provisions of this part.
    (2) A producer shall not be considered to have divested the 
beneficial interest in the cotton if the producer retains control, 
title, and risk of loss in the cotton, including the right to make all 
decisions regarding the tender of the cotton to CCC for loans or loan 
deficiency payments and does any or all of the following:
    (i) Executes an option to purchase whether or not a payment is made 
by the potential buyer for such option to purchase with respect to such 
cotton if all other eligibility requirements are met and the option to 
purchase contains the following provision:

    Notwithstanding any other provision of this option to purchase, 
title; risk of loss; and beneficial interest in the commodity, as 
specified in 7 CFR part 1427, shall remain with the producer until 
the buyer exercises this option to purchase the commodity. This 
option to purchase shall expire, notwithstanding any action or 
inaction by either the producer or the buyer, at the earlier of: (1) 
The maturity of any Commodity Credit Corporation loan which is 
secured by such commodity; (2) the date the Commodity Credit 
Corporation claims title to such commodity; or (3) such other date 
as provided in this option.

    (ii) Enters into a contract to sell the cotton if the producer 
retains title, risk of loss, and beneficial interest in the commodity 
and the purchaser does not pay to the producer any advance payment 
amount to enter into such contract, except as provided in part 1425 of 
this chapter; or
    (iii) Executes Form CCC-605, Designation of Agent. Such 
designation:
    (A) Allows the producer to authorize an agent or subsequent agent 
to redeem all or a portion of the cotton pledged as collateral for a 
loan;
    (B) Identifies the warehouse receipts for which the authorization 
is given;
    (C) Expires upon maturity of the loan;
    (D) Allows agents so designated by the producer to designate a 
subsequent agent by endorsement of the form by the agent;
    (E) Must be presented at the time the loan is repaid at the county 
office or loan servicing agent where the loan originated if the agent 
or subsequent agent exercises any authority granted by the producer; 
and
    (F) May be canceled by the producer by providing the custodial 
office a written request signed and dated by the producer showing the 
name of the agent, the loan number, and the bales applicable to the 
Form CCC-605. The effective date of the cancellation shall be the date 
the request is received by the custodial office.
    (3) If loans or loan deficiency payments are made available to 
producers through a CMA, the beneficial interest in the cotton must 
always have been in the producer-member who delivered the cotton to the 
CMA or its member cooperative, except as otherwise provided in this 
section. Cotton delivered to such a CMA shall not be eligible to 
receive a loan or a loan deficiency payment if the producer-member who 
delivered the cotton does not retain the right to share in the proceeds 
from the marketing of the cotton as provided in part 1425 of this 
chapter.
    (f) If the person tendering cotton for a loan or a loan deficiency 
payment is a landowner, landlord, tenant, or

[[Page 37604]]

sharecropper, such cotton must represent such person's separate share 
of the crop and must not have been acquired by such person directly or 
indirectly from a landowner, landlord, tenant, or sharecropper.
    (g) Each bale of upland cotton sampled by the warehouse operator 
upon initial receipt which has not been sampled by the ginner must not 
show more than one sample hole on each side of the bale. If more than 
one sample is desired when the bale is received by the warehouse 
operator, the sample shall be cut across the width of the bale, broken 
in half or split lengthwise, and otherwise drawn in accordance with AMS 
dimension and weight requirements. This requirement will not prohibit 
sampling of the cotton at a later date if authorized by the producer.


Sec. 1427.6  Disbursement of loans.

    (a) Disbursement of loans to individual producers may be made by:
    (1) County offices;
    (2) Loan servicing agent; or
    (3) An approved cotton clerk who has entered into a written 
agreement with CCC on Form CCC-810.
    (b) Loan proceeds may be disbursed by CCC or a servicing bank agent 
bank to CMA's.
    (c) The loan documents shall not be presented for disbursement 
unless the cotton covered by the mortgage or pledged as security is 
eligible in accordance with Sec. 1427.5. If the cotton was not eligible 
cotton at the time of disbursement, the total amount disbursed under 
the loan, and charges plus interest shall be refunded promptly.


Sec. 1427.7  Maturity of loans.

    (a) (1) Form A loans and Form G loans mature on demand by CCC and 
no later than the last day of the 10th calendar month from the first 
day of the month in which the loan or loan advance is disbursed.
    (2) CCC may at any time accelerate the loan maturity date by 
providing the producer notice of such acceleration at least 30 days in 
advance of the accelerated maturity date.
    (b) If the loan is not repaid by the loan maturity date, title to 
the cotton shall vest in CCC the day after such maturity date and CCC 
shall have no obligation to pay for any market value which such cotton 
may have in excess of the amount of the loan, plus interest and 
charges.


Sec. 1427.8  Amount of loan.

    (a) The loan rates for crops of upland cotton and ELS cotton will 
be determined and announced by CCC and made available at State and 
county offices.
    (b) The quantity of cotton which may be pledged as collateral for a 
loan shall be the net weight of the eligible cotton as shown on the 
warehouse receipt issued by an approved warehouse, except that in the 
case of a bale which has a net weight of more than 600 pounds, the 
weight to be used in determining the amount of the loan on the bale 
shall be 600 pounds. Cotton pledged as collateral for loans on the 
basis of reweights will not be accepted by CCC.
    (c) The amount of the loan for each bale will be determined by 
multiplying the net weight of the bale, as determined under paragraph 
(b) by the applicable loan rate.
    (d) CCC will not increase the amount of the loan made with respect 
to any bale of cotton as a result of a redetermination of the quantity 
or quality of the bale after it is tendered to CCC, except that if it 
is established to the satisfaction of CCC that a bona fide error was 
made with respect to the weight of the bale or the classification for 
the bale, such error may be corrected.


Sec. 1427.9  Classification of cotton.

    (a) References made to ``classification'' in this subpart shall 
include grade, staple length, and micronaire, and for upland cotton, 
leaf, extraneous matter, and strength readings. All cotton tendered for 
loan must be classed by an Agricultural Marketing Service (AMS) Cotton 
Classing Office (Cotton Classing Office) or other entity approved by 
CCC and tendered on the basis of such classification.
    (b) An AMS cotton classification or other entity's classification 
acceptable by CCC showing the classification of a bale must be based 
upon a representative sample drawn from the bale in accordance with 
instructions to samplers drawing samples under the Smith-Doxey program.
    (c) If the producer's cotton has not been classed or sampled in a 
manner acceptable by CCC, the warehouse shall sample such cotton and 
forward the samples to the Cotton Classing Office or other entity 
approved by CCC serving the district in which the cotton is located. 
Such warehouse must be licensed by AMS or be approved by CCC to draw 
samples for submission to the Cotton Classing Office or other entity 
approved by CCC.
    (d) If a sample has been submitted for classification, another 
sample shall not be drawn, except for a review classification.
    (e) Where review classification is not involved, if through error 
or otherwise two or more samples from the same bale are submitted for 
classification, the loan rate shall be based on the classification 
having the lower loan value.
    (f) If a review classification is obtained, the loan value of the 
cotton represented thereby will be based on such review classification.


Sec. 1427.10  Approved storage.

    (a) Eligible cotton may be pledged as collateral for loans only if 
stored at warehouses approved by CCC.
    (1) Persons desiring approval of their facilities should 
communicate with the Kansas City Commodity Office, P.O. Box 419205, 
Kansas City, Missouri 64141-6205.
    (2) The names of approved warehouses may be obtained from the 
Kansas City Commodity Office or from State or county offices.
    (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, promptly place such 
cotton within such warehouse.
    (c) Warehouse charges paid by a producer will not be refunded by 
CCC.
    (d) The approved storage requirements provided in this section may 
be waived by CCC if the producer requests a loan deficiency payment 
pursuant to the loan deficiency payment provisions contained in 
Sec. 1427.23.


Sec. 1427.11  Warehouse receipt and insurance.

    (a) Producers may obtain loans on eligible cotton represented by 
warehouse receipts only if the warehouse receipts meet the definition 
of a warehouse receipt and provide for delivery of the cotton to bearer 
or are properly assigned by endorsement in blank, so as to vest title 
in the holder of the receipt or are otherwise are acceptable to CCC. 
Any open yard endorsement on the warehouse receipt must have been 
rescinded. The warehouse receipt must:
    (1) Contain the gin bale number;
    (2) Contain the warehouse receipt number;
    (3) Show that the cotton is covered by fire insurance; and
    (4) Be dated on or prior to the date the producer signs the note 
and security agreement.
    (b) Warehouse receipts, in accordance with Sec. 1427.3, when issued 
as block warehouse receipts will be accepted when authorized by CCC 
only if the owner of the warehouse issuing the block warehouse receipt 
owns the cotton represented by the block warehouse receipt and the 
warehouse is

[[Page 37605]]

not licensed under the U.S. Warehouse Act.
    (c)(1) Each receipt must set out in its written or printed terms 
the tare and the net weight of the bale represented thereby. The net 
weight shown on the warehouse receipt shall be the difference between 
the gross weight as determined by the warehouse at the warehouse site 
and the tare weight. The warehouse receipt may show the net weight 
established at a gin if:
    (i) The gin is in the immediate vicinity of the warehouse and is 
operated under common ownership with such warehouse or in any other 
case in which the showing of gin weights on the warehouse receipts is 
approved by CCC; and
    (ii) Gin weights are permitted by the licensing authority for the 
warehouse.
    (2) The tare shown on the receipt shall be the tare furnished to 
the warehouse by the ginner or entered by the ginner on the gin bale 
tag. A machine card type warehouse receipt reflecting an alteration in 
gross, tare, or net weight will not be accepted by CCC unless it bears, 
on the face of the receipt, the following legend or similar wording 
approved by CCC, duly executed by the warehouse or an authorized 
representative of the warehouse:

    Corrected (gross, tare, or net) weight,
    (Name of warehouse),
    By (Signature or initials),
    Date.

    (3) Alterations in other inserted data on a machine card type 
warehouse receipt must be initialed by an authorized representative of 
the warehouse.
    (d) If warehouse storage charges have been paid, the receipt must 
show that date through which the storage charges have been paid.
    (e) If warehouse receiving charges have been paid or waived, the 
warehouse receipt must show such fact. Except for bales stored in the 
States of Alabama, Florida, Georgia, North Carolina, South Carolina, 
and Virginia, if receiving charges due on the bale include a charge, if 
any, for a new set of ties for compressing flat bales tied with ties 
which cannot be reused, the warehouse receipt must indicate the 
receiving charges and include a charge for new set of ties. If the bale 
is stored at a warehouse not having compress facilities and bales 
shipped from the warehouse are normally compressed in transit, the 
warehouse receipt must show the bale ties are not suitable for reuse 
when the bale is compressed and charges will be assessed by the nearest 
compress in line of transit for furnishing new bale ties.
    (f) In any case where loan collateral is forfeited, any unpaid 
storage or receiving charges will be paid to the warehouse by CCC after 
loan maturity or as soon as practicable after the cotton is ordered 
shipped by CCC.
    (g) The warehouse receipt must show the compression status of the 
bale; i.e., flat, modified flat, standard, gin standard, standard 
density (short), gin universal, universal density (short), or warehouse 
universal density. The receipt must show if the compression charge has 
been paid, or if the warehouse claims no lien for such compression.


Sec. 1427.12  Liens.

    If there are any liens or encumbrances on the cotton tendered as 
collateral for a loan, waivers that fully protect the interest of CCC 
must be obtained before disbursement even though the liens or 
encumbrances are satisfied from the loan proceeds. No additional liens 
or encumbrances shall be placed on the cotton after the loan is 
approved.


Sec. 1427.13  Fees, charges and interest.

    (a) A producer shall pay a nonrefundable loan service fee to CCC 
or, if applicable, to a loan servicing agent, at a rate determined by 
CCC. Any such fee shall be in addition to any cotton clerk fee paid to 
a cotton clerk in accordance with paragraph (b) of this section. The 
amount of such fees is available in State and county offices and are 
shown on the note and security agreement and shall be deducted from the 
loan proceeds.
    (b) Cotton clerks may only charge fees for the preparation of loan 
or loan deficiency payment documents at the rate determined by CCC.
    (1) Such fees may be deducted from the loan or loan deficiency 
payment proceeds instead of the fees being paid in cash.
    (2) The amount of such fees is available in State and county 
offices and is shown on the note and security agreement.
    (c) Interest which accrues with respect to a loan shall be 
determined in accordance with part 1405 of this chapter. All or a 
portion of such interest may be waived with respect to a quantity of 
upland cotton which has been redeemed in accordance with Sec. 1427.19 
at a level which is less than the principal amount of the loan plus 
charges and interest.
    (d) For each crop of upland cotton, the producer, as defined in the 
Cotton Research and Promotion Act (7 U.S.C. Chapter 2101), shall remit 
to CCC an assessment which shall be transmitted by CCC to the Cotton 
Board and shall be deducted from the:
    (1) Loan proceeds for a crop of cotton and shall be at a rate equal 
to one dollar per bale plus up to one percent of the loan amount; and
    (2) Loan deficiency payment proceeds for a crop of cotton and shall 
be at a rate equal to up to one percent of the loan deficiency payment 
amount.
    (e) If the producers elects to forfeit the loan collateral to CCC, 
the producer shall pay to CCC, at the rates that are specified in the 
storage agreement between the warehouse and CCC, the following accrued 
warehouse charges:
    (1) All warehouse storage charges associated with the forfeited 
cotton that accrued before the period the cotton was pledged as 
collateral for the loan; and
    (2) Any accrued warehouse receiving charges associated with the 
forfeited cotton, including, if applicable, charges for new ties as 
specified in Sec. 1427.11.


Sec. 1427.14  [Reserved]


Sec. 1427.15  Special procedure where funds are advanced.

    (a) This special procedure is provided to assist persons or firms 
which, in the course of their regular business of handling cotton for 
producers, have made advances to eligible producers on eligible cotton 
to be placed under loan or to receive a loan deficiency payment. A 
person, firm, or financial institution which has made advances to 
eligible producers on eligible cotton may also obtain reimbursement for 
the amounts advanced under this procedure.
    (b) This special procedure shall apply only:
    (1) If such person or firm is entitled to reimbursement from the 
proceeds of the loans or loan deficiency payments for the amounts 
advanced and has been authorized by the producer to deliver the loan or 
loan deficiency payment documents to a county office for disbursement 
of the loans or loan deficiency payments; and
    (2) To loan or loan deficiency payment documents covering cotton on 
which a person or firm has advanced to the producers, including 
payments to prior lienholders and other creditors, the note amounts 
shown on the Form A loan, except for:
    (i) Authorized cotton clerk fees;
    (ii) The research and promotion fee to be collected for 
transmission to the Cotton Board by CCC; and
    (iii) CCC loan service charges.
    (c)(1) All loan or loan deficiency payment documents shall be 
mailed or delivered to the appropriate county office and shall show the 
entire proceeds of the loans or loan deficiency

[[Page 37606]]

payments, except for CCC loan service charges and research and 
promotion fees, for disbursement to:
    (i) The financial institution which is to allow credit to the 
person or firm which made the loan or loan deficiency payment advances 
or to such financial institution and such person or firm as joint 
payees; or
    (ii) The person, firm, or financial institution which made the loan 
or loan deficiency payment advances to the producers.
    (2) The documents shall be accompanied by Form CCC-825, Transmittal 
Schedule of Loan and Loan Deficiency Payment Documents, in original and 
two copies, numbered serially for each county office by the person, 
firm, or financial institution which made the loan or loan deficiency 
payment advance. The Form CCC-825 shall show the amounts invested by 
the person, firm, or financial institution in the loans or loan 
deficiency payments.
    (3) Upon receipt of the loan or loan deficiency payment documents 
and Form CCC-825, the county office will stamp one copy of the Form 
CCC-825 to indicate receipt of the documents and return this copy to 
the person, firm, or financial institution.
    (d) County offices will review the loan or loan deficiency payment 
documents prior to disbursement and will return to the person, firm, or 
financial institution any documents determined not to be acceptable 
because of errors or illegibility. County offices will disburse the 
loans or loan deficiency payments for which loan or loan deficiency 
payment documents are acceptable by issuance of one check to the payee 
indicated on the applicable form and will mail the check to the address 
shown for such payee on the applicable form with a copy of Form CCC-
825. The Form CCC-825 will show the date of disbursement by a county 
office and amount of interest earned by the person, firm, or financial 
institution.
    (e) The person, firm, or financial institution shall be deemed to 
have invested funds in the loans or loan deficiency payment as of the 
date loan or loan deficiency payment documents acceptable to CCC were 
delivered to a county office or, if received by mail, the date of 
mailing as indicated by postmark or the date of receipt in a county 
office if no postmark date is shown. Patron postage meter date stamp 
will not be recognized as a postmark date.
    (f) Interest will be computed on the total amount invested by the 
person, firm, or financial institution in the loan or loan deficiency 
payment represented by accepted documents from and including the date 
of investment of funds by the person, firm, or financial institution 
to, but not including, the date of disbursement by a county office.
    (1) Interest will be paid at the rate in effect for CCC loans as 
provided in part 1405 of this chapter.
    (2) Interest earned by the person, firm, or financial institution 
on the investment in loans disbursed during a month will be paid by 
county offices after the end of the month.


Sec. 1427.16  Reconcentration of cotton.

    (a) CCC may under certain conditions, before loan maturity, 
compress, store, insure, or reinsure the cotton against any risk, or 
otherwise handle or deal with the cotton as it may deem necessary or 
appropriate for the purpose of protecting the interest therein of the 
producer or CCC.
    (b) CCC may reconcentrate the cotton pledged for the loan from one 
CCC-approved warehouse to another with the written consent of the 
producer and upon the request of the local warehouse and certification 
that there is congestion and lack of storage facilities in the area. 
However, if CCC determines such loan cotton is improperly warehoused 
and subject to damage, or if any of the terms of the loan agreement are 
violated, or if carrying charges are substantially in excess of the 
average of carrying charges available elsewhere and the local 
warehouse, after notice, declines to reduce such charges, such written 
consent need not be obtained.
    (1) The county office, loan servicing agent, or CMA shall arrange 
for reconcentration of the cotton under the direction of the Kansas 
City Commodity Office.
    (2) Any fees, costs, or expenses incident to such actions shall be 
charges against the cotton.
    (3) After the cotton is reconcentrated, the Kansas City Commodity 
Office shall obtain new warehouse receipts, allocate to individual 
bales, shipping and other charges incurred against the cotton, and 
return new warehouse receipts and reconcentration charges applicable to 
each bale to the county office, loan servicing agent, or CMA. Such 
reconcentration charges shall be added to bale loan amounts and must be 
repaid for bales redeemed from loan.


Sec. 1427.17  Custodial offices.

    Forms CCC-Cotton A and CCC-Cotton A-1, collateral warehouse 
receipts and related documents will be maintained in the custody of 
CCC, the county office, the loan servicing agent, or the servicing 
agent bank, whichever disbursed the loan evidenced by such documents.


Sec. 1427.18  Liability of the producer.

    (a)(1) If a producer makes any fraudulent representation in 
obtaining a loan or loan deficiency payment or in maintaining or 
settling a loan, or disposes of or moves the loan collateral without 
the prior written approval of CCC, such loan or loan deficiency payment 
shall be payable upon demand by CCC. The producer shall be liable for:
    (i) The amount of the loan or loan deficiency payment;
    (ii) Any additional amounts paid by CCC with respect to the loan or 
loan deficiency payment;
    (iii) All other costs which CCC would not have incurred but for the 
fraudulent representation or the unauthorized disposition or movement 
of the loan collateral;
    (iv) Applicable interest on such amounts;
    (v) Liquidated damages in accordance with paragraph (e); and
    (vi) With regard to amounts due for a loan, the payment of such 
amounts may not be satisfied by the forfeiture of loan collateral to 
CCC of cotton with a settlement value that is less than the total of 
such amounts or by repayment of such loan at the lower loan repayment 
rate as prescribed in Sec. 1427.19.
    (2) Notwithstanding any provision of the note and security 
agreement, if a producer has made any such fraudulent representation or 
if the producer has disposed of, or moved, the loan collateral without 
prior written approval from CCC, the value of such collateral delivered 
to or acquired by CCC shall be equal to the sales price of the cotton 
less any costs incurred by CCC in completing the sale.
    (b) If the amount disbursed under a loan, or in settlement thereof, 
or loan deficiency payment exceeds the amount authorized by this 
subpart, the producer shall be liable for repayment of such excess, 
plus interest. In addition, the commodity pledged as collateral for 
such loan shall not be released to the producer until such excess is 
repaid.
    (c) If the amount collected from the producer in satisfaction of 
the loan or loan deficiency payment is less than the amount required in 
accordance with this subpart, the producer shall be personally liable 
for repayment of the amount of such deficiency plus applicable 
interest.
    (d) If more than one producer executes a note and security 
agreement or loan deficiency payment application with CCC, each such 
producer shall be jointly and severally liable for the violation of the 
terms and conditions of the note and security agreement or loan 
deficiency payment application and the

[[Page 37607]]

regulations set forth in this subpart. Each such producer shall also 
remain liable for repayment of the entire loan or loan deficiency 
payment amount until the loan is fully repaid without regard to such 
producer's claimed share in the cotton pledged as collateral for the 
loan or for which the loan deficiency payment was made. In addition, 
such producer may not amend the note and security agreement or loan 
deficiency payment application with respect to the producer's claimed 
share in such cotton after execution of the note and security agreement 
or loan deficiency payment application by CCC.
    (e) The producer and CCC agree that it will be difficult, if not 
impossible, to prove the amount of damages to CCC if a producer makes 
any fraudulent representation in obtaining a loan or loan deficiency 
payment or in maintaining or settling a loan or disposing of or moving 
the loan collateral without the prior written approval of CCC. 
Accordingly, if CCC determines that the producer has violated the terms 
or conditions of Form CCC-Cotton A, Form CCC-Cotton AA, or Form CCC-
709, as applicable, liquidated damages shall be assessed on the 
quantity of the cotton which is involved in the violation. If CCC 
determines the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages will be assessed by multiplying the quantity involved in the 
violation by:
    (i) 10 percent of the loan rate applicable to the loan note or the 
loan deficiency payment rate for the first offense; or
    (ii) 25 percent of the loan rate applicable to the loan note or the 
loan deficiency payment rate for the second offense; or
    (2) Did not act in good faith with regard to the violation, or for 
cases other than first or second offense, liquidated damages will be 
assessed by multiplying the quantity involved in the violation by 25 
percent of the loan rate applicable to the loan note or the loan 
deficiency payment rate.
    (f) For first and second offenses, if CCC determines that a 
producer acted in good faith when the violation occurred, CCC shall:
    (1) Require repayment of the loan principal and charges, plus 
interest applicable to the loan quantity affected by the violation or 
for loan deficiency payment, the loan deficiency payment amount 
applicable to the loan deficiency quantity involved with the violation, 
and charges plus interest from the date the loan deficiency payment was 
made; and
    (2) Assess liquidated damages in accordance with paragraph (e);
    (3) If the producer fails to pay such amounts within 30 calendar 
days from the date of notification, CCC shall call the applicable loan 
involved in the violation and require repayment of any market gain 
previously realized for the applicable loan, plus any interest 
previously waived and any storage paid by CCC, or for loan deficiency 
payment, require repayment of the loan deficiency payment and charges 
plus interest from the date the loan deficiency payment was made.
    (g) For cases other than first or second offenses, or any offense 
for which CCC cannot determine good faith when the violation occurred, 
CCC shall:
    (1) Assess liquidated damages in accordance with paragraph (e); and
    (2) Call the applicable loan involved in the violation and require 
repayment of any market gain previously realized for the applicable 
loan, plus any interest previously waived and any storage paid by CCC, 
and with respect to a loan deficiency payment, require repayment of the 
loan deficiency payment and charges plus interest from the date the 
loan deficiency payment was made.
    (h) If the county committee acting on behalf of CCC determines that 
the producer has committed a violation in accordance with paragraph 
(e), the county committee shall notify the producer in writing that:
    (1) The producer has 30 calendar days to provide evidence and 
information regarding the circumstances which caused the violation, to 
the county committee; and
    (2) Administrative actions will be taken in accordance with 
paragraph (f) or (g).
    (i) If the loan is called in accordance with this section, the 
producer must repay the loan at principal and charges, plus interest 
and may not repay the loan at the lower of the loan repayment rate in 
accordance with Sec. 1427.19 or utilize the provisions of part 1401 of 
this chapter with respect to such loan.
    (j) Any or all of the liquidated damages assessed in accordance 
with the provisions of paragraph (e) may be waived as determined by 
CCC.


Sec. 1427.19  Repayment of loans.

    (a) Warehouse receipts will not be released except as provided in 
this section.
    (b) A producer or agent or subsequent agent authorized on Form CCC-
605 may redeem one or more bales of cotton pledged as collateral for a 
loan by payment to CCC of an amount applicable to the bales of cotton 
being redeemed determined in accordance with this section. CCC, upon 
proper payment for the amount due, shall release the warehouse receipts 
applicable to such cotton.
    (c) A producer or agent or subsequent agent authorized on Form CCC-
605, may repay the loan amount for one or more bales of cotton pledged 
as collateral for a loan:
    (1) For upland cotton, at a level that is the lesser of:
    (i) The loan level and charges, plus interest determined for such 
bales; or
    (ii) The adjusted world price, as determined by CCC in accordance 
with Sec. 1427.25, in effect on the day the repayment is received by 
the county office, loan servicing agent, or servicing agent bank that 
disbursed the loan.
    (2) For ELS cotton, by repaying the loan amount and charges, plus 
interest determined for such bales.
    (d) CCC shall determine and publicly announce the adjusted world 
price for each crop of upland cotton on a weekly basis.
    (e) The difference between the loan level, excluding charges and 
interest, and the loan repayment level is the market gain. The total 
amount of any market gain realized by a person is subject to part 1400 
of this chapter.
    (f) Repayment of loans will not be accepted after CCC acquires 
title to the cotton in accordance with Sec. 1427.7.
    (g) Notwithstanding any other provision of this section, CCC will 
not accept repayment of upland cotton at a rate based on the adjusted 
world price beginning at 4 p.m. eastern time each Thursday until an 
announcement of the adjusted world price for the succeeding weekly 
period has been made in accordance with Sec. 1427.25(e). In the event 
that Thursday is a non-workday, such loan repayments will not be 
accepted beginning at 7 a.m. eastern time the next workday until an 
announcement of the adjusted world price for the succeeding weekly 
period has been made in accordance with Sec. 1427.25(e).
    (h) If the upland cotton pledged as collateral is eligible to be 
repaid at a rate less than the loan level and charges, plus interest, 
and the adjusted world price determined in accordance with Sec. 1427.25 
is:
    (1) Below the national average loan rate for upland cotton, CCC 
will pay at the time of loan repayment to the producer or agent or 
subsequent agent authorized on Form CCC-605 the warehouse storage 
charges which have accrued, with respect to the cotton pledged as 
collateral for such loan, during the period the cotton was pledged for 
loan;

[[Page 37608]]

    (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 or agent or subsequent agent authorized 
on Form CCC-605 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 without regard to any warehouse charges that 
accrued before the cotton was pledged for loan; or
    (3) Above the national average loan rate by as much as or more than 
the sum of the accrued interest and warehouse storage charges that 
accrued during the period the cotton was pledged for loan, CCC shall 
not pay any of the accrued warehouse storage charges.


Sec. 1427.20  Handling payments and collections not exceeding $9.99.

    To avoid the administrative costs of making small payments and 
handling small accounts, amounts of $9.99 or less will be paid to the 
producer only upon the producer's request. Deficiencies of $9.99 or 
less, including interest, may be disregarded unless demand for payment 
is made by CCC.


Sec. 1427.21  Settlement.

    (a) The settlement of loans shall be made by CCC on the basis of 
the quality and quantity of the cotton delivered to CCC by the producer 
or acquired by CCC.
    (b) Settlements made by CCC with respect to eligible cotton which 
are acquired by CCC which are stored in an approved warehouse shall be 
made on the basis of the entries set forth on the applicable warehouse 
receipt and other accompanying documents.
    (c) If a producer does not pay to CCC the total amount due in 
accordance with a loan, CCC shall take title to the cotton in 
accordance with Sec. 1427.7(b).


Sec. 1427.22  Death, incompetency, or disappearance.

    In the case of death, incompetency, or disappearance of any 
producer who is entitled to the payment of any proceeds in settlement 
of a loan or loan deficiency payment, payment shall, upon proper 
application to the county office or loan servicing agent which 
disbursed the loan or loan deficiency payment, be made to the person or 
persons who would be entitled to such producer's payment as provided in 
the regulations entitled Payment Due Persons Who Have Died, 
Disappeared, or Have Been Declared Incompetent, part 707 of this title.


Sec. 1427.23  Cotton loan deficiency payments.

    (a) Producers may obtain loan deficiency payments for 1996 through 
2002 crops of upland cotton in accordance with this section.
    (b) In order to be eligible to receive such loan deficiency 
payments, the producer of the upland cotton must:
    (1) Comply with all of the upland cotton loan eligibility 
requirements in accordance with this subpart;
    (2) Agree to forgo obtaining such loans;
    (3) File a request for payment for a quantity of eligible cotton in 
accordance with Sec. 1427.5(a) on Form CCC-Cotton AA, Form CCC-709, or 
other form approved by CCC;
    (4) Provide warehouse receipts or, as determined by CCC, a list of 
gin bale numbers for such cotton showing, for each bale, the net weight 
established at the gin;
    (5) Provide classing information for such quantity in accordance 
with Sec. 1427.9; and
    (6) Otherwise comply with all program requirements.
    (c) The loan deficiency payment applicable to a crop of cotton 
shall be computed by multiplying the applicable loan deficiency payment 
rate, as determined in accordance with paragraph (d) of this section, 
by the quantity of the crop the producer is eligible to pledge as 
collateral for a loan.
    (d) The loan deficiency payment rate for a crop of upland cotton 
shall be the amount by which the loan rate determined for a bale of 
such crop exceeds the adjusted world price, as determined by CCC in 
accordance with Sec. 1427.25, in effect on the day the request is 
received by the county office, loan servicing agent, or servicing agent 
bank.
    (e) The total amount of any loan deficiency payments that a person 
may receive is subject to part 1400 of this chapter.
    (f) If the producer enters into an agreement with CCC on or before 
the date of ginning a quantity of eligible upland cotton, and the 
producer has the beneficial interest in such quantity as specified in 
accordance with Sec. 1427.5(c) on the date the cotton was ginned, the 
loan deficiency payment rate applicable to such cotton will be the loan 
deficiency payment rate based on the date the cotton was ginned. In 
such cases, the producer must meet all the other requirements in 
paragraph (b) on or before the final date to apply for a loan 
deficiency payment in accordance with Sec. 1427.5.
    (g) Notwithstanding any other provision of this section, CCC will 
not accept applications for loan deficiency payments that specify the 
payment rate beginning at 4 p.m. eastern time each Thursday until an 
announcement of the adjusted world price for the succeeding weekly 
period has been made in accordance with Sec. 1427.25(e). In the event 
that Thursday is a non-workday, such applications for loan deficiency 
payments will not be accepted beginning at 7 a.m. eastern time the next 
workday until an announcement of the adjusted world price for the 
succeeding weekly period has been made in accordance with 
Sec. 1427.25(e).


Sec. 1427.24  [Reserved]


Sec. 1427.25  Determination of the prevailing world market price and 
the adjusted world price for upland cotton.

    (a) The prevailing world market price for upland cotton shall be 
determined by CCC as follows:
    (1) During the period when only one daily price quotation is 
available for each growth quoted for Middling one and three-thirty-
second inch (M 1\3/32\ inch) cotton C.I.F. (cost, insurance, and 
freight) northern Europe, the prevailing world market price for upland 
cotton shall be based upon the average of the quotations for the 
preceding Friday through Thursday for the 5 lowest-priced growths of 
the growths quoted for M 1\3/32\ inch cotton C.I.F. northern Europe.
    (2) During the period when both a price quotation for cotton for 
shipment no later than August/September of the current calendar year 
(current shipment price) and a price quotation for cotton for shipment 
no earlier than October/November of the current calendar year (forward 
shipment price) are available for growths quoted for M 1\3/32\ inch 
cotton C.I.F. northern Europe, the prevailing world market price for 
upland cotton shall be based upon the following: Beginning with the 
first week covering the period Friday through Thursday which includes 
April 15 or, if both the average of the current shipment prices for the 
preceding Friday through Thursday for the 5 lowest-priced growths of 
the growths quoted for M 1\3/32\ inch cotton C.I.F. northern Europe 
(Northern Europe current price) and the average of the forward shipment 
prices for the preceding Friday through Thursday for the 5 lowest-
priced growths of the growths quoted for M 1\3/32\ inch cotton C.I.F. 
northern Europe (Northern Europe forward price) are not available 
during that period, beginning with the first week covering the period 
Friday through Thursday after the week which includes April 15 in which 
both the Northern Europe current price and

[[Page 37609]]

the Northern Europe forward price are available, the prevailing world 
market price for upland cotton shall be based upon the result 
calculated by the following procedure:
    (i) Weeks 1 and 2: (2  x  Northern Europe current price) + Northern 
Europe forward price/3.
    (ii) Weeks 3 and 4: Northern Europe current price + Northern Europe 
forward price/2.
    (iii) Weeks 5 and 6: Northern Europe current price + (2  x  
Northern Europe forward price)/3.
    (iv) Week 7 through July 31: Northern Europe forward price.
    (3) The prevailing world market price for upland cotton as 
determined in accordance with paragraphs (a)(1) or (a)(2) of this 
section shall hereinafter be referred to as the ``Northern Europe 
price.''
    (4) If quotes are not available for one or more days in the 5-day 
period, the available quotes during the period will be used. If no 
quotes are available during the Friday through Thursday period, the 
prevailing world market price shall be based upon the best available 
world price information, as determined by CCC.
    (b) The prevailing world market price for upland cotton, adjusted 
in accordance with paragraph (c) of this section (adjusted world 
price), shall be applicable to the 1996 through 2002 crops of upland 
cotton.
    (c) The adjusted world price for upland cotton shall equal the 
Northern Europe price as determined in accordance with paragraph (a) of 
this section, adjusted as follows:
    (1) The Northern Europe price shall be adjusted to average 
designated U.S. spot market location by deducting the average 
difference in the immediately preceding 52-week period between:
    (i)(A) The average of price quotations for the U.S. Memphis 
territory and the California/Arizona territory as quoted each Thursday 
for M 1\3/32\ inch cotton C.I.F. northern Europe during the period when 
only one daily price quotation for such growths is available, or
    (B) The average of the current shipment prices for U.S. Memphis 
territory and the California/Arizona territory as quoted each Thursday 
for M 1\3/32\ inch cotton C.I.F. northern Europe during the period when 
both current shipment prices and forward shipment prices for such 
growths are available; and
    (ii) The average price of M 1\3/32\ inch (micronaire 3.5 through 
3.6 and 4.3 through 4.9, strength 24 through 25 grams per tex) cotton 
as quoted each Thursday in the designated U.S. spot markets.
    (2) The price determined in accordance with paragraph (c)(1) of 
this section shall be adjusted to reflect the price of Strict Low 
Middling (SLM) 1\1/16\ inch (micronaire 3.5 through 3.6 and 4.3 through 
4.9, strength 24 through 25 grams per tex) cotton (U.S. base quality) 
by deducting the difference, as announced by CCC, between the 
applicable loan rate for a crop of upland cotton for M 1\3/32\ inch 
(micronaire 3.5 through 3.6 and 4.3 through 4.9, strength 24 through 25 
grams per tex) cotton and the loan rate for a crop of upland cotton of 
the U.S. base quality.
    (3) The price determined in accordance with paragraph (c)(2) shall 
be adjusted to average U.S. location by deducting the difference 
between the average loan rate for a crop of upland cotton of the U.S. 
base quality in the designated U.S. spot markets and the corresponding 
crop year national average loan rate for a crop of upland cotton of the 
U.S. base quality, as announced by CCC.
    (4)(i) The prevailing world market price, as adjusted in accordance 
with paragraphs (c)(1) through (c)(3), may be further adjusted if it is 
determined that:
    (A) Such price is less than 115 percent of the current crop-year 
loan level for U.S. base quality cotton, and
    (B) The Friday through Thursday average price quotation for the 
lowest-priced United States growth as quoted for M 1\3/32\ inch cotton 
C.I.F. northern Europe (U.S. Northern Europe price) is greater than the 
average of the quotations for the preceding Friday through Thursday for 
the 5 lowest-priced growths of the growths quoted for M 1\3/32\ inch 
cotton C.I.F. northern Europe.
    (ii) During the period when both current shipment prices and 
forward shipment prices are available for growths quoted for M 1\3/32\ 
inch cotton C.I.F. northern Europe, the U.S. Northern Europe price 
provided in paragraph (c)(4)(i)(B) shall be determined as follows: 
Beginning with the week covering the period Friday through Thursday 
which includes April 15 or, if both the average of the current shipment 
prices for the preceding Friday through Thursday of the lowest-priced 
United States growth as quoted for M 1\3/32\ inch cotton C.I.F. 
northern Europe (U.S. Northern Europe current price) and the average of 
the forward shipment prices for the preceding Friday through Thursday 
of the lowest-priced United States growth quoted for M 1\3/32\ inch 
cotton C.I.F. northern Europe (U.S. Northern Europe forward price) are 
not available during that period, beginning with the first week 
covering the period Friday through Thursday after the week which 
includes April 15 in which both the average of the U.S. Northern Europe 
current price and the average of the U.S. Northern Europe forward price 
are available, the result calculated by the following procedure:
    (A) Weeks 1 and 2: (2 x U.S. Northern Europe current price)+(U.S. 
Northern Europe forward price) /3.
    (B) Weeks 3 and 4: (U.S. Northern Europe current price)+(U.S. 
Northern Europe forward price) /2.
    (C) Weeks 5 and 6: (U.S. Northern Europe current price)+(2 x U.S. 
Northern Europe forward price) /3.
    (D) Week 7 through July 31: U.S. Northern Europe forward price.
    (iii) In determining the U.S. Northern Europe price as provided in 
paragraphs (c)(4)(i)(B) and (c)(4)(ii):
    (A) If quotes for either the U.S. Memphis territory or the 
California/Arizona territory are not available for any week, the 
available quotations will be used.
    (B) If quotes are not available for one or more days in the 5-day 
period, the available quotes during the period will be used.
    (C) If no quotes are available for either the U.S. Memphis 
territory or the California/Arizona territory during the Friday through 
Thursday period, no adjustment will be made.
    (iv)(A) The adjustment shall be based on some or all of the 
following data, as available:
    (1) The U.S. share of world exports;
    (2) The current level of cotton export sales and shipments; and
    (3) Other data determined by CCC to be relevant in establishing an 
accurate prevailing world market price, adjusted to United States 
quality and location.
    (B) The adjustment may not exceed the difference between the U.S. 
Northern Europe price, as determined in paragraphs (c)(4)(i) through 
(c)(4)(iii), and the Northern Europe price, as determined in paragraph 
(a).
    (d) In determining the average difference in the 52-week period as 
provided in paragraph (c)(1):
    (1) If the difference between the average price quotations for the 
U.S. Memphis territory and the California/Arizona territory as quoted 
for M 1\3/32\ inch cotton C.I.F. northern Europe and the average price 
of M 1\3/32\ inch (micronaire 3.5 through 3.6 and 4.3 through 4.9, 
strength 24 through 25 grams per tex) cotton as quoted each Thursday in 
the designated U.S. spot markets for any week is:
    (i) More than 115 percent of the estimated actual cost associated 
with transporting U.S. cotton to northern Europe, then 115 percent of 
such actual

[[Page 37610]]

cost shall be substituted in lieu thereof for such week.
    (ii) Less than 85 percent of the estimated actual cost associated 
with transporting U.S. cotton to northern Europe, then 85 percent of 
such actual cost shall be substituted in lieu thereof for such week.
    (2) If a Thursday price quotation for either the U.S. Memphis 
territory or the California/Arizona territory as quoted for M 1\3/32\ 
inch cotton C.I.F. northern Europe is not available for any week, CCC:
    (i) May use the available northern Europe quotation to determine 
the difference between the average price quotations for the U.S. 
Memphis territory and the California/Arizona territory as quoted for M 
1\3/32\ inch cotton C.I.F. northern Europe and the average price of M 
1\3/32\ inch (micronaire 3.5 through 3.6 and 4.3 through 4.9, strength 
24 through 25 grams per tex) cotton as quoted each Thursday in the 
designated U.S. spot markets for that week, or
    (ii) May not take that week into consideration.
    (3) If Thursday price quotations for any week are not available for 
either,
    (i) both the Memphis territory and the California/Arizona territory 
as quoted for M 1\3/32\ inch cotton C.I.F. northern Europe, or
    (ii) the average price of M 1\3/32\ inch (micronaire 3.5 through 
3.6 and 4.3 through 4.9, strength 24 through 25 grams per tex) cotton 
as quoted in the designated U.S. spot markets, that week will not be 
taken into consideration.
    (e) The adjusted world price for upland cotton as determined in 
accordance with paragraph (c), and the amount of the additional 
adjustment as determined in accordance with paragraph (f), shall be 
announced, to the extent practicable, at 5 p.m. eastern time each 
Thursday continuing through the last Thursday of July 2003. In the 
event that Thursday is a non-workday, the determination will be 
announced, to the extent practicable, at 8 a.m. eastern time the next 
workday. The adjusted world price and the amount of the additional 
adjustment will be effective upon announcement and will remain in 
effect for a period as announced by CCC.
    (f)(1)(i) The adjusted world price, as determined in accordance 
with paragraph (c), shall be subject to further adjustments as provided 
in this section with respect to all qualities of upland cotton eligible 
for loan except the following grades of upland cotton with a staple 
length of 1\1/16\ inch or longer:
    (A) White Grades--Strict Middling and better, leaf 1 through leaf 
6; Middling, leaf 1 through leaf 6; Strict Low Middling, leaf 1 through 
leaf 6; and Low Middling, leaf 1 through leaf 5;
    (B) Light Spotted Grades--Strict Middling and better, leaf 1 
through leaf 5; Middling, leaf 1 through leaf 5; and Strict Low 
Middling, leaf 1 through leaf 4; and
    (C) Spotted Grades--Strict Middling and better, leaf 1 through leaf 
2; and
    (ii) Grade and Staple length must be determined in accordance with 
Sec. 1427.9. If no such official classification is presented, the 
coarse count adjustment shall not be made.
    (2) The adjustment for upland cotton provided for by paragraph 
(f)(1) shall be determined by deducting from the adjusted world price:
    (i) The difference between the Northern Europe price, and
    (A) During the period when only one daily price quotation for each 
growth quoted for ``coarse count'' cotton C.I.F. northern Europe is 
available the average of the quotations for the corresponding Friday 
through Thursday for the three lowest-priced growths of the growths 
quoted for ``coarse count'' cotton C.I.F. northern Europe; or
    (B) During the period when both current shipment prices and forward 
shipment prices are available for the growths quoted for ``coarse 
count'' cotton C.I.F. northern Europe, the result calculated by the 
following procedure: Beginning with the first week covering the period 
Friday through Thursday which includes April 15 or, if both the average 
of the current shipment prices for the preceding Friday through 
Thursday for the three lowest-priced growths of the growths quoted for 
``coarse count'' cotton C.I.F. northern Europe (Northern Europe coarse 
count current price) and the average of the forward shipment prices for 
the preceding Friday through Thursday for the three lowest-priced 
growths of the growths quoted for ``coarse count'' cotton C.I.F. 
northern Europe (Northern Europe coarse count forward price) are not 
available during that period, beginning with the first week covering 
the period Friday through Thursday after the week which includes April 
15 in which both the Northern Europe coarse count current price and the 
Northern Europe coarse count forward price are available:
    (1) Weeks 1 and 2: (2 `` x '' Northern Europe coarse count current 
price) + Northern Europe coarse count forward price/3;
    (2) Weeks 3 and 4: Northern Europe coarse count current price + 
Northern Europe coarse count forward price/2;
    (3) Weeks 5 and 6: Northern Europe coarse count current price + (2 
x  Northern Europe coarse count forward price)/3; and
    (4) Week 7 through July 31: The Northern Europe coarse count 
forward price, minus:
    (ii) The difference between the applicable loan rate for a crop of 
upland cotton for M 1\3/32\ inch (micronaire 3.5 through 3.6 and 4.3 
through 4.9, strength 24 through 25 grams per tex) cotton and the loan 
rate for a crop of upland cotton for SLM 1\1/32\ inch (micronaire 3.5 
through 3.6 and 4.3 through 4.9, strength 24 through 25 grams per tex) 
cotton.
    (iii) The result of the calculation as determined in accordance 
with this paragraph (f)(2) shall hereinafter be referred to as the 
``Northern Europe coarse count price.''
    (3) With respect to the determination of the Northern Europe coarse 
count price in accordance with paragraph (f)(2)(i):
    (i) If no quotes are available for one or more days of the 5-day 
period, the available quotes will be used;
    (ii) If quotes for three growths are not available for any day in 
the 5-day period, that day will not be taken into consideration; and
    (iii) If quotes for three growths are not available for at least 
three days in the 5-day period, that week will not be taken into 
consideration, in which case the adjustment determined in accordance 
with paragraph (f)(2) for the latest available week will continue to be 
applicable.
    (g) If the 6-week transition periods from using current shipment 
prices to using forward shipment prices in the determination of the 
Northern Europe price in accordance with paragraph (a)(2), and the 
Northern Europe coarse count price in accordance with paragraph 
(f)(2)(i)(B) do not begin at the same time, CCC shall use either 
current shipment prices, forward shipment prices, or any combination 
thereof, to determine the Northern Europe price and/or the Northern 
Europe coarse count price used in the determination of the adjustment 
for upland cotton provided for by paragraph (f)(1) and determined in 
accordance with paragraph (f)(2), in order to prevent distortions in 
such adjustment.
    (h) The adjusted world price, determined in accordance with 
paragraph (c), shall be subject to further adjustments, as determined 
by CCC based upon the Schedule of Premiums and Discounts and the 
location differentials applicable to each warehouse location as 
announced in accordance with the loan program for a crop of upland 
cotton.

[[Page 37611]]

Sec. 1427.26  Paperwork Reduction Act assigned numbers.

    The information collection requirements contained in these 
regulations have been submitted to the Office of Management and Budget 
in accordance with 44 U.S.C. chapter 35 and OMB Control number 0560-
0040, 0560, 0074, 0560-0027, and 0560-0054 was assigned.
    26. Sec. 1427.100 is amended by revising the first sentence of 
paragraph (a), paragraph (b)(1) introductory text, and by adding a new 
paragraph (b)(3) to read as follows:


Sec. 1427.100  Applicability.

    (a) The regulations in this subpart are applicable during the 
period beginning August 1, 1991, and ending July 31, 2003. These 
regulations set forth the terms and conditions under which the CCC 
shall make payments, in the form of commodity certificates or cash, to 
eligible domestic users and exporters of upland cotton who have entered 
into an Upland Cotton Domestic User/Exporter Agreement with CCC to 
participate in the upland cotton user marketing certificate program in 
accordance with Section 136(a) of the Federal Agriculture Improvement 
and Reform Act of 1996.
    (b)(1) During the period beginning August 1, 1991, and ending July 
31, 2003, CCC shall issue marketing certificates or cash payments to 
domestic users and exporters in accordance with this subpart in any 
week following a consecutive 4-week period in which--
* * * * *
    (3) Notwithstanding the provisions of this subpart, user marketing 
certificate program payments shall not exceed $701,000,000 during 
fiscal years 1996 through 2002. Any outstanding obligations incurred by 
CCC to exporters under this program before April 5, 1996, will not be 
subject to the $701,000,000 limitation. Obligations incurred by CCC on 
or after April 5, 1996, will be charged against the $701,000,000.
    27. Section 1427.101 is amended by revising paragraph (a) to read 
as follows:


Sec. 1427.101  Administration.

    (a) The upland cotton user marketing certificate program shall be 
administered under the general supervision of the Executive Vice 
President, CCC (Administrator, FSA), or a designee and shall be carried 
out in the field by FSA's Kansas City Commodity Office (KCCO) and 
Kansas City Management Office (KCMO).
* * * * *
    28. Section 1427.103 is amended by revising paragraphs (a)(1) and 
(a)(2) to read as follows:


Sec. 1427.103  Eligible upland cotton.

    (a) * * *
    (1) Opened by an eligible domestic user on or after August 1, 1991, 
and on or before July 31, 2003, or, excluding cotton covered under 
paragraph (a)(2), exported by an eligible exporter on or after July 18, 
1996 and on or before July 31, 2003, during a Friday through Thursday 
period in which a payment rate, determined in accordance with 
Sec. 1427.107, is in effect, and which meets the requirements of 
paragraphs (b) and (c); or
    (2) Sold for export by an eligible exporter under a written 
contract entered into on or after August 1, 1991, and prior to July 18, 
1996 during a Friday through Thursday period in which a payment rate, 
determined in accordance with Sec. 1427.107, is in effect and which is 
contracted for delivery by the eligible exporter by not later than 
September 30, 1996, and which meets the requirements of paragraphs (b) 
and (c).
    29. Sec. 1427.107 is amended by revising paragraphs (a)(1) 
introductory text, (a)(1)(ii), (a)(2) introductory text, (d) 
introductory text, (e) introductory text, and by adding (f)(1)(iii) to 
read as follows:


Sec. 1427.107  Payment Rate.

    (a) * * *
    (1) For exporters for cotton shipped on or after July 18, 1996 
(excluding cotton covered under paragraph (a)(2)) and for domestic 
users for bales opened during the period--
    (i) * * *
    (ii) Beginning the Friday through Thursday week after the week in 
which the NEc price and the NEf price first become available and ending 
the Thursday following July 31, the payment rate shall be the 
difference between the USNEc price, minus 1.25 cents per pound, and the 
NEc price in the fourth week of a consecutive 4-week period in which 
the USNEc price exceeded the NEc price each week by more than 1.25 
cents per pound, and the AWP did not exceed the current crop-year loan 
level for the base quality of upland cotton by more than 130 percent.
    (iii) * * *
    (2) For exporters prior to July 18, 1996 for cotton which is 
contracted for delivery by not later than September 30, 1996,--
* * * * *
    (d) Notwithstanding any other provision of this section, for 
contracts made by exporters prior to July 18, 1996, that specify 
shipment of the cotton by not later than September 30, 1996,--
* * * * *
    (e) For U.S. cotton sold by the exporter under an optional origin 
contract for delivery by not later than September 30, 1996, prior to 
July 18, 1996, the payment rate * * *
    (f) * * *
    (1) * * *
    (iii) Beginning July 18, 1996, if no daily quotes are available for 
the entire 5-day period for either or both the USNEc price and the NEc 
price, the marketing year transition shall be implemented immediately 
as provided for in paragraph (c)(1).
* * * * *
    30. Section 1427.108 is amended by revising paragraphs (c)(2), and 
(d) and by adding paragraph (c)(3) to read as follows:


Sec. 1427.108  Payment.

* * * * *
    (c) * * *
    (2) From August 1, 1991, through July 17, 1996, sold by the 
exporter on the date the contract for sale is confirmed in writing and 
which is contracted for delivery by not later than September 30, 1996; 
and
    (3) Excluding cotton covered under paragraph (c)(2), through July 
31, 2003, exported by the exporter on the date that CCC determines is 
the date on which the cotton is shipped.
    (d) Payments in accordance with this subpart shall be made 
available upon application for payment and submission of supporting 
documentation, including proof of purchases and consumption of eligible 
cotton by the domestic user or proof of export of eligible cotton by 
the exporter, as required by the provisions of the Upland Cotton 
Domestic User/Exporter Agreement issued by CCC.
    31. Sec. 1427.109 is amended by revising paragraph (a)(3) to read 
as follows:


Sec. 1427.109  Contract cancellations.

    (a) * * *
    (3) All new export contracts entered into by the exporter on or 
after August 30, 1991, and prior to July 18, 1996 which are for 
delivery by not later than September 30, 1996.
* * * * *
    32. Subpart D is revised to read as follows:

Subpart D--Regulations for the Recourse Seed Cotton Loan Program

Sec.
1427.160  Applicability.
1427.161  Administration.

[[Page 37612]]

1427.162  Definitions.
1427.163  Disbursement of loans.
1427.164  Eligible producer.
1427.165  Eligible seed cotton.
1427.166  Insurance.
1427.167  Liens.
1427.168  [Reserved]
1427.169  Fees, charges, and interest.
1427.170  Quantity for loan.
1427.171  Approved storage.
1427.172  Settlement.
1427.173  Foreclosure.
1427.174  Maturity of seed cotton loans.
1427.175  Liability of the producer.

Subpart D--Regulations for the Recourse Seed Cotton Loan Program


Sec. 1427.160  Applicability.

    (a) The regulations in this subpart are applicable to the 1996 
through 2002 crops of upland and extra long staple seed cotton. These 
regulations set forth the terms and conditions under which recourse 
seed cotton loans shall be made available by the Commodity Credit 
Corporation (``CCC''). Such loans will be available through March 31 of 
the year following the calendar year in which such crop is normally 
harvested. CCC may change the loan availability period to conform to 
State or locally imposed quarantines. Additional terms and conditions 
are set forth in the note and security agreement which must be executed 
by a producer in order to receive such loans.
    (b) Loan rates and the forms which are used in administering the 
recourse seed cotton loan program for a crop of cotton are available in 
State and county Farm Service Agency (FSA) offices (State and county 
offices, respectively). Loan rates shall be based upon the location at 
which the loan collateral is stored.
    (c) A producer must, unless otherwise authorized by CCC, request 
the loan at the county office which, in accordance with part 718 of 
this title, is responsible for administering programs for the farm on 
which the cotton was produced. A CMA must, unless otherwise authorized 
by CCC, request the loan at a central county office designated by the 
State committee. All note and security agreements and related documents 
necessary for the administration of the recourse seed cotton loan 
program shall be prescribed by CCC and shall be available at State and 
county offices.
    (d) Loans shall not be available for seed cotton produced on land 
owned or otherwise in the possession of the United States if such land 
is occupied without the consent of the United States.


Sec. 1427.161  Administration.

    (a) The recourse seed cotton loan program which is applicable to a 
crop of cotton shall be administered under the general supervision of 
the Executive Vice President, CCC (Administrator, FSA), or a designee 
and shall be carried out in the field by State and county FSA 
committees (State and county committees, respectively).
    (b) State and county committees, and representatives and employees 
thereof, do not have the authority to modify or waive any of the 
provisions of the regulations of this subpart.
    (c) The State committee shall take any action required by these 
regulations which has not been taken by the county committee. The State 
committee shall also:
    (1) Correct, or require a county committee to correct, an action 
taken by such county committee which is not in accordance with the 
regulations of this subpart; or
    (2) Require a county committee to withhold taking any action which 
is not in accordance with the regulations of this subpart.
    (d) No provision or delegation herein to a State or county 
committee shall preclude the Executive Vice President, CCC 
(Administrator, FSA), or a designee from determining any question 
arising under the recourse seed cotton program or from reversing or 
modifying any determination made by the State or county committee.
    (e) The Deputy Administrator, FSA, may authorize State or county 
committees to waive or modify deadlines and other program requirements 
in cases where lateness or failure to meet such other requirements does 
not adversely affect the operation of the recourse seed cotton loan 
program.
    (f) A representative of CCC may execute loan applications and 
related documents only under the terms and conditions determined and 
announced by CCC. Any such document which is not executed in accordance 
with such terms and conditions, including any purported execution prior 
to the date authorized by CCC, shall be null and void.


Sec. 1427.162  Definitions.

    Section 1427.3 of this part shall be applicable to this subpart.


Sec. 1427.163  Disbursement of loans.

    (a) A producer or the producer's agent shall request a loan at the 
county office for the county which, in accordance with part 718 of this 
title, is responsible for administering programs for the farm on which 
the cotton was produced and which will assist the producer in 
completing the loan documents, except that CMA's designated by 
producers to obtain loans in their behalf may, unless otherwise 
authorized by CCC, obtain loans through a central county office 
designated by the State committee.
    (b) Disbursement of each loan will be made by the county office of 
the county which is responsible for administering programs for the farm 
on which the cotton was produced, except that CMA's designated by 
producers to obtain loans in their behalf may, unless otherwise 
authorized by CCC, obtain disbursement of loans at a central county 
office designated by the State committee. Service charges shall be 
deducted from the loan proceeds. The producer or the producer's agent 
shall not present the loan documents for disbursement unless the cotton 
is in existence and in good condition. If the cotton is not in 
existence and in good condition at the time of disbursement, the 
producer or the agent shall immediately return the check issued in 
payment of the loan or, if the check has been negotiated, the total 
amount disbursed under the loan, and charges plus interest shall be 
refunded promptly.


Sec. 1427.164  Eligible producer.

    (a) An eligible producer of a crop of cotton shall be a person 
(i.e., an individual, partnership, association, corporation, CMA 
estate, trust, State or political subdivision or agency thereof, or 
other legal entity) which:
    (1) Produces such a crop of cotton as a landowner, landlord, 
tenant, or sharecropper;
    (2) Meets the requirements of this part; and
    (3) Meets the requirements of parts 12 and 718 of this title, and 
part 1412 of this chapter.
    (b) A receiver or trustee of an insolvent or bankrupt debtor's 
estate, an executor or an administrator of a deceased person's estate, 
a guardian of an estate of a ward or an incompetent person, and 
trustees of a trust estate shall be considered to represent the 
insolvent or bankrupt debtor, the deceased person, the ward or 
incompetent, and the beneficiaries of a trust, respectively, and the 
production of the receiver, executor, administrator, guardian, or 
trustee shall be considered to be the production of the person or 
estate represented by the receiver, executor, administrator, guardian, 
or trust. Loan and loan deficiency payment documents executed by any 
such person will be accepted by CCC only if they are legally valid and 
such person has the authority to sign the applicable documents.
    (c) A minor who is otherwise an eligible producer shall be eligible 
to receive loans only if the minor meets one of the following 
requirements:

[[Page 37613]]

    (1) The right of majority has been conferred on the minor by court 
proceedings or by statute;
    (2) A guardian has been appointed to manage the minor's property 
and the applicable loan documents are signed by the guardian;
    (3) Any note and security agreement signed by the minor is cosigned 
by a person determined by the county committee to be financially 
responsible; or
    (4) A bond is furnished under which a surety guarantees to protect 
CCC from any loss incurred for which the minor would be liable had the 
minor been an adult.
    (d) Two or more producers may obtain a single joint loan with 
respect to cotton which is stored in an approved storage if the cotton 
is jointly owned by such producers. The cotton may have been produced 
by two or more eligible producers on one or more farms.
    (e) A CMA may obtain loans on the eligible production of such 
cotton with respect to such cotton on behalf of the members of the CMA 
who are eligible to receive loans for a crop of cotton. For purposes of 
this subpart, the term ``producer'' includes a CMA.


Sec. 1427.165  Eligible seed cotton.

    (a) Seed cotton pledged as collateral for a loan must be tendered 
to CCC by an eligible producer and must:
    (1) Be in existence and in good condition at the time of 
disbursement of loan proceeds;
    (2) Be stored in identity-preserved lots in approved storage 
meeting requirements of Sec. 1427.171;
    (3) Be insured at the full loan value against loss or damage by 
fire;
    (4) Not have been sold, nor any sales option on such cotton 
granted, to a buyer under a contract which provides that the buyer may 
direct the producer to pledge the seed cotton to CCC as collateral for 
a loan;
    (5) Not have been previously sold and repurchased; or pledged as 
collateral for a CCC loan and redeemed;
    (6) Be production from acreage that has been reported timely in 
accordance with part 718 of this title; and
    (7) For upland cotton, be production from a farm with a production 
flexibility contract in accordance with part 1412 of this chapter.
    (b) The quality of cotton which may be pledged as collateral for a 
loan shall be the estimated quality of lint cotton in each lot of seed 
cotton as determined by the county office, except that if a control 
sample of the lot of cotton is classed by an Agricultural Marketing 
Service (AMS), Cotton Classing Office or other entity approved by CCC, 
the quality for the lot shall be the quality shown on the applicable 
documentation issued for the control sample.
    (c) To be eligible for loan, the beneficial interest in the seed 
cotton must be in the producer who is pledging the seed cotton as 
collateral for a loan as provided in Sec. 1427.5(c).


Sec. 1427.166  Insurance.

    The seed cotton must be insured at the full loan value against loss 
or damage by fire.


Sec. 1427.167  Liens.

    If there are any liens or encumbrances on the seed cotton tendered 
as collateral for a loan, waivers that fully protect the interest of 
CCC must be obtained even though the liens or encumbrances are 
satisfied from the loan proceeds. No additional liens or encumbrances 
shall be placed on the cotton after the loan is approved.


Sec. 1427.168  [Reserved]


Sec. 1427.169  Fees, charges, and interest.

    (a) A producer shall pay a nonrefundable loan service fee to CCC at 
a rate determined by CCC.
    (b) Interest which accrues with respect to a loan shall be 
determined in accordance with part 1405 of this chapter.


Sec. 1427.170  Quantity for loan.

    (a) The quantity of lint cotton in each lot of seed cotton tendered 
for loan shall be determined by the county office by multiplying the 
weight or estimated weight of seed cotton by the lint turnout factor 
determined in accordance with paragraph (b).
    (b) The lint turnout factor for any lot of seed cotton shall be the 
percentage determined by the county committee representative during the 
initial inspection of the lot. If a control portion of the lot is 
weighed and ginned, the turnout factor determined for the portion of 
cotton ginned will be used for the lot. If a control portion is not 
weighed and ginned, the lint turnout factor shall not exceed 32 percent 
for machine-picked cotton and 22 percent for machine-stripped cotton 
unless acceptable proof is furnished showing that the lint turnout 
factor is greater.
    (c) Loans shall not be made on more than a percentage established 
by the county committee of the quantity of lint cotton determined as 
provided in this section. If the seed cotton is weighed, the percentage 
to be used shall not be more than 95 percent. If the quantity is 
determined by measurement, the percentage to be used shall not be more 
than 90 percent. The percentage to be used in determining the maximum 
quantity for any loan may be reduced below such percentages by the 
county committee when determined necessary to protect the interests of 
CCC on the basis of one or more of the following risk factors:
    (1) Condition or suitability of the storage site or structure;
    (2) Condition of the cotton;
    (3) Location of the storage site or structure; and
    (4) Other factors peculiar to individual farms or producers which 
related to the preservation or safety of the loan collateral. Loans may 
be made on a lower percentage basis at the producer's request.


Sec. 1427.171  Approved storage.

    Approved storage shall consist of storage located on or off the 
producer's farm (excluding public warehouses) which is determined by a 
county committee representative to afford adequate protection against 
loss or damage and which is located within a reasonable distance, as 
determined by CCC, from an approved gin. If the cotton is not stored on 
the producer's farm, the producer must furnish satisfactory evidence 
that the producer has the authority to store the cotton on such 
property and that the owner of such property has no lien for such 
storage against the cotton. The producer must provide satisfactory 
evidence that the producer and any person having an interest in the 
cotton including CCC, have the right to enter the premises to inspect 
and examine the cotton and shall permit a reasonable time to such 
persons to remove the cotton from the premises.


Sec. 1427.172  Settlement.

    (a) A producer may, at any time prior to maturity of the loan, 
obtain release of all or any part of the loan seed cotton by paying to 
CCC the amount of the loan, plus interest and charges.
    (b)(1) A producer or the producer's agent shall not remove from 
storage any cotton which is pledged as collateral for a loan until 
prior written approval has been received from CCC for removal of such 
cotton. If a producer or the producer's agent obtains such approval, 
they may remove such cotton from storage, sell the seed cotton, have it 
ginned, and sell the lint cotton and cottonseed obtained therefrom. The 
ginner shall inform the county office in writing immediately after the 
seed cotton removed from storage has been ginned and furnish the county 
office the loan number, producer's name, and applicable gin bale 
numbers. If the seed cotton is removed from storage, the loan principal 
plus interest and charges

[[Page 37614]]

thereon must be satisfied not later than the earlier of:
    (i) The date established by the county committee;
    (ii) 5 days after the date of the producer received the AMS 
classification in accordance with Sec. 1427.9 (and the warehouse 
receipt, if the cotton is delivered to a warehouse), representing such 
cotton; or
    (iii) The loan maturity date.
    (2) If the seed cotton or lint cotton is sold, the loan principal, 
interest, and charges must be satisfied immediately.
    (3) A producer, except a CMA, may obtain a nonrecourse loan or loan 
deficiency payment in accordance with subpart A of this part, on the 
lint cotton, but:
    (i) The loan principal, interest, and charges on the seed cotton 
must be satisfied from the proceeds of the nonrecourse loan in 
accordance with subpart A of this part; or
    (ii) The loan deficiency payment must be applied to the loan 
principal, interest, and charges on the outstanding seed cotton loan.
    (4) A CMA must repay the seed cotton loan principal, interest, and 
charges before pledging the cotton for a nonrecourse loan or before a 
loan deficiency payment can be approved in accordance with subpart A of 
this part, on the lint cotton. If CMA's authorized by producers to 
obtain loans in their behalf remove seed cotton from storage prior to 
obtaining approval to move such cotton, such removal shall constitute 
conversion of such cotton unless the CMA:
    (i) Notifies the county office in writing the following morning by 
mail or otherwise that such cotton has been moved and is on the gin 
yard;
    (ii) Furnishes CCC an irrevocable letter of credit if requested; 
and
    (iii) Repays the loan principal, plus interest and charges, within 
the time specified by the county committee.
    (5) Any removal from storage shall not be deemed to constitute a 
release of CCC's security interest in the seed cotton or to release the 
producer or CMA from liability for the loan principal, interest, and 
charges if full payment of such amount is not received by the county 
office.
    (c) If, either before or after maturity, the producer discovers 
that the cotton is going out of condition or is in danger of going out 
of condition, the producer shall immediately notify the county office 
and confirm such notice in writing. If the county committee determines 
that the cotton is going out of condition or is in danger of going out 
of condition, the county committee will call for repayment of the loan 
principal, plus interest and charges on or before a specified date. If 
the producer does not repay the loan or have the cotton ginned and 
obtain a nonrecourse loan in accordance with subpart A of this part on 
the lint cotton produced therefrom within the period as specified by 
the county committee, the cotton shall be considered abandoned.
    (d) If the producer has control of the storage site and if the 
producer subsequently loses control of the storage site or there is 
danger of flood or damage to the seed cotton or storage structure 
making continued storage of the cotton unsafe, the producer shall 
immediately either repay the loan or move the seed cotton to the 
nearest approved gin for ginning and shall, at the same time, inform 
the county office. If the producer does not do so, the seed cotton 
shall be considered abandoned.


Sec. 1427.173  Foreclosure.

    Any seed cotton pledged as collateral for a loan which is abandoned 
or which has not been ginned and pledged as collateral for a 
nonrecourse loan in accordance with subpart A of this part by the seed 
cotton loan maturity date may be removed from storage by CCC and ginned 
and the resulting lint cotton warehoused for the account of CCC. The 
lint cotton and cottonseed may be sold, at such time, in such manner, 
and upon such terms as CCC may determine at public or private sale. CCC 
may become the purchaser of the whole or any part of such cotton and 
cottonseed. If the proceeds received from the sales of the cotton are 
less than the amount due on the loan (including principal, interest, 
ginning charges, and any other charges incurred by CCC), the producer 
shall be liable for such difference. If the proceeds received from sale 
of the cotton are greater than the sum of the amount due plus any cost 
incurred by CCC in conducting the sale of the cotton, the amount of 
such excess shall be paid to the producer or, if applicable, to any 
secured creditor of the producer.


Sec. 1427.174  Maturity of seed cotton loans.

    Seed cotton loans mature on demand by CCC but no later than May 31 
following the calendar year in which such crop is normally harvested.


Sec. 1427.175  Liability of the producer.

    (a)(1) If a producer makes any fraudulent representation in 
obtaining a loan, maintaining a loan, or settling a loan or if the 
producer disposes of or moves the loan collateral without the prior 
approval of CCC, such loan amount shall be refunded upon demand by CCC. 
The producer shall be liable for:
    (i) The amount of the loan;
    (ii) Any additional amounts paid by CCC with respect to the loan;
    (iii) All other costs which CCC would not have incurred but for the 
fraudulent representation or the unauthorized disposition or movement 
of the loan collateral;
    (iv) Applicable interest on such amounts; and
    (v) Liquidated damages in accordance with paragraph (e).
    (2) Notwithstanding any provision of the note and security 
agreement, if a producer has made any such fraudulent representation or 
if the producer has disposed of, or moved, the loan collateral without 
prior written approval from CCC, the value of such collateral acquired 
by CCC shall be equal to the sales price of the cotton less any costs 
incurred by CCC in completing the sale.
    (b) If the amount disbursed under a loan, or in settlement thereof, 
exceeds the amount authorized by this subpart, the producer shall be 
liable for repayment of such excess, plus interest. In addition, seed 
cotton pledged as collateral for such loan shall not be released to the 
producer until such excess is repaid.
    (c) If the amount collected from the producer in satisfaction of 
the loan is less than the amount required in accordance with this 
subpart, the producer shall be personally liable for repayment of the 
amount of such deficiency plus applicable interest.
    (d) If more than one producer executes a note and security 
agreement with CCC, each such producer shall be jointly and severally 
liable for the violation of the terms and conditions of the note and 
security agreement and the regulations set forth in this subpart. Each 
such producer shall also remain liable for repayment of the entire loan 
amount until the loan is fully repaid without regard to such producer's 
claimed share in the seed cotton pledged as collateral for the loan. In 
addition, such producer may not amend the note and security agreement 
with respect to the producer's claimed share in such seed cotton, after 
execution of the note and security agreement by CCC.
    (e) The producer and CCC agree that it will be difficult, if not 
impossible, to prove the amount of damages to CCC if a producer makes 
any fraudulent representation in obtaining a loan or in maintaining or 
settling a loan or disposing of or moving the collateral without the 
prior approval of CCC. Accordingly, if CCC or the county committee 
determines that the producer has violated the terms or conditions of 
the note and security agreement, liquidated damages shall be assessed 
on the quantity of the seed cotton which is

[[Page 37615]]

involved in the violation. If CCC or the county committee determines 
the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages will be assessed by multiplying the quantity involved in the 
violation by:
    (i) 10 percent of the loan rate applicable to the loan note for the 
first offense;
    (ii) 25 percent of the loan rate applicable to the loan note for 
the second offense; or
    (2) Did not act in good faith with regard to the violation, or for 
cases other than first or second offense, liquidated damages will be 
assessed by multiplying the quantity involved in the violation by 25 
percent of the loan rate applicable to the loan note.
    (f) For first and second offenses, if CCC or the county committee 
determines that a producer acted in good faith when the violation 
occurred, the county committee shall:
    (1) Require repayment of the loan principal applicable to the loan 
quantity affected by the violation, and charges plus interest 
applicable to the amount repaid;
    (2) Assess liquidated damages in accordance with paragraph (e); and
    (3) If the producer fails to pay such amount within 30 calendar 
days from the date of notification, call the applicable loan involved 
in the violation.
    (g) For cases other than first or second offenses, or any offense 
for which CCC or the county committee cannot determine good faith when 
the violation occurred, the county committee shall:
    (1) Assess liquidated damages in accordance with paragraph (e);
    (2) Call the applicable loan involved in the violation.
    (h) If CCC or the county committee determines that the producer has 
committed a violation in accordance with paragraph (e), the county 
committee shall notify the producer in writing that:
    (1) The producer has 30 calendar days to provide evidence and 
information to the county committee regarding the circumstances which 
caused the violation, and
    (2) Administrative actions will be taken in accordance with 
paragraphs (f) or (g).
    (i) Any or all of the liquidated damages assessed in accordance 
with the provision of paragraph (e) may be waived as determined by CCC.

PART 1430--DAIRY PRODUCTS

    33. The authority citation for 7 CFR part 1430 is revised to read 
as follows:

    Authority: 7 U.S.C. 7251 and 7252; and 15 U.S.C. 714b and 714c.


Secs. 1430.450-1430.470   [Removed]

    34. The subpart titled ``Dairy Termination Program'' 
(Secs. 1430.450-1430.470) is removed.
    35. The subpart heading which reads ``Price Support Program'', 
preceding Sec. 1430 is designated as Subpart A and the heading is 
revised to read ``Subpart A--Price Support Program for Milk''.
    36. Subpart A is revised to read as follows:

Subpart A--Price Support Program for Milk

Sec.
1430.1  Definitions.
1430.2  Price support levels and purchase conditions.
1430.3  Ineligibility for purchase of products produced in States 
with excessive manufacturing allowances.

Subpart A--Price Support Program for Milk


Sec. 1430.1  Definitions.

    For purposes of this subpart, unless the context indicates 
otherwise, the following definitions shall apply:
    AMS means the Agricultural Marketing Service, USDA.
    CCC means the Commodity Credit Corporation, USDA.
    FSA means the Farm Service Agency, USDA.
    Manufacturing allowance means:
    (1) For milk used to produce butter and nonfat dry milk, the amount 
by which the product price value of butter and nonfat dry milk 
manufactured from 100 pounds of milk containing 3.5 pounds of butterfat 
and 8.7 pounds of nonfat milk solids resulting from a State's yields 
and product price formulas exceeds the State's class price for the milk 
used to produce those products; or
    (2) For milk used to produce cheese, the amount by which the 
product price value of cheese manufactured from 100 pounds of milk 
containing 3.5 pounds of butterfat and 8.7 pounds of nonfat milk solids 
resulting from a State's yields and product price formulas exceeds the 
State's class price for the milk used to produce cheese.
    Plant means the physical assets of an individual, partnership, 
association, corporation, cooperative, or other business enterprise 
used in the production of dairy products.
    USDA means the United States Department of Agriculture.


Sec. 1430.2  Price support levels and purchase conditions.

    (a)(1) The levels of price support provided to farmers marketing 
milk containing 3.67 percent milkfat from dairy cows are: $10.35 per 
hundredweight for calendar year 1996, $10.20 per hundredweight for 
calendar year 1997, $10.05 per hundredweight for calendar year 1998, 
and $9.90 per hundredweight for calendar year 1999.
    (2) Subject to paragraph (b), price support for milk will be made 
available through CCC purchases of butter, nonfat dry milk, and Cheddar 
cheese, offered subject to the terms and conditions of FSA's purchase 
announcements.
    (3) CCC purchase prices for dairy products will be announced by 
USDA news release.
    (4) CCC may, by special announcement, offer to purchase other dairy 
products to support the price of milk.
    (5) Purchase announcements setting forth terms and conditions of 
purchase may be obtained upon request from the United States Department 
of Agriculture, Farm Service Agency, Procurement and Donations 
Division, Stop 0552, 1400 Independence Ave. SW., Washington, DC 20250-
0552, or the United States Department of Agriculture, Farm Service 
Agency, Kansas City Commodity Office, P.O. Box 419205, Kansas City, 
Missouri 64141-6205.
    (b)(1) The block cheese purchased shall be U.S. Grade A or higher, 
except that the moisture content shall not exceed 38.5 percent; the 
barrel cheese shall be U.S. Extra Grade, except that the moisture 
content shall not exceed 36.5 percent.
    (2) The nonfat dry milk purchased shall be U.S. Extra Grade, except 
that the moisture content shall not exceed 3.5 percent.
    (3) The butter purchased shall be U.S. Grade A or higher.
    (c) The products purchased shall be manufactured in the United 
States from milk produced in the United States and shall not have been 
previously owned by CCC.
    (d) Purchases will be made in carlot weights specified in the 
announcements. Grade and weights shall be evidenced by USDA issued 
inspection certificates.


Sec. 1430.3  Ineligibility for purchase of products produced in States 
with excessive manufacturing allowances.

    (a) For the period beginning May 1, 1996, and ending December 31, 
1999, no product produced in a plant in a State under State milk 
pricing regulation will be eligible for sale to the CCC under 
Sec. 1430.2 of this subpart, if the State, as determined by the 
Director, Dairy Division, AMS, provides in formulas establishing prices 
that handlers must

[[Page 37616]]

pay for milk, a manufacturing allowance that exceeds either:
    (1) $1.65 per hundredweight of milk for milk manufactured into 
butter and nonfat dry milk; and
    (2) $1.80 per hundredweight of milk for milk manufactured into 
cheese.
    (b) Prior to a final determination that a State has in effect a 
manufacturing allowance that exceeds the manufacturing allowances 
provided in (a) of this section, the State shall be provided the 
opportunity to present information at a hearing before the Director, 
Dairy Division, AMS. The Director shall establish the procedures for 
such hearing.
    (c) Reconsideration and review of the determinations made under (b) 
of this section may be sought by petition to the Deputy Administrator, 
Marketing Programs, AMS under procedures established by the Deputy 
Administrator.

Subpart B--Regulations Governing Reductions in the Price of Milk 
Marketed by Producers, January 1, 1991, to December 31, 1997

    37. The subpart heading which reads ``Regulations Governing 
Reductions in the Price of Milk Marketed by Producers, January 1, 1991, 
to December 31, 1997'', preceding Sec. 1430.340 is designated as 
Subpart B.
    38. Subpart B is amended by adding Sec. 1430.362 to read as 
follows:


Sec. 1430.362  Assessment Termination, Refund Provisions for 1996 
Assessments, and Clarification of Certain Procedures and Delegations.

    (a) Notwithstanding any other provision of this part, no assessment 
shall be collected for milk marketed after April 30, 1996. Amounts 
collected for 1996 marketings shall be refundable as otherwise provided 
for in this subpart so long as, determined pursuant to this subpart, 
the producer's total milk marketings for calendar year 1996 were equal 
to or less than the producer's total marketings for calendar year 1995.
    (b) For purposes of applying the provisions of this subpart:
    (1)(i) No adjustment shall be made for milk marketings in a leap 
year, but rather comparisons between the refund and base period milk 
marketings shall be made on a calendar year basis.
    (ii) If a producer quits marketing milk from a dairy operation 
during the refund period, the comparison of marketings with the 
preceding year shall be made by comparing the marketings of the months 
and days of production in the refund period with the corresponding 
months and days of the base period, subject, in addition, to the 
provisions in paragraph (a).
    (2)(i) A producer under this subpart may be deemed to include the 
combination of all persons or entities with an interest in the 
production of milk on a farm or dairy operation.
    (ii) The addition or removal of an individual or entity, who adds 
to or removes from existing dairy units any dairy cows, to or from 
those with an interest in a dairy operation, shall constitute the 
formation of a new producer and shall be deemed to end the production 
history on that farm or dairy operation of the previous producer.
    (3) All delegations to persons or agencies contained in this 
subpart shall be deemed, as appropriate, to be made to the successor 
official or agency resulting from any reorganization made pursuant to 
Public Law 103-354.
    39. Part 1430 is amended by adding Subpart C--Recourse Loan Program 
for Commercial Processors of Dairy Products to read as follows:

Subpart C--Recourse Loan Program for Commercial Processors of Dairy 
Products

Sec.
1430.400  Definitions.
1430.401  Applicability.
1430.402  Administration.
1430.403  Loan rates.
1430.404  Quantity eligible for loan.
1430.405  Quality eligibility requirements.
1430.406  Storage facility requirements.
1430.407  Availability, disbursement, and maturity of loans.
1430.408  Loan maintenance and liquidation.
1430.409  Miscellaneous provisions.
1430.410  Applicable forms.

Subpart C--Recourse Loan Program for Commercial Processors of Dairy 
Products


Sec. 1430.400  Definitions.

    The definitions set forth in this section shall be applicable for 
all purposes of program administration under this subpart. The terms 
defined in parts 1405 and 1421 of this chapter shall also be 
applicable.
    CCC means the Commodity Credit Corporation, USDA.
    FSA means the Farm Service Agency, USDA.
    Processor means a person or legal entity that commercially 
processes milk into Cheddar cheese, butter, or nonfat dry milk.
    Recourse loan means a loan that requires repayment in full on or 
before the maturity date and forfeiture does not necessarily satisfy 
the loan indebtedness.
    USDA means the United States Department of Agriculture.


Sec. 1430.401  Applicability.

    (a) The regulations in this subpart are applicable to eligible 
dairy products produced after December 31, 1999. These regulations set 
forth the terms and conditions under which CCC will make recourse loans 
to eligible processors. Additional terms and conditions shall be those 
set forth in the loan application and the note and security agreement 
which a processor must execute in order to receive such a loan.
    (b) Loan rates for the eligible dairy products shall be made 
available in FSA State and county offices.
    (c) Recourse loans shall be available as provided in this part for 
eligible Cheddar cheese, butter, and nonfat dry milk.


Sec. 1430.402  Administration.

    (a) The loan program shall be administered under the general 
supervision of the Executive Vice President, CCC (Administrator, FSA), 
and shall be carried out in the field by FSA State and county 
committees.
    (b) State and county committees, and representatives and employees 
thereof, do not have the authority to modify or waive any of the 
provisions of this subpart.
    (c) The State committee shall take any action these regulations 
require which the county committee has not taken. The State committee 
shall also:
    (1) Correct, or require a county committee to correct, a county 
committee action which is not in accordance with the regulations of 
this subpart; or
    (2) Require a county committee to withhold taking any action which 
is not in accordance with the regulations of this subpart.
    (d) No provision or delegation herein to a State or county 
committee shall preclude the Executive Vice President, CCC 
(Administrator, FSA), from determining any question arising under the 
program or from revising or modifying any State or county committee 
determination.
    (e) The Deputy Administrator, FSA, may authorize State and county 
committees to waive or modify deadlines and other program requirements 
in cases where lateness or failure to meet such other requirements do 
not adversely affect recourse loan program operation.
    (f) A CCC representative may execute loans and related documents 
only under the terms and conditions CCC determines and announces. Any 
such document which is not executed in accordance with such terms and 
conditions, including any purported

[[Page 37617]]

execution prior to the CCC authorized date, is null and void.


Sec. 1430.403  Loan rates.

    (a) The Secretary will announce before January 1, 2000, and 
thereafter, before October 1 of each year, that a recourse loan program 
is available under this subpart, and loan rates for Cheddar cheese, 
butter, and nonfat dry milk based on a milk equivalent value of $9.90 
per hundredweight of milk containing 3.67 percent butterfat.
    (b) Such loan rates will be announced by USDA news release.


Sec. 1430.404  Quantity eligible for loan.

    (a) Any processor is eligible for a recourse loan on eligible dairy 
products owned by such processor.
    (b) The total quantity of eligible dairy product which a processor 
may pledge as collateral for a loan at any single time may not exceed:
    (1) the quantity of eligible dairy products processed during the 
fiscal year in which application is being made; plus
    (2) the quantity of eligible dairy products processed during and 
under loan on September 30 of the prior fiscal year, if such products 
are immediately repledged as collateral for a supplemental loan on 
October 1 of the current fiscal year.
    (c) All eligible dairy products pledged as collateral for a loan 
are required to be stored identity-preserved in eligible storage 
facilities.
    (d) The processor shall furnish CCC such certification as CCC 
considers necessary to verify compliance with quantitative limitations.


Sec. 1430.405  Quality eligibility requirements.

    (a) For dairy products to be eligible to be pledged as collateral 
for a recourse loan, the processor must furnish CCC such certification 
as CCC considers necessary to verify the following minimum quality 
requirements:
    (1) Cheddar cheese shall be:
    (i) U.S. Grade A or higher and moisture shall not exceed 38.5 
percent for block cheese; or
    (ii) U.S. Extra Grade and moisture shall not exceed 36.5 percent 
for barrel cheese.
    (2) Nonfat dry milk shall be U.S. Extra Grade and moisture shall 
not exceed 3.5 percent; and
    (3) Butter shall be U.S. Grade A or higher.
    (b) Any eligible dairy product pledged as collateral must be free 
of any contamination by either natural or manmade substances and must 
not contain chemicals or other substances which are poisonous or 
harmful to humans or animals.
    (c) CCC shall, at any time, have the right to inspect collateral in 
the storage facilities in which it is stored.


Sec. 1430.406  Storage facility requirements.

    Eligible dairy products will be stored under the terms and 
conditions CCC prescribes.


Sec. 1430.407  Availability, disbursement, and maturity of loans.

    (a)(1) To obtain an initial recourse loan on eligible dairy 
products, a dairy processor:
    (i) Must file a request for an initial recourse loan, as CCC 
prescribes, with the State committee of the State where such processor 
is headquartered or a State committee designated county committee;
    (ii) Must execute a note and security agreement and a storage 
agreement as CCC prescribes; and
    (iii) Shall be responsible for all costs incurred in moving 
eligible dairy products to an eligible storage facility.
    (2) A request for an initial loan must be filed no later than 
September 30 of the fiscal year in which the product was produced, but 
no earlier than January 1, 2000.
    (3) If there are any liens or encumbrances on eligible dairy 
products pledged as collateral for a recourse loan, waivers that fully 
protect CCC's interest must be obtained even though the liens or 
encumbrances are satisfied from the loan proceeds. No additional liens 
or encumbrances shall be placed on the eligible dairy product after the 
loan is approved.
    (4) A processor shall pay CCC a loan service fee in connection with 
the disbursement of each loan. The amount of the service fee shall be 
determined and announced by the Executive Vice President, CCC.
    (b) No loan proceeds may be disbursed for dairy products until they 
have actually been produced and are established as being eligible to be 
pledged as loan collateral.
    (c) Loans will mature no later than September 30 following 
disbursement of the loan.
    (1) Loan maturity dates may be accelerated by CCC in accordance 
with Sec. 1430.428 (d) of this subpart.
    (2) CCC may offer supplemental loans at the maturity of initial 
loans.
    (d)(1) A processor may, if supplemental loans are offered, before 
the maturity date of an initial loan, request a supplemental loan by:
    (i) Repaying the initial loan principal plus interest on September 
30;
    (ii) Repledging as collateral for a supplemental loan, on October 
1, eligible dairy products identified as collateral for an initial loan 
maturing on September 30 of the immediately preceding fiscal year; and
    (iii) Executing a note and security agreement and a storage 
agreement as CCC prescribes.
    (2) Such supplemental loan:
    (i) Shall be requested by the processor no later than September 30 
of the fiscal year in which the initial loan is maturing.
    (ii) Shall be at the loan rate and interest rate applicable to the 
month in which the supplemental loan is disbursed.
    (iii) Shall mature as CCC specifies, but not later than September 
30 following disbursement of the supplemental loan.
    (iv) May only be authorized for 1 fiscal year.
    (e) The county office shall file or record, as required by State 
law, all security agreements which are issued with respect to eligible 
dairy products pledged as collateral for loan. The cost of filing and 
recording shall be paid for by CCC.


Sec. 1430.408  Loan maintenance and liquidation.

    (a) The processor shall:
    (1) Abide by the terms and conditions of the loan application and 
the note and security agreement;
    (2) Pay interest on the principal at a rate determined under part 
1403 of this chapter;
    (3) be responsible for storage costs through loan maturity;
    (4) Be responsible for any loss in quantity or quality of the loan 
collateral, and
    (5) be responsible for maintaining the quality and quantity of the 
loan collateral.
    (b) The processor must pay CCC the principal and interest due and 
redeem their collateral no later than the loan maturity date.
    (c) A processor may, at any time before maturity of the loan, 
redeem all or any part of the loan collateral by paying CCC the loan 
principal and interest applicable to the quantity of dairy product 
redeemed.
    (d) CCC may at any time accelerate the date of repayment of the 
loan indebtedness, including interest. CCC will give the processor 
notice of such acceleration at least 15 days in advance of the 
accelerated loan maturity date.
    (e) Prior to loan maturity:
    (1) The processor may request and obtain prior written approval of 
the loan making office to remove a specified quantity of the loan 
collateral from storage for the purpose of delivering it to a buyer 
before repayment of the loan by executing a Marketing Authorization for 
Loan Collateral (Form CCC-681-1).

[[Page 37618]]

    (2) The loan making office will approve such a request when the 
buyer of eligible dairy products agrees to pay CCC an amount necessary 
to satisfy the processor's loan indebtedness regarding the dairy 
products the buyer purchased. Any such approval shall not:
    (i) Constitute a release of CCC's security interest in the dairy 
product, or
    (ii) Relieve the processor of liability for the full amount of the 
loan indebtedness, including interest.
    (f) If a processor's loan indebtedness is not satisfied in 
accordance with the provisions of this section:
    (1) Late payment charges in addition to interest on the processor's 
indebtedness shall accrue at the rate specified in part 1403 of this 
chapter and shall accrue until the debt is paid;
    (2) CCC may, upon notice, with or without removing the collateral 
from storage, sell such collateral at either a public or private sale; 
and
    (3) The processor shall be liable for the deficiency if the net 
proceeds are less than the amount of principal, interest, and any other 
charges incurred by the CCC.
    (g) If CCC determines that the actual eligible quantity serving as 
collateral for a recourse loan is less than the loan quantity because 
of incorrect certification, unauthorized removal, or unauthorized 
disposition, CCC may call all loans of the processor. Such 
determination shall result in the processor being deemed ineligible for 
loans for at least the remainder of the fiscal year.
    (h) The security interests obtained by the CCC as a result of the 
execution of a security agreement by an eligible processor shall be 
superior to all statutory and common law liens on the collateral.


Sec. 1430.409  Miscellaneous provisions.

    (a) CCC will not require the processor to insure the eligible dairy 
product pledged as collateral. However, if the processor insures such 
eligible dairy product and an indemnity is paid thereon, such indemnity 
shall accrue to the benefit of CCC to the extent of CCC's interest in 
the eligible dairy product involved in the loss.
    (b) The regulations the Secretary issues governing offsets and 
withholding set forth at part 3 of this title and part 1403 of this 
chapter are applicable to the program set forth in this subpart.
    (c) A processor may obtain reconsideration and review of 
determinations made under this subpart in accordance with the 
regulations of part 780 of this title.
    (d) CCC, as well as any other U.S. Government agency, shall have 
the right of access to the premises of the processor in order to 
inspect, examine, and make copies of the books, records, accounts, and 
other written data as the examining agency deems necessary to verify 
compliance with the requirements of this subpart. Such books, records, 
accounts, and other written data shall be retained by the processor for 
not less than 3 years from the loan disbursement date.
    (e) Any false certification made for the purpose of enabling a 
processor to obtain or retain a recourse loan to which it is not 
entitled will subject the person making such certification to liability 
under applicable federal civil and criminal statutes.


Sec. 1430.410  Applicable forms.

    The CCC forms used in connection with the dairy recourse loan 
program will be available from the appropriate State committee or 
designated county committee. For any CCC form that refers to program 
participation by producers, the term ``producer'' shall be deemed to 
mean ``processor'' and the term ``crop year'' shall be deemed to mean 
``fiscal year''.
    40. Part 1434 is revised to read as follows:

PART 1434--HONEY

    Authority: 7 U.S.C. 1421, 1423, 1425a, 1446h, 4601 et seq.; 15 
U.S.C. 714b and 714c.


Sec. 1434.1  Termination.

    The price support and loan deficiency program for honey was 
terminated at the conclusion of the 1995 marketing year. The 
regulations setting forth the applicable terms and conditions for the 
Honey Program for the 1995 and prior marketing years found at part 1434 
of this title as of January 1, 1996, shall be applicable to 
determinations made with respect to the administration of loans 
outstanding on or after July 18, 1996.
    41.-42. Part 1435 is revised to read as follows:

PART 1435--SUGAR PROGRAM

Subpart A--General Provisions

Sec.
1435.1  Applicability.
1435.2  Definitions.
1435.3  Maintenance and inspection of records.

Subpart B--Loan Program

1435.100  Applicability.
1435.101  Administration.
1435.102  Loan types.
1435.103  Loan rates.
1435.104  Eligibility requirements.
1435.105  Availability, disbursement, and maturity of loans.
1435.106  Loan maintenance.
1435.107  Loan settlement and foreclosure.
1435.108  Storage facility requirements.
1435.109  Processor storage agreement.
1435.110  Miscellaneous provisions.
1435.111  Applicable forms.

Subpart C--Sugar Marketing Assessments

1435.200  General statement.
1435.201  Marketing assessment rates.
1435.202  Remittance.
1435.203  Civil penalties and interest.
1435.204  Refunds.

Subpart D--Information Reporting and Recordkeeping Requirements

1435.300  General statement.
1435.301  Civil penalties.

    Authority: 7 U.S.C. 7272; and 15 U.S.C. 714b and 714c

Subpart A--General Provisions


Sec. 1435.1  Applicability.

    (a) The regulations of this part in effect on January 1, 1995, 
shall govern the price support loan program and producer protections 
for the 1995 crop year. These regulations have been removed from the 
CFR but may be found in the previous CFR volume containing revisions as 
of January 1, 1995.
    (b) These regulations set forth the terms and conditions under 
which Commodity Credit Corporation (CCC) will make loans and enter 
agreements with eligible processors for the 1996-2002 crop years. 
Additional terms and conditions are set forth in the loan application 
and the note and security agreement which the processor must execute in 
order to receive a loan. These regulations stipulate the requirements 
for making sugar marketing assessment payments to CCC for fiscal years 
1996 through 2003 and the information reporting requirements for the 
1996-2002 crop years.


Sec. 1435.2  Definitions.

    The definitions set forth in this section are applicable for all 
purposes of program administration. The terms defined in part 718 of 
this title are also applicable.
    Beet sugar means sugar which is processed directly or indirectly 
from sugar beets or sugar beet molasses.
    Cane sugar refiner means a person who processes raw cane sugar into 
refined crystalline sugar or liquid sugar.
    CCC means the Commodity Credit Corporation, USDA.
    Crop year means the period from July 1 through June 30, inclusive. 
In referring to the crop year for a particular crop, the crop year 
begins on July 1 of the year of that crop. For example, the crop year 
for the 1996 crop begins on July 1, 1996, and is referred to as the 
``1996 crop

[[Page 37619]]

year.'' The 1996 crop means sugar processed from domestically-produced 
sugar beets or sugarcane during the 1996 crop year. Sugar from 
desugaring molasses is considered to be from the crop year during which 
the desugaring took place.
    First processor means a person who commercially produces beet sugar 
or raw cane sugar, directly or indirectly, from domestically-produced 
sugar beets or sugarcane, or from molasses or thick juice derived from 
domestically-produced sugar beets or sugarcane.
    Market means, relative to any first processor, the shipment in 
conjunction with a sale or other disposition, or the forfeiture to CCC, 
of beet sugar or raw cane sugar by the first processor of such sugar, 
and the movement of raw cane sugar into the refining process. Beet 
sugar or raw cane sugar is deemed to be marketed as of the date of 
shipment from the first processor's facility, the date on which raw 
cane sugar was moved into the refining process, or the date on which 
sugar was forfeited to CCC.
    Nonrecourse loan means a loan for which the eligible sugar offered 
as loan collateral may be delivered or forfeited to CCC, at loan 
maturity, in satisfaction of the loan indebtedness.
    Raw sugar means any sugar which is to be further refined or 
improved in quality.
    Raw value of any quantity of sugar means its equivalent in terms of 
raw sugar testing 96 sugar degrees, as determined by a polarimetric 
test performed in accordance with procedures recognized by the 
International Commission for Uniform Methods of Sugar Analysis 
(ICUMSA). Direct-consumption sugar derived from sugar beets and testing 
92 or more sugar degrees by the polariscope shall be translated into 
terms of raw value by multiplying the actual number of pounds of such 
sugar by 1.07. Sugar derived from sugarcane and testing 92 sugar 
degrees or more by the polariscope shall be translated into terms of 
raw value in the following manner: raw value = {[(actual degree of 
polarization - 92 )  x  0.0175 ] + 0.93}  x  actual weight. For sugar 
testing less than 92 sugar degrees by the polariscope, derive raw value 
by dividing the number of pounds of the ``total sugar content'' (i.e., 
the sum of the sucrose and invert sugars) thereof by 0.972.
    Recourse loan means a loan that requires repayment in full on or 
before the maturity date and forfeiture of the sugar does not 
necessarily satisfy the loan indebtedness.
    Sugar means any grade or type of saccharine product derived, 
directly or indirectly, from sugarcane or sugar beets and consisting 
of, or containing, sucrose or invert sugar, including all raw sugar, 
refined crystalline sugar, liquid sugar, edible molasses, and cane 
syrup.
    Sugar beet processor means a person who produces sugar by 
commercially processing sugar beets or sugar beet molasses.
    Sugarcane processor means a person who produces raw cane sugar by 
commercially processing sugarcane or sugarcane molasses.
    Tariff-rate quota means the total of the aggregate quantities of 
raw cane sugar and other sugars, syrups and molasses established, or 
subsequently modified, by the Secretary pursuant to the provisions of 
additional U.S. note 5(a) to chapter 17 of the Harmonized Tariff 
Schedule of the United States (HTS) for imports to be entered, or 
withdrawn from warehouse for consumption, under subheadings 1701.11.10, 
1701.12.10, 1701.91.10, 1701.99.10, 1702.90.10, and 2106.90.44 of the 
HTS or successor subheadings.


Sec. 1435.3  Maintenance and inspection of records.

    (a) CCC, as well as any other U.S. Government agency, has the right 
of access to the premises of any sugar beet processor, sugarcane 
processor, cane sugar refiner, or of any other person having custody of 
records that the examining agency deems necessary to verify compliance 
with the requirements of this part. The examining agency has the right 
to inspect, examine, and make copies of such books, records, accounts, 
and other written or electronic data as the examining agency deems 
relevant.
    (b) Each sugar beet processor, sugarcane processor, and cane sugar 
refiner or any person having custody of the records shall retain such 
books, records, accounts, and other written or electronic data for not 
less than 3 years from the date:
    (1) A loan is disbursed in accordance with subpart B;
    (2) A marketing assessment is remitted to CCC in accordance with 
subpart C; and
    (3) Market data are reported to CCC in accordance with subpart D.

Subpart B--Loan Program


Sec. 1435.100  Applicability.

    (a) This subpart is applicable to the 1996 through 2002 crops of 
sugar beets and sugarcane. These regulations set forth the terms and 
conditions under which CCC will make recourse and nonrecourse loans 
available to eligible processors. Additional terms and conditions are 
set forth in the loan application and note and security agreement which 
a processor must execute to receive a loan.
    (b) Loan rates used in administering the loan program are available 
in FSA State and county offices.
    (c) Loans shall not be available for sugar produced from imported 
sugar beets, sugarcane, or molasses.


Sec. 1435.101  Administration.

    (a) The loan program shall be administered under the general 
supervision of the Executive Vice President, CCC, (Administrator, FSA) 
and shall be carried out in the field by FSA State and county 
committees.
    (b) State and county committees, and representatives and employees 
thereof, may not modify or waive any of the provisions of the 
regulations of part 1435.
    (c) The State committee shall take any action part 1435 requires 
which the county committee has not taken. The State committee shall 
also:
    (1) Correct, or require a county committee to correct, a county 
committee action which is not in accordance with part 1435; or
    (2) Require a county committee to withhold taking any action which 
is not in accordance with part 1435.
    (d) No provision or delegation herein to a State or county 
committee shall preclude the Executive Vice President, CCC, 
(Administrator, FSA) from determining any question arising under the 
program or from reversing or modifying any State or county committee 
determination.
    (e) The Deputy Administrator, FSA, may authorize State and county 
committees to waive or modify deadlines and other program requirements 
in cases where lateness or failure to meet such requirements do not 
adversely affect program operation.
    (f) A CCC representative may execute loans and related documents 
only under the terms and conditions CCC determines and announces. Any 
such document which is not executed in accordance with such terms and 
conditions, including any purported execution prior to the CCC-
authorized date, shall be null and void.


Sec. 1435.102  Loan types.

    (a) CCC will make available to eligible processors of the 1996 
through 2002 crops of domestically-produced sugar beets and sugarcane:
    (1) Recourse loans if the tariff-rate quota is not above 1,500,000 
short tons, raw value, at the time of loan approval

[[Page 37620]]

and has never been above 1,500,000 short tons, raw value, at any time 
during the fiscal year;
    (2) Nonrecourse loans if the tariff rate quota exceeds 1,500,000 
short tons, raw value, at the time of loan approval or has exceeded 
1,500,000 short tons, raw value, at any time during the fiscal year.
    (b) Outstanding recourse loans will be automatically converted to 
nonrecourse loans if the tariff-rate quota is increased to a level 
above 1,500,000 short tons, raw value. However, if the recourse loan 
recipient pays the principal amount of the loan, plus interest, within 
30 days from the date the tariff-rate quota was increased, then the 
loan will be treated for all purposes whatsoever as if it had not been 
converted to a nonrecourse loan. Once nonrecourse loans are made 
available, they will not be converted to recourse loans any time during 
the fiscal year, even if the tariff-rate quota is subsequently reduced 
to a level equal to, or less than, 1,500,000 short tons, raw value.


Sec. 1435.103  Loan rates.

    (a) The national average loan rate for raw cane sugar produced from 
the 1996 through 2002 crops of domestically-grown sugarcane is 18 cents 
per pound, raw value.
    (b) The national average loan rate for refined beet sugar from 
1996-2002-crop domestically-grown sugar beets is 22.90 cents per pound 
of refined beet sugar.
    (c) The loan rates for eligible sugar are adjusted to reflect the 
processing location of the sugar offered as loan collateral and are 
available from State and county offices.


Sec. 1435.104  Eligibility requirements.

    (a) An eligible producer is the owner of a portion or all of the 
domestically-produced sugar beets or sugarcane, including share rent 
landowners, at both the time of harvest and the time of delivery to the 
processor, except producers determined to be ineligible as a result of 
the regulations governing highly erodible land and wetland conservation 
found at 7 CFR part 12, regulations governing crop insurance at 7 CFR 
part 400, or the regulations governing controlled substance violations 
at 7 CFR part 718.
    (b) A sugar beet or sugarcane processor is eligible for loans if 
the processor agrees to all the terms and conditions in the loan 
application and the note and security agreement.
    (c) Sugar pledged as collateral during the crop year:
    (1) May not exceed the quantity derived from processing 
domestically-grown sugar beets or sugarcane from eligible producers 
during the applicable crop year;
    (2) Must be processed and owned by the eligible processor and 
stored in suitable storage;
    (3) May not have been processed from imported sugarcane, sugar 
beets, or molasses;
    (4) Must have been processed in the United States or Puerto Rico; 
and
    (5) Must have processor certification in the loan application that 
the sugar is eligible and available to be pledged as collateral.
    (d) Sugar must meet the following minimum quality requirements to 
be eligible to be pledged as loan collateral:
    (1) Refined beet sugar to be pledged as loan collateral must be:
    (i) Dry and free flowing;
    (ii) Free of excessive sediment; and
    (iii) Free of any objectionable color, flavor, odor, or other 
characteristic which would impair its merchantability or which would 
impair or prevent its use for normal commercial purposes.
    (2) Raw cane sugar to be pledged as loan collateral must be:
    (i) Of reasonable grain size;
    (ii) Free from excessive color or moisture; and
    (iii) Free of any objectionable color, flavor, odor, or other 
characteristic which would impair its merchantability or which would 
impair or prevent its use for normal refining or commercial purposes.
    (3) Sugarcane syrup or edible molasses must be free from any 
objectionable color, flavor, odor, or other characteristic which would 
impair the merchantability of such syrup or molasses or would impair or 
prevent the use of such syrup or molasses for normal commercial 
purposes.


Sec. 1435.105  Availability, disbursement, and maturity of loans.

    (a) To obtain a loan, a processor must:
    (1) File a loan request, as CCC prescribes, no earlier than October 
1 and no later than June 30 of the applicable crop year, with the State 
committee of the State where such processor is headquartered, or with a 
county committee designated by the State committee;
    (2) Execute a note and security agreement as CCC prescribes; and
    (3) Pay CCC a loan service fee in connection with the disbursement 
of each loan. The Executive Vice President, CCC, will determine and 
announce the service fee amount.
    (b) If there are any liens or encumbrances on sugar pledged as 
collateral for a loan, the processor must obtain waivers that fully 
protect CCC's interest even though the liens or encumbrances are 
satisfied from the loan proceeds. No additional liens or encumbrances 
shall be placed on the sugar after the loan is approved.
    (c) No loan proceeds may be disbursed until the sugar has actually 
been processed and is otherwise established as being eligible to be 
pledged as loan collateral.
    (d) A processor may, within the loan availability period, repledge 
as collateral sugar that previously served as loan collateral for a 
repaid loan.
    (1) In making application for such loan, the processor shall:
    (i) Specify that the loan collateral should be treated as a 
quantity of eligible sugar that previously served as loan collateral 
for a repaid loan; and
    (ii) Designate the loan to which the reoffered loan collateral was 
originally pledged.
    (2) The subsequent loan shall have the same maturity date as the 
original loan.
    (3) Loan collateral repledged that was previously redeemed from CCC 
is not included in determining the total quantity of sugar on which 
loans have been obtained for purposes of Sec. 1435.104.
    (e)(1) Disbursements shall be made without regard to the actual 
polarity of the sugar pledged as loan collateral but shall be made on 
the assumption that the polarity of such sugar is 96 degrees by the 
polariscope.
    (2) Adjustments for polarity are only made at the time of loan 
forfeiture.
    (f)(1) Loans will mature at the earlier of:
    (i) the end of the 9-month period beginning on the 1st day of the 
first month after the month in which the loan is made; or
    (ii) September 30 following disbursement of the loan.
    (2) CCC may accelerate loan maturity dates in accordance with 
Sec. 1435.107(g).
    (g)(1) Notwithstanding any other provision of this subpart, 
relative to sugar processed from sugar beets or sugarcane that normally 
is harvested during July, August, and September, a processor:
    (i) May obtain a loan on such sugar;
    (ii) Must settle the loan by September 30 following disbursement; 
and
    (iii) May request a supplemental recourse or nonrecourse loan, 
depending on which type of loan is in effect according to 
Sec. 1435.102.
    (2) Such supplemental loan:
    (i) Shall be requested by the processor during the following 
October;
    (ii) Shall be at the loan rate in effect at the time the 
supplemental loan is made; and
    (iii) Shall mature in 9 months minus the number of whole months 
that the initial loan was in effect.

[[Page 37621]]

Sec. 1435.106  Loan maintenance.

    (a) All processors receiving loans shall:
    (1) Abide by the terms and conditions of the loan application and 
the note and security agreement; and
    (2) Pay interest on the principal at a rate determined in part 
1405.
    (b) The security interests obtained by CCC as a result of the 
execution of security agreements by the processors of sugarcane and 
sugar beets shall be superior to all statutory and common law liens on 
raw cane sugar and refined beet sugar in favor of the producers of 
sugarcane and sugar beets and all prior recorded and unrecorded liens 
on the crops of sugarcane and sugar beets from which the sugar was 
derived.
    (c) Nonrecourse loan recipients shall pay all eligible producers 
who have delivered or will deliver sugar beets or sugarcane to such 
processor for processing not less than the minimum payment levels CCC 
specifies for the applicable crop year when nonrecourse loans are in 
effect, except that processors who repay a recourse loan within the 30-
day period provided for in Sec. 1435.102(b) are not required to pay the 
minimum payment levels.
    (d) A processor shall maintain eligible sugar of sufficient quality 
and quantity as collateral to satisfy the processor's loan indebtedness 
to CCC. CCC shall not assume any loss in quantity or quality of the 
loan collateral.
    (1) The borrower is responsible for storage costs through the loan 
maturity date.
    (2) Sugar pledged as loan collateral need not be stored identity 
preserved.
    (3) When the proceeds of the sale of the sugar pledged as loan 
collateral are needed to repay all or part of a sugar loan, the 
processor may request and obtain prior written approval from the 
loanmaking office by executing a Market Authorization for Loan 
Collateral (form CCC-681-1) to remove a specified quantity of the loan 
collateral from storage for the purpose of delivering it to a buyer 
prior to repayment of the loan. Any such approval shall be subject to 
the terms and conditions set forth in the applicable form and the 
loanmaking office shall not approve such a request unless the buyer of 
the sugar agrees to pay CCC an amount necessary to satisfy the 
processor's loan indebtedness regarding the sugar being sold. Any such 
approval shall not:
    (i) Constitute a release of CCC's security interest in the sugar; 
or
    (ii) Relieve the processor of liability for the full amount of the 
loan indebtedness, including interest.
    (4) If CCC determines, by actual measurement or otherwise, that the 
actual quantity serving as collateral for a recourse or nonrecourse 
loan is less than the loan quantity, because of incorrect 
certification, unauthorized removal, or unauthorized disposition, CCC 
may call the loan and other outstanding loans. Such determination shall 
result in the processor being ineligible for recourse loans for the 
remainder of that crop year and through the next crop year.


Sec. 1435.107  Loan settlement and foreclosure.

    (a) A processor may, at any time prior to loan maturity, redeem all 
or any part of the loan collateral by paying CCC the applicable 
principal and interest.
    (b) Recourse loan recipients must pay CCC the principal and 
interest on the loan and redeem their sugar collateral no later than 
the loan maturity date.
    (c) Forfeiture will be accepted as payment in full of the principal 
and interest due under a nonrecourse loan, applicable to the quantity 
of sugar delivered, subject to adjustment for polarity, if the 
processor:
    (1) Notifies in writing the appropriate loanmaking office of the 
processor's intent to forfeit the loan collateral, states the amount of 
loan collateral intended to be forfeited, and delivers the notice to 
the loanmaking office no later than 30 days prior to the maturity date 
of the loan;
    (2) Executes a storage agreement, as CCC prescribes, prior to 
forfeiture or delivers the loan collateral to a CCC-approved storage 
facility upon forfeiture; and
    (3) Pays the following forfeiture penalty on sugar pledged as 
collateral at the time of forfeiture:
    (i) The penalty for raw cane sugar is 1 cent per pound; and
    (ii) The penalty for beet sugar is 1.072 cents per pound; and
    (4) Reduces payments owed producers by the producer's share of the 
aggregate loan forfeiture penalty incurred by the processor. The 
producer's share of the aggregate loan forfeiture penalty is calculated 
as the producer's share of the net selling price of the processor's 
sugar, provided for explicitly or implicitly in the contract between 
producers and processor, times the aggregate loan forfeiture penalty.
    (d) Even though a processor gave notice of intent to forfeit, the 
processor may, at any time prior to maturity of the nonrecourse loan, 
redeem the loan collateral in accordance with this section.
    (e) CCC shall not accept delivery of sugar in settlement of a 
nonrecourse loan in excess of:
    (1) the amount specified in the notice of intent to forfeit; or
    (2) the quantity of sugar which is shown on the note and security 
agreement minus any quantity that was redeemed or released for removal 
in accordance with this section.
    (f) If the processor does not redeem any amount of the nonrecourse 
loan collateral and the conditions of paragraph (c) of this section 
have been fulfilled, the unredeemed nonrecourse loan collateral will, 
without further CCC or processor action, be deemed to have been 
forfeited and delivered to CCC in-store at the processor's storage 
facility on the day following the maturity date of the loan. Title, all 
rights, and interest to the sugar immediately vests in CCC upon 
delivery.
    (g)(1) CCC may at any time accelerate the date for loan repayment 
indebtedness, including interest. CCC will give the processor notice of 
such acceleration at least 15 days in advance of the accelerated loan 
maturity date.
    (2) In the event of any such acceleration of nonrecourse loans, the 
required notice of intent to forfeit, as set forth in paragraph (d)(1), 
may be given at any time prior to the accelerated maturity date.
    (h) If a processor's recourse or nonrecourse loan indebtedness is 
not satisfied in accordance with the provisions of this section:
    (1) Interest on the processor's indebtedness shall accrue as 
specified in part 1403 in this chapter and shall accrue until the debt 
is paid;
    (2) CCC may, upon notice, with or without removing the collateral 
from storage, sell such collateral at either a public or private sale; 
and
    (3) The processor shall be liable for the deficiency if the net 
proceeds are less than the amount of principal, interest, and any other 
charges incurred by the CCC.


Sec. 1435.108  Storage facility requirements.

    (a) Sugar forfeited to CCC must be delivered in or to a CCC-
approved storage facility.
    (1) Eligible storage is any storage facility which:
    (i) Meets CCC Standards for Approval of Dry and Cold Storage 
Warehouses for Processed Agricultural Commodities, Extracted Honey, and 
Bulk Oils (part 1423 of this chapter); and
    (ii) Is placed under a storage contract with CCC.
    (2) If the sugar is delivered in or to an ineligible storage 
facility, the processor is responsible for all costs incurred in moving 
the sugar to an eligible storage facility.
    (b) CCC has the right to inspect loan collateral or CCC-owned sugar 
and the storage facilities in which the sugar is situated at any time.

[[Page 37622]]

    (c) Regardless of whether CCC inspected the sugar and storage 
facility prior to delivery, the processor is liable to CCC for any 
damages CCC suffers if:
    (1) The processor delivers ineligible sugar to CCC; or
    (2) The processor delivers sugar into ineligible storage.


Sec. 1435.109  Processor storage agreement.

    (a) By executing a note and security agreement, the processor 
agrees to store any forfeited loan collateral on behalf of CCC under 
the terms and conditions specified in this subpart and any storage 
agreement entered into between CCC and the processor. Should the terms 
of these regulations and the terms of the storage agreement conflict, 
the terms set forth in the regulations are applicable.
    (b) The storing processor is responsible for maintaining the 
quality and condition of CCC-owned sugar. The processor is liable to 
CCC for any damages CCC suffers due to the failure of the processor to 
load out sugar meeting the criteria set forth in Sec. 1435.104(d). 
Also, the processor shall store the sugar in the eligible storage where 
delivered for as long as CCC deems necessary.
    (c) If a processor forfeits loan collateral and CCC and the 
processor fails to enter into a storage contract, the processor is 
responsible for all costs incurred in moving the sugar to an eligible 
storage facility.
    (d) A processor storing CCC-owned sugar is responsible for all 
load-out expenses in the event that CCC sells the sugar.
    (e) CCC shall make monthly storage payments to the processor for 
the period of time the processor stores the forfeited sugar. The 
storage payment rate shall be as CCC and the processor agree, and 
according to the terms and conditions CCC sets forth when executing a 
note and security agreement.


Sec. 1435.110  Miscellaneous provisions.

    (a) The regulations issued by the Secretary governing setoffs and 
withholding set forth at part 3 of this title and part 1403 of this 
chapter are applicable to the program set forth in this subpart.
    (b) A producer or processor may obtain reconsideration and review 
of determinations made under this subpart in accordance with the 
regulations at 7 CFR part 780.
    (c) Any false certification, including those made for the purpose 
of enabling a processor to obtain a loan to which it is not entitled, 
will subject the person making such certification to liability under 
applicable Federal civil and criminal statutes.


Sec. 1435.111  Applicable forms.

    CCC forms used for this program are available from the appropriate 
State committee or designated county committee. For purposes of any CCC 
form that refers to program participation by producers, the term 
``producer'' shall be taken to mean ``processor.''

Subpart C--Sugar Marketing Assessments


Sec. 1435.200  General statement.

    (a) This subpart sets forth the terms and conditions for the 
payment to CCC of marketing assessments for beet sugar and raw cane 
sugar marketed during fiscal years 1996 through 2003.
    (b) The marketing assessment applies to:
    (1) First processor marketings of all raw cane sugar processed 
during fiscal years 1996 through 2003 from domestically-produced 
sugarcane or sugarcane molasses, and
    (2) First processor marketings of all beet sugar processed during 
fiscal years 1996 through 2003 from domestically-produced sugar beets 
or sugar beet molasses.


Sec. 1435.201  Marketing assessment rates.

    (a) For marketings during fiscal year 1996, the assessment rate per 
pound of beet sugar is 0.2123 cents per pound. The assessment rate for 
fiscal years 1997 through 2003 is 0.2654 cents per pound.
    (b) For marketings during fiscal year 1996, the assessment rate per 
pound of raw cane sugar is 0.1980 cents per pound, raw value. The 
assessment rate for fiscal years 1997 through 2003 is 0.2475 cents per 
pound, raw value.


Sec. 1435.202  Remittance.

    (a) The monthly amount of the beet sugar marketing assessment to be 
remitted to CCC is determined by multiplying the number of pounds of 
beet sugar marketed in the calendar month by the assessment rate.
    (b) The monthly amount of the marketing assessment on raw cane 
sugar to be remitted to CCC is determined by multiplying the number of 
pounds, raw value, of raw cane sugar marketed, or estimated to be 
marketed in accordance with (e)(1) of this section, in the calendar 
month by the assessment rate.
    (c)(1) First processors shall remit marketing assessments to CCC no 
later than the 30th calendar day following the end of the month in 
which the beet sugar or raw cane sugar subject to the assessment was 
marketed.
    (2) Mailed remittances will be considered timely if they are 
postmarked not later than the 25th calendar day following the month in 
which the beet sugar or cane sugar subject to the assessment was 
marketed.
    (3) CCC must receive electronic remittances by the 30th calendar 
day following the month in which the beet sugar or raw cane sugar 
subject to the assessment was marketed.
    (4) Any processor who fails to file a remittance by the due date 
shall be assessed a civil penalty and interest in accordance with 
Sec. 1435.203.
    (d)(1) First processors shall prepare and submit a fully and 
accurately completed form CCC-80 each month that shows:
    (i) Beet sugar marketings during the previous calendar month; and
    (ii) Raw cane sugar, raw value, marketings during the previous 
calendar month.
    (2) First processors who do not operate on a calendar month basis 
may pay their assessments based on marketings on several extra days or 
fewer days than the calendar month reporting period, consistent with 
the processor's standard accounting period. However:
    (i) Assessments must be paid on all marketings of specific crop 
year sugar in the fiscal year it is due; and
    (ii) The marketing assessments must be remitted monthly and by the 
dates specified in this section.
    (3) The entire assessment that is due and payable shall be remitted 
with the Form CCC-80.
    (e)(1) If, when a raw cane sugar assessment is due and payable, the 
first processor cannot determine the exact raw value of such sugar, an 
estimate of raw value based on the recent experience of the processor 
shall be made and the assessment submitted on the estimated quantity.
    (2) Whenever an assessment is based on an estimate of raw value 
pursuant to (e)(1), any necessary adjustments to the quantity of raw 
sugar subject to the assessment shall be made by filing a corrected 
Form CCC-80 no later than 30 calendar days after the last day of the 
month in which the estimated assessment was paid. If, according to the 
corrected Form CCC-80:
    (i) The assessment was underpaid, the first processor shall remit 
the additional assessment due with the corrected Form CCC-80, and
    (ii) If the assessment was overpaid, the first processor shall 
subtract the overpayment from any assessment due at the time the 
corrected Form CCC-80 is filed, or if none is due at that time, from 
the assessment next due.
    (f) By October 30 of each year, first processors shall determine 
the quantity of beet sugar or raw cane sugar on hand that was produced 
during the preceding

[[Page 37623]]

fiscal year but not marketed by September 30 of such preceding fiscal 
year and shall remit a marketing assessment to CCC as if the sugar had 
been marketed in September of such preceding fiscal year. Such sugar is 
not subject to a second assessment when it is marketed.
    (g) First processors shall send remittances and CCC-80 forms as CCC 
specifies.


Sec. 1435.203  Civil penalties and interest.

    (a) A first processor is liable for a civil penalty of up to 100 
percent of the relevant national average loan rate times the marketings 
of beet sugar or raw cane sugar involved in the violation if the 
processor:
    (1) Fails to remit, on a timely basis, the entire amount of any 
marketing assessment in accordance with this subpart;
    (2) Fails to submit Form CCC-80 fully and accurately completed; or
    (3) Fails to maintain and permit inspection of records as required 
by Sec. 1435.204.
    (b) In addition to any civil penalty assessed in accordance with 
this section, interest on unpaid assessments or deficiencies in 
assessments paid is due and payable at the rate specified in part 1403 
of this chapter beginning on the 1st day of the month after the 
marketing assessment was due in accordance with Sec. 1435.203. Interest 
shall continue to accrue until such amount is paid. However, if full 
payment of an assessment is received within 30 calendar days of the 
date on which the assessment was due, no interest shall apply.
    (c) The Controller, CCC, shall assess civil penalties and interest.
    (d) Affected first processors may request reconsideration of civil 
penalties by filing a request, within 30 days of receipt of certified 
written notification by the Controller, CCC, of such assessment of 
civil penalties, with the Executive Vice President, CCC, Stop 0501, 
1400 Independence Ave. SW, Washington, D.C. 20250-0501.
    (e) After reconsideration, affected first processors may appeal 
civil penalties by filing a notice of appeal, within 30 calendar days 
of receipt of certified written notification by the Executive Vice 
President, CCC, of an affirmation of the assessment of civil penalties, 
with the National Appeals Division in accordance with part 780 of this 
chapter.


Sec. 1435.204  Refunds.

    Marketing assessments are nonrefundable. However, upon presentation 
of evidence acceptable to the Controller, CCC, adjustments to an 
assessment may be made by CCC to reflect the actual marketings of beet 
sugar or raw cane sugar, or a first processor may adjust the amount of 
the assessment due in accordance with Sec. 1435.202.

Subpart D--Information Reporting and Recordkeeping Requirements


Sec. 1435.300  General statement.

    (a) Every sugar beet processor, sugarcane processor, and cane sugar 
refiner shall report, on a monthly basis on CCC required forms, its 
imports and receipts, processing inputs, production, distribution, 
stocks, and other information necessary to administer sugar programs.
    (b) Any processor must, upon CCC's request, provide such 
information as CCC deems appropriate for determining regional loan 
rates.
    (c) The sugar information reporting and recordkeeping requirements 
of this subpart are administered under the general supervision of the 
Executive Vice President, CCC.


Sec. 1435.301  Civil penalties.

    (a) Any processor or refiner who willfully fails or refuses to 
furnish the information, or who willfully furnishes false data required 
under Sec. 1435.300, is subject to a civil penalty of no more than 
$10,000 for each such violation.
    (b) The Controller, CCC, shall assess civil penalties and interest.
    (c) Affected first processors may request reconsideration of civil 
penalties by filing a request, within 30 days of receipt of certified 
written notification by the Controller, CCC, of such assessment of 
civil penalties, with the Executive Vice President, CCC, Stop 0501, 
1400 Independence Ave. SW, Washington, D.C. 20250-0501.
    (d) After reconsideration, affected first processors may appeal 
civil penalties by filing a notice of appeal, within 30 calendar days 
of receipt of certified written notification by the Executive Vice 
President, CCC, of an affirmation of the assessment of civil penalties, 
with the National Appeals Division in accordance with part 780 of this 
chapter.

PART 1446--PEANUTS

    43. The authority citation for part 1446 is revised to read as 
follows:

    Authority: 7 U.S.C. 7271; 15 U.S.C. 714b and 714c.

    44. Section 1446.101 is amended by revising the first and second 
sentences of the section to read as follows:


Sec. 1446.101  General statement.

    This part sets out provisions relating to the 1996 through 2002 
crops of peanuts as authorized and in accordance with the applicable 
provisions of Public Law 104-127. The peanut marketing, storage, 
handling and disposition requirements for peanuts for the 1991 through 
1995 crops shall continue to be governed by the regulations codified in 
this part 1446 as of January 1, 1996. * * *
    45. In Sec. 1446.103, the definition of ``eligible producer'' is 
amended by redesignating paragraph (4) as paragraph (5) and adding a 
new paragraph (4) in its place, and paragraph (1) of the definition of 
``support rate'' is revised to read as follows:


Sec. 1446.103  Definitions

* * * * *
    Eligible producer. An eligible producer for purposes of price 
support under this part shall be a person who meets all of the 
following criteria:
* * * * *
    (4) The person has not marketed 100 percent of a quota peanut crop 
that meets the quality requirements for domestic edible use, through a 
marketing association for the 2 marketing years immediately preceding 
the current marketing year, if handlers have provided the producer with 
written offers, upon delivery, for the purchase of all the quota 
peanuts, at a price equal to or in excess of the quota support price. 
If a producer is rendered ineligible for quota price support under this 
or any other provision, the producer may appeal the ineligibility 
determination utilizing procedures provided in part 780 of this title.
* * * * *
    Support rate.--(1) National average. The national average price 
support rate for quota peanuts, for each of the 1996 through 2002 
crops, shall be $610.00 per ton. The national average price support 
rate for additional peanuts, for each of the 1996 through 2002 crops, 
shall be the rate announced by the Secretary.
* * * * *
    46. In Sec. 1446.203, paragraph (b) is revised to read as follows:


Sec. 1446.203  Marketing card entries and collection of assessments, 
penalties and debts.

* * * * *
    (b) Farmers Home Administration or Farm Service Agency lien. If a 
Farmers Home Administration or Farm Service Agency lien has been 
recorded on the marketing card that was issued for the use of a 
producer when marketing peanuts, the purchaser of such peanuts shall 
make the check, for the proceeds

[[Page 37624]]

from such peanuts, payable jointly to the producer and the Farm Service 
Agency. However, if a peanut poundage quota lien was also recorded on 
the marketing card against such producer, the check shall be made 
payable jointly to the producer, CCC and the Farm Service Agency.
    47. Section 1446.307 is amended by revising paragraphs (b) and (d) 
to read as follows:


Sec. 1446.307  Disaster transfer of Segregation 2 or Segregation 3 
peanuts from additional loan to quota loan.

* * * * *
    (b) Limitation of amount eligible for transfer. A transfer made in 
accordance with this section shall not exceed the smaller of:
    (1) The difference between:
    (i) The total quantity of Segregation 1 peanuts marketed from the 
farm, plus the amount of peanuts retained on the farm for seed or other 
use, and
    (ii) The effective farm poundage quota, excluding quota pounds 
transferred to the farm in the fall; or
    (2) Twenty-five percent of the effective farm poundage quota, 
excluding quota pounds transferred to the farm in the fall.
* * * * *
    (d) Loan value for transferred peanuts.--(1) Segregation 2 peanuts. 
The quota loan value for any lot of Segregation 2 peanuts transferred 
from an additional loan to a quota loan shall be determined by 
multiplying 70 percent of the quota loan rate that otherwise would have 
been applicable for such lot of peanuts as quota peanuts, exclusive of 
any discount for damaged kernels, by the net weight of peanuts being 
transferred and deducting from the result the amount of any special 
discount that may apply for Segregation 2 peanuts transferred in 
accordance with this section.
    (2) Segregation 3 peanuts. The quota loan value for any lot of 
Segregation 3 peanuts transferred from an additional loan to a quota 
loan shall be determined by multiplying 70 percent of the quota loan 
rate that otherwise would have been applicable for such lot of peanuts 
as quota peanuts, exclusive of any discount for damaged kernels, by the 
net weight of peanuts being transferred and deducting from the result 
the amount of any special discount that may apply for Segregation 3 
peanuts transferred in accordance with this section.
* * * * *
    48. Section 1446.308 is amended by revising paragraphs (a), (d) and 
(e)(1), removing paragraph (f), and redesignating paragraph (g) as 
paragraph (f) to read as follows:


Sec. 1446.308  Loan pools.

    (a) Establishment of pools.--(1) Each marketing association shall 
establish six separate loan pools; one for each of the three 
segregations of additional peanuts and one for each of the three 
segregations for quota peanuts. These pools shall be formed without 
regard to the type of peanuts (Runner, Virginia, Spanish, or Valencia) 
involved. However, the SWPGA shall also establish 12 separate loan 
pools for Valencia peanuts produced in New Mexico, namely, for bright 
hull peanuts and for dark hull peanuts separately, to include for each 
of them separate, by segregation, additional peanuts and quota peanuts 
pools. Each marketing association shall maintain separate, complete and 
accurate records for each loan pool that is established by the 
marketing association.
    (2) Eligibility to participate in New Mexico Pools.
    (i) In general. Except as provided in clause (a)(2)(ii) of this 
section, in the case of the 1996 and subsequent crops, Valencia peanuts 
not physically produced in the State of New Mexico shall not be 
eligible to participate in the pools of the State even if the farm on 
which the peanuts are produced is constituted for administrative 
purposes within the State of New Mexico.
    (ii) Exception. A producer of Valencia peanuts may enter Valencia 
peanuts that are physically produced in Texas into the pools for New 
Mexico in a quantity not greater than the average annual quantity of 
the peanuts that the producer entered into the New Mexico pools for the 
1990 through 1995 crops; however, to qualify, the peanuts must be 
produced on the same farm on which the peanuts were produced during the 
base years of 1990 through 1995.
* * * * *
    (d) Recovery of losses in quota area loan pools.--(1) If the loan 
indebtedness on the peanuts in a quota area pool exceeds the proceeds 
from the sale of the peanuts in such pool, such excess shall be 
recovered using the following sources in the following order of 
priority:
    (i) Proceeds due any individual producer from any pool, as a result 
of the transfer of peanuts for pricing purposes from an additional loan 
pool to a quota loan pool, pursuant to the provisions in Sec. 1446.307.
    (ii) Gains of any producer in the same pool, by the amount of pool 
gains attributed to the same producer from the sale of additional 
peanuts for domestic and export edible use.
    (iii) Gains or profits resulting from the sale of additional 
peanuts, other than Valencia peanuts produced in New Mexico in separate 
type pools established under paragraph (a) of this section, in the same 
marketing area for domestic edible use, that are owned or controlled by 
CCC. This paragraph shall not apply to gains or profits from the sale 
of peanuts that were produced on farms with 1 acre or less of peanut 
production.
    (iv) Marketing assessments, collected from producers under 
Sec. 729.316 of this title, that the Secretary determines are necessary 
to cover losses in area quota pools.
    (v) Gains or profits from quota pools in other marketing areas, 
other than separate type pools established under paragraph (a) of this 
section for Valencia peanuts produced in New Mexico.
    (vi) Gains or profits resulting from the sale of additional peanuts 
in other marketing areas, other than Valencia peanuts produced in New 
Mexico in separate type pools established under paragraph (a) of this 
section, for domestic edible use, that are owned or controlled by CCC. 
This paragraph shall not apply to gains or profits from the sale of 
peanuts that were produced on farms with 1 acre or less of peanut 
production.
    (vii) Marketing assessments, collected from handlers under 
Sec. 729.316 of this title, that the Secretary determines are necessary 
to cover losses in area quota pools.
    (viii) Increased marketing assessments on quota peanuts in the 
production area covered by the pool, which shall be assessed as needed 
and collected from producers under Sec. 729.317 of this title.
    (2) The exceptions provided for Valencia peanuts in paragraph 
(d)(1) of this section shall only apply as to prevent offsets between 
pools for each of the Valencia types (bright-hull and dark-hull) for 
New Mexico and other peanuts.
* * * * *
    (e) Pool distribution.--(1) Net gains as determined in accordance 
with this section on peanuts in each area pool shall be distributed to 
each producer who placed peanuts in that pool in proportion to the 
dollar value of peanuts placed in such pool by that producer, except 
that the proceeds available for the amount of distribution shall be 
subject to any other conditions and offsets set forth in this section; 
and
* * * * *
    49. Section 1446.401 is amended by revising paragraph (a)(1) to 
read as follows:


Sec. 1446.401  Contracts for additional peanuts for crushing or export.

* * * * *

[[Page 37625]]

    (a) Contract form and addendum.--(1) Contract form. In order to be 
approved by the county committee, the contract must be completed on 
Form CCC-1005, Handler Contract With Producers for Purchase of 
Additional Peanuts for Crushing or Export, or on a form approved by the 
Executive Vice President, CCC, or designee, which follows the 
organization of the CCC-1005 and contains as a minimum all of the 
requirements provided for in paragraph (c)(2) of this section.
* * * * *
    50. Section 1446.410 is amended by revising paragraph (b) to read 
as follows:


Sec. 1446.410  Disposition date.

* * * * *
    (b) Extension of final disposition date. The final disposition date 
for an individual handler may be extended by the marketing association 
to November 30 of the year following the calendar year in which the 
crop was grown if, by the final disposition date identified in 
paragraph (a) of this section, the handler files a written request with 
the marketing association that specifies the number of pounds for which 
an extension is requested.
    51. Part 1468 is revised as follows:

PART 1468--WOOL AND MOHAIR

    Authority: 7 U.S.C. 1781-1787; 15 U.S.C. 714b and 714c.


Sec. 1468.1  Termination.

    The price support program for wool and mohair was terminated at the 
conclusion of the 1995 marketing year. The regulations setting forth 
the applicable terms and conditions for the Wool and Mohair Program for 
the 1995 and prior marketing years found at part 1468 of this title as 
of January 1, 1996, shall be applicable to determinations made with 
respect to the administration of payments outstanding on or after July 
18, 1996.

    Dated: July 3, 1996.
Dan Glickman,
Secretary of Agriculture.

    Dated: July 3, 1996.
Eugene Moos,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 96-17486 Filed 7-12-96; 11:39 am]
BILLING CODE 3410-05-P