[Federal Register Volume 62, Number 231 (Tuesday, December 2, 1997)]
[Proposed Rules]
[Pages 63678-63681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31573]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 62, No. 231 / Tuesday, December 2, 1997 / 
Proposed Rules  

[[Page 63678]]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 729

Commodity Credit Corporation

7 CFR Part 1446

RIN 0560-AF16


1998-Crop Peanut National Poundage Quota, 1998-Crop Additional 
Peanuts National Average Support Level and Minimum Commodity Credit 
Corporation (CCC) Export Edible Sales Price for the 1998 and Subsequent 
Crops of Additional Peanuts

AGENCY: Farm Service Agency and Commodity Credit Corporation, USDA.

ACTION: Proposed rule.

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SUMMARY: The Agricultural Adjustment Act of 1938, (the 1938 Act) as 
amended, requires that the national peanut poundage quota for the 1998 
crop be announced by December 15, 1997. The Agricultural Act of 1949, 
(the 1949 Act), as amended, requires that the additional support level 
be announced not later than February 15, 1998. The minimum CCC export 
edible sales price for additional peanuts is usually announced at the 
same time as the price support level. This proposed rule suggests a 
national poundage quota figure in the range between 1,133,000 short 
tons (st) and 1,175,000 st, proposes that the national average 
additional price support level for the 1998 crop peanuts be set between 
$132 per st and $175 per st, and that the minimum CCC sales price for 
1998 and subsequent crops of additional peanuts for export edible use 
be set between $350 to $400 per st or by formula.

DATES: Comments must be received by December 9, 1997, in order to be 
assured of consideration.

ADDRESSES: Comments must be submitted to the Director, Tobacco and 
Peanuts Division, Farm Service Agency (FSA), United States Department 
of Agriculture, STOP 0514, 1400 Independence Avenue, S.W., Washington, 
DC 20250-0514. All written submissions will be made available for 
public inspection from 8:15 a.m. to 4:45 p.m., Monday through Friday, 
except holidays, in Room 5750-South Building, 1400 Independence Avenue, 
S.W., Washington, DC 20250-0514.

FOR FURTHER INFORMATION CONTACT: Kenneth M. Robison, Tobacco and 
Peanuts Division, FSA, USDA, STOP 0514, 1400 Independence Avenue, S.W., 
Washington, DC 20250-0514, telephone 202-720-9255. Copies of the cost-
benefit assessment prepared for the rule can be obtained from Mr. 
Robison.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be significant and was 
reviewed by OMB under Executive Order 12866.

Federal Assistance Program

    The title and number of the Federal Assistance Program, as found in 
the Catalog of Federal Domestic Assistance, to which this rule applies 
are: Commodity Loans and Purchases --10.051.

Executive Order 12998

    This rule has been reviewed in accordance with Executive Order 
12998. The provisions of this proposed rule do not preempt State laws, 
are not retroactive, and do not involve administrative appeals.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this proposed rule since neither FSA nor CCC is 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 of these 
determinations.

Paperwork Reduction Act

    These proposed amendments do not contain information collections 
that require clearance by the Office of Management and Budget under the 
provisions of 44 U.S.C. chapter 35.

Discussion

    This proposed rule would amend 7 CFR part 729 to set forth the 
1998-crop peanut national poundage quota, and 7 CFR part 1446 to set 
forth the 1998-crop national average support level for additional 
peanuts and the minimum CCC sales price for 1998 crop additional 
peanuts sold for export edible use.

A. National Poundage Quota

    Section 358-1(a)(1) of the 1938 Act, as amended by the Federal 
Agricultural Improvement and Reform Act of 1996 (1996 Act), requires 
that the Secretary set a basic national quota for peanuts for each of 
the 1996 through 2002 marketing years (MY) at a level that is equal to 
the quantity of peanuts (in tons) that the Secretary estimates will be 
devoted in each MY to domestic edible use (excluding seed) and related 
uses. As to seed, section 358-1(b)(2)(B) of the 1938 Act provides that 
a temporary allocation of quota pounds for the MY only in which the 
crop is planted shall be made to producers for each of the 1996 through 
2002 MYs and that the temporary seed quota allocation shall be equal to 
the pounds of seed peanuts planted on the farm as may be adjusted and 
determined under regulations prescribed by the Secretary. The MY for 
1998-crop peanuts will be from August 1, 1998 through July 31, 1999. 
Producers will vote in a referendum on December 1-4, 1997 to determine 
whether they approve marketing quotas for MY 1998 to MY 2002.
    The national poundage quota for MY 1997 was set at 1,133,000 st. 
This rule proposes that the national poundage quota for MY 1998 be set 
between 1,133,000 st and 1,175,000 st based on the following data:

------------------------------------------------------------------------
                                                        Short tons      
                                                 -----------------------
                                                     97.8%       94.3%  
                                                  production  production
------------------------------------------------------------------------
Domestic Edible Use:                                                    
  Domestic food.................................     933,000     933,000
On farm and local sales                                9,000       9,000
Related Uses:                                                           
  Crushing residual.............................     123,000     123,000
  Shrinkage and other losses....................      37,500      37,500
  Transfer to quota.............................       5,000       5,000
                                                 -----------------------
    Subtotal....................................   1,107,500   1,107,500
  Allowance for underproduction.................      25,500      67,500
                                                 =======================
    Totals......................................   1,133,000   1,175,000
------------------------------------------------------------------------


[[Page 63679]]

    The estimate of 1998 domestic food use was developed in two steps. 
First, total domestic edible utilization of 1,088,000 st was estimated 
by the USDA Interagency Commodity Estimates Committee (ICEC). Second, 
this estimate was reduced by 155,000 st to exclude peanut imports, 
peanut butter imports, and peanut butter exports. Although estimates of 
domestic edible utilization typically include product exports, peanut 
butter exports are generally either made from, or may otherwise be 
credited under section 358(e)(1) of the 1938 Act as being made from 
additional peanuts. MY 1997 farm use and local sales were estimated at 
1 percent of ICEC's MY 1998 production estimate. This percentage 
reflects the average difference between USDA production data and 
Federal-State Inspection Service inspections data. About one-half of 
farm use and local sales is allocated to food use and the remainder to 
seed, which is excluded from quota determinations under amendments to 
the 1938 Act made by the 1996 Act.
    The crushing residual represents the farmer stock equivalent weight 
of crushing grade kernels shelled from quota peanuts. In any given lot 
of farmer stock peanuts, a portion of such peanuts is only suitable for 
the crushing market. The quota must be sufficient to provide for the 
shelling of both edible and crushing grades. The crushing residual 
identified above reflects the assumption that crushing grade peanuts 
will be about 12 percent, on a farmer stock basis, of the total of MY 
1998 domestic edible use production.
    The allowance for shrinkage and other losses is an estimate of 
reduced kernel weight available for milling as well as for kernel 
losses due to damage, fire, and spillage. These losses were estimated 
by multiplying a factor of 0.04 times domestic edible use. This factor 
is the minimum shrinkage generally allowed for calculating obligations 
of handlers under section 359a(d)(2)(B)(iv) of the 1938 Act and is 
believed to be a fair estimate of such shrinkage for purposes of this 
determination, taking into account all factors.
    Segregation 2 and 3 loan transfers to quota loan represent 
transfers of Segregation 2 and 3 peanuts from additional price support 
loan pools to quota loan pools. Such transfers occur when quota peanut 
producers have insufficient Segregation 1 peanuts to fill their quotas, 
yet have Segregation 2 and 3 peanuts in additional loan pools which 
would have been eligible to be pledged as collateral for price support 
loans at a discounted quota loan rate.
    In addition, an allowance has been made for underproduction. Under 
past legislation, only 92 percent of the quota had been marketed. Prior 
to the 1996 crop, at the national level, any unmarketed pounds up to 10 
percent of the national marketing quota could be added to the farms 
basic quota for that crop year. Under the 1996 Act any quota pounds not 
marketed cannot be carried forward and would be a loss of potential 
income for producers, therefore, it is expected that somewhat more than 
92 percent of the quota will be marketed in MY 1998. In MY 1996 about 
97.3 percent was marketed and in MY 1997 about 97.5 percent of quota is 
expected to be marketed. It is anticipated that about 94 to 98 percent 
of the MY 1998 quota will be marketed.
    The lowest proposed 1998 quota level, as set forth above, reflects 
expected growth in domestic consumption of peanut products through 
government purchases, new uses and a small increase in demand resulting 
from lower peanut support prices in recent years. This level 
essentially reflects the assumption that about 97.8 percent of the 
quota will be marketed and adds increased demand for edible peanuts. 
The higher range proposal takes into account the possibility that 
marketings of quota could fall as low as the 94.3 percent level. This 
range appears to be a fair estimate of possible market conditions.
    Disappearance of peanuts into primary products has been relatively 
flat over the last year. Overall demand, including imports, is 
projected to increase about 1.5 percent. However, government support 
purchases in MY 1996 have increased about 45 percent from 22,750 st 
farmer stock (fs) in MY 1995 to 32,200 st (fs) in MY 1996.
    A significantly larger quota option than those presented would 
lower the price received by growers from first buyers and could reduce 
costs to consumers for peanut products slightly. However, it is assumed 
that a substantial increase in quota would be needed to lower the 
average grower price to a level near the average national support 
price. A quota in the neighborhood of 1,500,000 tons would likely 
result in sufficient quantities of peanuts delivered at the right time 
and place such that the average price would be only slightly higher 
than $610 per ton.
    This option only becomes viable if one assumes greater 
responsiveness in demand to additional supplies. One must assume a 
significant growth in demand because of a lower price to justify this 
option.
    The cost of overestimating demand would be high. Assuming the 
demand for greater supplies of peanuts is slight, this level of quota 
could result in a surplus and a loss on loan placements for more than 
300,000 tons of peanuts. These peanut losses would be around $400 a 
ton. Losses of up to $120 million would occur and result in producer 
assessments of over $100 per ton the following year. This level of 
assessment would lower the effective price received by producers for 
quota peanuts in MY 1999 to $500 per ton or less.
    Buybacks worked well in MY 1996. Buyback is a term used to describe 
a marketing transaction in which a producer places additional peanuts 
under price support loan at the additional loan rate and a handler 
simultaneously purchases the same peanuts at the quota support level 
from the marketing associations for domestic edible use. To bolster 
stocks in MY 1996, the peanut industry bought back over 100,000 tons of 
additional peanuts. In MY 1997, it is anticipated that the peanut 
industry will again use the buyback provisions to purchase about 
100,000 tons in order to continue building stocks. Depending on stock 
levels at the beginning of MY 1998, the peanut industry may again use 
buybacks to build stocks.

B. Additional Peanut Support Level

    Section 155(b)(2) of the 1996 Act provides that price support shall 
be made available for additional peanuts at such level as the Secretary 
determines will ensure no losses to CCC from the sale or disposal of 
such peanuts, taking into consideration the demand for peanut oil and 
peanut meal, expected prices of other vegetable oils and protein meals, 
and the demand for peanuts in foreign markets.
    The MY 1997 price support level for additional peanuts was 
announced at $132 per st on February 14, 1997. The national average 
price support rate for quota peanuts, for each of the 1996 through 2002 
crops, was set at $610 per st by the 1996 Act and is codified at 7 CFR 
section 1446.103. Regulations pertaining to price support loan levels 
for additional peanuts are found in 7 CFR section 1446.310.
    The range for the MY 1998 price support level for additional 
peanuts is recommended to be within the range of $132 per st and $175 
per st. Additional loan peanuts are sold out of inventory in order to 
recoup the price support loan principal, interest and related costs. In 
the proposed price range, if the edible peanut market deteriorated to a 
point that the entire loan inventory was sold as oil stock, anticipated 
revenues should be adequate to ensure no losses to CCC from the sale or 
disposal of

[[Page 63680]]

additional peanuts. The statutory factors have been analyzed as set out 
below:
    1. The domestic use of peanut oil during MY 1998 is forecast to be 
105,000 st, up 2,500 st from MY 1997 projected domestic use. MY 1998 
peanut oil beginning stocks are expected to be 35,000 st, down about 19 
percent from MY 1997. The MY 1998 average peanut oil price is expected 
to be $0.395 per pound, down $0.018 per pound from MY 1997.
    2. The domestic use of peanut meal during MY 1998 is forecast to be 
150,000 st, unchanged from MY 1997 projected domestic use. MY 1998 
peanut meal beginning stocks are expected to be 4,000 st, unchanged 
from MY 1997. The MY 1998 average peanut meal price is expected to be 
$152.50 per st, down $12.50 per st from MY 1997.
    3. The domestic disappearance of soybean oil during MY 1998 is 
forecast to be 7,262,500 st, up 1.6 percent from projected MY 1997 
domestic disappearance. MY 1998 soybean oil beginning stocks are 
expected to be 890,000 st, up 11.3 percent from MY 1997. The MY 1998 
average soybean oil price is expected to be $0.230 per pound, down 
$0.003 per pound from MY 1997.
    4. The domestic disappearance of cottonseed oil during MY 1998 is 
forecast to be 515,000 st, unchanged from projected MY 1997 domestic 
disappearance. MY 1998 cottonseed oil beginning stocks are expected to 
be 42,500 st, up 1.2 percent from MY 1997. The MY 1998 average 
cottonseed oil price is expected to be $0.250 per pound, down $0.01 per 
pound from MY 1997.
    5. The domestic disappearance of soybean meal during MY 1998 is 
forecast to be 29,000,000 st, up 3.6 percent from projected MY 1997 
domestic disappearance. MY 1998 soybean meal beginning stocks are 
expected to be 250,000 st, up 25 percent from MY 1997. The MY 1998 
average soybean meal price is expected to be $187.50 per st, down 
$20.00 per st from MY 1997.
    6. The domestic disappearance of cottonseed meal during MY 1998 is 
forecast to be 1,635,000 st, down 0.3 percent from projected MY 1997 
domestic disappearance. MY 1998 cottonseed meal beginning stocks are 
expected to be 52,000 st, down 16.1 percent from MY 1997. The MY 1998 
average cottonseed meal price is expected to be $140.00 per st, down 
$15.00 per st from MY 1997.
    7. The world use of peanuts for MY 1997 is expected to be 13.05 
million metric tons, down 10.4 percent from MY 1996. World peanut 
production for MY 1997 is forecast to be 24.58 million metric tons, 
down 7.8 percent from MY 1996. Ending stocks for MY 1997 are forecast 
at 0.51 million metric tons, up 4.5 percent from 1996.
    MY 1997 begins with record oil stocks and large imports of oil 
during MY 1996. Yet, peanut oil prices are projected to be 41.3 cents 
per pound. Based on the supply use situation at the beginning of MY 
1997 and projections for MY 1998, there are conflicting signals in the 
supply price relationship in the peanut oil market that suggest caution 
in setting the additional peanut support level. Also, based on the 
1996/97 and 1997/98 marketing seasons, producers are expected to place 
about 10,000 st of quota peanuts and 140,000 st of additional peanuts 
under price support loan.

C. Minimum CCC Sales Price for Additional Peanuts Sold for Export 
Edible Use

    A minimum price at which 1998 crop additional peanuts owned or 
controlled by CCC may be sold for use as edible peanuts in export 
markets is a discretionary action that, by practice, is expected to be 
announced on or before February 15, 1998, the same time that the 
additional peanut support level for the 1998 crop is announced. The 
announcement of that price provides producers and handlers with 
information to facilitate the negotiation of private contracts for the 
sale of additional peanuts for export.
    An overly high price may create an unrealistic expectation of high 
pool dividends and discourage private sales. If too low, the minimum 
price could have an unnecessary, adverse effect on prices paid to 
producers for additional peanuts.
    This proposed rule follows the publication of an advance notice of 
proposed rule making of August 18, 1997 published in the Federal 
Register (62 FR 43955) soliciting comments relative to the method for 
determining the minimum export edible sales price for additional 
peanuts and relative to what that price should be. Ten comments were 
received relative to the method for determining the minimum export 
edible sales price for additional peanuts and relative to what the 
price should be. Seven of the comments were from organizations 
representing producers. The seven producer organizations commenting 
favored maintaining the $400 per st minimum price. Three comments were 
from organizations representing shellers. The three sheller 
organizations commenting favored reducing the minimum export edible 
sales price or establishing it by formula.
    Grower groups which favored setting the minimum export edible sales 
price at $400 per st in 1998, argued (1) a fixed price for the CCC 
export edible sales price has worked well for 12 consecutive years, (2) 
a lower CCC export edible sales price would result in lower grower 
revenues, (3) the decision of when and at what price to contract is 
complex and a formula could create even more uncertainty and (4) a lack 
of a publicly available data series creates problems and concerns for 
using a formula.
    Sheller groups, which favored either a formula or a reduced minimum 
sales price argued that new pricing would: (1) Increase U.S. 
competitiveness in world edible peanut markets and (2) increase U.S. 
flexibility in marketing peanuts. One such proposal would base the 
minimum export sales price at 10 percent above the current oil value of 
peanuts and adjust the price monthly. Another sheller group recommended 
setting the minimum export edible sales price at between $350 and $375 
per st in 1998 and that the price be reset annually to account for 
volatility in export edible peanut markets.
    It is proposed that the minimum price at which 1998 crop additional 
peanuts owned or controlled by CCC may be sold for use as edible 
peanuts in export markets be established within the range of $350 to 
$400 per st or be set by formula. The objective of the level set or 
method used is to encourage exports while providing price stability for 
additional peanuts sold under contract. It should assure handlers that 
CCC will not undercut their export-contracting efforts with offerings 
of additional peanuts for export edible sale below the contract price 
of the contract additional peanuts.

List of Subjects

7 CFR Part 729

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

7 CFR Part 1446

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

    Accordingly, it is proposed that 7 CFR parts 729 and 1446 be 
amended as follows:

PART 729--PEANUTS

    1. The authority citation for 7 CFR part 729 continues to read as 
follows:


[[Page 63681]]


    Authority: 7 U.S.C. 1301, 1357 et seq., 1372, 1373, 1375, and 
7271.

    2. Section 729.216 is amended by revising paragraph (c) to read as 
follows:


Sec. 729.216  National poundage quota.

* * * * *
    (c) Quota determination for individual marketing years (excluding 
seed):
    (1) The national poundage quota (excluding seed) for quota peanuts 
for marketing year 1996 is 1,100,000 short tons.
    (2) The national poundage quota (excluding seed) for quota peanuts 
for marketing year 1997 is 1,133,000 short tons.
    (3) The national poundage quota (excluding seed) for quota peanuts 
for marketing year 1998 will be set between 1,133,000 and 1,175,000 
short tons.

PART 1446--PEANUTS

    3. The authority citation for 7 CFR part 1446 continues to read as 
follows:

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

    4. Section 1446.310 is amended by adding a new paragraph (c) to 
read as follows:


Sec. 1446.310  Additional peanut support levels.

* * * * *
    (c) The national support rate for additional peanuts for the 1998 
crop will be at a level which shall be between $132 per short ton and 
$175 per short ton.
    5. Section 1446.311 is amended by adding new paragraph (c) to read 
as follows:


Sec. 1446.311  Minimum CCC sales price for certain peanuts.

* * * * *
    (c) The minimum CCC sales price for additional peanuts to be sold 
from the price support loan inventory for export edible use from the 
1998 and subsequent crops will be between $350 and $400 per short ton 
or set by formula as announced by the Director of the Tobacco and 
Peanuts Division, FSA.

    Signed at Washington, DC, on November 26, 1997.
Keith Kelly,
Administrator, Farm Service Agency and Executive Vice President, 
Commodity Credit Corporation.
[FR Doc. 97-31573 Filed 11-26-97; 3:08 pm]
BILLING CODE 3410-05-P