[Federal Register Volume 67, Number 202 (Friday, October 18, 2002)]
[Rules and Regulations]
[Pages 64454-64481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26524]



[[Page 64453]]

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Part II





Department of Agriculture





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Commodity Credit Corporation



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7 CFR Parts 1425, 1427, 1430, and 1434



2002 Farm Bill Regulations--Cooperative Marketing Associations; Cotton; 
Dairy; Honey; Final Rule

  Federal Register / Vol. 67, No. 202 / Friday, October 18, 2002 / 
Rules and Regulations  

[[Page 64454]]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Parts 1425, 1427, 1430 and 1434

RIN 0560-AG72


2002 Farm Bill Regulations--Cooperative Marketing Associations; 
Cotton; Dairy; Honey

AGENCIES: Farm Service Agency, Commodity Credit Corporation.

ACTION: Final rule.

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SUMMARY: This final rule implements several requirements of Title I of 
the Farm Security and Rural Investment Act of 2002 (the 2002 Act) 
relating to the commodity programs of the Commodity Credit Corporation 
(CCC). This rule expands the loans that may be available to producers 
through agricultural marketing cooperatives, makes a number of changes 
to the cotton regulations, provides for marketing assistance loans or 
loan deficiency payments to honey producers, and added new marketing 
assistance loan and loan deficiency payment programs for mohair and 
wool. The 2002 Act also continues the dairy price support program and 
authorizes a new Milk Income Loss Contract (MILC) Program to provide 
income support for dairy farmers. Several other rules have been or will 
be published for related provisions of the 2002 Act.

EFFECTIVE DATE: October 15, 2002.

FOR FURTHER INFORMATION CONTACT: Grady Bilberry, Director, Price 
Support Division, FSA/USDA, STOP 0512, 1400 Independence Ave. SW., 
Washington, DC, 20250-0512; telephone (202) 720-7901; facsimile (202) 
690-3307; e-mail: [email protected]. Persons with 
disabilities who require alternative means for communication (Braille, 
large print, audio tape, etc.) should contact the USDA Target Center at 
(202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Notice and Comment

    Section 1601(c) of the 2002 Act requires that the regulations 
necessary to implement Title I of the 2002 Act are to be promulgated 
without regard to the notice and comment provisions of 5 U.S.C. 553 or 
the Statement of Policy of the Secretary of Agriculture effective July 
24, 1971, (36 FR 13804) relating to notices of proposed rulemaking and 
public participation in rulemaking. These regulations are thus issued 
as final.

Executive Order 12866

    This final rule is economically significant according to Executive 
Order 12866 and has been reviewed by the Office of Management and 
Budget (OMB). A cost-benefit assessment of the actions this rule will 
take was completed and is summarized after the background section.

Federal Assistance Programs

    The title and number of the Federal assistance program in the 
Catalog of Federal Domestic Assistance to which this final rule applies 
is 10.051--Commodity Loans and Loan Deficiency Payments.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule 
because the Office of the Secretary, the Farm Service Agency (FSA) and 
the Commodity Credit Corporation (CCC) are not required by 5 U.S.C. 553 
or any other law to publish a notice of proposed rulemaking with 
respect to the subject matter of this rule.

Environmental Review

    An environmental assessment is being completed to consider the 
potential impacts of this proposed action on the human environment in 
accordance with the provisions of the National Environmental Policy Act 
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and FSA's 
regulations for compliance with NEPA, 7 CFR part 799. Section 1601 of 
the 2002 Act mandated that these regulations be promulgated no later 
than 90 days after enactment. Further, this rule affects a large number 
of agricultural producers who are dependent upon its provisions for 
income support and need to know of its details as soon as possible 
because it has an effect on their planting and marketing decisions. 
Thus, CCC is attempting to satisfy both the Congressional mandate and 
its public missions by publishing this rule now, while continuing a 
good faith effort to comply with NEPA in as timely a fashion as 
possible, given the above-mentioned statutory and mission requirements. 
A copy of the draft environmental assessment will be made available for 
public review and comment upon request.

Executive Order 12778

    The final rule has been reviewed under Executive Order 12778. This 
rule preempts State laws that are inconsistent with its provisions. 
This rule is not retroactive. Before any judicial action may be brought 
regarding this rule, all administrative remedies must be exhausted.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires consultation with State and local officials. See the notice 
related to 7 CFR part 3015, subpart V, published at 48 FR 29115 (June 
24, 1983).

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does 
not apply to this rule because CCC is not required by 5 U.S.C. 553 or 
any other law to publish a notice of proposed rulemaking about the 
subject matter of this rule. Further, this rule imposes no unfunded 
mandates, as defined in UMRA, on any local, state, or tribal government 
or the private sector.

Small Business Regulatory Enforcement Fairness Act of 1996

    Section 1601(c) of the 2002 Act requires that the regulations 
necessary to implement Title I of the 2002 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. Section 
1601(c) also requires that the Secretary use the authority in section 
808 of the Small Business Regulatory Enforcement Fairness Act of 1996, 
Public Law 104-121 (SBREFA), which allows an agency to forgo SBREFA's 
usual 60-day Congressional Review delay of the effective date of a 
major regulation if the agency finds that there is a good cause to do 
so. These regulations affect the planting and marketing decisions of an 
extraordinarily large number of agricultural producers. Accordingly, 
this rule is effective upon the date of filing for public inspection by 
the Office of the Federal Register.

Paperwork Reduction Act

    Section 1601(c) of the 2002 Act provides that the promulgation of 
regulations and the administration of Title I of the 2002 Act shall be 
made without regard to chapter 5 of title 44 of the United States Code 
(the Paperwork Reduction Act). Accordingly, these regulations and the 
forms and other information collection activities needed to administer 
the program authorized by these regulations are not subject to review 
by OMB under the Paperwork Reduction Act.

[[Page 64455]]

Government Paperwork Elimination Act

    FSA is committed to compliance with the Government Paperwork 
Elimination Act (GPEA) and the Freedom to E-File Act, which require 
Government agencies in general and FSA in particular to provide the 
public the option of submitting information or transacting business 
electronically to the maximum extent possible. The forms and other 
information collection activities required for participation in the 
program are not yet fully implemented for the public to conduct 
business with FSA electronically. However, loan application forms are 
available electronically through the USDA eForms Web site at 
www.sc.egov.usda.gov for downloading. The regulation is available at 
FSA's Price Support Division Internet site at www.fsa.usda.gov/dafp/psd. Applications may be submitted at the FSA county offices, by mail 
or by FAX. At this time, electronic submission is not available. Full 
development of electronic submission is underway.

Background

    The 2002 Act made major revisions to the commodity programs. This 
rule expands the loans that may be available to producers through 
agricultural marketing cooperatives, known as Cooperative Marketing 
Associations (CMA). This rule also revises CCC's cotton regulations, 
and implements a new regime for producers of wool, mohair, and honey. 
Finally, it provides regulations that govern the milk price support 
program and the new Milk Income Loss Contract (MILC) Program, designed 
to provide price protection to U.S. dairy producers. The programs 
implemented in this rule are effective for up to 6 years, and will 
contribute to a farm income support program, or ``safety net'', that is 
more stable and certain than that provided by yearly programs. The 
major provisions of this rule are specified as follows:

Cooperative Marketing Associations

    CCC has been making loans available to producers through 
agricultural marketing cooperatives for over 60 years, and loan 
deficiency payments since 1986, beginning with commodity loans to 
cotton cooperatives in 1934. This program is expanded under the 2002 
Act to include marketing assistance loans and Loan deficiency payments 
for peanuts, dry peas, lentils, small chickpeas, mohair and wool. 
Consequently, these commodities are added to those previously eligible, 
and loans and loan deficiency payments are now available through 
approved agricultural marketing cooperatives for barley, corn, grain 
sorghum, honey, oats, oilseeds, peanuts, wheat, dry peas, lentils, 
small chickpeas, mohair, wool, upland cotton, and rice. This rule 
amends the regulations governing cooperatives to authorize the new 
commodities.

Cotton

    This rule makes a number of changes to the cotton non-recourse loan 
and loan deficiency payment programs the recourse seed cotton loan 
program, the upland cotton user marketing certificate program, and the 
extra long staple (ELS) cotton competitiveness payment program. The 
regulations at 7 CFR part 1427 are revised accordingly. The changes are 
required to administer provisions of the 2002 Act, and to remove 
provisions that are not applicable or authorized. It also improves 
readability and removes provisions that are not consistent with current 
statutory authority or otherwise are extraneous.
    The 2002 Act provides that eligible 2001-crop marketing assistance 
loan commodities that were produced on a farm not covered by a 
production flexibility contract (PFC) are eligible for loan deficiency 
payments, as well as producers who lost beneficial interest in an 
eligible 2001-crop loan commodity before applying for a loan or loan 
deficiency payment. The loan deficiency payment rate will be based on 
the date the producer lost beneficial interest in the commodity. 
Additionally, producers who acted in good faith and who lost beneficial 
interest in the collateral of a 2001-crop marketing assistance loan 
before repaying the loan shall be permitted to repay such loan at the 
rate effective on the date beneficial interest was lost. Accordingly, 
the regulation is amended to delete the requirement that cotton must be 
produced on a farm covered by a PFC.
    This rule also makes changes resulting from termination of old 
program authority. For instance, subpart B of 7 CFR 1427, Regulations 
for the Upland Cotton First Handler Marketing Certificate Program, are 
removed because the regulations no longer apply to the cotton program. 
This program was discontinued under the Federal Agriculture Improvement 
and Reform Act of 1996 (the 1996 Act) because it permitted cotton 
marketing assistance loans to be repaid at the world market price level 
while, before then, they could be repaid only at 70 percent of the 
world market price. The value difference was then provided by commodity 
certificates under the First Handler Marketing Certificate Program. 
Those regulations have not applied to the cotton program for years. 
This rule also removes 7 CFR part 1427, subpart F, Cottonseed Payment 
Program, because there is no longer statutory authority for a 
cottonseed payment program.
    Several changes in the cotton regulation's administrative 
provisions are made as well. Under previous calculations, some loan 
repayment rates were calculated as negative values, resulting in 
additional disbursements by CCC, and some loan deficiency payment rates 
exceeded the loan value of the cotton. This rule clarifies that the 
adjusted world price shall not be adjusted to a value less than zero, 
and that the loan deficiency payment rate shall not exceed the loan 
value for the cotton. These changes are the result of a determination 
that some adjustments to the adjusted world market price, and the 
resultant marketing loan gains and loan deficiency payment rates, were 
not consistent with the statutory authority for the payments. Under 
previous calculations, some loan repayment rates were calculated as 
negative values, resulting in additional disbursements by CCC. 
Establishing the minimum loan repayment rate as zero is consistent with 
provisions of the 2002 Act that provide that loan deficiency payment 
rates shall be equal to the marketing loan gain that would otherwise 
result.

Dairy

    The regulations at 7 CFR part 1430 are revised to implement a new 
program for dairy producers authorized by section 1502 of the 2002 Act, 
the Milk Income Loss Contract (MILC) Program. The program is in effect 
from December 1, 2002 through September 30, 2005. This program comes 
after several ad hoc programs provided through appropriations acts over 
the past few years. The Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Act, 1999 
authorized the Dairy Market Loss Assistance Payment (DMLA-I) program to 
provide direct payments to producers of dairy operations for milk 
produced and commercially marketed during the 1997 or 1998 calendar 
year. Then, the Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Act, 2000 provided 
a second Dairy Market Loss Assistance Program (DMLA-II) which continued 
DMLA-I for 1999 production. And finally, section 805 of the 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act, 2001

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authorized the last Dairy Market Loss Assistance Payment Program (DMLA-
III). DMLA-III provided a supplemental payment to producers who 
received payments under DMLA-II and to new dairy operations in 2000.
    Payments disbursed from the previous Dairy Market Loss Assistance 
Programs (DMLA) were subject to a maximum eligible production quantity 
per each eligible dairy operation, as is the case for the new MILC 
Program. For purposes of determining an operation under the MILC 
Program, the 2002 Act provided that the same standards as were applied 
in implementing DMLA were to be used. Payments issued under the 
previous dairy market loss payment programs were one-time payments 
authorized through appropriation acts. Payments issued under the MILC 
Program will be made as applicable on a monthly basis until the program 
ends on September 30, 2005.
    Milk is produced in all 50 states. According to the National 
Agricultural Statistics Service, the estimated 98,000 dairy operations 
in the United States in 2001 were expected to produce about 167 billion 
pounds of milk in 2002. The maintenance and expansion of existing 
markets for dairy are vital to the welfare of milk producers in the 
United States. In the past few decades, the U.S. dairy industry has 
experienced dramatic structural changes at all levels of the marketing 
channel.
    Payments under this program will be limited to dairy operations 
that produced milk in the United States and commercially marketed milk 
during the period of December 1, 2001, through September 30, 2005. Each 
fiscal year, eligible dairy operations can receive a monthly payment 
based on monthly milk marketings, up to a maximum of 2.4 million pounds 
per dairy operation for the fiscal year. Dairy operations who make 
changes to their producer status or who reconstitute their farm 
operations on or after December 1, 2001, for the sole purpose of 
receiving additional payments will not be eligible for the benefits 
under the program implemented by this rule.
    A dairy operation's eligible monthly payment will be the quantity 
of milk sold in that month, up to a maximum of 2.4 million pounds, 
multiplied by 45 percent of the difference between $16.94/cwt. and the 
Federal milk marketing order Class I milk price per hundredweight in 
Boston for that month. To facilitate a transition to this new program, 
a similar payment calculation will be applied from December 1, 2001, 
through the month preceding the month the producer enters into a 
contract with CCC.
    To be eligible, dairy producers must: (1) Produce in the United 
States and market milk commercially during the period of December 1, 
2001, through September 30, 2005; (2) enter into a contract with CCC to 
provide monthly marketing data to receive payments; and (3) be engaged 
in the business of producing and marketing agricultural products at the 
time of signing the MILC Program contract. Dairy operations may apply 
at FSA county offices during regular business hours.
    The rule provides for payments during the transition period 
beginning December 1, 2001, and ending when producers enter into the 
Milk Income Loss Contract. Consistent with the 2002 Act, the rule has a 
cap on production of 2.4 million pounds which are eligible for payments 
in a given fiscal year. Producers are only eligible for transition 
payments under section 1502(h) of the 2002 Act once they enter into the 
Milk Income Loss Contract pursuant to section 1502(b). There is no 
legislative history to support the proposition that Congress intended 
to establish a totally different standard for payments during the 
transition period than the one that applies to regular program 
payments. If there were no cap on transition payments, this could lead 
to the result of producers signing up for September 2005, and none of 
their production during the transition period from December 2001 
through August of 2005, being subject to a cap. There would effectively 
be no limitation on payments. There is nothing in the Conference Report 
to indicate that this was the intent of Congress. Rather, section 
1502(b) of the 2002 Act allows dairies to enter into the program by 
contract and provides explicitly in section 1502(d) for the 2.4 million 
pound cap. This program limit follows upon three previous Dairy Market 
Loss Assistance (DMLA) programs in which there were similar production 
eligibility caps.
    Although there was not an operational program under section 1502 in 
advance of this rule, complaint has been made that there should be no 
limit on the ``transition'' payments allowed under section 1502(h). 
Offered to support this contention is that since section 1502(d) refers 
to section 1502(b), the limit does not cover the ``transition'' 
payments because they, the argument goes, are made under subsection 
(h). But, no payments can be made for the transition period (the period 
after December 1, 2001 and before the signing of the contract) except 
by signing the contract under subsection (b). Accordingly, all 
payments, including those referred to under subsection (h) are payments 
generated by and controlled by and made under subsection (b). Nothing 
in subsection (d) indicates that the only fiscal years covered by the 
cap are those after the signing of the contract. Without reservation, 
subsection (d) covers all fiscal years under the program, including 
fiscal year 2002, in which the transition payments can begin. 
Accordingly, the rule specifies that the cap covers all fiscal years 
including the fiscal year in which the transition period falls. All 
payments are covered and made available pursuant to one contract, which 
is the contract entered into under subsection (b).
    The Conference Report states: ``Producers, on an operation-by-
operation basis, may receive payments on no more than 2.4 million 
pounds of milk marketed per year.'' The statement does not exclude any 
year. If there is no cap for the transition period and if the 
transition period can be delayed at the will of the producer, then any 
producer willing to forego payments until September, 2005, could avoid 
the cap entirely for the entire length of the program, thereby rending 
the cap a nullity. There is no support in the statute or the 
legislative history to support this position.
    The rule, with some limitations, allows dairies to choose the month 
of the year in which they will be begin to use their eligibility since 
there is nothing as such in the statute to specify when that 
eligibility must commence. Those determinations, however, under the 
rule, must be made in advance. This position is consistent with the 
manner in which CCC implements other, similar programs, primarily the 
loan deficiency payment programs where farmers must, in advance, select 
the date on which their loan deficiency payment rate will be determined 
rather than being allowed to select a date retroactively in order to 
obtain the highest possible payment. The determination made by CCC on 
this point allows the dairy, nonetheless, to pick in advance the month 
which it believes will be the optimum month for the dairy. This is 
consistent with the timing requirements in the 2002 Act, which presume 
contemporaneous reporting of monthly marketings followed by monthly 
payments rather than an end-of-the-year determination by a dairy 
followed by an annual payment when, in hindsight, using the eligibility 
cap would produce the greatest payment.
    As noted, dairies upon signing the contract will also be able to 
earn a transition payment under the contract for marketings in the 
period during and after December of 2001, and through the effective 
date of the contract, subject to

[[Page 64457]]

the fiscal year limitation of 2.4 million pounds of milk eligibility. 
To provide additional flexibility, however, consistent with the rules 
set out above, dairies have been allowed to choose to use their 2.4 
million pound eligibility for fiscal year 2002 (which began in October 
of 2001) beginning with the month after they signed the contract and to 
waive the transition amount if doing so would, because of the cap, 
increase their payment. Other policy determinations necessary to 
implement the statute are reflected in the text of the rule.
    The rule requires, consistent with the 2002 Act's mandate, that the 
same standards will be used for defining what is and what is not an 
``operation'' for purposes of eligibility for payments. Those 
determinations can have particular significance because of the cap in 
the statute. The rule in that manner requires that those who were 
treated by local decisions of their Farm Service committees and offices 
as operations for purposes of eligibility under the preceding DMLA 
programs will be treated the same way. The 2002 Act specifies that for 
purposes of determining whether producers are producers on separate 
dairy operations or a single dairy operation that the Secretary shall 
apply the same standards as were applied under DMLA. CCC will issue a 
notice to clarify how these standards will be applied to new or 
reconstituted operations and how it will be determined whether new 
operations were affiliated with operations under DMLA.
    Section 1501 of the 2002 Act extends the Milk Price Support Program 
effective June 1, 2002, and continues the $9.90 per hundredweight 
support rate for milk that was previously in effect.

Honey

    The regulations at 7 CFR part 1434 are revised in this rule to 
provide marketing assistance loans and loan deficiency payments for 
honey. CCC operated a honey recourse loan program in the 1998, 1999 and 
2000 crop years. In 2000 the program was converted from a recourse loan 
program to a nonrecourse marketing assistance loan program which also 
allowed eligible producers to obtain loan deficiency payments. Section 
1201 of the 2002 Act authorizes a continued program for marketing 
assistance loans and loan deficiency payments for honey. This new 
program will operate in a similar manner to the previous programs. The 
loan rate for a honey marketing assistance loan is set by the 2002 Act 
at 60 cents per pound. Producers may repay a marketing assistance 
nonrecourse loan at an amount equal to the principal amount of the loan 
plus interest or the prevailing market price for honey, as determined 
by CCC The marketing loan repayment rate will be announced monthly by 
CCC. The 2002 Act also provides, for the 2002 crop only, eligibility 
for honey producers for loan deficiency payments even if the producer 
has lost beneficial interest in their honey before applying for the 
payment.

Summary of the Cost/Benefit Assessment

    The 2002 Act added new marketing assistance loan and loan 
deficiency payment provisions for peanuts, dry peas, lentils, small 
chickpeas, mohair and wool. This rule also provides for agricultural 
marketing cooperatives to process marketing assistance loan and loan 
deficiency payment requests. This is a positive change in that 
government outlays will not be affected, and the agricultural marketing 
cooperatives will help FSA service anticipated increased loan-making 
activities. The 2002 Act changes in this rule, when compared with the 
1996 Act provisions, will increase governmental outlays as shown in 
Table 1.

Table 1.--Average Annual Change in Government Outlays by Program, Fiscal
                             Years 2002-2007
------------------------------------------------------------------------
                                                      Estimated average
                      Program                       annual outlay change
                                                      (million dollars)
------------------------------------------------------------------------
Cotton (7 CFR Part 1427):
    Marketing Assistance Loans....................                   8.0
    Loan Deficiency Payments......................                  95.0
    Extra Long Staple Cotton Competitiveness                       (1.5)
     Program......................................
Dairy (7 CFR 1430):
    Milk Price Support............................                 333.3
    Milk Income Loss Contract Program Payments 1/.                 666.0
Honey (7 CFR part 1434): Marketing Assistance
 Loans and Loan Deficiency Payments
                                                   ---------------------
        Total 1,103.0.............................                   2.2
------------------------------------------------------------------------
\1\ Annual average over 4 fiscal years.

Cotton Marketing Assistance Loans and Loan Deficiency Payments

    The 2002 Act increased the loan rates very slightly for both upland 
and extra long staple (ELS) cotton varieties. Aside from that, only a 
few cotton program changes, and none with a significant economic 
impact, were made by the 2002 Act. Outlays for marketing loans are 
projected at $1.2 billion for upland cotton in FY 2003, but they 
decline to $0.4 million by FY 2007. This decline is attributed to the 
effect of rising cotton prices and planting flexibility which allows 
producers to adjust their cotton acreage to conform with expected 
demand. Loan outlays for ELS cotton are projected to be minimal and not 
affected by enactment of the 2002 Act.

Upland Cotton User Marketing Certificate Program (Step 2)

    The 2002 Act increased the payment rate 1.25-cents per pound for 
the Upland Cotton User Marketing Certificate Program, commonly known as 
the ``Step 2 Program.'' This payment rate is expected to increase 
program outlays by about $95 million per year through fiscal year 2006.

ELS Cotton Competitiveness Payment Program

    The 2002 Act extended and fully funded the ELS Cotton 
Competitiveness Payment Program, which is similar to the Step 2 
program. The program is designed to trigger payments in response to a 
reduction in other world cotton prices, including Egyptian Giza cotton. 
This program had been dormant for several months because U.S. Pima 
cotton was competitive. However, payments began to trigger in January 
2002 and have now reached over 10 cents per pound in response to price 
reductions in Egypt.

[[Page 64458]]

    Since the ELS Cotton Competitiveness Payment Program began in 
October 1999, payments have totaled about $3.2 million on 50,500 bales 
for domestic use and 338,000 bales of exports. The program has operated 
for approximately one-half the time since it began. The rate has 
averaged $7 per bale, or about 1.4 cents per pound. Payments have 
depended on reductions in foreign prices. There is no maximum payment 
rate. However, given current prices, the ELS competitiveness payment 
program could generate payments in the range of 1 to 3 cents per pound 
on weekly export and mill activity and would likely incur outlays of 
around $50,000 to $150,000 per week when triggered. Annual outlays for 
ELS payments are estimated to be in the range of $1.3 million to $3.9 
million per year.
    ELS Cotton Competitiveness Program payments could increase domestic 
use of American Pima cotton by about 5,000 bales (about 3 percent) per 
year and exports by 25,000 bales (about 5 percent) per year. This 
increase in disappearance could add about 2 cents per pound to the 
average price of American Pima and reduce CCC net lending costs about 
$25 million. Farm receipts will rise about $4 million annually.

Dairy

    Section 1501 of the 2002 Act extends the Milk Price Support Program 
starting June 1, 2002. The $9.90 per hundredweight (cwt.) milk support 
rate is the same as during calendar year 1999 through May 31, 2002. The 
support rate applies to manufacturing milk, which is milk used in the 
production of cheese, butter, and nonfat dry milk (NDM).
    Under the Milk Price Support Program, CCC has standing offers to 
purchase cheese, butter, and NDM at established prices. Processors with 
an average efficiency should be able pay dairy farmers $9.90 per cwt. 
when receiving CCC-announced prices.
    CCC has purchased substantial quantities of NDM in recent years, 
including about 418 million pounds in fiscal year (FY) 2001, 456 
million pounds in FY 2000, 177 million pounds in FY 1999, and 119 
million pounds in FY 1998. This is because the market NDM price has 
been near or below the CCC purchase price since January 1999. Also, 
cheese prices dipped below the CCC support level in mid June of 2002, 
and thus, cheese has been acquired by CCC under this program. Cheese 
purchases were 13.1 million pounds in FY 2001 and 6.8 million pounds in 
FY 2000. The price for butter has stayed consistently above the CCC 
purchase price since the mid-1990's so there have been no recent 
purchases of butter by CCC.
    CCC expects to purchase 650 million pounds of NDM in FY 2002. We 
expect that some of the NDM that CCC purchases will be utilized in 
international and domestic feeding programs, and another $15 million 
worth will be sold for other purposes. CCC expenditures with the 
extended program will be approximately $2.0 billion for FY 2002 through 
2007, of which $1.6 billion is for product purchases. No expenditures 
are projected for purchases after FY 2007 because of milk price 
increases.
    The MILC Program is expected to result in payments to dairy 
operations over the four FY's in the range of $3.5 to $4.5 billion 
annually. Dairy farm income and CCC expenditures will increase 
accordingly.

Honey

    The honey loan rate, 60 cents per pound, is not expected to exceed 
the market price until 2007 due to the countervailing and anti-dumping 
duties placed on honey imports from Argentina and China. Because the 
program has no immediate effect on price, domestic honey production 
should not be affected. There are also no significant expected effects 
on market prices or demand. The major producer benefit is reduced 
borrowing costs compared with commercial loans. Interest savings are 
estimated at $5.3 million. Even if price falls below the loan rate no 
expected effect on market prices or demand is expected because the 
farmers' benefits will be obtained through loan deficiency payments or 
marketing loan gains, not market price improvement through honey 
removals from forfeitures. CCC has limited ability to affect market 
prices. Domestic honey prices are closely related to import prices 
because of sizeable quantities imported. For the 1996-1999 period, 
honey imports represented about 45 percent of total domestic honey 
consumption. Sizable CCC inventory in the 1980's was partially a result 
of higher loan rates and the lack of a marketing loan repayment 
mechanism which produced higher imports instead of higher domestic 
market prices. Because the 2002 Act does not affect foreign honey 
prices, it is also unlikely to affect domestic honey prices. Thus, 
prices are expected to be unaffected by the loan program and domestic 
consumers will not be affected.
    CCC estimates that there will be no loan losses from FY 2002 to FY 
2007. Conversely, the producer income increase from marketing loan 
gains, loan deficiency payments, and gains from loan forfeitures is 
about 14 cents per pound. CCC loan losses and producer loan gains are 
estimated to be $9.8 million. CCC cost and producer gains from loan 
deficiency payments are estimated to be $16.3 million. Total program 
cost and producer income increase is estimated at $26.1 million. It is 
expected that 2.9 million pounds of honey, or 1.5 percent of 
production, will be forfeited to CCC.

List of Subjects

Part 1425

    Agricultural commodities, Cooperatives, Marketing agreements, Loan 
programs-agriculture, Reporting and record keeping requirements.

Part 1427

    Cotton, Loan programs-agriculture, Price support programs, 
Reporting and record keeping requirements

Part 1430

    Dairy products, Loan programs-agriculture, Price support programs, 
Reporting and record keeping requirements.

Part 1434

    Honey, Loan programs-agriculture, Reporting and record keeping 
requirements.


    For the reasons set out in the preamble, 7 CFR parts 1425, 1427, 
1430 and 1434 are revised as set forth below.

PART 1425--COOPERATIVE MARKETING ASSOCIATIONS

    1. The authority citation for part 1425 is revised to read as 
follows:

    Authority: 7 U.S.C. 1441 and 1421, 7 U.S.C. 7931-7939; and 15 
U.S.C. 714b, 714c, and 714j.


    2. Amend Sec.  1425.3 by revising the definition of ``authorized 
commodity'' to read as follows:


Sec.  1425.3  Definitions.

* * * * *
    Authorized commodity is a commodity for which a CMA is approved by 
CCC to obtain marketing assistance loans or Loan deficiency payments.
* * * * *

    3. Amend Sec.  1425.4 by revising the first sentence in paragraph 
(a) to read as follows:


Sec.  1425.4  Approval.

    (a) For a cooperative to gain CMA status to participate in a 
marketing assistance loan or Loan deficiency payment program for the 
2002 through 2007 crop years, a cooperative must

[[Page 64459]]

submit an application for approval to CCC. * * *
* * * * *

    4. Amend Sec.  1425.6 by revising the introductory text in 
paragraph (b) to read as follows:


Sec.  1425.6  Approved CMA's.

* * * * *
    (b) CCC may approve a CMA to participate in a marketing assistance 
loan and Loan deficiency payment program for the 2002 through 2007 
crops as:
* * * * *

    5. Revise Sec.  1425.25 to read as follows:


Sec.  1425.25  Appeals.

    Parts 11 and 780 of this title apply to this part.

PART 1427--COTTON

    6. Amend part 1427 by revising the authority citation and Subparts 
A, C, D, and G, and removing and reserving Subpart B, consisting of 
Sec. Sec.  1427.50 through 1427.58, and Subpart F, consisting of 
Sec. Sec.  1427.1100 through 1111, to read as follows:
Subpart A--Nonrecourse Cotton Loans and Loan Deficiency Payments
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 receipts.
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 Commodity certificate exchanges.
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.
Subpart B--[Reserved]
Subpart C--Upland Cotton User Marketing Certificates
1427.100 Applicability.
1427.101 [Reserved].
1427.102 [Reserved].
1427.103 Eligible upland cotton.
1427.104 Eligible domestic users and exporters.
1427.105 Upland Cotton Domestic User/Exporter Agreement.
1427.106 Form of payment.
1427.107 Payment rate.
1427.108 Payment.
Subpart D--Recourse Seed Cotton Loans
1427.160 Applicability.
1427.161 Administration.
1427.162 [Reserved].
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 F--[Reserved]
Subpart G--Extra Long Staple (ELS) Cotton Competitiveness Payment 
Program
1427.1200 Applicability.
1427.1201 [Reserved].
1427.1202 Definitions.
1427.1203 Eligible ELS cotton.
1427.1204 Eligible domestic users and exporters.
1427.1205 ELS Cotton Domestic User/Exporter Agreement.
1427.1206 Form of payment.
1427.1207 Payment rate.
1427.1208 Payment.

    Authority: 7 U.S.C. 7213-7237; 15 U.S.C. 714b, 714c.

Subpart A--Nonrecourse Cotton Loan and Loan Deficiency Payments


Sec.  1427.1  Applicability.

    (a) The regulations of this subpart are applicable to the 2002 
through 2007 crops of upland cotton and extra long staple cotton. These 
regulations set forth the general provisions under which marketing 
assistance loans and loan deficiency payment programs shall be 
administered by the Commodity Credit Corporation (CCC). Additional 
terms and conditions are in the note and security agreement and the 
loan deficiency payment application that must be executed by a producer 
to receive marketing assistance loans and loan deficiency payments.
    (b) The basic loan rates, the schedule of premiums and discounts, 
and forms applicable to the cotton marketing assistance loan and loan 
deficiency payment programs are available from FSA offices. The forms 
for use in connection with the programs in this subpart shall be 
prescribed by CCC.
    (c) Marketing assistance loans and loan deficiency payments will 
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.
    (d) Notwithstanding the other provisions of this part, a producer 
may only receive the maximum assistance allowed by part 1400 of this 
chapter.
    (e) Eligible producers, under 7 CFR 1421.4, who produce upland 
cotton during the 2002 through 2007 crop years on a farm that is not 
covered under a direct and counter-cyclical program contract, as 
defined in part 1412 of this chapter, are eligible for marketing 
assistance loans or loan deficiency payments as are eligible producers 
who produced commodities on farms covered by such a contract.


Sec.  1427.2  Administration.

    (a) The marketing assistance loan and loan deficiency payment 
programs shall be administered under the general supervision of the 
Executive Vice President, CCC, or a designee and shall be carried out 
by FSA employees, and state and county committees.
    (b) No FSA employee or committee may modify or waive any 
requirement in this subpart, except as provided in paragraph (e) of 
this section.
    (c) The State committee shall take any required action not taken by 
the county committee. The State committee shall also:
    (1) For the 2001 crop year only, allow producers who, in good 
faith, violated the terms and conditions of the note and security 
agreement resulting in the producer losing beneficial interest in the 
commodity before repaying the loan, to repay the loan at a rate that is 
the lesser of the loan plus interest, or the adjusted world price, as 
determined under Sec.  1427.19, in effect on the date the beneficial 
interest was lost.
    (2) Correct, or require a correction of an action that is not in 
compliance with this part; or
    (3) Stop an employee from taking an action or decision that is not 
in accordance with the regulations of this part.
    (d) The Executive Vice President, CCC, or a designee may determine 
any question arising under these programs, and reverse or modify a 
determination made by an FSA employee or 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 marketing assistance and loan deficiency payment programs.

[[Page 64460]]

    (f) A representative of CCC may execute marketing assistance loan 
and Loan deficiency payment applications and related documents only 
under the terms and conditions determined and announced by CCC. Any 
document not executed under such terms and conditions, including any 
purported execution before the date authorized by CCC, shall be null 
and void.


Sec.  1427.3  Definitions.

    The definitions in this section shall apply for all purposes of 
program administration regarding the cotton loan and loan deficiency 
payment programs. The terms defined in part 718 of this title and parts 
1412, 1421, 1425 and 1434 of this chapter shall also apply, except 
where they conflict with definitions in this section.
    Adjusted spot price means the spot price adjusted to reflect any 
lack of data for base quality to make the adjusted spot price 
comparable to a spot price assuming the base quality. If base quality 
spot price data are not available, spot prices for other qualities will 
be used and adjusted by the average difference between base quality 
spot prices and those for other qualities over the available 
observations during the previous 12 months.
    Approved cooperative marketing association (CMA) means a 
cooperative marketing association approved under part 1425 of this 
chapter which has executed a Cotton Cooperative Loan Agreement on a 
form prescribed by CCC.
    Bale opening means the removal of the bagging and ties from a bale 
of eligible upland cotton in the normal opening area, immediately 
before use, by a manufacturer in a building or collection of buildings 
where the cotton in the bale will be used in the continuous process of 
manufacturing raw cotton into cotton products in the United States.
    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.
    Commodity certificate exchange means the exchange, as provided in 
part 1404 of this chapter, of commodities pledged as collateral for a 
marketing assistance loan at a rate determined by CCC in the form of a 
commodity certificate bearing a dollar denomination. Such certificate 
may not be transferred or exchanged for the inventory of CCC.
    Consumption means the use of eligible cotton by a domestic user in 
the manufacture in the United States of cotton products.
    Cotton means upland cotton and extra loan staple cotton meeting the 
definition in the definitions of ``upland cotton'' and ``extra long 
staple (ELS) cotton'' in this section, respectively, and excludes 
cotton not meeting such definitions.
    Cotton clerk means a person approved by CCC to assist producers in 
preparing loan and loan deficiency documents.
    Cotton commercial bank means the bank designated as the financial 
institution for a CMA or loan servicing agent.
    Cotton product means any product containing cotton fibers that 
result from the use of a bale of cotton in manufacturing.
    Current shipment price means, during the period in which two daily 
price quotations are available for the growth quoted for M 1\3/32\-inch 
cotton, C.I.F. northern Europe, the price quotation for cotton for 
shipment no later than August/September of the current calendar year.
    Electronic Agent Designation is an electronic record that:
    (1) Designates the entity authorized by a producer to redeem all of 
the cotton pledged as collateral for a specific loan;
    (2) Is maintained by providers of electronic warehouse receipts; 
and
    (3) A producer may authorize CCC to use as the basis for the 
redemption and release of loan collateral.
    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) All other varieties of the Barbadense species of cotton, and 
any hybrid thereof; and
    (3) Any other variety of cotton in which one or more of these 
varieties predominate.
    False packed cotton means cotton in a bale containing substances 
entirely foreign to cotton; containing damaged cotton in the interior 
with or without any indiction of the damage on the exterior; composed 
of good cotton on the exterior and decidedly inferior cotton in the 
interior, but not detectable by customary examination; or, containing 
pickings or linters worked into the bale.
    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 loan means a nonrecourse loan entered into between a 
producer and CCC.
    Form G loan means a CCC nonrecourse loan entered into between a CMA 
and CCC.
    Forward shipment price means, during the period in which two daily 
price quotations are available for the growths quoted for M 1\3/32\-
inch cotton, C.I.F. northern Europe, the price quotation for cotton for 
shipment no earlier than October/November of the current calendar year.
    Lint Cotton means cotton that has passed through the ginning 
process.
    Loan deficiency payment means a payment received in lieu of a loan 
when the CCC-determined value is below the applicable county loan rate.
    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 under 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.
    Northern Europe current price means the average for the preceding 
Friday through Thursday of the current shipment prices for the five 
lowest-priced growths of the growths quoted for M 1\3/32\-inch cotton, 
C.I.F. northern Europe.
    Northern Europe forward price means the average for the preceding 
Friday through Thursday of the forward shipment prices for the five 
lowest-priced growths of the growths quoted for M 1\3/32\-inch cotton, 
C.I.F. northern Europe.
    Northern Europe price means, during the period in which only one 
daily price quotation is available for the growth quoted for M 1\3/32\-
inch cotton, C.I.F. northern Europe, the average of the price 
quotations for the preceding Friday through Thursday of the five 
lowest-priced growths of the growths quoted for M 1\3/32\-inch cotton, 
C.I.F. northern Europe.
    Reconcentration means the process for moving a warehouse stored 
loan commodity to another warehouse location.

[[Page 64461]]

    Seed cotton means cotton which has not passed through the ginning 
process.
    U.S. Northern Europe current price means the average for the 
preceding Friday through Thursday of the current shipment prices 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 forward price means the average for the 
preceding Friday through Thursday of the forward shipment prices 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 means, during the period in which only 
one daily price quotation is available for the United States growths 
quoted for M 1\3/32\-inch cotton, C.I.F. northern Europe, the average 
of the price quotations 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.
    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 containing the required 
information prescribed in this part and is:
    (1) A pre-numbered, pre-punched negotiable warehouse receipt issued 
under the authority of the U.S. Warehouse Act, a state licensing 
authority, or by an approved CCC warehouse in such format authorized 
and approved, in advance, by CCC;
    (2) An electronic warehouse receipt record issued by such warehouse 
recorded in a central filing system or systems maintained in one or 
more locations that are approved by FSA to operate such system; or
    (3) Other such acceptable evidence of title, as determined by CCC.


Sec.  1427.4  Eligible producer.

    (a) To be an eligible producer, the producer must:
    (1) Be an individual, partnership, association, corporation, 
estate, trust, State or political subdivision or agency thereof, or 
other legal entity that produces cotton as a landowner, landlord, 
tenant, or sharecropper;
    (2) Comply with all provisions of this part; and
    (i) 7 CFR part 12--Highly Erodible Land and Wetland Conservation:
    (ii) 7 CFR part 718--Provisions Applicable to Multiple Programs;
    (iii) 7 CFR part 1400--Payment Limitation and Payment Eligibility;
    (iv) 7 CFR part 1403--Debt Settlement Policies and Procedures; and
    (v) 7 CFR part 1405--Loans, Purchases and Other Operations; and
    (3) Have made an acreage certification with respect to all the 
cropland on the farm.
    (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. 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 
CCC 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) 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 in this part. Each such producer shall also remain 
liable for repayment of the entire marketing assistance 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.
    (2) 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) A CMA may obtain a marketing assistance loan and loan 
deficiency payments on eligible cotton on behalf of its members who are 
eligible to receive loans or loan deficiency payments for a crop of 
cotton. For purposes of this subpart, the term ``producer'' includes a 
CMA.
    (f) In case of death, incompetency, or disappearance of any 
producer who is entitled to the payment of any sum in settlement of a 
marketing assistance loan or loan deficiency payment, payment shall, 
upon application to CCC, be made to the persons who would be entitled 
to the producer's payment under the regulations contained in part 707 
of this title.


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 applicant and submitted to CCC or a loan 
servicing agent. Submissions by cotton clerks must occur within 15 
calendar days after the producer signs the forms 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 that is responsible under part 718 of this 
title 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 cotton 
commercial bank within the period of loan availability.
    (b) For a bale of cotton to be eligible to be pledged as collateral 
for a marketing assistance loan or a subject of a loan deficiency 
payment application, the bale must:
    (1) Be tendered to CCC by an eligible producer;
    (2) Be in existence and good condition, be covered by fire 
insurance, be stored in a warehouse with an existing cotton storage 
agreement under Sec. Sec.  1427.1081 through 1427.1089 at the time of 
disbursement of the loan or loan deficiency payment proceeds, except as 
provided in Sec.  1427.23(f), and be stored

[[Page 64462]]

in approved storage as determined under Sec.  1427.10;
    (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;
    (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; bales of more than 600 
pounds may be pledged for loan at 600 pounds.
    (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 from CCC upon request.
    (ii) Information for experimental packaging material may be 
obtained from the Joint Cotton Industry Bale Packaging Committee.
    (11) Be ginned by a ginner which:
    (i) 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) Has entered into a Cooperating Ginners' Bagging and Bale Ties 
Certification and Agreement on a form prescribed by CCC, or certified 
that the bale is wrapped with bagging and bale ties meeting the 
requirements of paragraph (b)(10) of this section and;
    (12) Be production from acreage that has been reported timely under 
part 718 of this title.
    (c) In addition to the requirements of paragraph (b) of this 
section, for ELS cotton the bale must:
    (1) Be a grade and staple length specified in the schedule of loan 
rates and premiums and discounts for ELS cotton
    (2) Have a micronaire specified in the schedule of micronaire 
premiums and discounts for ELS cotton; and
    (3) Have an extraneous matter specified in the schedules of 
premiums and discounts for extraneous matter for ELS cotton.
    (d) In addition to the requirements of paragraph (b) of this 
section, for upland cotton the bale must:
    (1) Have been graded by using a High Volume Instrument;
    (2) Be a grade, staple length, and leaf specified in the schedule 
of premiums and discounts for grade, staple, and leaf for upland 
cotton;
    (3) Have a strength reading specified in the schedule of strength 
premiums and discounts for upland cotton;
    (4) Have a micronaire specified in the schedule of micronaire 
premiums and discounts for upland cotton;
    (5) Have an extraneous matter within the limits specified in the 
schedule of discounts for extraneous matter for upland cotton; and
    (6) Have a uniformity specified in the schedule of uniformity 
premiums and discounts for upland cotton.
    (e)(1) To be eligible to receive marketing assistance loans or loan 
deficiency payments, a producer must have the beneficial interest in 
the cotton which is tendered to CCC for a marketing assistance 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, barter or purchase shall not be 
eligible to be tendered to CCC for marketing assistance 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 marketing assistance loan shall be eligible to receive 
marketing assistance loans and loan deficiency payments whether 
succession to the cotton occurs before or after harvest so long as the 
heir otherwise complies with 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 marketing 
assistance loans or loan deficiency payments including those cases 
where the producer:
    (i) Executes an option to purchase, whether or not a payment is 
made by the potential buyer for such option to purchase, for such 
cotton if all other eligibility requirements are met and the option to 
purchase contains the following:

    Notwithstanding any other provision of this option to purchase, 
title; risk of loss; and beneficial interest in the commodity, as 
specified in 7 CFR 1427.5, 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 (CCC) loan which is 
secured by such commodity; (2) the date CCC 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 pays no advance payment amount or any incentive 
payment amount to enter into such contract, except as provided in part 
1425 of this chapter; or
    (iii) Executes a designation of agent on a form prescribed by CCC. 
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 
marketing assistance loan;
    (B) Identifies the warehouse receipts for which the authorization 
is given;
    (C) Expires upon maturity of the marketing assistance 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 marketing assistance loan is 
repaid at the county office or loan servicing agent where such loan 
originated if the agent or subsequent agent exercises any authority 
granted by the producer, unless the producer provides authorization to 
CCC to use an electronic agent designation as the basis for accepting 
redemption of some or all bales of the specified loan; 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 
Cooperating Ginners' Bagging and Bale Ties Certification and Agreement 
that was provided by the Agency. The effective date of the cancellation 
shall be the date the request is received by the custodial office.
    (3) If marketing assistance loans or loan deficiency payments are 
made available to producers through a CMA under part 1425 of this 
chapter, the

[[Page 64463]]

beneficial interest in the cotton must always have been in the 
producer-member who delivered the cotton to the CMA or its member, 
except as otherwise provided in this section. Cotton delivered to such 
a CMA shall not be eligible to receive a marketing assistance 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 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 under Agricultural 
Marketing Service (AMS) dimension and weight requirements. This 
requirement will not prohibit sampling of the cotton at a later date if 
authorized by the producer.
    (h) Marketing assistance loans may be disbursed to eligible 
producers who store upland cotton in unlicenced storage facilities only 
if the producer agrees to redeem the marketing assistance loan on the 
date on which the loan is disbursed with a commodity certificate 
exchange.


Sec.  1427.6  Disbursement of loans.

    (a) Disbursement of loans to individual producers may be made by:
    (1) County in CCC and FSA offices;
    (2) Loan servicing agents; or
    (3) An approved cotton clerk who has entered into a written 
agreement with CCC on a form prescribed by CCC.
    (b) Loan proceeds may be disbursed by CCC or a cotton commercial 
bank.
    (c) The loan documents shall not be presented for disbursement 
unless the cotton covered by the mortgage or pledged as security is 
eligible under 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 9th calendar month following the month 
in which the note and security agreement is filed under Sec.  
1427.5(a).
    (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) of this section by the applicable loan rate.
    (d) CCC will not increase the amount of the loan made for 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 
for 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 color grade, leaf, staple length, extraneous matter and 
micronaire, and for upland cotton, strength readings. All cotton 
tendered for loan must be classed by an AMS 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 under instructions to 
samplers drawing samples under AMS procedures.
    (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 AMS 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 AMS 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 contact 
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 receipts.

    (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

[[Page 64464]]

the receipt or are otherwise acceptable to CCC. The warehouse receipt 
must:
    (1) Contain the gin bale number;
    (2) Contain the warehouse receipt number;
    (3) Be dated on or before the date the producer signs the note and 
security agreement.
    (b) Warehouse receipts, under 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 
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, not to exceed the amount that accrued 
from the date that all necessary documents were received by CCC to the 
maturity date, 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. Such fee shall be in addition to a cotton clerk fee paid under 
paragraph (b) of this section. The fee amounts are available in State 
and county offices and are shown on the note and security agreement. 
Fees 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 from CCC and is shown on 
the note and security agreement.
    (c) Interest which accrues for a loan shall be determined under 
part 1405 of this chapter. All or a portion of such interest may be 
waived for a quantity of upland cotton which has been redeemed under 
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. 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 date that all required documents were 
provided to CCC; 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 cotton eligible 
to be pledged as collateral for a marketing assistance 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 marketing assistance 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

[[Page 64465]]

    (2) To marketing assistance 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 documents, 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 marketing assistance loan or loan deficiency payment 
documents shall be mailed or delivered to the appropriate county office 
and shall show the entire proceeds of the marketing assistance loans or 
loan deficiency 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 
marketing assistance loan or loan deficiency payment advances to the 
producers.
    (2) The documents shall be accompanied by a Transmittal Schedule of 
Loan and Loan Deficiency Payment Documents (Transmittal) on a form 
prescribed by CCC, in original and two copies, numbered serially for 
each county office by the person, firm, or financial institution which 
made the marketing assistance loan or loan deficiency payment advance. 
The Transmittal shall show the amounts invested by the person, firm, or 
financial institution in the marketing assistance loans or loan 
deficiency payments.
    (3) Upon receipt of the marketing assistance loan or loan 
deficiency payment documents and Transmittal, the county office will 
stamp one copy of the Transmittal to indicate receipt of the documents 
and return this copy to the person, firm, or financial institution.
    (d) The person, firm, or financial institution shall be deemed to 
have invested funds in the loans or loan deficiency payment as of the 
date marketing assistance 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.
    (e) Interest will be computed on the total amount invested by the 
person, firm, or financial institution in the marketing assistance 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 CCC.
    (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 CCC 
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 marketing 
assistance 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 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) An FSA official, the loan servicing agent, or CMA shall arrange 
for reconcentration of the cotton under the direction of CCC and CCC 
shall obtain new warehouse receipts.
    (2) Any reconcentration charges, fees, costs, or expenses incident 
to such actions shall be charged against the cotton, and must be repaid 
for bales redeemed from loan.


Sec.  1427.17  Custodial offices.

    Collateral warehouse receipts, using forms prescribed by CCC, and 
related documents will be maintained in the custody of CCC, its 
designee, the loan servicing agent, or the cotton commercial 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 marketing assistance 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 marketing assistance loan or loan deficiency 
payment;
    (ii) Any additional amounts paid by CCC for 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 under paragraph (e) of this section; and
    (vi) About 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) If a producer makes a 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 marketing assistance 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 marketing assistance loan or loan deficiency payment is less than 
the amount required under 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 this subpart. Each producer shall 
also remain liable for repayment of the entire loan or loan deficiency 
payment amount until the loan is fully repaid without

[[Page 64466]]

regard to their 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 for 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 their requests for a loan or any applicable form 
required by CCC, 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 about 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 under paragraph (e) of this section;
    (3) If the producer fails to pay such amounts within 30 calendar 
days from the date of notification, CCC shall call the applicable 
marketing assistance 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 fora 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 under paragraph (e) of this section; 
and
    (2) Call the applicable marketing assistance 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 for 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 under paragraph (e) of this 
section, CCC 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 under paragraph (f) or (g) 
of this section.
    (i) If the marketing assistance loan is called under 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 under Sec.  1427.19 or utilize the provisions of part 1401 of this 
chapter for such loan.
    (j) Any or all of the liquidated damages assessed under paragraph 
(e) of this section 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, an authorized agent or anyone subsequently 
designated by the producer in the manner prescribed by CCC 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 under 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 in writing 
in a manner prescribed by CCC may repay the loan amount for one or more 
bales of cotton pledged as collateral for a marketing assistance 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 under Sec.  
1427.25, in effect on the day the repayment is received by the county 
office, loan servicing agent, or cotton commercial 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 under Sec.  1427.7.
    (g) In the event that Thursday is a non-workday, such loan 
repayments will not be accepted beginning at 7 a.m. Eastern Standard 
time the next workday until an announcement of the adjusted world price 
for the succeeding weekly period has been made under Sec.  1427.25(e).
    (h) If the upland cotton pledged as collateral is eligible to be 
redeemed at a rate less than the loan level and charges, plus interest, 
and the adjusted world price determined under Sec.  1427.25:
    (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 by the producer in the manner prescribed by 
CCC, the warehouse storage charges which have accrued, for the cotton 
pledged as collateral for such loan, during the period the cotton was 
pledged for loan;
    (2) Above the national average loan rate by less than the sum of 
the accrued interest and warehouse storage charges, that accrued during 
the period the cotton was pledged for loan, CCC will pay at the time of 
loan repayment to the producer or agent or subsequent agent authorized 
by the producer in the manner prescribed by CCC, 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

[[Page 64467]]

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.
    (i) Repayment of loans will not be accepted after CCC acquires 
title to the cotton in accordance with Sec.  1427.7.


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

    Amounts of $9.99 or less will be paid to the producer only at their 
request. Deficiencies of $9.99 or less, including interest, may be 
disregarded unless CCC demands in writing that they be paid.


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 for 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 CCC the amount due under a loan, CCC 
shall take title to the cotton as provided in Sec.  1427.7(b).


Sec.  1427.22  Commodity certificate exchanges.

    (a) For any outstanding marketing assistance loan, a producer may 
purchase a commodity certificate and exchange that commodity 
certificate for the marketing assistance loan collateral.
    (b) The exchange rate is the lesser of:
    (1) The loan rate and charges, plus interest applicable to the 
loan, or
    (2) The adjusted world price for cotton as determined by CCC.
    (c) Producers must request a commodity certificate exchange in 
person at the FSA county service center that disbursed the marketing 
assistance loan by:
    (1) Completing a written request as CCC determines,
    (2) Purchasing a commodity certificate for the exact amount 
required to exchange the marketing assistance loan collateral, and
    (3) Immediately exchanging the purchased commodity certificate for 
the outstanding loan collateral.


Sec.  1427.23  Cotton loan deficiency payments.

    (a) 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 marketing assistance loan 
eligibility requirements under this subpart;
    (2) Agree to forgo obtaining such loans unless denied a loan 
deficiency payment due to payment limitation;
    (3) File a request for payment for a quantity of eligible cotton 
under Sec.  1427.5(a) on a 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) For loan deficiency payments requested before ginning of the 
cotton based on a locked-in adjusted world price, provide identifying 
numbers for modules or other storage units that will correspond to the 
gin-assigned numbers of the bales produced from the unginned cotton; 
and
    (6) Otherwise comply with all program requirements.
    (b) The loan deficiency payment applicable to a crop of cotton 
shall be computed by multiplying the applicable loan deficiency payment 
rate, as determined under paragraph (c) of this section, by the 
quantity of the crop the producer is eligible to pledge as collateral 
for a loan, excluding any quantity for which the producer obtains a 
marketing assistance loan.
    (c) 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 under 
Sec.  1427.25, in effect on the day the request is received by, the 
county office, loan servicing agent, or cotton commercial bank. In no 
case shall the loan deficiency payment rate for a bale exceed the value 
of the bale had it been pledged as collateral for a marketing 
assistance loan.
    (d) The total amount of any loan deficiency payments that a person 
may receive is subject to part 1400 of this chapter.
    (e) 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 
under Sec.  1427.5(c) on the date the cotton was ginned, and the 
producer meets all the other requirements in paragraph (a) of this 
section on or before the final date to apply for a loan deficiency 
payment under Sec.  1427.5, the loan deficiency payment rate applicable 
to such cotton will be:
    (1) Based on the date the cotton was ginned if payment application 
is made in the manner prescribed by CCC for obtaining such rate; or
    (2) Based on the date of request for lock-in of the adjusted world 
price if payment application is made in the manner prescribed by CCC 
for obtaining such rate; or
    (3) Based on the date a completed request including production 
evidence is submitted in the manner prescribed by CCC for obtaining 
such rate.
    (f) 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 Standard time the next workday until an announcement of the 
adjusted world price for the succeeding weekly period has been made 
under Sec.  1427.25(e).
    (g) With respect only to loan deficiency payments for upland cotton 
produced in the 2001 crop year, whether or not produced on a farm 
covered by a production flexibility contract, the applicable final 
availability for such payment is November 18, 2002.


Sec.  1427.24  [Reserved].


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

    (a) CCC shall determine the world market price for upland cotton 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

[[Page 64468]]

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 (NEc)), 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 (NEf)), 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 NEc and NEf 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 NEc) + NEf)/3.
    (ii) Weeks 3 and 4: (NEc + NEf)/2.
    (iii) Weeks 5 and 6: (NEc + (2 x NEf))/3.
    (iv) Week 7 through July 31: NEf.
    (3) The upland cotton prevailing world market price as determined 
under paragraphs (a)(1) or (a)(2) of this section shall hereinafter be 
referred to as the ``Northern Europe price (NE).''
    (4) If quotes are not available for 1 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 CCC determines.
    (b) The upland cotton prevailing world market price, adjusted under 
paragraph (c) of this section (adjusted world price (AWP)), shall be 
applicable to the 2002 through 2007 crops of upland cotton.
    (c) The upland cotton AWP shall equal the NE price as determined 
under paragraph (a) of this section, adjusted as follows:
    (1) The NE 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, leaf 3, (micronaire 3.5 
through 3.6 and 4.3 through 4.9, strength 25.5 through 29.4 grams per 
tex, length uniformity 80 through 82 percent) cotton, as quoted each 
Thursday in the designated U.S. spot markets.
    (2) The price determined under paragraph (c)(1) of this section 
shall be adjusted to reflect the price of Strict Low Middling (SLM) 
1\1/16\ inch, leaf 4, (micronaire 3.5 through 3.6 and 4.3 through 4.9, 
strength 25.5 through 29.4 grams per tex, length uniformity 80 through 
82 percent) cotton (U.S. base quality) by deducting the difference, as 
CCC announces, between the applicable loan rate for an upland cotton 
crop for M 1\3/32\ inch, leaf 3, (micronaire 3.5 through 3.6 and 4.3 
through 4.9, strength 25.5 through 29.4 grams per tex, length 
uniformity 80 through 82 percent) cotton and the loan rate for an 
upland cotton crop of the U.S. base quality.
    (3) The price determined under paragraph (c)(2) of this section 
shall be adjusted to average U.S. location by deducting the difference 
between the average loan rate for an upland cotton crop of the U.S. 
base quality in the designated U.S. spot markets and the corresponding 
crop year national average loan rate for an upland cotton crop of the 
U.S. base quality, as CCC announces.
    (4)(i) The prevailing world market price, adjusted under paragraphs 
(c)(1) through (c)(3) of this section, 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 U.S. growth as quoted for M 1\3/32\ inch cotton, C.I.F. 
northern Europe (U.S. Northern Europe price (USNE)), 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 USNE provided in paragraph 
(c)(4)(i)(B) of this section 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 
U.S. growth, as quoted for M 1\3/32\ inch cotton, C.I.F. northern 
Europe (U.S. Northern Europe current price (USNEc)), 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 
(USNEf)), are not available during that period, beginning with the 
first week covering the period Friday through Thursday after the week 
which including April 15 in which both the average of the USNEc and the 
average of the USNEf are available, the result calculated by the 
following procedure:
    (A) Weeks 1 and 2: ((2 x USNEc) + (USNEf))/3.
    (B) Weeks 3 and 4: ((USNEc) + (USNEf))/2.
    (C) Weeks 5 and 6: ((USNEc) + (2 x USNEf))/3.
    (D) Week 7 through July 31: USNEf.
    (iii) In determining the USNE 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 CCC determines relevant in establishing an accurate 
prevailing world market price, adjusted to U.S. quality and location.
    (B) The adjustment may not exceed the difference between the USNE, 
as determined in paragraphs (c)(4)(i) through (c)(4)(iii) of this 
section, and the NE, as determined in paragraph (a) of this section.
    (d) In determining the average difference in the 52-week period as 
provided in paragraph (c)(1) of this section:
    (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, leaf 3, (micronaire 3.5 through 3.6 and 4.3 
through 4.9, strength 25.5 through 29.4

[[Page 64469]]

grams per tex, length uniformity 80 through 82 percent) 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 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, leaf 3, (micronaire 3.5 through 3.6 and 4.3 through 4.9, 
strength 25.5 through 29.4 grams per tex, length uniformity 80 through 
82 percent) 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, leaf 3, (micronaire 3.5 
through 3.6 and 4.3 through 4.9, strength 25.5 through 29.4 grams per 
tex, length uniformity 80 through 82 percent) cotton, as quoted in the 
designated U.S. spot markets, that week will not be considered.
    (e) The upland cotton AWP, determined under paragraph (c) of this 
section, and the amount of the additional adjustment determined under 
paragraph (f) of this section, shall be announced, to the extent 
practicable, at 5 p.m. Eastern Standard time each Thursday continuing 
through the last Thursday of July, 2008. In the event that Thursday is 
a non-workday, the determination will be announced, to the extent 
practicable, at 8 a.m. Eastern Standard time the next work day.
    (f)(1)(i) The AWP, as determined under paragraph (c) of this 
section, shall be subject to further adjustments as provided in this 
section regarding all qualities of upland cotton eligible for loan 
except the following upland cotton grades 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 under 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 under paragraph 
(f)(1) of this section shall be determined by deducting from the AWP:
    (i) The difference between the NE, 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 including 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 (NECCc)), 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 (NECCf)), 
are not available during that period, beginning with the first week 
covering the period Friday through Thursday after the week including 
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 NECCc) + NECCf)/3;
    (2) Weeks 3 and 4: (NECCc + NECCf)/2;
    (3) Weeks 5 and 6: (NECCc + (2 x NECCf))/3; and
    (4) Week 7 through July 31: The NECCf, minus:
    (ii) The difference between the applicable loan rate for an upland 
cotton crop for M 1\3/32\ inch, leaf 3, (micronaire 3.5 through 3.6 and 
4.3 through 4.9, strength 25.5 through 29.4 grams per tex, length 
uniformity 80 through 82 percent) cotton and the loan rate for an 
upland cotton crop for SLM 1\1/16\ inch, leaf 4, (micronaire 3.5 
through 3.6 and 4.3 through 4.9, strength 25.5 through 29.4 grams per 
tex, length uniformity 80 through 82 percent) cotton.
    (iii) The result of the calculation as determined under this 
paragraph shall hereinafter be referred to as the ``Northern Europe 
coarse count price.''
    (3) Regarding the determination of the Northern Europe coarse count 
price under paragraph (f)(2)(i) of this section:
    (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 considered; and
    (iii) If quotes for three growths are not available for at least 3 
days in the 5-day period, that week will not be considered, in which 
case the adjustment determined under paragraph (f)(2) of this section 
for the latest available week will continue to be applicable.
    (g) If the 6-week transition period from using current shipment 
prices to using forward shipment prices in the determination of the NE 
under paragraph (a)(2) of this section, and the Northern Europe coarse 
count price under paragraph (f)(2)(i)(B) of this section do not begin 
at the same time, CCC shall use either current shipment prices, forward 
shipment prices, or any combination thereof to determine the NE and/or 
the Northern Europe coarse count price used in the determination of the 
adjustment for upland cotton under paragraph (f)(1) of this section and 
determined under paragraph (f)(2) of this section to prevent 
distortions in such adjustment.
    (h) The AWP determined under paragraph (c) of this section, shall 
be subject to further adjustments to a value no less than zero, as CCC 
determines, based upon the Schedule of Premiums and Discounts and the 
location differentials applicable to each warehouse location as 
announced under the loan program for an upland cotton crop.

[[Page 64470]]

Subpart B--[Reserved]

Subpart C--Upland Cotton User Marketing Certificates


Sec.  1427.100  Applicability.

    (a) Regulations in this subpart are applicable during the period 
beginning August 1, 1991, and ending July 31, 2008. These regulations 
set forth the terms and conditions under which CCC shall make payments, 
in the form of commodity certificates or cash, to eligible domestic 
users and exporters of upland cotton who entered into an Upland Cotton 
Domestic User/Exporter Agreement with CCC to participate in the upland 
cotton user marketing certificate program under section 1207 of the 
Farm Security and Rural Investment Act of 2002.
    (b) During the period beginning August 1, 1991, and ending July 31, 
2008, CCC shall issue marketing certificates or cash payments to 
domestic users and exporters under this subpart in a week following a 
consecutive 4-week period in which:
    (1) The Friday through Thursday average price quotation for the 
lowest-priced United States growth, as quoted for Middling one and 
three thirty-seconds inch (M 1\3/32\ inch) cotton, delivered C.I.F. 
(cost, insurance and freight) northern Europe, (U.S. Northern Europe 
(USNE) price) exceeds the Friday through Thursday average price 
quotation for the five lowest-priced growths, as quoted for M 1\3/32\-
inch cotton, delivered C.I.F. northern Europe, (Northern Europe (NE) 
price) by:
    (i) During the period beginning May 15, 2002, and ending July 31, 
2006, more than zero; and
    (ii) During the period beginning August 1, 2006, and ending July 
31, 2008, more than 1.25 cents per pound;
    (2) The adjusted world price (AWP) for upland cotton, determined 
under Sec.  1427.25, does not exceed 134 percent of the crop loan level 
for upland cotton.
    (c) Additional terms and conditions are in the Upland Cotton 
Domestic User/Exporter Agreement which the domestic user or exporter 
must execute in order to receive such payments.
    (d) CCC shall prescribe forms used in administering the upland 
cotton user marketing certificate program.


Sec.  1427.101  [Reserved].


Sec.  1427.102  [Reserved].


Sec.  1427.103  Eligible upland cotton.

    (a) For purposes of this subpart, eligible upland cotton is 
domestically produced baled upland cotton which bale is opened by an 
eligible domestic user on or after August 1, 1991, and on or before 
July 31, 2008, or exported by an eligible exporter on or after July 18, 
1996, and on or before July 31, 2008, during a Friday through Thursday 
period in which a payment rate, determined under Sec.  1427.107, is in 
effect and which meets the requirements of paragraphs (b) and (c) of 
this section.
    (b) Eligible upland cotton must be either:
    (1) Baled lint, including baled lint classified by USDA's 
Agricultural Marketing Service as Below Grade;
    (2) Loose;
    (3) Semi-processed motes which are of a quality suitable, without 
further processing, for spinning, papermaking or bleaching;
    (4) Re-ginned (processed) motes.
    (c) Eligible upland cotton must not be:
    (1) Cotton for which a payment, under the provisions of this 
subpart, has been made available;
    (2) Imported cotton;
    (3) Raw (unprocessed) motes; or
    (4) Textile mill wastes.


Sec.  1427.104  Eligible domestic users and exporters.

    (a) For purposes of this subpart, the following persons shall be 
considered eligible domestic users and exporters of upland cotton:
    (1) A person regularly engaged in the business of opening bales of 
eligible upland cotton for the purpose of manufacturing such cotton 
into cotton products in the United States (domestic user), who has 
entered into an agreement with CCC to participate in the upland cotton 
user marketing certificate program; or
    (2) A person, including a producer or a cooperative marketing 
association approved under part 1425 of this chapter, regularly engaged 
in selling eligible upland cotton for exportation from the United 
States (exporter), who has entered into an agreement with CCC to 
participate in the upland cotton user marketing certificate program.
    (b) Applications for payment under this subpart must contain 
documentation required by the provisions of the Upland Cotton Domestic 
User/Exporter Agreement and instructions CCC issues.


Sec.  1427.105  Upland Cotton Domestic User/Exporter Agreement.

    (a) Payments under this subpart shall be made available to eligible 
domestic users and exporters who have entered into an Upland Cotton 
Domestic User/Exporter Agreement with CCC and who have complied with 
the terms and conditions in this subpart, the Upland Cotton Domestic 
User/Exporter Agreement and instructions issued by CCC.
    (b) Upland Cotton Domestic User/Exporter Agreements may be obtained 
from Contract Reconciliation Division, Kansas City Commodity Office, 
P.O. Box 419205, Stop 8758, Kansas City, Missouri 64141-6205. In order 
to participate in the program authorized by this subpart, domestic 
users and exporters must execute the Upland Cotton Domestic User/
Exporter Agreement and forward the original and one copy to KCCO.


Sec.  1427.106  Form of payment.

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


Sec.  1427.107  Payment rate.

    (a) Beginning July 18, 1996, and ending July 31, 2008, the payment 
rate for purposes of calculating payments made under this subpart shall 
be determined as follows for exporters for cotton shipped on or after 
July 18, 1996, and for domestic users:
    (1) Beginning the Friday following August 1 and ending the week in 
which the Northern Europe current (NEc) price, the Northern Europe 
forward (NEf) price, the U.S. Northern Europe current (USNEc) price, 
and the U.S. Northern Europe forward (USNEf) price first become 
available, the payment rate shall be:
    (i) Beginning August 1, 1991, and ending May 14, 2002, the 
difference between the U.S. Northern Europe (USNE) price, minus 1.25 
cents per pound, and the Northern Europe (NE) price;
    (ii) Beginning May 15, 2002, and ending July 31, 2006, the 
difference between the USNE price and the NE price; and
    (iii) Beginning August 1, 2006, and ending July 31, 2008, the 
difference between the USNE price, minus 1.25 cent per pound, and the 
NE price in the fourth week of a consecutive 4-week period in which the 
USNE price exceeded the NE price each week by:
    (iv) During the period beginning August 1, 1991, and ending May 14, 
2002, more than 1.25 cents per pound;
    (v) During the period beginning May 15, 2002, and ending July 31, 
2006, more than zero; and
    (vi) During the period beginning August 1, 2006 and ending July 31, 
2008, more than 1.25 cents per pound; and the adjusted work price (AWP) 
did not exceed the loan level for upland cotton by more than 134 
percent in any week of the 4-week period; and
    (2) Beginning the Friday through Thursday week after the week in 
which

[[Page 64471]]

the NEc, the NEf, the USNEc, and the USNEf prices first become 
available and ending the Thursday following July 31, the payment rate 
shall be:
    (i) Beginning August 1, 1991, and ending May 14, 2002, the 
difference between the USNEc price, minus 1.25 cents per pound, and the 
NEc price;
    (ii) Beginning May 15, 2002, and ending July 31, 2006, the 
difference between the USNEc price and the NEc price; and
    (iii) Beginning August 1, 2006, and ending July 31, 2008, 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:
    (iv) During the period beginning August 1, 1991, and ending May 14, 
2002, more than 1.25 cents per pound;
    (v) During the period beginning May 15, 2002, and ending July 31, 
2006, more than zero; and
    (vi) During the period beginning August 1, 2006 and ending July 31, 
2008, more than 1.25 cents per pound; and the adjusted world price 
(AWP) did not exceed the loan level for upland cotton by more than 134 
percent in any week of the 4-week period.
    (3) If either or both the USNEc price and the NEc price are not 
available, the payment rate may be:
    (i) Beginning August 1, 1991, and ending May 14, 2002, the 
difference between the USNEf price, minus 1.25 cents per pound, and the 
NEf price;
    (ii) Beginning May 15, 2002, and ending July 31, 2006, the 
difference between the USNEf price and the NEf price; and
    (iii) Beginning August 1, 2006, and ending July 31, 2008, the 
difference between the USNEf price, minus 1.25 cents per pound, and the 
NEf price.
    (b) Whenever a 4-week period under paragraph (a) of this section 
contains a combination of NE, NEc, and NEf prices only for one to three 
weeks, such as occurs in the spring when the NE price is succeeded by 
the NEc and the NEf prices (Spring transition), and at the start of a 
new marketing year when the NEc and the NEf prices are succeeded by the 
NE price (marketing year transition), under paragraphs (a)(1) and 
(a)(2) of this section, during both the spring transition and the 
marketing year transition periods, to the extent practicable, the NEc 
and USNEc prices in combination with the NE and the USNE prices shall 
be taken into consideration during such 4-week periods to determine 
whether a payment is to be issued. During both the spring transition 
and the marketing year transition periods, if either or both the USNEc 
price and the NEc price are not available, the USNEf and NEf prices in 
combination with the USNE and NE prices shall be taken into 
consideration during such 4-week periods to determine whether a payment 
is to be issued.
    (c) For purposes of this subpart:
    (1) For the determination of the USNE, USNEc, USNEf, NE, NEc, and 
the NEf prices:
    (i) If daily quotations are not available for one or more days of 
the 5-day period, the available quotations during the period will be 
used;
    (ii) CCC will not consider a week in which no daily quotes are 
available for the entire 5-day period for either or both the USNE and 
the NE during the period when only one daily price quotation is 
available for each growth quoted for M 1\3/32\-inch cotton, delivered 
cost insurance, and freight (C.I.F.) northern Europe, or the USNEc and 
the NEc, or the USNEf and the NEf. In that case, CCC may establish a 
payment rate at a level it determines to be appropriate, taking into 
consideration the payment rate determined under paragraph (a) of this 
section for the most recent available week; and
    (iii) Beginning July 18, 1996, if no daily quotes are available for 
the entire 5-day period for either or both the USNEc and the NEc, the 
marketing year transition shall be implemented immediately.
    (2) Regarding the determination of the USNE, the USNEc, and the 
USNEf, if a quotation for either the U.S. Memphis territory or the 
California/Arizona territory, as quoted for M 1\3/32\-inch cotton, 
delivered C.I.F. northern Europe, is not available for each day or any 
day of the 5-day period, available quotation(s) will be used.
    (d) Payment rates for semi-processed motes that are of a quality 
suitable, without further processing, for spinning, papermaking or 
bleaching shall be based on a percentage of the basic rate for baled 
lint, as specified in the Upland Cotton Domestic User/Exporter 
Agreement.


Sec.  1427.108  Payment.

    (a) Payments under this subpart shall be determined by multiplying:
    (1) The payment rate, determined under Sec.  1427.107, by
    (2) The net weight (gross weight minus the weight of bagging and 
ties), determined under paragraph (b) of this section, of eligible 
upland cotton bales an eligible domestic user opens or an eligible 
exporter sold for export during the Friday through Thursday period 
following a week in which a payment rate is established.
    (b) For the purposes of this subpart, the net weight shall be 
determined based upon:
    (1) For domestic users, the weight on which settlement for payment 
of the cotton was based (landed mill weight);
    (2) For reginned motes processed by an end user who converted such 
motes, without rebaling, to an end use in a continuous manufacturing 
process, the net weight of the reginned motes after final cleaning;
    (3) For exporters, the shipping warehouse weight or the gin weight 
if the cotton was not placed in a warehouse, of the eligible cotton 
unless the exporter obtains and pays the cost of having all the bales 
in the shipment reweighed by a licensed weigher and furnishes a copy of 
the certified reweights.
    (c) For the purposes of this subpart, eligible upland cotton will 
be considered--
    (1) Consumed by the domestic user on the date the bale is opened 
for consumption; and
    (2) Exported by the exporter on the date CCC determines is the date 
on which the cotton is shipped through July 31, 2008.
    (d) Payments under this subpart shall be made available upon 
application for payment and submission of supporting documentation, 
including proof of purchase and consumption of eligible cotton by the 
domestic user or proof of export of eligible cotton by the exporter, as 
required by the CCC-issued provisions of the Upland Cotton Domestic 
User/Exporter Agreement.

Subpart D--Recourse Seed Cotton Loans


Sec.  1427.160  Applicability.

    (a) This subpart is applicable to the 2002 through 2007 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 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 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 
FSA State and county offices. Loan rates shall be based upon the 
location at which the loan collateral is stored.

[[Page 64472]]

    (c) A producer must, unless otherwise authorized by CCC, request 
the loan at the county office which, under 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, 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 under the regulations of 
this subpart; or
    (2) Require a county committee to withhold taking any action which 
is not under 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 waiver or 
modification of deadlines and other program requirements 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 under such 
terms and conditions, including any purported execution before the date 
authorized by CCC, shall be null and void.


Sec.  1427.162  [Reserved].


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, under 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.

    An eligible producer must meet the requirements of Sec.  1427.4.


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 under 
part 718 of this title; and
    (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 non-refundable loan service fee to CCC 
at a rate determined by CCC.
    (b) Interest which accrues for a loan shall be determined under 
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 under paragraph (b) of this section.
    (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

[[Page 64473]]

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 before 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 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 under 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 under 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 under 
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 under 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 before 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 under 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 under 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

[[Page 64474]]

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 for 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 under paragraph (e) of this section.
    (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 under 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 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 
for 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 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 about 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 under paragraph (e) of this section; 
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 under paragraph (e) of this section;
    (2) Call the applicable loan involved in the violation.
    (h) If CCC or the county committee determines that the producer has 
committed a violation under paragraph (e) of this section, 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 under paragraphs (f) or 
(g) of this section.
    (i) Any or all of the liquidated damages assessed under the 
provision of paragraph (e) of this section may be waived as determined 
by CCC.

Subpart E--Standards for Approval of Warehouses for Cotton and 
Cotton Linters

* * * * *

Subpart F--[Reserved].

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


Sec.  1427.1200  Applicability.

    (a) These regulations set forth the terms and conditions under 
which CCC shall make payments, in the form of commodity certificates or 
cash, to eligible domestic users and exporters of extra long staple 
(ELS) cotton who have entered into an ELS Cotton Domestic User/Exporter 
Agreement with CCC to participate in the ELS cotton competitiveness 
payment program under section 136A(c) of the Federal Agriculture 
Improvement and Reform Act of 1996 and section 1208 of the Farm 
Security and Rural Investment Act of 2002.
    (b) During the effective period of these regulations, CCC may issue 
marketing certificates or cash payments to domestic users and 
exporters, at the option of the recipient under this subpart, in any 
week following a consecutive 4-week period in which:
    (1) The lowest adjusted Friday through Thursday average price 
quotation for foreign growths (LFQ), as quoted for ELS cotton, 
delivered C.I.F. (cost, insurance and freight) Northern Europe, is less 
than the Friday through Thursday adjusted average domestic spot price 
quotation for base quality U.S. Pima cotton, as determined by the 
Secretary for purposes of administering the ELS Cotton Competitiveness 
Payment Program, uncompressed, F.O.B. warehouse; and
    (2) The LFQ, determined under Sec.  1427.1207, is less than 134 
percent of the current crop year loan level for the base quality U.S. 
Pima cotton as determined by the Secretary.
    (c) Additional terms and conditions may be in the ELS Cotton 
Domestic User/Exporter Agreement, which the domestic user or exporter 
must execute in order to receive such payments.

[[Page 64475]]

    (d) CCC shall prescribe the forms to be used in administering the 
ELS cotton competitiveness payment program.


Sec.  1427.1201  [Reserved].


Sec.  1427.1202  Definitions.

    Consumption means, the use of eligible ELS cotton by a domestic 
user in the manufacture in the United States of ELS cotton products.
    Cotton product means any product containing cotton fibers that 
result from the use of an eligible bale of ELS cotton in manufacturing.
    Current shipment price means, during the period in which two daily 
price quotations are available for the LFQ for the foreign growth, 
quoted C.I.F. northern Europe, the price quotation for cotton for 
shipment no later than August/September of the current calendar year.
    Forward shipment price means, during the period in which two daily 
price quotations are available for the LFQ for foreign growths, quoted 
C.I.F. northern Europe, the price quotation for cotton for shipment no 
earlier than October/November of the current calendar year.
    LFQ means, during the period in which only one daily price 
quotation is available for the growth, the lowest average for the 
preceding Friday through Thursday week of the price quotations for 
foreign growths of ELS cotton, quoted cost, insurance, and freight 
C.I.F. northern Europe, after each respective average is adjusted for 
quality differences between the respective foreign growth and U.S. 
Pima, of the base quality, provided that the lowest adjusted quotation 
becomes the LFQ after it is further adjusted to reflect the estimated 
cost of transportation between an average U.S. location and northern 
Europe.
    (1) Current LFQ means the preceding Friday through Thursday average 
of the current shipment prices for the lowest adjusted foreign growth, 
C.I.F. northern Europe.
    (2) Forward LFQ means the preceding Friday through Thursday average 
of the forward shipment prices for the lowest adjusted foreign growth, 
quoted C.I.F. northern Europe.
    Spot price means the Friday through Thursday weekly average of the 
domestic spot prices reported by the Agricultural Marketing Service, 
USDA, for base quality U.S. Pima, uncompressed, F.O.B. warehouse, for 
the San Joaquin and Desert Southwest markets. When both San Joaquin 
Valley and Desert Southwest spot quotations are available, the U.S. 
quotation will be a weighted average of the two quotations, as 
determined by the Secretary. If only one quotation is available, that 
quotation will be used.


Sec.  1427.1203  Eligible ELS cotton.

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


Sec.  1427.1204  Eligible domestic users and exporters.

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


Sec.  1427.1205  ELS Cotton Domestic User/Exporter Agreement.

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


Sec.  1427.1206  Form of payment.

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


Sec.  1427.1207  Payment rate.

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

[[Page 64476]]

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


Sec.  1427.1208  Payment.

    (a) Payments under this subpart shall be determined by multiplying:
    (1) The payment rate, determined under Sec.  1427.127, by
    (2) The net weight (gross weight minus the weight of bagging and 
ties) determined under paragraph (b) of this section, of eligible ELS 
cotton bales that an eligible domestic user opens or an eligible 
exporter exports during the Friday through Thursday period following a 
week in which a payment rate is established.
    (b) For the purposes of this subpart, the net weight shall be based 
upon:
    (1) For domestic users, the weight on which settlement for payment 
of the ELS cotton was based (landed mill weight);
    (2) For reginned motes processed by an end user who converted such 
motes, without rebaling, to an end use in a continuous manufacturing 
process, the net weight of the reginned motes after final cleaning;
    (3) For exporters, the shipping warehouse weight or the gin weight 
if the ELS cotton was not placed in a warehouse, of the eligible cotton 
unless the exporter obtains and pays the cost of having all the bales 
in the shipment reweighed by a licensed weigher and furnishes a copy of 
the certified reweights.
    (c) For the purposes of this subpart, eligible ELS cotton will be 
considered:
    (1) Consumed by the domestic user on the date the bale is opened 
for consumption; and
    (2) Exported by the exporter on the date that CCC determines is the 
date on which the cotton is shipped for export.
    (d) Payments under this subpart shall be made available upon 
application for payment and submission of supporting documentation, as 
required by the CCC-issued provisions of the ELS Cotton Domestic User/
Exporter Agreement.

PART 1430--DAIRY PRODUCTS

    9. The authority citation is revised to read as follows:

    Authority: 7 U.S.C. 7981 and 7982; 15 U.S.C. 714b and 714c.


    10. Amend Subpart A by revising it to read as follows:
Subpart A--Price Support Program for Milk
Sec.
1430.1 Definitions.
1430.2 Price support levels and purchase conditions.


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.
    USDA means the United States Department of Agriculture.


Sec.  1430.2  Price support levels and purchase conditions.

    (a)(1) The level of price support provided to farmers marketing 
milk containing 3.67 percent milkfat from dairy cows is $9.90 per 
hundredweight for calendar year 2002 through 2007.
    (2) Subject to paragraph (b) of this section, 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 a 
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 CCC.
    (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.
    11. Amend Subpart B by revising it to read as follows:
Subpart B--Milk Income Loss Contract Program
Sec.
1430.200 Applicability.
1430.201 Administration.
1430.202 Definitions.
1430.203 Eligibility.
1430.204 Requesting benefits.
1430.205 Selection of starting month.
1430.206 Transition payments.
1430.207 Dairy operation payment quantity.
1430.208 Payment rate and dairy operation payment.
1430.209 Proof of marketings.
1430.210 MILC agents.
1430.211 Duration of contracts.
1430.212 Contract modifications.
1430.213 Reconstitutions.
1430.214 Violations.
1430.215 [Reserved].
1430.216 Contracts not in conformity with regulations.
1430.217 Offsets and withholdings.
1430.218 Assignments.
1430.219 Appeals.
1430.220 Misrepresentation and scheme or device.
1430.221 Estates, trusts, and minors.
1430.222 Death, incompetency, or disappearance.
1430.223 Maintenance and inspection of records.
1430.224 Refunds; joint and several liability.
1430.225 Violations of highly erodible land and wetland conservation 
provisions.

[[Page 64477]]

1430.226 Violations regarding controlled substances.


Sec.  1430.200  Applicability.

    (a) This subpart governs the Milk Income Loss Contract Program. 
This program provides financial assistance to dairy operations in 
connection with milk production that is sold in the commercial market.


Sec.  1430.201  Administration.

    (a) This program is administered under the general supervision of 
the Executive Vice President, CCC, or a designee, and shall be carried 
out by Farm Service Agency (FSA) State and county committees and 
employees.
    (b) State and county committees, and their employees may not waive 
or modify any requirement of this subpart, except as provided in 
paragraph (e) of this section.
    (c) The State committee shall take any action required when not 
taken by the county committee, require correction of actions not in 
compliance, or require the withholding of any action that is not in 
compliance with this subpart.
    (d) The Executive Vice President, CCC, or a designee, may determine 
any question arising under the program or reverse or modify any 
decision of the State or county committee.
    (e) The Deputy Administrator, Farm Programs, FSA, may waive or 
modify program requirements where failure to meet such requirements 
does not adversely affect the operation of the Milk Income Loss 
Contract Program.
    (f) A representative of CCC may execute Milk Income Loss Contracts 
and related documents under the terms and conditions determined and 
announced by CCC. Any document not under such terms and conditions, 
including any purported execution before the date authorized by CCC, 
shall be null and void.


Sec.  1430.202  Definitions.

    The definitions in this section shall be applicable for all 
purposes of administering the Milk Income Loss Contract (MILC) program 
established by this subpart.
    CCC means the Commodity Credit Corporation of the Department.
    Class I Milk means milk, including milk components, classified as 
Class I milk under a Federal milk marketing order.
    Contract application means a Milk Income Loss Contract as executed 
on a form prescribed by CCC.
    Contract application period means the date established by the 
Deputy Administrator for producers to apply for program benefits.
    County committee means the FSA county committee.
    County office means the FSA office responsible for administering 
FSA programs to farms located in a specific area in a state.
    Dairy operation means any person or group of persons who as a 
single unit as determined by CCC, produce and market milk commercially 
produced from cows and whose production facilities are located in the 
United States.
    Department or USDA means the United States Department of 
Agriculture.
    Deputy Administrator means the Deputy Administrator for Farm 
Programs (DAFP), FSA or a designee.
    Eligible production means milk that was produced by cows in the 
United States and marketed commercially anytime during the period of 
December 1, 2001, through September 30, 2005, up to a maximum of 2.4 
million pounds per dairy operation per fiscal year.
    Farm Service Agency or FSA means the Farm Service Agency of the 
Department.
    Federal Milk Marketing Order means an order issued under section 8c 
of the Agricultural Adjustment Act (7 U.S.C. 608c), reenacted with 
amendments by the Agricultural Marketing Agreement Act of 1937.
    Fiscal Year means the year beginning October 1 (except December 1 
for fiscal year 2002) and ending the following September 30 and such 
that, for example, fiscal year 2003 will run from October 1, 2002 
through September 30, 2003.
    Hundredweight or cwt. means 100 pounds.
    Marketed commercially means sold to the market to which the dairy 
operation normally delivers whole milk and receives a monetary amount.
    MILC means the Milk Income Loss Contract program or the form upon 
which CCC and the producer agree to the terms of the payment to be made 
under the MILC program.
    Milk handler means the marketing agency to or through which the 
producer commercially markets whole milk.
    Milk marketing means a marketing of milk for which there is a 
verifiable sales or delivery record of milk marketed for commercial 
use.
    Participating State means each of the 50 States in the United 
States of America, including the District of Columbia, and the 
Commonwealth of Puerto Rico, or any other State, territory, or 
possession of the United States.
    Payment pounds means the pounds of milk production for which an 
operation is eligible to be paid under this subpart.
    Producer means any individual, group of individuals, partnership, 
corporation, estate, trust association, cooperative, or other business 
enterprise or other legal entity who is, or whose members are, a 
citizen of, or legal resident alien in the United States, and who 
directly or indirectly, as determined by the Secretary, shares in the 
risk of producing milk, and makes contributions (including land, labor, 
management, equipment, or capital) to the dairy farming operation of 
the individual or entity that are at least commensurate with the share 
of the individual or entity of the proceeds of this operation.
    Transition period means the period from December 1, 2001, until the 
time the dairy operation enters into MILC contract with CCC, provided 
that CCC may set such a deadline for the signing of the transition 
contract as it deems appropriate in order to accomplish the purposes of 
the contract.
    United States means the 50 States of the United States of America, 
the District of Columbia, and the Commonwealth of Puerto Rico, or any 
other State, territory, or possession of the United States.
    Verifiable production records means evidence that is used to 
substantiate the amount of production marketed and that can be verified 
by CCC through an independent source.


Sec.  1430.203  Eligibility.

    To be eligible to receive payments under this subpart, a dairy 
operation must:
    (a) Have produced milk in the United States and commercially 
marketed the milk produced anytime during the period of December 1, 
2001, through September 30, 2005;
    (b) Enter into a MILC during the contract application period;
    (c) Agree to all terms and conditions in the MILC and those that 
are otherwise contained in this subpart and comply with instructions 
issued by CCC;
    (d) Provide proof of monthly milk production commercially marketed 
by all persons in the dairy operation during the contract period, to 
determine the total pounds of milk that will be converted to 
hundredweight (cwt.) used for payment;
    (e) Submit timely production evidence according to Sec.  1430.209;
    (f) Be actively engaged in the business of producing and marketing 
agricultural products at the time of signing the Milk Income Loss 
Contract.

[[Page 64478]]

    (g) In administering this program, the eligibility determination of 
``dairy operation'' shall be made in the same manner as Dairy Market 
Loss Assistance (DMLA) contracts in that State. New MILC operations 
must be unaffiliated with prior DMLA operations.


Sec.  1430.204  Requesting benefits.

    (a) A request for benefits or contract application, under this 
subpart must be submitted on a form as prescribed by the Agency. 
Contract applications shall be submitted to the FSA office serving the 
county where the dairy operation is located. Contract applications must 
be received by FSA by the close of business on the date established by 
the Deputy Administrator. Contract applications received after such 
date shall be disapproved.
    (b) The dairy operation requesting MILC benefits must certify the 
accuracy and truthfulness of the information in their contract 
application. All information provided is subject to verification by 
CCC. Refusal to allow CCC or any other agency of the Department to 
verify any information provided will result in disapproval.
    (c) Contract applications will be approved by execution by FSA and 
producer of a MILC. All persons who share in the risk of a dairy 
operation's total production must sign and certify the contract 
application.


Sec.  1430.205  Selection of starting month.

    (a) Except as provided in Sec.  1430.206 and beginning with the 
2003 Fiscal Year, a dairy operation that enters into a MILC, and does 
not want its payments to begin with the first month of the fiscal year, 
must designate the starting month that it desires CCC to begin making 
payments to them. The starting month must be selected on or before the 
15th of the month before the month for which payment is sought. A dairy 
operation cannot select a month for payment which:
    (1) Has already begun;
    (2) Has already passed; or
    (3) During which no milk was produced by the dairy operation.
    (b) Dairy operations may change the starting month on or before the 
first day of 15th of the month before the month previously selected. 
Otherwise, the starting month cannot be changed until the next Fiscal 
Year. If the selected starting month is never modified, it will remain 
the same throughout the duration of the contract.
    (c) MILC payments will be made consecutively to the dairy operation 
on a monthly basis after the starting month has been designated until 
the earlier of the following:
    (1) The maximum payment quantity is reached as determined in 
accordance with Sec.  1430.207; or
    (2) The end of the applicable Fiscal Year.
    (d)(1) Dairy operations that do not designate the month to begin 
receiving payments from CCC will be issued consecutive payments on a 
monthly basis, on marketed milk production beginning in the first month 
of the fiscal year, unless FSA is otherwise notified that selection 
will be made at a later date.
    (2) Dairy operations that desire payments to begin with the first 
month of the fiscal year will receive payments made by CCC 
consecutively on a monthly basis until the earlier of the following:
    (i) The maximum payment quantity is reached as determined in 
accordance with Sec.  1430.207; or
    (ii) The end of the applicable fiscal year.
    (e) All producers involved in the dairy operation must agree to the 
month designated. The dairy operation assumes the risk of not reaching 
the maximum payment quantity based on the month selected by the dairy 
operation. Payments will not be issued for past months for the sole 
purpose of reaching the maximum payment quantity.


Sec.  1430.206  Transition payments.

    (a) MILC program participants shall receive a payment calculated 
under Sec.  1430.208 on the quantity of eligible production marketed by 
the dairy operation during the period beginning December 1, 2001, and 
ending on the last day of the month preceding the month the operation's 
MILC is executed.
    (b) Transition payments are subject to the following:
    (1) The maximum payment quantity on eligible production, as 
described in Sec.  1430.207;
    (2) Consecutive monthly payments beginning on December 1, 2001, and 
if applicable the beginning of the fiscal year thereafter, until the 
earlier of the following is reached for a particular fiscal year:
    (i) The maximum applicable payment quantity is reached as 
determined in accordance with Sec.  1430.207; or
    (ii) The end of the applicable fiscal year.
    (c) With respect to the 2002 Fiscal Year, the dairy operation may 
elect to forgo their transition payment and choose to begin receiving 
payments in September, 2002 in accordance with Sec.  1430.205.
    (d) Notwithstanding any other provisions in this subpart, dairy 
operations that go out of business after December 1, 2001, may enter 
into a MILC with CCC for a transition payment on the quantity of 
eligible production marketed by the dairy operation during the 
transition period while the dairy operation was in business.


Sec.  1430.207  Dairy operation payment quantity.

    (a) The applicant's payment quantity of milk will be determined by 
CCC, based on the quantity of milk that was produced and commercially 
marketed by each dairy operation per fiscal year.
    (b) The maximum quantity of eligible production for which dairy 
operations are eligible for payment per any fiscal year, including any 
in the transition year, under this subpart shall be 2.4 million pounds 
(24,000 cwt.) per separate and distinct operation. In accordance with 
these regulations, the Deputy Administrator shall determine what is a 
separate and distinct operation and that decision shall be final.


Sec.  1430.208  Payment rate and dairy operation payment.

    (a) Payments under this subpart may be made to dairy operations 
when the Boston Class I milk price under the applicable Federal milk 
marketing order is below $16.94 per cwt. No payments will be made to 
dairy operations for marketings during the months that the Boston Class 
I milk price under the applicable milk marketing order exceeds $16.94.
    (b) A per-hundredweight payment rate will be determined for the 
applicable month by:
    (1) Subtracting from $16.94 the Class I milk price per cwt in 
Boston; and
    (2) Multiplying the difference, if positive, by 45 percent.
    (c) Each eligible dairy operation payment will be calculated, as 
determined by the Secretary, by:
    (1) Converting whole pounds of milk to hundredweight; and
    (2) Multiplying the payment rate determined in paragraph (b) of 
this section by the quantity of eligible production marketed by the 
operation during the applicable month as determined according to Sec.  
1430.205 and other provisions of these regulations.
    (d) Payments under this subpart may be made to a dairy operation 
only up to the first 2.4 million pounds of eligible milk production per 
applicable fiscal year, including any year in the transition period.
    (e) Dairy operations receiving benefits under this subpart, will 
receive payments on a monthly basis according to the MILC, to the 
extent practicable, not later than 60 days after the

[[Page 64479]]

production evidence and all supporting documents for the applicable 
month are received by CCC. Payments issued by CCC later than 60 days 
after all production evidence and supporting documentation are received 
by CCC will be subject to prompt payment interest as allowed by law.


Sec.  1430.209  Proof of marketings.

    (a) A dairy operation entering into an MILC must, based on 
instructions issued by the Deputy Administrator, provide adequate proof 
of the dairy operation's eligible production during the months of each 
fiscal year designated in the MILC. The dairy operation must also 
provide proof that the eligible production was commercially marketed 
during the months beginning December 1, 2001, and ending September 30, 
2005. Evidence of milk production claimed for payment shall be provided 
to CCC with supporting documentation under paragraph (b) of this 
section. All information provided is subject to verification, spot 
check, and audit by FSA. Further verification information may be 
obtained from the dairy operation's milk handler or marketing 
cooperative if deemed necessary by CCC to verify provided information. 
Refusal to allow FSA or any other agency of the Department of 
Agriculture to verify any information provided will result in a 
determination of ineligibility for benefits under this subpart.
    (b) Eligible dairy operations marketing milk during the period 
specified in the MILC shall provide any available supporting documents 
from all producers in the dairy operation to assist CCC in verifying 
that the dairy operation produced and marketed milk commercially from 
the designated starting month and thereafter. Examples of supporting 
documentation include, but are not limited to: milk marketing payment 
stubs, tank records, milk handler records, daily milk marketings, 
copies of any payments received as compensation from other sources, or 
any other documents available to confirm the production and production 
history of the dairy operation. Producers may also be required to allow 
CCC to examine the herd of cattle as production evidence. If supporting 
documentation requested is not presented to CCC or FSA, the request for 
MILC benefits will be disapproved.


Sec.  1430.210  MILC agents.

    (a) MILC benefits may be disbursed by a dairy marketing cooperative 
that serves special groups or communities, such as an Amish or 
Mennonite community. Producers in such groups in a dairy operation may 
authorize an agent of a dairy cooperative or milk handler affiliated 
with such cooperative to obtain and disburse MILC benefits to the dairy 
operation.
    (b) The authorized MILC agent must on behalf of the dairy operation 
do the following:
    (1) Obtain an acceptable power of attorney or acceptable equivalent 
for the producers of the dairy operation that authorizes the agent to 
enter into an MILC contract;
    (2) Enter into a written agreement with CCC for approval to act as 
a MILC agent on a form prescribed by CCC;
    (3) Provide the dairy operation's monthly production evidence to 
the appropriate FSA office;
    (4) Disburse payment to the dairy operation in the producer's 
monthly milk check or in an otherwise approved manner.


Sec.  1430.211  Duration of contracts.

    (a) Except as provided in Sec. Sec.  1430.205 and 1430.206, or 
elsewhere in this subpart, contracts under this subpart entered into by 
producers in a dairy operation shall cover eligible production marketed 
by the producers in the dairy operation during the period beginning 
with the first day of the month the producers in the dairy operation 
enter into contract and ending on September 30, 2005.
    (b) If a dairy goes out of business during the contract period, the 
MILC will be terminated immediately, except as applicable to earned 
payments.


Sec.  1430.212  Contract modifications.

    (a) Producers in a dairy operation must notify FSA immediately of 
any changes that may affect their MILC. Changes include, but are not 
limited to changes to the starting month to receive payment for the 
next fiscal year, death of producer on the contract, new member joining 
the operation, member exiting the operation, transfer of shares by sale 
or other transfer action, or farm reconstitutions undertaken in 
accordance with Sec.  1430.213.
    (b) CCC may modify an MILC if such modifications are desirable to 
carry out purposes of the program or to facilitate the program's 
administration.


Sec.  1430.213  Reconstitutions.

    (a) A dairy operation receiving MILC benefits may reorganize or 
restructure such that the constitution or makeup of their operation is 
reconstituted in another organizational framework. However, any 
operation that changes after December 1, 2001, is subject to a review 
by FSA to determine if the operation was reorganized for the sole 
purpose of receiving multiple payments.
    (b) A dairy operation that FSA determines has reorganized solely to 
receive additional MILC payments will be in violation of its contract 
and dealt in accordance with Sec.  1430.214.
    (c) If during the contract period a change in the dairy operation 
occurs, the modification to the MILC will not take effect until the 
first day of the fiscal year following the month FSA received 
notification of the changes. Changes include but are not limited to any 
producer affiliated with a dairy operation that has an approved MILC 
with CCC forming a new dairy operation that is not formed solely to 
receive additional MILC payments.
    (d) Changes resulting in the following will take effect immediately 
upon notification to CCC, in accordance with Sec.  1430.212:
    (1) Increases or reductions of shareholders or producers and their 
corresponding share amounts in the dairy operation; or
    (2) Purchases of a new dairy operation by a producer or producers 
not affiliated with an existing dairy operation that has an approved 
MILC with CCC.


Sec.  1430.214  Violations.

    (a) If producers in a dairy operation violates the MILC or the 
requirements of this subpart, CCC may:
    (1) Terminate the MILC for the remainder of the fiscal year in 
which the violation occurs, and allow the producer to retain any 
payments received under the contract; or
    (2) Allow the MILC to remain in effect and require the producer to 
repay a portion of the payments received commensurate with the 
violation's severity, as CCC determines.
    (3) If the MILC is terminated under this section, the participant 
shall forfeit all rights to further MILC benefits and shall refund all 
or part of the payments received as CCC determines appropriate.
    (4) A producer or operation with a violation, as determined by CCC, 
shall refund all MILC funds disbursed under of this part. The remedies 
provided in this subpart shall be in addition to other civil, criminal, 
or administrative remedies which may apply.
    (b) A MILC is violated by the following actions:
    (1) Failure to comply with the terms and conditions of the MILC and 
addendum;
    (2) Reconstitutions of the dairy operation for the sole purpose of 
receiving multiple program benefits;
    (3) Failure to comply with highly erodible land conservation and 
wetland provisions of this 7 CFR part 12 or their successor 
regulations;
    (4) Failure to meet the definition of a dairy operation according 
to Sec.  1430.202;

[[Page 64480]]

    (5) Any action that tends to defeat the purpose of the program, as 
CCC determines.
    (c) The Deputy Administrator for Farm Programs (DAFP) of the Farm 
Service Agency may terminate any MILC by mutual agreement upon request 
of the participant if DAFP determines that termination is in the best 
interest of the public.
    (d) The DAFP may determine that failure of the dairy operation to 
perform the MILC does not warrant termination and may require the 
participant to refund part of the payments received or accept 
adjustments in the payment as the DAFP determines to be appropriate.


Sec.  1430.215  [Reserved].


Sec.  1430.216  Contracts not in conformity with regulations.

    If it is discovered that an MILC contract does not comply with this 
subpart as the result of a misunderstanding by someone who has signed 
the contract, the contract may be modified by mutual agreement. If the 
parties to the MILC cannot reach agreement for such modification, it 
shall be terminated and all payments paid or payable under the contract 
shall be forfeited or refunded to CCC, except as may otherwise be 
allowed under Sec.  1430.214.


Sec.  1430.217  Offsets and withholdings.

    CCC may offset or withhold any amount due CCC under this subpart 
under the provisions of part 1403 of this chapter or any successor 
regulations.


Sec.  1430.218  Assignments.

    Any producer may assign a payment to be made under this part in 
accordance with part 1404 of this chapter or successor regulations as 
designated by the Department.


Sec.  1430.219  Appeals.

    Any producer who is dissatisfied with a determination made pursuant 
to this subpart may request reconsideration or appeal of such 
determination under part 11 or 780 of this title.


Sec.  1430.220  Misrepresentation and scheme or device.

    (a) A dairy operation shall be ineligible for the MILC program if 
FSA determines that it knowingly:
    (1) Adopted a scheme or device that tends to defeat the purpose of 
this program;
    (2) Made any fraudulent representation; or
    (3) Misrepresented any fact affecting a determination under this 
program. CCC will take steps deemed necessary to protect the interests 
of the government.
    (b) Any funds disbursed to a producer or operation engaged in a 
misrepresentation, scheme, or device, shall be refunded to CCC. The 
remedies provided in this subpart shall be in addition to other civil, 
criminal, or administrative remedies which may apply.


Sec.  1430.221  Estates, trusts, and minors.

    (a) Program documents executed by producers legally authorized to 
represent estates or trusts will be accepted only if such producers 
furnish evidence of the authority to execute such documents.
    (b) A minor who is otherwise eligible for assistance under this 
part must also:
    (1) Establish that the right of majority has been conferred on the 
minor by court proceedings or by statute;
    (2) Show that a guardian has been appointed to manage the minor's 
property and the applicable program documents are executed by the 
guardian; or
    (3) Furnish a bond under which the surety guarantees any loss 
incurred for which the minor would be liable had the minor been an 
adult.


Sec.  1430.222  Death, incompetency, or disappearance.

    In the case of death, incompetency, disappearance or dissolution of 
a producer that is eligible to receive benefits under this part, such 
persons as are specified in part 707 of this title may receive such 
benefits, as determined appropriate by FSA.


Sec.  1430.223  Maintenance and inspection of records.

    (a) Producers approved for benefits under this program must 
maintain accurate records and accounts that will document that they 
meet all eligibility requirements specified herein, as may be requested 
by CCC or FSA. Such records and accounts must be retained for 3 years 
after the date of payment to the dairy operation under this program. 
Destruction of the records 3 years after the date of payment shall be 
the risk of the party undertaking the destruction.
    (b) At all times during regular business hours, authorized 
representatives of CCC, the Department, or the Comptroller General of 
the United States shall have access to the premises of the dairy 
operation in order to inspect the herd of cattle, examine, and make 
copies of the books, records, and accounts, and other written data as 
specified in paragraph (a) of this section.
    (c) Any funds disbursed pursuant to this part to any producers or 
operation who does not comply with the provisions of paragraphs (a) or 
(b) of this section, or who otherwise receives a payment for which they 
are not eligible, shall be refunded with interest.


Sec.  1430.224  Refunds; joint and several liability.

    (a) In the event of an error on a MILC application, a failure to 
comply with any term, requirement, or condition for payment arising 
under the MILC application, or this subpart, all improper payments 
shall be refunded to CCC together with interest from the date payment 
was received through the date the refund is received by CCC.
    (b) All producers signing a dairy operation's application for 
payment as having an interest in the operation shall be jointly and 
severally liable for any refund, including related charges, that is 
determined to be due for any reason under the terms and conditions of 
the contract application and addendum or this part for such operation.


Sec.  1430.225  Violations of highly erodible land and wetland 
conservation provisions.

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


Sec.  1430.226  Violations regarding controlled substances.

    The provisions of Sec.  718.11 of this title apply to this part.

PART 1434--NONRECOURSE MARKETING ASSISTANCE LOAN AND LOAN 
DEFICIENCY PAYMENTS FOR HONEY

    18.-19. The authority citation is revised to read as follows:

    Authority: 7 U.S.C. 7931.


    20. Revise Sec.  1434.1 to read as follows:


Sec.  1434.1  Applicability.

    This part provides the terms and conditions of Commodity Credit 
Corporation (CCC) nonrecourse marketing assistance loans or loan 
deficiency payments for honey. Marketing loan gains and loan deficiency 
payments shall be limited per person in the amounts set out in part 
1400 of this chapter.

    21. Amend Sec.  1434.6 by redesignating paragraphs (b), (c) and (d) 
as paragraphs (c), (d) and (e), respectively, and adding a new 
paragraph (b) to read as follows:


Sec.  1434.6  Beneficial Interest.

* * * * *
    (b) For the 2002 crop of honey, in the case of producers that would 
be eligible for a loan deficiency payment under this section except for 
the fact that the producers lost beneficial interest in the crop before 
October 18, 2002, the

[[Page 64481]]

producers shall be eligible for a loan deficiency payment as of the 
date producers marketed or otherwise lost beneficial interest in the 
honey, as determined by the Secretary.
* * * * *

    22. Amend Sec.  1434.10 by revising paragraph (a) to read as 
follows:


Sec.  1434.10  Application, availability, disbursement, and maturity.

    (a) A producer must, unless otherwise authorized by CCC, request 
loans and loan deficiency payments at the appropriate FSA county office 
responsible for administering the program as provided under part 718 of 
this title. To receive loans and loan deficiency payments for honey, a 
producer shall execute a note and security agreement or loan deficiency 
payment application on or before March 31 of the year following the 
year in which the honey was extracted.
* * * * *

    23. Amend Sec.  1434.18 by revising the introductory text of 
paragraph (a) to read as follows:


Sec.  1434.18  Loan Repayments.

    (a) A honey producer may repay a nonrecourse marketing assistance 
loan at a rate that is the lesser of:
* * * * *

    24. Amend Sec.  1434.21 by revising paragraphs (a), (b)(3) and 
(f)(1) to read as follows:


Sec.  1434.21  Loan deficiency payments.

    (a) Loan deficiency payments shall be available for 2002-2007 crop 
honey.
    (b) * * *
    (3) Submitted a request for a honey Loan deficiency payment on the 
form as CCC prescribes.
* * * * *
    (f) * * *
    (1) The producer will provide correct, accurate, and truthful 
certifications and representations of the loan quantity and all other 
matters of fact and interest when submitting a request for a honey loan 
deficiency payment; and
* * * * *


Sec.  1434.23  [Amended]

    25. Amend Sec.  1434.23 by removing paragraph (c).

    Signed in Washington, DC, on October 11, 2002.
Teresa C. Lasseter,
Acting Executive Vice President, Commodity Credit Corporation.
[FR Doc. 02-26524 Filed 10-15-02; 12:32 pm]
BILLING CODE 3410-05-P