[Federal Register Volume 70, Number 117 (Monday, June 20, 2005)]
[Rules and Regulations]
[Pages 35367-35370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-12034]



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 Rules and Regulations
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  Federal Register / Vol. 70, No. 117 / Monday, June 20, 2005 / Rules 
and Regulations  

[[Page 35367]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1427

RIN 0560-AH36


Extra Long Staple Cotton Prices

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Interim final rule.

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SUMMARY: This rule amends and requests comment on the Extra Long Staple 
(ELS) Cotton Competitiveness Payment Program of the Commodity Credit 
Corporation (CCC). This rule changes the ELS cotton price used to 
calculate the payment rate from the ``average domestic spot price 
quotation for base quality U.S. Pima cotton'' to the ``American Pima 
c.i.f. Northern Europe'' price. The change is intended to reduce the 
cost to the Federal Government of operating the program by 
incorporating a reference price more indicative of actual ELS cotton 
world market prices.

DATES: This interim rule is effective August 5, 2005. The first 
announcement of a payment rate under the new price mechanism will be on 
Thursday, August 4, 2005. Written comments via letter, facsimile, or 
Internet are invited from interested individuals and organizations and 
must be received on or before July 20, 2005 in order to be assured 
consideration.

ADDRESSES: FSA invites interested persons to submit comments on this 
interim final rule. Comments may be submitted by any of the following 
methods:
     E-Mail: Send comments to [email protected]. [Include 
``ELS Cotton Interim Rule,'' in the subject line of the message].
     Fax: Send comments by facsimile transmission to (202) 690-
2186.
     Mail: Send comments to: Steve Neff, Economic and Policy 
Analysis Staff, Farm Service Agency, United States Department of 
Agriculture, 1400 Independence Avenue, SW., AG STOP 0515, Washington, 
DC 20250-0515.
     Hand Delivery or Courier: Deliver comments to: Steve Neff, 
Economic and Policy Analysis Staff, Farm Service Agency, United States 
Department of Agriculture, 1400 Independence Avenue, SW., Room 3741-S, 
Washington, DC 20250-0515.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.

FOR FURTHER INFORMATION CONTACT: Steve Neff at the above address or by 
telephone at (202) 720-7954.


SUPPLEMENTARY INFORMATION:

Background

    The Commodity Credit Corporation (CCC) has decided to change the 
regulations governing how payment rates are calculated under its Extra 
Long Staple (ELS) Cotton Competitiveness Payment Program to provide 
that the price currently used, ``U.S. spot quotes,'' will be replaced 
by the ``American Pima c.i.f. Northern Europe quote.'' The current ELS 
payment rate is determined by the difference between U.S. spot prices, 
as reported by the Department of Agriculture (USDA), Agricultural 
Marketing Service (AMS), and the lowest foreign quote, c.i.f. Northern 
Europe, as published by Cotton Outlook, adjusted to U.S. location and 
quality. Recent payments to ELS producers have increased budget outlays 
under this program sharply. For example, the payment rate, which 
averaged a record high of 16.46 cents per pound last year, averaged 
80.48 cents per pound for 7 weeks in February and March, 2005. 
Consequently, fiscal year 2005 outlays through March, 2005, normally 
budgeted for $50-55 million per year, exceeded $150 million.
    The increase in the payment rate is attributed principally to 
increases in U.S. spot market quotes. The market for ELS is susceptible 
to price swings because it is a thin market. ELS production of 736,000 
bales in 2004 is only 4 percent of total U.S. cotton production and 90 
percent of ELS is produced in the San Joaquin Valley of California. The 
ELS market also has relatively few participants. For example, two 
trading companies have received nearly 60 percent of the payments under 
this program in fiscal years 2003 and 2004. Further, growing conditions 
in 2004 likely contributed to a short supply of high-quality ELS 
cotton, as excess moisture led to color deterioration and consequent 
Grade 3 classification. These circumstances exposed a program weakness 
which allows high prices and high payment rates to influence each other 
with no market-like, self-correcting mechanism. AMS collects 
transaction data from market participants whose payments depend on the 
reported prices. If a sale is made at a relatively low price, the 
merchant has no incentive to report that transaction. With a high 
payment rate in effect for a week, the merchant can bid more for 
existing supplies and report higher transaction prices to AMS, which 
lead to a higher payment rate in the following week. With the higher 
payment rate, the merchant can source from the United States and remain 
competitive in international markets.
    This rule is expected to reduce future payment rates by comparing 
foreign quotes to quotes from Cotton Outlook for American Pima c.i.f. 
Northern Europe to determine the payment rate. American Pima c.i.f. 
Northern Europe was determined to be the most valid price measure for 
this program because it is a comparison of foreign and U.S. quotes from 
the same source within the same geographical area. This measure is a 
net of the payment rate and based on the export market. FSA believes 
that this measure is appropriate because 90 percent of U.S.-produced 
ELS cotton is exported. According to our analysis, the payment rate 
calculated in this manner would have resulted in a payment of 20.69 
cents per pound for the first week of April, about a quarter of the 
rate CCC actually paid.
    This rule makes additional non-substantive changes to the subpart 
governing this program for clarity, structure, and readability.

Notice and Comment

    Section 1601(c) of the Farm Security and Rural Investment Act of 
2002 (2002 Act) provides that the regulations needed to implement Title 
I of the 2002 Act, which includes this rule, shall be promulgated 
without regard to the notice and comment provisions of 5 U.S.C. 553 or 
the Statement of Policy of the Secretary of Agriculture effective July 
24, 1971 relating to notices of

[[Page 35368]]

proposed rulemaking and public participation in rulemaking. Therefore, 
this rule is issued as an interim final rule and effective immediately. 
Nonetheless, the Agency will accept public comments for 60 days after 
publication of this rule.

Executive Order 12866

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

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule because CCC is not required by 5 U.S.C. 533 or 
any other law to publish a notice of proposed rulemaking for the 
subject matter of this rule.

Environmental Assessment

    The environmental impacts of this rule have been considered 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 the FSA 
regulations for compliance with NEPA, 7 CFR part 799. FSA concluded 
that the rule requires no further environmental review because it is 
categorically excluded. No extraordinary circumstances or other 
unforeseeable factors exist which would require preparation of an 
environmental assessment or environmental impact statement.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988. This rule preempts State laws that are inconsistent with it. 
Before any legal action may be brought regarding a determination under 
this rule, the administrative appeal provisions set forth at 7 CFR 
parts 11 and 780 must be exhausted.

Executive Order 12372

    This program is not subject to the provisions of Executive Order 
12372, which require intergovernmental consultation with State and 
local officials. See the notice related to 7 CFR part 3014, subpart V, 
published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates Reform Act of 1995

    The rule contains no Federal mandates under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995 
(UMRA) for State, local, and tribal governments or the private sector. 
Thus, this rule is not subject to the requirements of sections 202 and 
205 of the UMRA.

Paperwork Reduction Act

    Section 1601(c) of the 2002 Act provides that the promulgation of 
regulations and the administration of Title I of the 2002 Act shall be 
made without regard to chapter 35 of title 44 of the United States Code 
(the Paperwork Reduction Act). Accordingly, these regulations and the 
forms and other information collection activities needed to administer 
the program authorized by these regulations are not subject to review 
by OMB under the Paperwork Reduction Act.

Executive Order 12612

    This rule does not have sufficient federalism implications to 
warrant the preparation of a Federalism Assessment. The provisions 
contained in this rule will not have substantial direct effect on 
States or their political subdivisions or on the distribution of power 
and responsibilities among the various levels of government.

Government Paperwork Elimination Act

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

Federal Assistance Programs

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

List of Subjects in 7 CFR Part 1427

    Agricultural commodities, Cotton, Price support programs, Reporting 
and recordkeeping requirements.


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

PART 1427--COTTON

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

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

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

0
2. Revise subpart G to read as follows:

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

Sec.
1427.1200 Applicability.
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 Agreeement.
1427.1206 Form of payment.
1427.1207 Payment rate.
1427.1208 Payment.

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


Sec.  1427.1200  Applicability.

    (a) These regulations set forth the terms and conditions under 
which CCC shall make payments to eligible domestic users and exporters 
of extra long staple cotton who have entered into an ELS Cotton 
domestic User/Exporter Agreement with CCC.
    (b) CCC will issue payments to domestic users and exporters in any 
week following a consecutive 4-week period in which:
    (1) The LFQ is less than the APNE; and
    (2) Adjusted LFQ is less than 134 percent of the current crop year 
loan level for the base quality U.S. Pima cotton.
    (c) CCC shall prescribe the forms and information collections 
necessary in administering the ELS cotton competitiveness payment 
program. Additional terms and conditions for the program are set forth 
in the ELS Cotton Domestic User/Exporter Agreement.


Sec.  1427.1201  [Reserved]


Sec.  1427.1202  Definitions.

    The following definitions apply as used in this subpart:
    APNE means the Friday through Thursday weekly average of the price 
quotation for base quality U.S. Pima cotton, as determined by CCC for 
purposes of administering this subpart, c.i.f. Northern Europe.

[[Page 35369]]

    (1) APNEc means the preceding Friday through Thursday average of 
the current shipment prices for U.S. Pima cotton, c.i.f. northern 
Europe.
    (2) APNEf means the preceding Friday through Thursday average of 
the forward shipment prices for U.S. Pima cotton, c.i.f. northern 
Europe.
    Consumption means the use of eligible ELS cotton by a domestic user 
in the manufacture in the United States of cotton products.
    Cotton product means any product containing cotton fibers that 
result from the use of an eligible bale of ELS cotton in manufacturing.
    Current shipment price means, during the period in which two daily 
price quotations are available for the LFQ for the foreign growth, 
quoted c.i.f. northern Europe, the price quotation for cotton for 
shipment no later than August/September of the current calendar year.
    ELS means Extra Long Staple.
    Forward shipment price means, during the period in which two daily 
price quotations are available for the LFQ for foreign growths, quoted 
c.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.
    (1) Adjusted LFQ means the LFQ adjusted to reflect the estimated 
cost of transportation between an average U.S. location and Northern 
Europe.
    (2) LFQc means the preceding Friday through Thursday average of the 
current shipment prices for the lowest adjusted foreign growth, c.i.f. 
northern Europe.
    (3) LFQf means the preceding Friday through Thursday average of the 
forward shipment prices for the lowest adjusted foreign growth, quoted 
c.i.f. northern Europe.


Sec.  1427.1203  Eligible ELS cotton.

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


Sec.  1427.1204  Eligible domestic users and exporters.

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


Sec.  1427.1205  ELS Cotton Domestic User/Exporter Agreement.

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


Sec.  1427.1206  Form of payment.

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


Sec.  1427.1207  Payment rate.

    (a) The payment rate for payments made under this subpart shall be 
determined as follows:
    (1) Beginning the Friday on or following August 1 and ending the 
week in which the LFQc, the LFQf, the APNEc, and the APNEf prices first 
become available, the payment rate shall be the difference between the 
APNE and the LFQ in the fourth week of a consecutive 4-week period in 
which the APNE exceeded the LFQ each week, and the adjusted LFQ was 
less than 134 percent of the current crop year loan level for U.S. base 
quality Pima cotton in all weeks of the 4-week period; and
    (2) Beginning the Friday-through-Thursday week after the week in 
which the LFQc, the LFQf, the APNEc, and the APNEf prices first become 
available and ending the Thursday following July 31, the payment rate 
shall be the difference between the APNEc and the LFQc in the fourth 
week of a consecutive 4-week period in which the APNEc exceeded the 
LFQc each week, and the adjusted LFQc was less than 134 percent of the 
current crop year loan level for base quality U.S. Pima in all weeks of 
the 4-week period. If either or both the APNEc and the LFQc are not 
available, the payment rate may be the difference between the APNEf and 
the LFQf.
    (b) Whenever a 4-week period under paragraph (a) of this section 
contains a combination of LFQ, LFQc, and LFQf for only one to three 
weeks, such as may occur in the spring when the LFQ is succeeded by the 
LFQc and the LFQf (spring transition), and at the start of a new 
marketing year when the LFQc and the LFQf are succeeded by the LFQ 
(marketing year transition), under paragraphs (a)(1) and (a)(2) of this 
section, during both the spring transition and the marketing year 
transition periods, the LFQc and APNEc, in combination with the LFQ and 
APNE, shall, to the extent practicable, be considered during such 4-
week periods to determine whether a payment is to be issued. During 
both the spring transition and the marketing year transition periods, 
if either or both APNEc price and the LFQc are not available, the APNEf 
and the LFQf in combination with the APNE price and LFQ shall be taken 
into consideration during such 4-week periods to

[[Page 35370]]

determine whether a payment is to be issued.
    (c) For purposes of this subpart, regarding the determination of 
the APNE, APNEc, APNEf, the LFQ, the LFQc, and the LFQf:
    (1) If daily quotations are not available for one or more days of 
the 5-day period, the available quotations during the period will be 
used;
    (2) If none of the APNE, APNEc, or APNEf prices is available, or if 
none of the LFQ, LFQc, or LFQf is available, the payment rate shall be 
zero and shall remain zero unless and until sufficient APNE prices or 
the LFQ again becomes available, the APNE, APNEc, or APNEf price 
exceeds the LFQ, the LFQc, or the LFQf, as the case may be, and the 
LFQ, the LFQc, or the LFQf, as the case may be, adjusted for 
transportation, is less than 134 percent of the current crop year loan 
rate for base quality U.S. Pima for 4 consecutive weeks.
    (d) Payment rates for loose, re-ginned motes and semi-processed 
motes that are of a suitable quality, without further processing, for 
spinning, papermaking or bleaching, shall be based on a percentage of 
the basic rate for baled lint, as specified in the ELS Cotton Domestic 
User/Exporter Agreement.


Sec.  1427.1208  Payment.

    (a) Payments under this subpart shall be determined by multiplying:
    (1) The payment rate, determined under Sec.  1427.127, by
    (2) The net weight (gross weight minus the weight of bagging and 
ties) determined under paragraph (b) of this section, of eligible ELS 
cotton bales that an eligible domestic user opens or an eligible 
exporter exports during the Friday through Thursday period following a 
week in which a payment rate is established.
    (b) For the purposes of this subpart, the net weight shall be based 
upon:
    (1) For domestic users, the weight on which settlement for payment 
of the ELS cotton was based (landed mill weight);
    (2) For re-ginned motes processed by an end user who converted such 
motes, without re-baling, to an end use in a continuous manufacturing 
process, the net weight of the re-ginned 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 re-weighed by a licensed weigher and furnishes a copy 
of the certified weights.
    (c) For the purposes of this subpart, eligible ELS cotton will be 
considered:
    (1) Consumed by the domestic user on the date the bale is opened 
for consumption; and
    (2) Exported by the exporter on the date that CCC determines is the 
date on which the cotton is shipped for export.
    (d) Payments under this subpart shall be made available upon 
application for payment and submission of supporting documentation, as 
required by this subpart, CCC instructions, and the ELS Cotton Domestic 
User/Exporter Agreement.

    Signed in Washington, DC, on June 2, 2005.
James R. Little,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 05-12034 Filed 6-17-05; 8:45 am]
BILLING CODE 3410-05-P