[Federal Register Volume 71, Number 102 (Friday, May 26, 2006)]
[Proposed Rules]
[Pages 30318-30323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-8161]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1427

RIN 0560-AH48


Storage, Handling, and Ginning Requirements for Cotton Marketing 
Assistance Loan Collateral

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes amending regulations governing the cotton 
Marketing Assistance Loan Program of the Commodity Credit Corporation 
(CCC) that is authorized by the Farm Security and Rural Investment Act 
of 2002 (2002 Act). The major proposed regulatory changes would impact 
the administration of the program by amending regulations governing: 
The outside storage of upland cotton pledged as collateral for CCC 
loans; the certification provided by approved ginners to produce bales 
that are compliant with CCC loan eligibility requirements; the 
reconcentration and transfer of upland cotton pledged as collateral for 
CCC loans; and the storage credit provided to producers when an upland 
cotton marketing assistance loan is repaid.

DATES: Comments should be received on or before June 26, 2006.

ADDRESSES: CCC invites interested persons to submit comments on this 
proposed rule and on the collection of information required to 
administer the affected regulations. Comments may be submitted by any 
of the following methods:
     E-Mail: Send comments to [email protected].
     Fax: Submit comments by facsimile transmission to: (202) 
690-1536.
     Mail: Send comments to: Director, Price Support Division, 
Farm Service Agency, United States Department of Agriculture (USDA), 
Rm. 4095-S, 1400 Independence Avenue, SW., Washington, DC 20250-0512.
     Hand Delivery or Courier: Deliver comments to the above 
address.
     Federal Rulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    All written comments will be available for public inspection at the 
above address during business hours from 8 a.m. to 5 p.m., Monday 
through Friday.

FOR FURTHER INFORMATION CONTACT: Gene Rosera; phone: (202) 720-8481; e-
mail: [email protected]; or fax: (202) 690-1536.

SUPPLEMENTARY INFORMATION:

Background

    CCC regulations generally require that cotton loan collateral must 
be stored inside a warehouse for the cotton to be eligible for 
marketing assistance loan. Cotton regulations at 7 CFR 1427.5 provide 
that for a bale of cotton to be eligible to be pledged as collateral 
for a marketing assistance loan, the bale must be stored inside a 
warehouse approved by CCC. An exception to this general requirement is 
provided by regulations at 7 CFR 1427.10 that provide that a commercial 
entity involved in handling or storage of cotton in a county or area 
determined and announced by CCC may be approved for outside storage of 
2003 and subsequent crops of extra long staple (ELS) cotton. Such 
outside storage is subject to site requirements and terms and 
conditions regarding collateral identification and location as provided 
in an appendix to the ELS cotton note and security agreement.
    According to the January 2006 Crop Production Summary of the USDA 
Agricultural Statistics Board, total cotton production in Texas, 
estimated at 4.374 million bales in 2003, increased to 7.778 million 
bales in 2004 (about a 78 percent increase) and to 8.245 million bales 
in 2005 (a 6 percent increase from the prior year.) The available 
approved cotton storage warehouse capacity in West Texas has not kept 
pace with these production increases, and the result has

[[Page 30319]]

been that loan cotton was stored outside for extended periods both 
years. In response to this shortage of approved cotton storage, on May 
13, 2005, the CCC informed cotton warehouse operators through Notice to 
the Trade BCD-97 that they could apply for approval of short-term 
temporary storage subject to placing any 2004-crop cotton loan 
collateral in conventional space by June 1, 2005 (later extended to 
June 27, 2005). In early March, 2005, the quantity of loan cotton 
stored outside exceeded 118,000 bales.
    In response to storage shortages that began in December, 2005, CCC, 
on January 18, 2006, issued Notice to the Trade BCD-117, allowing 
warehouse operators to again request temporary use of yard storage for 
2005-crop cotton loan collateral, to be limited to the earlier of 90 
days from the original storage date or April 1, 2006. This deadline was 
subsequently extended to May 1, 2006. By early March, 2006, the 
quantity of loan cotton stored outside topped 435,000 bales, equal to 
93 percent of the Texas crop increase for the year.
    These recent authorizations by CCC of outside storage for upland 
cotton are viewed by some industry entities as counterproductive to 
CCC's interests. The traditional requirement for inside storage of loan 
cotton has wide support for being essential to prevent quality losses 
from sun, dust, and moisture. This view has been bolstered by 
complaints from cotton buyers regarding U.S. cotton quality. In the 
end, CCC has strived to provide a balance between the practical needs 
for storing back-to-back bumper crops with the need for reasonable crop 
protection to protect the quality and reputation of U.S. cotton for 
domestic and export buyers.
    Cotton regulations at 7 CFR 1427.5 provide that for a bale of 
cotton to be eligible to be pledged as collateral for a marketing 
assistance loan, the bale must be in good condition and not be false-
packed or water-packed. False-packed cotton is defined by regulations 
at 7 CFR 1427.3 as containing damaged cotton in the interior with or 
without any indication of the damage on the exterior; or cotton 
composed of good cotton on the exterior and decidedly inferior cotton 
in the interior, but not detectable by customary examination. Water-
packed cotton is defined by 7 CFR 28.40(h) as cotton in a bale that has 
been penetrated by water during the baling process, causing damage to 
the fiber, or a bale that through exposure to the weather or by other 
means, while apparently dry on the exterior, has been damaged by water 
in the interior.
    The incidence of water damage in cotton loan collateral has 
historically been minimal. The wet bales that have occasionally been 
produced at gins have, most commonly, occurred as a result of the 
variability of moisture in seed cotton. It is common practice for 
cotton gins to dry excessively moist seed cotton, if required, before 
ginning, or to add some moisture if the cotton is too dry. The moisture 
restoration systems at cotton gins use humidified air, liquid water 
sprays, or a combination of both systems. These systems may be employed 
before the gin stand, at the battery condenser, or at the lint slide 
before the cotton is pressed. Generally, cotton is thought to gin best 
at 6 to 7 percent moisture content (wet basis) which minimizes breakage 
and allows for fiber separation. Moisture in this range also aids in 
the bale compression by reducing the amount of needed pressure.
    During the 2005 marketing year for cotton, CCC determined that the 
cotton produced at two gins was water damaged and, therefore, 
ineligible as collateral for a loan. The damage to the bales was 
discovered after the cotton had been accepted by CCC as loan 
collateral, and some cotton merchants had been designated as agents for 
the cotton, implying that the cotton had figured into their marketing 
plans. Still other cotton from the gins had already been sold. Both of 
the gins employed direct liquid water spray systems. As a result of the 
losses and marketing disruptions resulting from these bales being water 
damaged, CCC has received comments with respect to whether policy 
changes are needed in this matter. One national organization commented 
that cotton lint exposed to direct liquid water spray at a gin should 
not be eligible to be used as collateral for CCC loans. Others have 
commented that direct liquid spray equipment has been used by many gins 
without damaging the cotton.

Discussion of Comments

    CCC published an advance notice of proposed rulemaking on February 
13, 2006 at 71 FR 7445. During the 60-day comment period, CCC received 
43 comments. Respondents included 4 national organizations, 8 regional 
organizations, 15 cotton storage warehouses, and 16 individuals or 
companies. Regarding CCC's overall storage requirements regarding 
upland loan cotton, the comments received indicate a lack of industry 
consensus as to appropriate policy. Generally, warehouses support use 
of outside storage on a temporary, case-by-case basis when justified by 
extraordinary circumstances, with such storage subject to requirements 
such as use of dunnage or additional protection of the cotton. Cotton 
merchants stated that outside storage contributes to the damage of such 
cotton and is detrimental to producers and cotton users. Many specific 
recommendations were provided as to how CCC might restrict the use of 
such outside storage. Generally, there is no support for CCC to reduce 
the loan rate for loan cotton that might be stored outside, but some 
comments are that CCC should reduce or provide no storage credit for 
outside-stored cotton as an incentive to producers and warehouses to 
store cotton indoors. Regarding the storage credit provided for 
outside-stored loan collateral, many comments supported CCC providing 
the full storage credit, and others commented that the storage costs 
affect U.S. cotton competitiveness. Other comments are that outside 
storage has its own unique costs, or that no reduction in the storage 
credit is warranted because the incidence of damage to loan cotton from 
the use of outside storage has been minimal. Two national producer or 
industry organizations support a policy of requiring loan cotton to be 
stored inside except to accommodate temporary, extraordinary or 
unforeseen conditions. Although respondents support a storage policy to 
ensure that cotton is protected, their views differ as to whether 
outside storage constitutes a risk to the cotton. Some maintain that 
there are no procedures that can mitigate the incidence of rain, dust, 
or sun damage, while other comments minimize such risks, or contend 
that outside storage has been justified due to extraordinary, localized 
production increases. The comments, in general, support the conclusion 
that outside storage exposes cotton to specific risks of damage from 
water, dust, sun bleaching, and possibly mold from water trapped by 
double bagging. Those supporting use of temporary outside storage 
generally contend that practices such as use of dunnage and double 
wrapping or covering of bales provides sufficient protection; other 
contend that the packaging standards of the Joint Cotton Industry Bale 
Packaging Committee were not established for outside storage and, thus, 
there are no materials determined appropriate for outside use.
    There were many comments regarding CCC allowing producers or agents 
of producers to request ``re-concentration'' of loan cotton. 
Reconcentration is the term used to describe the movement of CCC loan 
cotton from one warehouse to another. Two national organizations stated 
that any reconcentration policy should not affect the integrity of

[[Page 30320]]

electronic warehouse receipts, and that CCC should pay accrued storage 
to warehouses prior to reconcentrations. Other comments supported 
reconcentrations only under limited circumstances, such as for cotton 
stored outside or other warehouse violations. Concern was stated that 
any unlimited opportunities for merchants to relocate loan cotton would 
benefit a few and possibly add to cotton flow problems.
    CCC has concluded from the comments provided that the relocation of 
loan cotton, at the expense of the producer or producer's agent, is a 
reasonable course of action regardless of whether the original storing 
warehouse consents to the movement of the cotton. The transfer of loan 
collateral should ameliorate the risks of quality deterioration of the 
cotton, relieve regional shortage congestion, and facilitate more 
efficient marketing of cotton.
    Regarding the existing 4.5 percent weekly minimum shipping 
standard, several comments suggested that the standard should be 
amended to be based on the higher of approved capacity or the quantity 
of bales on hand. A few commented that the weekly minimum standard is 
inadequate and should be raised to meet needs of the growing export-
oriented market. Other comments suggested that USDA should enforce the 
existing standard or support steps to improve warehouse shipping 
performance through weekly performance reporting or new standards. At 
this time, and based on its current statutory authorities, CCC is not 
proposing any new warehouse performance or reporting requirements 
related to the 4.5 percent weekly shipping requirement. CCC continues 
to examine warehouse performance against this current standard and has 
not completed its review. However, CCC understands the importance of 
the enforcement of a standard to the efficient flow of cotton, and is 
receptive to support any improvements in the standard, or enforcement 
procedures, that may be developed and recommended by a consensus of 
industry representatives.

Proposed Changes

    CCC proposes to revise regulations at 7 CFR part 1427 to: Provide 
cotton loan eligibility consistent with any short-term needs for 
outside storage of upland cotton loan collateral; improve the flow of 
cotton by removing excessive incentives to store cotton; and protect 
CCC from assuming losses that result from accepting upland cotton as 
collateral for a loan that has unpaid charges.

A. Outside Storage of Upland Loan Cotton

    Based on the comments received, and consistent with CCC objectives 
in administering the marketing assistance loan program for upland 
cotton, CCC has concluded that, in spite of the inherent risk of 
increasing the damage to cotton by storing it outside, the use of 
outside storage may be unavoidable under some circumstances beyond the 
control of the producer. Depriving the producer of eligibility for 
marketing assistance loan benefits based on circumstances that may 
arise after the production of the crop would raise concerns over the 
fairness of policy and could disrupt the marketing of the cotton. 
However, CCC is mindful that a relaxed storage policy may also increase 
the use of outside storage when inside storage may be available nearby 
or within economically practicable distances. CCC, therefore, concludes 
that its policy regarding the storage of cotton needs to accommodate 
special circumstances without creating incentives that might indirectly 
increase the use of outside storage when it may not be warranted. 
Accordingly, CCC proposes to amend the cotton loan eligibility 
requirements to amend the storage requirements for a bale of cotton to 
be eligible as collateral for a marketing assistance loan. Generally, 
CCC will continue to require that a bale of cotton must be stored 
inside a cotton storage warehouse but will annually determine in which 
counties outside storage for cotton pledged as collateral for a CCC 
loan may be used subject to the following special provisions: (1) As 
part of the application for approval of the use of outside storage, the 
warehouse must agree to implement special storage requirements, 
including but not limited to, additional packaging, dunnage, security, 
and insurance coverage with CCC named as the loss payee, and (2) the 
loan repayment amount will not be reduced by any storage credit as 
would apply to loan cotton stored inside.

B. Reconcentration of Cotton

    The changes in domestic cotton marketing caused by strong export 
market demand have altered domestic cotton marketing channels and, as a 
result, have created more urgency to move cotton efficiently through 
marketing channels. The 9-month loan term for marketing assistance 
loans, coupled with crediting the repayment of the loan for accrued 
storage charges, may create incentives to maintain the upland cotton in 
the loan program and adversely delay marketings. In order to ameliorate 
risks of quality deterioration to CCC marketing loan collateral, 
relieve regional storage congestion, and facilitate more efficient 
cotton marketing, CCC proposes to amend regulations at 7 CFR 1427.16, 
Reconcentration of Cotton, to allow the transfer of 2006 and subsequent 
crop cotton under loan from one CCC-approved warehouse to another CCC-
approved warehouse. Under the proposed process, upon receipt of a 
transfer application from the producer or producer's authorized agent, 
CCC will enter into a transfer agreement providing that: (1) CCC will 
continue to be holder of the negotiable electronic warehouse receipts 
from the original storing warehouse during the period of the transfer; 
(2) the cotton will be moved at the expense of the producer to another 
CCC-approved cotton storage warehouse (the receiving warehouse) which 
must have signed the transfer application to indicate its ability to 
accept the cotton; (3) the receiving warehouse will issue a non-
negotiable electronic warehouse receipt in coverage of the depositor 
obligation represented by the negotiable electronic warehouse receipts 
for the transferred cotton; (4) the receiving warehouse will, when 
requested, cancel and replace the non-negotiable electronic warehouse 
receipt with negotiable electronic warehouse receipts; (5) the original 
storing warehouse operator must agree to cancel the negotiable 
electronic warehouse receipts and deliver the non-negotiable electronic 
warehouse receipt to the receiving warehouse operator promptly upon 
notice by the producer or CCC; and (6) all CCC loan servicing, 
including, but not limited to the loan and repayment rates and 
warehouse charges, will be based on the terms and conditions of the 
original storage location. The producer or the requestor of any 
transfer of loan cotton is responsible for all costs associated with 
relocating loan cotton, regardless of the circumstances prompting the 
relocation. This includes any costs of moving loan cotton to inside 
storage for its delivery to CCC in satisfaction of a loan obligation. 
CCC assumes responsibility only for the costs of relocating cotton it 
owns.

C. Ginner Agreement and Certification

    Existing regulations at 7 CFR 1427.5, General eligibility 
requirements, provide that as a condition for loan eligibility, a bale 
must be ginned by a ginner that 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

[[Page 30321]]

bale ties meeting the requirements of 7 CFR 1427.5(b)(10). All U.S. 
commercial cotton gins have entered into this agreement with CCC. This 
agreement remains in effect until terminated by either the gin or by 
CCC.
    CCC proposes to amend this regulation to provide that, effective 
for the 2006 and subsequent crops, cotton must be ginned by a ginner 
that additionally certifies that the bale, upon ginning, meets the 
quality requirements for loan eligibility of 7 CFR 1427.5(b) that 
provide for the bale to be in good condition and not false-packed, 
water-packed, mixed-packed, re-ginned, or repacked. To administer this 
new agreement and certification for the 2006 and subsequent cotton 
crops, CCC proposes to notify all U.S. ginners that previous agreements 
are terminated. A revised agreement providing the additional 
certifications explained above will be made available for ginners to 
sign prior to the 2006-crop harvest.

D. Repayment of Loans

    Current regulations at 7 CFR 1427.19(h) provide that at the time of 
an upland cotton loan repayment, if the repayment rate is less than the 
loan level and charges, plus interest, CCC will pay to the producer or 
agent of the producer the warehouse storage charges that have accrued 
during the period the cotton was pledged for loan. The amount of this 
payment may be reduced at times when the adjusted world price is 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's payment of the accrued warehouse 
storage charges under this regulation has, in all cases, been based 
upon the tariff rate for the cotton storage warehouse where the loan 
cotton has been stored. CCC has not provided for a uniform storage 
payment rate to producers or their agents designated to repay the 
producer's loan obligation even though the loan gain or LDP rate is 
uniform and provided regardless of location. The tariff rates 
established by warehouses vary considerably, from below $2.00 to over 
$5.00 per bale per month. The tariff rates generally appear to be 
unrelated to the approved capacity of the individual warehouse, with 
the highest rates occurring in California and Arizona. For the 2005 
crop, the average warehouse tariff rate, weighted by quantity of loan 
bales, is $2.61 per bale per month. About 52 percent of 2005-crop loan 
cotton was placed into storage in states where the tariff rate, 
weighted by loan volume, averages $2.15 per bale per month or less. 
Tariff rates in storage-deficit areas of Texas, including warehouses 
that recently stored loan cotton outside, fall below the $2.15 per bale 
level and are among the lowest rates being charged nationwide.
    The storage credits provided by CCC have been provided so that as 
storage charges accrue on un-sold cotton, the cost of the cotton and 
charges does not become uncompetitive relative to the adjusted world 
price level. However, if the tariff charges levied by the warehouse are 
especially profitable, the credits provided by CCC will induce 
producers and ginners to ship their cotton to locations that maximize 
their storage returns or warehouse rebates. In these cases, the 
warehouse may be chosen without regard to whether the cotton will be 
stored inside, or because it is at a location that provides timely 
load-out when requested by a merchant. For these reasons, CCC has 
concluded that providing unrestricted storage credits may have a 
negative impact on both the maintenance of bale quality and on the flow 
of cotton pledged under the CCC loan program.
    To improve the equity of program benefits among all producers, to 
reduce incentives for cotton to be held in storage to maximize CCC-
storage payments, and to improve cotton flow, CCC proposes, effective 
for the 2006 and subsequent crops of upland cotton, to amend the 
regulations at 7 CFR 1427.19(h), Repayment of Loans, to provide that 
any storage credit that may be provided by CCC shall be: (1) Based on a 
maximum monthly storage-credit payment rate that will not exceed the 
rate used in 2005 at the location where the 2006 and 2007 crops are 
stored, not to exceed $2.15, for all loan cotton stored inside an 
approved cotton storage warehouse; and (2) zero, for a cotton loan, for 
which one or more bales are stored outside during the period of the 
loan, even if these bales are later moved to inside storage. Comments 
are specifically requested as to whether the proposed maximum rate of 
$2.15 per bale per month will promote the flow of cotton and provide 
more equitable program benefits compared to use of individual warehouse 
tariff rates.

E. Liens

    Current regulations at 7 CFR 1427.12, Liens, provide that if there 
are any liens or encumbrances on cotton provided as collateral for a 
marketing assistance loan CCC must obtain waivers that fully protect 
the interest of CCC before disbursement of the loan even though the 
liens or encumbrances are satisfied from the loan proceeds. 
Additionally, no liens or encumbrances shall be placed on the cotton 
after the loan is approved.
    Additionally, 7 CFR 1427.19(h) provides that, depending on the 
level of the adjusted world price determined under 7 CFR 1427.25, CCC 
may pay to the producer or producer's agent, at the time of the loan 
repayment, all or a portion of the warehouse storage charges that have 
accrued during the period the cotton was pledged for loan.
    Loan cotton stored in approved warehouses also accrues receiving, 
storage and load-out charges that are paid by the buyer before taking 
delivery of the cotton from the warehouse. For cotton delivered to CCC 
in satisfaction of the loan obligation, and to minimize the 
administrative burden of receiving lien waivers for these charges, CCC 
has paid the receiving and accrued storage charges to the storing 
warehouse and then billed the producer for both the receiving charges 
and any amount of storage that accrued up to the date the cotton was 
pledged for loan.
    CCC proposes to revise 7 CFR 1427.12 to establish consistency 
between these two requirements, and to clarify that CCC shall not be 
responsible for any charges attached to a bale other than for the 
storage charges as provided in 7 CFR 1427.19(h).

Notice and Comment

    Section 1601(c) of the 2002 Act provides that the regulations 
needed to implement Title I of the 2002 Act, which include those 
involved here, may 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 
proposed rulemaking and public participation in rulemaking.

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 the CCC is not required by 5 U.S.C. 533 
or any other law to publish a notice of proposed rulemaking for the 
subject matter of this rule.

Environmental Assessment

    The environmental impacts of this rule have been considered 
consistent with the provisions of the National Environmental Policy Act 
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the

[[Page 30322]]

regulations of the Council on Environmental Quality (40 CFR parts 1500-
1508), and the FSA regulations for compliance with NEPA, 7 CFR part 
799. FSA concluded that the rule requires no further environmental 
review because it is categorically excluded. No extraordinary 
circumstances or other unforeseeable factors exist which would require 
preparation of an environmental assessment or environmental impact 
statement.

Executive Order 12988

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

Executive Order 12372

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

Unfunded Mandates Reform Act of 1995

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

Paperwork Reduction Act

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

Executive Order 12612

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

Government Paperwork Elimination Act

    CCC is committed to compliance with the Government Paperwork 
Elimination Act (GPEA) and the Freedom to E-File Act, which require 
Government agencies in general and FSA in particular to provide the 
public the option of submitting information or transacting business 
electronically to the maximum extent possible. The forms and other 
information collection activities required for participation in the 
program are available electronically through the USDA eForms Web site 
at http://www.sc.egov.usda.gov for downloading. The regulation is 
available at FSA's Price Support Division Internet site at http://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.

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

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

PART 1427--COTTON

    1. The authority citation for part 1427 continues to read as 
follows:

    Authority: 7 U.S.C. 7231-7237 and 7931-7939; and 15 U.S.C. 714b 
and 714c.

Subpart A--Nonrecourse Cotton Loan and Loan Deficiency Payments

    2. Amend Sec.  1427.5 by revising paragraph (b)(2) and adding 
paragraph (b)(11)(iii) to read as follows:


Sec.  1427.5  General eligibility requirements.

* * * * *
    (b) * * *
    (2) Be in existence and good condition, be covered by fire 
insurance, and at the time of disbursement of the loan proceeds, be 
stored inside an approved storage warehouse unless, as determined under 
Sec.  1427.10, CCC has approved a warehouse to use outside storage for 
cotton loan collateral for the period of the loan.
* * * * *
    (11) * * *
    (iii) For the 2006 and subsequent crops has provided a 
certification to CCC on a form prescribed by CCC, that upon ginning, 
the bales meet the condition and quality requirements for loan 
eligibility as provided in Sec.  1427.5(b) and;
* * * * *
    3. Amend Sec.  1427.10 by revising paragraph (b), redesignating 
paragraphs (c), (d), and (e) as (d), (e), and (f), and adding a new 
paragraph (c) to read as follows:


Sec.  1427.10  Approved storage.

* * * * *
    (b) When the operator of a warehouse receives notice from CCC that 
a loan has been made by CCC on a bale of cotton, the operator shall, if 
such cotton is not stored within the warehouse, as directed by CCC 
place such cotton within such warehouse.
    (c) CCC will annually determine and announce geographic areas where 
approved cotton storage warehouses may apply for approval to store 
cotton pledged as collateral outside. The application for approval to 
use outside storage shall be on a form prescribed by CCC that provides 
all applicable outside storage requirements related to the duration of 
such storage, use of dunnage, insurance, packaging, or other storage 
and handling requirements as determined by CCC. As a condition for 
approval to store loan cotton outside, CCC may require the warehouse to 
consent to reconcentration and transfer orders approved by CCC 
applicable to any cotton stored at the applicant's warehouse.
* * * * *
    4. Revise Sec.  1427.12 to read as follows:


Sec.  1427.12  Liens.

    Notwithstanding provisions in Sec.  1427.19(h) that provide that 
CCC may pay for some or all of the warehouse storage charges that 
accrued for the cotton during the period the cotton was pledged for 
loan, 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, except that CCC may 
elect to accept as loan collateral cotton that has warehouse receiving, 
compression, load-out or other charges if the producer, at the time of 
loan application, agrees to reimburse CCC for any such charges that CCC 
may pay on behalf of the producer or that reduce the value of the 
cotton delivered to CCC.

[[Page 30323]]

    5. Amend Sec.  1427.16 by adding paragraph (b)(3) as follows:


Sec.  1427.16  Reconcentration of cotton.

* * * * *
    (b) * * *
    (3) Effective for the 2006 and subsequent crops of cotton, CCC may 
approve a request for relocation of cotton loan collateral, submitted 
by a producer or a properly designated agent of the producer, and 
approved by the receiving warehouse operator. Such relocation shall be 
based on, but are not limited to, the original loan rate, repayment 
rate, and other terms and conditions of the original loan storage 
location. Any charges, fees, costs, or expenses incident to such 
reconcentration or transfer shall be paid by the requestor of such 
transfer.
    6. Amend Sec.  1427.19 by revising paragraphs (h)(1) and (h)(2) to 
read as follows:


Sec.  1427.19  Repayment of loans.

* * * * *
    (h) * * *
    (1) Below the national average loan rate for upland cotton, CCC 
will pay at the time of loan repayment to the producer of agent or 
subsequent agent authorized by the producer in the manner prescribed by 
CCC, for the period the cotton was pledged as collateral for such loan:
    (i) The warehouse storage charges which have accrued, and
    (ii) With respect to the 2006 and subsequent-crops of upland 
cotton, if the entire quantity of the loan was stored inside an 
approved cotton warehouse during the entire period of the loan, the 
storage charges that accrued based on a maximum monthly storage-credit 
payment rate will not exceed the rate used in 2005 at the location 
where the 2006 and 2007 crops are stored, not to exceed $2.15. With 
respect to those producers who store cotton at a warehouse that was not 
in existence in 2005, CCC will assign the county average credit that 
was used in 2005. CCC shall not pay any storage charges if at any time 
while pledged as collateral for such loan the cotton was stored 
outside.
    (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, without regard to any 
warehouse charges that accrued before the cotton was pledged for loan:
    (i) That portion of the warehouse storage charges that accrued 
during the period the cotton was pledged for loan, that are determined 
to be necessary to permit the loan to be repaid at the adjusted world 
price; and
    (ii) With respect to the 2006 and subsequent crops of upland 
cotton, CCC shall not pay any storage charges if at any time while 
pledged as collateral for such loan the cotton was stored outside. If 
the entire quantity of the loan was stored inside an approved cotton 
warehouse during the entire period of the loan, that portion of the 
warehouse storage charges that accrued during the period the cotton was 
pledged for loan based on a maximum monthly storage-credit payment rate 
will not exceed the rate used in 2005 at the location where the 2006 
and 2007 crops are stored, not to exceed $2.15. With respect to those 
producers who store cotton at a warehouse that was not in existence in 
2005, CCC will assign the county average credit that was used in 2005; 
or
* * * * *

    Signed in Washington, DC, on May 18, 2006.
Teresa C. Lasseter,
Executive Vice President, Commodity Credit Corporation.
 [FR Doc. E6-8161 Filed 5-25-06; 8:45 am]
BILLING CODE 3410-05-P