[Federal Register Volume 71, Number 108 (Tuesday, June 6, 2006)]
[Rules and Regulations]
[Pages 32415-32427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5078]



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  Federal Register / Vol. 71, No. 108 / Tuesday, June 6, 2006 / Rules 
and Regulations  

[[Page 32415]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Parts 1421 and 1427

RIN 0560-AH38


Grains and Similarly Handled Commodities-Marketing Assistance 
Loans and Loan Deficiency Payments for the 2006 Through 2007 Crop 
Years; Cotton

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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

SUMMARY: This rule amends regulations governing the Marketing 
Assistance Loan (MAL) and Loan Deficiency Payment (LDP) Program of the 
Commodity Credit Corporation (CCC). These amendments affect regulations 
governing: (1) Beneficial interest with respect to eligible commodities 
delivered to facilities other than licensed warehouses, such as 
feedlots, ethanol plants, wool pools, and other facilities determined 
by CCC to be the end user of the commodity; (2) the announcement of the 
adjusted world price (AWP) for rice; (3) CCC lien searches and the fees 
necessary to record and file liens on marketing assistance loans; (4) 
the liability of a producer who improperly disposes of pledged loan 
collateral for a CCC farm-stored loan; (5) producers' responsibilities 
for requesting loan deficiency payments; and (6) general eligibility 
requirements for cotton pledged as collateral for a marketing 
assistance loan.

DATES: Effective Date: This rule is effective June 6, 2006.

FOR FURTHER INFORMATION CONTACT: Kimberly Graham, Program Manager, 
Marketing Assistance Loans and LDP Programs, Price Support Division, 
FSA/USDA, STOP 0512, 1400 Independence Ave., SW., Washington, DC 20250-
0512; telephone (202) 720-9154; facsimile (202) 690-1536; e-mail: 
[email protected]. Persons with disabilities who require 
alternative means for communication (Braille, large print, audiotape, 
etc.) should contact the USDA Target Center at (202) 720-2600 (voice 
and TDD).

SUPPLEMENTARY INFORMATION: 

I. Statutory Background

    Since the enactment of the Agricultural Act of 1949, the major 
activity of CCC has been the administration and implementation of 
nonrecourse loans to producers of major agricultural commodities. 
Generally, Congress established loan rates for certain commodities on a 
per unit basis, e.g. $1.95 per bushel for corn or $.52 per pound of 
upland cotton for the 2004 through 2007 crop years. Under a nonrecourse 
loan provisions, the producer may satisfy the loan obligation through 
forfeiture to CCC of the commodity pledged as collateral for the loan. 
Thus, if the per unit market price of the commodity was less than the 
Congressionally established loan rate, the producer could satisfy the 
loan obligation by delivery of the pledged commodity to CCC. Since the 
inception of nonrecourse loans, producers could only pledge as 
collateral for securing the nonrecourse loan commodities that were not 
subject to liens. If such liens existed on the commodity pledged as 
collateral, lien waivers were required to be obtained from all lien 
holders to ensure CCC's interest was fully protected. Also, since the 
inception of these loans, in order to make certain that the benefits of 
these loans go to the producers and no other party, CCC made 
nonrecourse loans to only those producers that maintain ``beneficial 
interest'' in the commodity at the time the loan is made and maintain 
beneficial interest throughout the loan period.
    Beneficial interest has been viewed by CCC as consisting of three 
attributes which include:
     Title;
     Risk of loss; and
     Control.
    Accordingly, at the time the producer requested a loan from CCC, 
through the earlier of loan repayment or loan maturity, the producer 
must own the commodity, have all risk in the commodity (if there is a 
loss in either the quantity or quality of the commodity), and retain 
all decision making and rights to the movement and disposition of the 
commodity. This key component of the CCC loan program is recognized by 
Congress as evidenced in sections 1204(f) and 1307(d)(2) of the 2002 
Act. Related to this concept is that commodities that are purchased, 
substituted for another commodity of the same type, bartered, or 
processed, or altered from it's natural form may not be pledged as 
collateral for CCC loans. This concept is embodied in section 1201(b) 
of the 2002 Act, which limits the availability of CCC marketing 
assistance loans to the ``quantity of a loan commodity produced on the 
farm.''
    Since 1949, commodities pledged as collateral for these loans could 
be stored on the producer's farm or in approved warehouses. 
Historically, approved warehouses have been warehouses that entered 
into storage agreements with CCC that set forth terms and conditions 
regarding: (1) Financial aspects of the warehouse; (2) rates that are 
applicable to the storage of CCC-owned inventory and CCC loan 
collateral; (3) handling and delivery charges with respect to these 
commodities; and (4) related storage issues. Most States, as well as 
the Department of Agriculture (USDA), have a warehouse licensing regime 
for the storage of agricultural commodities. An entity wishing to 
engage in storing these commodities must, in virtually all States, have 
a State or Federal license to engage in such business. These licensed 
entities issue warehouse receipts that evidence ownership of commingled 
commodities. Generally, those non-licensed entities in States with 
licensing programs may not store agricultural commodities on behalf of 
producers but are free to purchase commodities from producers. 
Accordingly, in such States, commercial feed lots, ethanol plants, wool 
pools and other entities that are the ``end users'' of the commodity 
are not licensed warehouses and, therefore, may not store commodities 
on behalf of producers. Similarly, CCC considers producers to have lost 
beneficial interest in the commodity upon delivery to such facilities 
and producers may not pledge as collateral for a CCC loan, commodities 
delivered to these facilities (except as provided for by the 2002 Act). 
In those States that do not have such a licensing regime, warehouses 
must still follow State laws relating to bailment

[[Page 32416]]

and storage. The State laws relating to bailment and storage may vary 
from State to State.
    As a result of the accumulation of large quantities of commodities 
forfeitures under nonrecourse loans, in the mid-1980's Congress 
instituted a fundamental change to CCC loan programs when market prices 
are below the CCC loan rate. In addition to allowing producers the 
option to forfeit the commodity pledged as collateral for nonrecourse 
loans, producers were also allowed the opportunity to repay the 
nonrecourse loan at a price determined by CCC and to retain any 
difference between the amount of the loan made by using the established 
county loan rate and the repayment of the loan at the market price. 
These loans are referred to as ``marketing assistance loans''.
    Nine-month marketing assistance loans are made available under the 
2002 Act for specified commodities. Most CCC commodity loans are 
marketing assistance loans with the exception of nonrecourse loans made 
available to sugar processors. Marketing assistance loans accomplish 
two objectives. First, they provide producers with interim financing to 
continued farming operations without having to market their crop during 
periods of low market prices. Second, these loans facilitate the 
orderly marketing and distribution of commodities throughout the year. 
As a result of this lower repayment option, CCC takes possession of 
less than .4 percent of the commodities pledged as collateral for 
marketing assistance loans.
    Eligible producers may request a marketing assistance loan on or 
before the final loan availability date for the applicable commodity. 
Eligible commodities pledged as collateral for a marketing assistance 
loan must be free and clear of all liens and encumbrances and no 
additional liens or encumbrances may be placed on the commodity after 
the marketing assistance loan is approved. The amount of the monetary 
gain that producers may obtain by repaying CCC marketing assistance 
loans at repayment rates below their established county loan rate can 
be substantial. Therefore, there is a significant incentive for a 
producer to obtain these loans solely for this benefit; however, both 
the producer and CCC incur costs in completion of the loan transaction 
due to costs associated with lien searches and lien filing fees as well 
as USDA personnel costs incurred in processing these loans. To reduce 
the costs associated to the delivery of this benefit, producers may 
simply request that a payment be made to them in an amount equal to 
what would be realized if the loan had been made and immediately repaid 
at the lower repayment rate. In return for the payment, referred to as 
``loan deficiency payment (LDP), the producer agrees that the quantity 
of the commodity which was used in determining the payment will not be 
pledged as collateral for a CCC marketing assistance loan.
    The LDP amount is equal to the established loan rate for the 
applicable loan commodity less the repayment rate multiplied by the 
eligible quantity of the commodity. With respect to commodities such as 
cotton, wheat, rice, feed grains, minor oilseeds, wool, mohair and 
pulse crops; section 1205 of the 2002 Act provides that these payments 
are made with respect to ``producers on a farm that, although eligible 
to obtain a marketing assistance loan under section 1201 with respect 
to a loan commodity in return for loan deficiency payments * * *.'' A 
similar provision is set forth in section 1307 of the 2002 Act for 
producers of peanuts. With some technical exceptions for cotton, an LDP 
may be made to a producer only if the commodity could otherwise serve 
as collateral for a CCC marketing assistance loan.

II. The 2002 Farm Security Rural and Investment Act--Legislative 
Mandates

    The manner in which agricultural commodities are marketed and used 
has changed substantially since the enactment of the Agricultural Act 
of 1949. Changes in commodity marketing and use have been driven in 
part by the dramatic consolidation in farm operations since the middle 
1900's. Advances in agronomics and technology, including biotechnology, 
have allowed producers to significantly expand the sizes of their 
operations and benefit from crop specialization and economies of scale. 
Coincident to this have been structural changes in the livestock and 
poultry feeding sectors and the remarkable growth in ethanol 
production. These changes have pushed larger and larger quantities of 
agricultural commodities into commercial marketing channels and away 
from the primary on-farm uses of the early 1900's.
    Based on the U.S. Census of Agriculture, the number of U.S. farms 
dropped from 5.4 million in 1950 to 2.1 million in 2002.\1\ Much of the 
loss in farm numbers, however, occurred by the mid-1970's.\2\ The 1974 
Census of Agriculture reported 2.3 million farms.\3\ Despite the 
slowing decline in farm numbers, the size of farm operations continues 
to grow. In 1974, there were 32,752 farms with 1,000 acres or more 
land. In 2002, there were 176,990 farms with 1,000 acres of more land. 
The number of farms with 2,000 acres or more increased more than 13 
fold during this time, going from only 5,862 farms in 1974 to 77,970 
farms in 2002.
---------------------------------------------------------------------------

    \1\ U.S. Bureau of the Census, U.S. Census of Agriculture: 1950. 
Vol. II, General Report, Statistics by Subjects. U.S. Government 
Printing Office, Washington, DC, 1952.
    \2\ National Agricultural Statistics Service, 2002 Census of 
Agriculture. Summary and State Data. Vol. 1, Geographic Area Series, 
Part 51. U.S. Department of Agriculture, Washington DC, June 2004.
    \3\ Bureau of the Census, 1974 Census of Agriculture. Vol. I, 
Part 51, United States Summary and State Data. U.S. Department of 
Commerce, Washington DC, December 1977.
---------------------------------------------------------------------------

    Accompanying this consolidation in farm numbers and growth in farm 
size has been a similarly dramatic consolidation in the livestock and 
poultry feeding sectors. Based on the U.S. Census of Agriculture, 3 out 
of every 4 farms had cattle and 1 out of every 2 farms had hogs in 
1950. In 2002, only 1 in every 2 farms had cattle, and only 1 in every 
25 had hogs. Numbers are just as dramatic for poultry. In 1950, 4 of 
every 5 farms had chickens or turkeys. In 2002, only 1 out of every 14 
farms had chickens or turkeys. The consolidation of cattle, hog, and 
poultry feeding into fewer and larger capital-intensive operations has 
shifted feed use away from the farms where grains and oilseeds are 
produced. This has left grain and oilseed producers increasingly 
reliant on commercial grain marketing channels as outlets for their 
production and sources of their revenue.
    Figure 1 demonstrates the significant impact these structural 
changes have had on the amount of grain used on the farms where it is 
produced. During the 1949/50 marketing year just more than half of all 
grain and oilseed (wheat, corn, barley, oats, rye, sorghum, rice, and 
soybeans) production was consumed on the same farms where it was 
produced. Since then, while production of these commodities has 
increased more than 3 fold, the amount used on the same farm where it 
was produced has dropped by more than one-third. The bulk of this 
decline in on-farm use reflects consolidation in livestock and poultry 
feeding and specialization in grain and oilseed farming. It also 
reflects the phenomenal expansion in fuel ethanol production which has 
grown from a negligible share of domestic corn use in the 1970's to 
more than 12 percent of domestic use during the 2004/05 marketing year. 
Less significant, but also affecting this decline in on-farm use has 
been the shift away from bin-run seed in the small grains and soybeans 
as commercial seed

[[Page 32417]]

varieties have become ever more dominant.
[GRAPHIC] [TIFF OMITTED] TR06JN06.003

    The decline in on-farm use has substantially increased the volume 
of grain moving through commercial marketing channels. In the early 
1950's, 50 percent of all grain and oilseed production was sold 
commercially. In recent years, 90 percent of all grain and oilseed 
production has been sold commercially. As on-farm use has fallen since 
1949/50, the volume that is marketed commercially has increased 6 fold, 
twice the 3 fold increase in production.
    CCC nonrecourse loan provisions have been modified over the years 
to better reflect the needs of producers who must respond to these 
changes in commodity marketing and use. Particularly important in this 
regard has been the marketing assistance loan provisions which have 
given CCC tools like alternative marketing loan repayment rates and the 
LDP which have significantly reduced the quantity of loan collateral 
forfeited to CCC. With greater ability to minimize forfeitures, CCC 
inventories and quantities of grains and oilseeds otherwise controlled 
by CCC have declined dramatically since the 1980's, as shown in Figure 
2.

[[Page 32418]]

[GRAPHIC] [TIFF OMITTED] TR06JN06.004

    Congress has recognized the impact that changing agricultural 
commodity markets have had on producers and CCC's ability to ensure 
that all producers of major commodities are eligible for marketing 
assistance loan benefits. Congress included special provisions in the 
2002 Act to address specific situations that result in producers 
becoming ineligible for these benefits or to provide other assistance 
in lieu of such benefits. These provisions of the 2002 Act are set 
forth in sections 1201(c); 1204(h); 1205(a)(2),(f); 1206; 1209; and 
1307(c)(2), and 1307(e)(4)(B).

Treatment of Certain Commingled Commodities

    Section 1201(c) of the 2002 Act states:

    ``* * * the Secretary shall make loans to producers on a farm 
that would be eligible to obtain a marketing assistance loan, but 
for the fact the loan commodity owned by the producers on the farm 
commingled with loan commodities of other producers in facilities 
unlicensed for the storage of agricultural commodities by the 
Secretary or a State licensing authority, if the producers obtaining 
the loan agree to immediately redeem the loan collateral in 
accordance with section 166 of the Federal Agriculture Improvement 
and Reform Act of 1996 (U.S.C. 7286).''

This provision recognizes that producers who deliver a commodity to a 
facility where the commodity is commingled with commodities from other 
producers are ineligible for marketing assistance loans and loan 
deficiency payments if the facility is not authorized by State or 
Federal law to store such commodities for the benefit of producers. 
This provision provides a limited opportunity for producers who deliver 
their commodities to a facility such as a feedlot, ethanol plant, wool 
pool, or other facilities to receive benefits associated with the use 
of CCC-issued commodity certificates to acquire commodities pledged as 
collateral for a CCC marketing assistance loan so long as the loan 
making transaction and certificate exchange transaction authorized by 
section 166 of the Federal Agriculture Improvement and Reform Act of 
1996 occur at the same time. Again, this provision takes into 
consideration that producers who deliver commodities to these 
facilities lose beneficial interest in the commodity upon delivery. 
Such facilities are not authorized to act as bailees with respect to 
the commodity and, similarly, may not issue documents presenting title 
to another party on behalf of the person delivering the commodity to 
the facility. CCC has administered this provision through the use of 
Form CCC-677, Farm Storage Note and Security Agreement, and has not set 
forth specific provisions in 7 CFR part 1421, but has utilized the 
regulations at 7 CFR part 1401 with respect to commodity certificate 
exchanges.

Good Faith Exception to Beneficial Interest

    Section 1204(f) of the 2002 Act provides relief to those producers 
of 2001 crops of commodities for which marketing assistance loans were 
obtained but had lost beneficial interest in the commodity prior to the 
repayment of the loan. This relief was further restricted to those 
producers who acted in good faith, but had nonetheless not complied 
with program regulations, and provided that the producer be allowed to 
receive program benefits as of the date beneficial interest was lost. 
Since this provision was viewed to be self-enacting and applicable for 
only the 2001 crop year, the regulations at 7 CFR part 1421 do not 
contain any references to these sections of the 2002 Act.

Unshorn Lamb Pelts, Hay and Silage

    Section 1205(a)(2) of the 2002 Act states:

    Non-graded wool in the form of unshorn lamb pelts and hay and 
silage derived from a loan commodity are not eligible for a 
marketing assistance loan under section 1201. However, effective for 
the 2002 through 2007 crop years, the Secretary may make loan 
deficiency payments available under this section to producers on a 
farm that produce unshorn lamb pelts or hay and silage derived from 
a loan commodity.

    Section 1205(b) sets forth the rates to be used in making these 
payments. This provision takes into account that some

[[Page 32419]]

producers of a commodity that could be used to obtain a marketing 
assistance loan, but for the manner in which it was processed by the 
producer, could still be used to obtain a loan deficiency payment. The 
need for this provision is best understood by looking at corn that is 
used as silage. Corn that is harvested in a ``whole kernel'' form may 
be pledged as collateral for a marketing assistance loan and in the 
event the loan is not repaid at the end of nine months, CCC can take 
possession of the corn, which will, assuming proper care has been taken 
during the nine months, be in the same condition as when the loan was 
made. But, in the case of silage, the entire corn stalk is harvested 
and the stalk and the corn kernel are inter-mingled and chopped, which 
renders the corn worthless to CCC in the event of forfeiture; however, 
the corn silage is merchantable mostly for feeding purposes. Therefore, 
producers may obtain a loan deficiency payment by submitting a request 
for benefits using either form CCC-633 LDP, or CCC-709 for silage and 
hay; and CCC-633 Pelt or CCC-709 Pelt for unshorn lamb pelts, and the 
regulations at 7 CFR 1421.200(c) and (d).

Special Loan Deficiency Payment Rules for 2002 Crop Year Commodities

    Sections 1205(f) and 1307(c)(2) of the 2002 Act provide special 
rules for the 2002 crops of wool, mohair, honey, dry peas, lentils, 
small chickpeas; and peanuts, respectively, in recognition of the 
extension in the 2002 Act of marketing loan and loan deficiency payment 
benefits to producers of these commodities who may have lost beneficial 
interest in the commodity prior to the issuance of regulations used in 
the administration of these programs. These provisions are reflected in 
7 CFR 1421.6(b) and (c).

Grazing Payments in Lieu of Loan Deficiency Payments

    Section 1206 of the 2002 Act provides that a producer of the 2002 
through 2007 crops of wheat, barley, and oats who is otherwise eligible 
to receive a loan deficiency payment for such a crop but, instead of 
harvesting the commodity ``elects to use acreage planted to the wheat, 
barley, or oats for the grazing of livestock'' (and producers of 
triticale) to receive a payment based upon the loan deficiency payment 
rate in effect for such commodity (with respect to triticale, since 
there is no such rate, the wheat payment rate is used) on the date the 
producer signs an agreement with CCC to participate in this special 
program. Again, this provision is intended to provide assistance to 
producers without altering their normal production patterns, and is 
carried out by CCC through the use of Form CCC-633, Grazing, and the 
regulations at 7 CFR 1421.300 though 307.

Recourse Loans for High Moisture Corn and Grain Sorghum and Seed Cotton

    Section 1209 of the 2002 Act provides that CCC will make available 
recourse loans to producers of 2002 through 2007 crops of high moisture 
corn and grain sorghum. Similar to corn harvested as silage, corn and 
grain sorghum harvested with a high moisture content are not suitable 
for delivery to CCC in the event of a forfeiture of a marketing 
assistance loan. Commodities with a high moisture content deteriorate 
in condition quickly and have never been accepted by CCC in 
satisfaction of a nonrecourse loan. However, the harvesting of corn and 
grain sorghum in such a state is a normal production practice, and 
under section 1209 producers of these crops may receive low interest 
nine-month recourse loans from CCC. Such commodities may not be pledged 
as collateral for a marketing assistance loan, and thus, also are not 
eligible for a loan deficiency payment. The regulations used to 
administer this provision are found at 7 CFR 1421.115 and CFR 1427, 
Subpart D, for seed cotton recourse loans. The loan agreements are 
Forms CCC-677, Farm Storage Note and Security Agreement and CCC-881, 
for cotton seed loans.

III. Major Changes

    In administering Title I of the 2002 Act for marketing assistance 
loans and loan deficiency payments, CCC has decided to amend 7 CFR 
parts 1421 and 1427 to account for the evolution of marketing patterns 
in those commodities subject to these regulations, and remove necessary 
burdens on producers of such commodities to obtain a marketing 
assistance loan or loan deficiency payment. Similar amendments are made 
in 7 CFR part 1427 to clarify determinations of whether a producer 
maintains beneficial interest in cotton tendered for a nonrecourse loan 
and for liquidated damages assessed when there is a breach of the CCC 
loan agreement or loan deficiency payment agreement.
    In order to: (1) Enhance the manner in which marketing assistance 
loans and loan deficiency payments are made to producers by CCC; (2) 
provide greater clarity with respect to the manner in which the 
marketing assistance loan and loan deficiency payment provisions of the 
2002 Act are set forth in program regulations; and (3) reduce 
unnecessary regulatory burdens on producers, the following revisions 
are made in 7 CFR parts 1421 and 1427.

A. Rice Adjusted World Price Announcement Time (1421.10 Market Rates)

    Loan rates for farm-stored rice, or rice for which the grade and 
milling yield are not determined, are based on state average grade and 
milling qualities for the prior five years. The warehouse-stored rice 
loan rates are based on class, quality, and milling yield 
determinations obtained from a grading and milling sample of the 
individual lot of rice. The national average rough rice loan rate is 
used to determine farm-stored loan proceeds in States other than the 
six major rice-producing States. Grade and quality factor discounts 
apply when rice is delivered to CCC upon loan maturity. CCC announces 
the rice adjusted world price (AWP) every Tuesday at 3 p.m. eastern 
standard time (EST). The AWP is used to determine the applicable 
repayment and LDP rates. If Tuesday is a Federal holiday or is not a 
Government workday, the AWP announcement is made on the next workday. 
Because the AWP is announced in the middle of a workday, marketing 
assistance loan repayments and loan deficiency payment requests are not 
accepted on Tuesday between 2 p.m. and 3 p.m. EST. This window of time 
is commonly referred to as the ``dead hour''. Marketing assistance loan 
repayments and loan deficiency payment requests received on Tuesday 
before 2 p.m. EST are based on the rate in effect before the 3 p.m. EST 
announced AWP. All marketing assistance loan repayments and loan 
deficiency payment requests received after 3 p.m. EST are based on the 
AWP announced on that Tuesday. This rule changes the AWP announcement 
time for rice to on or after 7 a.m. EST each Wednesday. The announced 
AWP will be effective upon announcement thus eliminating the ``dead 
hour'' requirement. As a result, 7 CFR part 1421.10(c)(5)(i) is revised 
and 1421.10(c)(6) deleted.

B. Handling Payments and Collections (1421.13)

    7 CFR 1421.13 sets forth the policy of CCC in handling the issuance 
of marketing assistance loans and loan deficiency payments of $9.99 or 
less and the collection of debts arising from such loans and payments 
in amounts of $9.99 or less. This rule deletes this section since CCC 
routinely issues payments and loans regardless of amounts and CCC debt 
collection policies are already set forth at 7 CFR part 1403.

[[Page 32420]]

C. Liens and Filing of Security Interest and Financing Statements 
(1421.104)

    Lien searches are conducted by CCC when a producer requests a 
marketing assistance loan. These searches are conducted to ensure that 
CCC will be able to obtain clear title to any commodity forfeited to 
CCC in satisfaction of a marketing assistance loan. Currently, CCC is 
responsible for the costs associated with conducting the lien search 
and the filing fees for the applicable financing statements. CCC 
surveyed FSA offices in all 50 States regarding the costs and it was 
determined that the average cost, per loan, to conduct a lien search 
and file a financing statement was approximately $17.00. Due to the 
major budget constraints facing the Department of Agriculture, a review 
was undertaken concerning policies regarding lien searches and the 
filing of financing statements to determine if these costs could be 
reduced. CCC conducted a comprehensive review of its loan-making 
actions and determined that in crop year 2003 only 112 of 37,246 farm-
stored loans with a principal amount of $25,000 or less were satisfied 
by forfeiture of the loan collateral to CCC. (0.3%). Approximately, 
$633,182 was expended to file lien searches and record financing 
statements for those loans. Results of the review also indicated that 
the settlements and forfeitures have been very minimal over several 
crop years in comparison to the number of marketing assistance loans 
disbursed. Accordingly, this rule amends 7 CFR 1421.104 and 1427.12 to 
provide that CCC will conduct lien searches for all loans types greater 
than $25,000 and file financing statements only for farm-stored 
marketing assistance loan disbursements of $25,000 or more. CCC 
believes this will reduce costs without increasing CCC's risk of 
forfeitures. CCC may, however, conduct lien searches and file financing 
statements for loan disbursements less than $25,000 when there is 
reason to believe that CCC's interest will not be protected.

D. Personal Liability of the Producer (1421.109)

    The terms of the marketing assistance loan agreements include 
provisions that obligate the producer to undertake certain actions. One 
of the more important provisions of the loan agreement is the 
requirement that the producer agrees to not remove or dispose of any 
quantity of commodity that is pledged as collateral for a CCC farm-
stored loan without prior written approval from CCC. Such violations 
are referred to as ``unauthorized removal'' and ``unauthorized 
disposition.'' When the producer is determined to have committed a 
violation, the FSA County Committee, on behalf of CCC, must make a 
determination as to whether the producer acted in ``good faith'' in 
moving or disposing of the loan collateral in violation of the loan 
agreement. If the FSA County Committee determines the producer acted in 
``good faith,'' a producer with two or fewer violations must repay the 
marketing assistance loan quantity involved in the violation at the 
lesser of principal plus interest, or the applicable announced 
alternative repayment rate in effect on the date the violation 
occurred, plus liquidated damages in an amount equal to 10 percent of 
the loan rate. CCC has found it very difficult to determine the exact 
date in which a violation may have occurred. Therefore, this rule 
amends 7 CFR 1421.109 to provide that the producer must repay the 
marketing assistance loan quantity involved in the violation based on 
the repayment rate in effect on the date the violation was discovered 
by CCC. If CCC determines that there had been an unauthorized removal 
or disposition of loan collateral after the loan had been repaid, such 
action will be considered a violation for purposes of future 
administration of this provision. With respect to instances in which a 
producer has committed two such violations, CCC has also determined 
that liquidated damages in an amount equal to 25 percent of the loan 
rate is excessive and this rule will reduce this amount to 10 percent.

E. Loan Deficiency Payments (1421.200; 1427.23)

    Loan deficiency payments made under 7 CFR parts 1421 and 1427 are 
currently requested by producers by using: (1) Form CCC-709 Field 
Direct LDP; (2) Form CCC-633 LDP; (3) CCC-633 Pelt; (4) CCC-709 Pelt; 
(5) Cotton AA; and through the online CCC eLDP process. Each crop year, 
numerous producers fail to submit an applicable loan deficiency payment 
request for program benefits before beneficial interest is lost in the 
commodity. Producers and other members of the agricultural industry 
have attributed the loss of benefits to the use of multiple forms to 
obtain the same benefit and the lack of understanding about beneficial 
interest. In an effort to simplify this process, CCC recently issued a 
new form, Form CCC-633 EZ, Loan Deficiency Payment (LDP) Agreement and 
Request, for use in the 2005 and subsequent crop years. The CCC-633 EZ 
is a two part form consisting of an agreement which is page 1 of the 
CCC-633 EZ and a request for benefits which is either page 2, 3, or 4, 
depending on the requested commodity. Form CCC-633 EZ, Page 1 allows 
the producer to indicate their intentions to receive loan deficiency 
payments at a time well in advance of the time that they could 
inadvertently lose beneficial interest. The CCC-633 EZ, Page 1, 
Agreement, must be filed in the applicable FSA Service Center before 
loss of beneficial interest. A producer may submit the CCC-633 EZ, Page 
1, Agreement, prior to the harvest, shearing or slaughter of the 
commodity (but not before the applicable crop year) throughout any time 
during the marketing assistance loan availability period. The request 
for LDP benefits page must be submitted before the applicable final 
loan availability date; however, the request for benefit (pages 2, 3 or 
4) can be submitted either before or after loss of beneficial interest. 
This form became available for the 2005 crop year. Accordingly, this 
rule amends 7 CFR 1421.200 and 1427.23 to set forth policies associated 
with the use of the new CCC-633 EZ form.

F. Loan Deficiency Payment Rates

    In order to more accurately reflect variations in market prices for 
the same commodity that reflect the geographic location of a producer's 
farm, CCC has historically established loan rates on a county-by-county 
basis for many commodities. This creates a situation where a crop may 
be produced in a county but is stored or marketed in a different county 
with a different loan rate. Section 7 CFR 1421.201 is revised to 
clarify that, in those instances where a commodity is stored in a 
county other than where the commodity was produced, the loan deficiency 
payment rate will be the rate for the county where the commodity is 
stored or marketed.

G. Beneficial Interest

    As noted in the background discussion in this preamble, the concept 
of ``beneficial interest'' is a core feature of the CCC nonrecourse 
loan programs since 1949, is embodied in the 2002 Act, and consists of 
three parts: Title to the commodity must be with the producer; control 
of the commodity must remain with the producer; and the producer must 
retain risk of loss in the commodity in the event of its destruction. 
For many years, this provision was readily applied as the commodities 
subject to 7 CFR parts 1421 and 1427 were either used as feed by a 
producer on the producer's farm or delivered to a warehouse for sale or 
storage. The sale would be a simple

[[Page 32421]]

transaction in which cash, or a check, would be received by the 
producer based upon the market price of the commodity upon the date of 
sale or delivery to the warehouse.
    Over time, different marketing arrangements have emerged that 
impact the manner in which CCC administers these programs. One 
significant change made in the marketing assistance and loan deficiency 
payment programs occurred in the early 1990's as a result of litigation 
arising out of the bankruptcy of a major cotton merchant. Prior to this 
case, CCC had allowed producers who had sold their ``equity interest'' 
in their cotton to a merchant to still obtain a nonrecourse loan from 
CCC. Under this arrangement, the merchant tendered to the producer a 
nominal payment that allowed the merchant, at its option, the right to 
purchase from the producer cotton pledged as collateral for a CCC 
nonrecourse loan at anytime prior to the maturity of the loan. In order 
to effectuate the sale, the producer, or the merchant as agent of the 
producer, had to first redeem the loan collateral. If the loan was not 
repaid by the maturity date, CCC took possession of the cotton in 
satisfaction of the loan.
    In the case that influences this change, a large cotton merchant 
had obtained ``equities'' from a significant number of cotton producers 
and had obtained financing from several financial institutions to fund 
its operations. Unable to fulfill its obligations, the merchant filed 
for bankruptcy and its creditors asserted, in essence, that their liens 
extended to all property rights of the merchants, including the 
``equities'' purchased by the merchant, and that this interest extended 
to the cotton even after the maturity of the CCC loan. As a result of 
court opinions in this matter, which held that this interest did extend 
beyond the maturity of the loan, CCC amended the regulations in 7 CFR 
parts 1421 and 1427 to ensure that this practice did not impact its 
ability, in the event of a forfeiture of the commodity at maturity, to 
obtain clear title to the commodity. This change is set forth in 7 CFR 
1421.6(a)(2)(i) and 1427.5(e)(2)(i) and allows a producer to enter into 
an option to purchase contract with a buyer so that the producer can 
enter into marketing contracts prior to the harvest of their crop. The 
key feature of these provisions is that the option to purchase must 
terminate the earlier of: (1) Maturity of the loan that is secured by 
the commodity; (2) the date CCC claims title; or (3) such other date 
that is provided for in the option.
    Since the adoption of these provisions in 7 CFR 1421.6 and 1427.5, 
CCC has not incurred losses similar to those that previously occurred. 
During the past 15 years, changes have occurred in marketing practices 
in which producers are able to develop marketing strategies to reduce 
their risks and to maximize their returns in the market. For example, 
there has been a significant increase in the use of contracts, commonly 
referred to as deferred price contracts and price later contracts, 
which allow producers the opportunity to identify their buyers and 
establish a sales price prior to harvest. Generally, such a contract 
does not deprive the producer of the ability to obtain a marketing 
assistance loan or a loan deficiency payment so long as payment for the 
transaction does not occur before the loan is repaid or the LDP is 
requested. Existing regulations are not clear on how CCC views these 
contracts. This rule is not intended to restrict in any manner the 
ability of a producer to obtain nonrecourse loans or loan deficiency 
payments, but are made solely to provide greater transparency in the 
operation of these programs. Also, in the context of this review, CCC 
has concluded that there are virtually no situations in which a 
producer has risk of loss in a commodity but does not have control; in 
other words, if a producer has control of the commodity, there is some 
risk of loss. Thus, to simplify these determinations, 7 CFR 1421.6 and 
1427.5 are amended to remove references to risk of loss and to clarify 
actions a producer may take in the marketing of a commodity prior to 
the maturity of CCC loan, or a request for a loan deficiency payment, 
and still retain title to and control of a commodity.
    Section 1001, ``Definitions'' of the 2002 Act specifically provides 
that

    ``* * * In determining whether a grower of a hybrid seed is a 
producer, the Secretary shall not take into consideration the 
existence of a hybrid seed contract and shall ensure that program 
requirements do not adversely affect the ability of the grower to 
receive a payment under this title.

    Similarly, there is a growing number of situations in which the 
owners of genetically-modified seed and other similar specialty seeds 
retain title to the seed after delivery of the seed to a producer for 
planting by the producer. These situations are due in large part to the 
need for the owner of the seed to retain title to the seed in order for 
such owner to protect its patent rights to the seed variety involved in 
the transaction. At harvest, there are various scenarios that may ensue 
with respect to the actions that a producer may exercise with the 
commodity produced from these seeds. In some cases the owner takes 
possession of the commodity at harvest while in other instances the 
commodity remains with the producer for some period of time and the 
owner may elect to take all or just a portion of the production. Also, 
in some cases the owner has right of ``first rejection'' when the 
producer intends to market the crop. While CCC has attempted to treat 
these various situations in such a manner so as to allow the producer 
to obtain a marketing assistance loan or loan deficiency payment with 
respect to such contractual situations, existing regulations do not set 
forth with clarity the manner in which CCC views the use of these 
contracts. Accordingly, 7 CFR parts 1421 and 1427 are modified to make 
clear that these types of contracts do not deprive a producer of these 
benefits so long as no payment has been received under the contract 
prior to the request for the marketing assistance loan or loan 
deficiency payment and so long as the commodity has not been delivered 
to another party under the contract.

H. Application of Regulations to Certain Situations

    To provide producers and purchasers of commodities with a clearer 
understanding of CCC's policies, 7 CFR 1421.13 is also revised by 
setting forth provisions for making eligibility determinations in 
certain marketing situations. CCC believes that this will be especially 
beneficial in the administration of sections 1201(c) and 1205(a)(2) of 
the 2002 Act as they are applied to the delivery of feed grains to 
facilities such as feedlots, dairies, ethanol plants, and other 
locations where commodities are delivered by producers to facilities 
not authorized to issue warehouse receipts.

I. Typographical Error Correction

    Section 1421.10 is also amended to correct a typographical error. 
Section 1421.10(b) and (c) were intended to set forth statutory 
criteria that are used in establishing loan repayment rates for 
specified commodities but, as currently published, such provisions 
inadvertently omit a portion of the relevant provisions of the 2002 
Act.

J. Substitute and Purchase Commodities

    In 7 CFR part 1421 provisions are added to section 1421.5 to 
clarify that substituted and purchased commodities are ineligible for 
marketing assistance loans and loan deficiency payments.

[[Page 32422]]

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 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 changes 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. Loan Deficiency Payments may be 
submitted electronically at http://www.fsa.usda.gov/dafp/psd.

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

7 CFR Part 1421

    Agricultural commodities, Feed grains, Grains, Loan programs--
agriculture, Oilseeds, Price support programs, Reporting and 
recordkeeping requirements.

7 CFR Part 1427

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


0
For the reasons set out in the preamble, 7 CFR parts 1421 and 1427 are 
amended as follows:

PART 1421--GRAINS AND SIMILARLY HANDLED COMMODITIES--MARKETING 
ASSISTANCE LOANS AND LOAN DEFICIENCY PAYMENTS FOR THE 2002 THROUGH 
2007 CROP YEARS

0
1. The authority citation for part 1421 is revised to read as follows:

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

Subpart A--General

0
2. Amend Sec.  1421.1 by adding paragraph (e) to read as follows:


Sec.  1421.1  Applicability.

* * * * *
    (e) The information collection requirements contained in this 
regulation (7 CFR part 1421) have been approved by the Office of 
Management and Budget under provisions if 44 U.S.C. chapter 35 and have 
been assigned OMB Numbers 0560-0009 and 0560-0036.

0
3. Amend Sec.  1421.5 by adding paragraph (f) to read as follows:


Sec.  1421.5  Eligible commodities.

* * * * *
    (f) A commodity that is purchased, substituted, or acquired by 
sale, gift, exchange of an existing harvested, sheared, or slaughtered 
commodity, or through any other transaction is ineligible to be pledged 
as collateral for a marketing assistance loan; in addition a loan 
deficiency payment shall not be made with respect to such commodities.

0
4. Section 1421.6 is revised to read as follows:


Sec.  1421.6  Beneficial interest.

    (a) To be eligible to receive marketing assistance loans and loan 
deficiency payments, a producer must have beneficial interest in the 
commodity that is tendered to CCC for a marketing assistance loan or is 
requested for a loan deficiency payment. For the purposes of this part, 
the term ``beneficial interest'' refers to a determination by CCC that 
a person has the requisite title to and control of the commodity that 
is tendered to CCC as collateral for a marketing assistance loan or is 
the commodity that will be used to determine a loan deficiency payment. 
A determination of whether a person has beneficial interest in a 
commodity is made by CCC in accordance with this part and is not based 
upon a determination under any State law or any other regulation of a 
Federal agency.

[[Page 32423]]

    (b) Except as provided in paragraph (e) of this section, when 
requesting a marketing assistance loan for a loan commodity, in order 
to have beneficial interest in the commodity tendered as collateral for 
the loan, a person must:
    (1) Be the producer of the commodity as determined in accordance 
with Sec.  1421.4;
    (2) Have had ownership of the commodity from the time it was 
planted (with respect to wool and mohair from time of shearing) through 
the earlier the date the loan was repaid or the maturity date of the 
loan;
    (3) Have control of the commodity from the time of planting (for 
wool and mohair from the time of shearing) through the maturity date of 
the loan. To have control of the commodity, such person must have 
complete decision-making authority regarding whether the commodity will 
be tendered as collateral for a loan, when the loan will be repaid, or 
if the collateral will be forfeited to CCC in satisfaction of the loan 
obligations of such person, and where the commodity will be maintained 
during the term of the loan;
    (4) Not have received any payment from any party with respect to 
the commodity; and
    (5) If the commodity has been physically delivered to a location 
other than a location owned or under the total control of the producer, 
have delivered the commodity to a warehouse approved in accordance with 
Sec.  1421.103(c). Delivery of the commodity to a location other than 
to such an approved warehouse will result in the loss of beneficial 
interest in the commodity on the date of physical delivery and the 
producer will be considered to have lost beneficial interest as of 
11:59 p.m. of such day. Accordingly, delivery of a commodity to 
entities such as a dairy, feedlot, ethanol plant, wool pool, feed mill, 
or other facilities as determined by CCC will result in the loss of 
beneficial interest as of the date of delivery, regardless of any other 
action or agreement between such an entity and the producer unless such 
an entity has been approved by CCC under Sec.  1421.103(c).
    (c) Except as provided in paragraph (e) of this section, when 
requesting a loan deficiency payment for a loan commodity, in order to 
have beneficial interest in the commodity a person must:
    (1) Be the producer of the commodity as determined in accordance 
with Sec.  1421.4;
    (2) Have had ownership of the commodity from the time it was 
planted, with respect to wool and mohair from the time of shearing, or 
from the time of slaughter for unshorn pelts, through the date the 
producer has elected to determine the loan deficiency payment rate;
    (3) Have control of the commodity. For control such person must 
have complete decisionmaking authority regarding whether a loan 
deficiency payment will be requested with respect to the commodity; 
when the loan deficiency rate will be selected; and where the commodity 
will be maintained prior to the date on which the loan deficiency 
payment rate will be determined;
    (4) Not have received any payment from any party with respect to 
the commodity; and
    (5) If the commodity has been physically delivered to a location 
other than a location owned or under the total control of the producer, 
have delivered the commodity to a warehouse approved in accordance with 
Sec.  1421.103(c). Delivery of the commodity to a location other than 
to an approved warehouse will result in the loss of beneficial interest 
in the commodity on the date of physical delivery and the producer will 
be considered to have lost beneficial interest as of 11:59 p.m. of such 
day. Accordingly, delivery of a commodity to entities such as a dairy, 
feedlot, ethanol plant, wool pool, feed mill, or unapproved storage 
facility, will result in the loss of beneficial interest as of the date 
of delivery, regardless of any other action or agreement between such 
an entity and the producer unless such an entity has been approved by 
CCC under Sec.  1421.103(c).
    (d) Notwithstanding any provision of paragraphs (b) and (c) of this 
section and Sec.  1421.5(f), in order to facilitate handling situations 
involving the death of a producer, CCC will consider an estate, heirs 
of the deceased producer, and a person to whom title to a commodity has 
passed by virtue of State law upon the death of the producer to have 
beneficial interest in a commodity produced by the producer under the 
same terms and conditions that would otherwise be applicable to such 
producer;
    (e) Notwithstanding any provision of paragraphs (b) and (c) of this 
section and Sec.  1421.5(f), a person who purchases or otherwise 
acquires a commodity from a producer under any circumstances does not 
obtain beneficial interest to the commodity whether such purchase or 
acquisition is made prior to the harvest of the crop or after harvest; 
however, CCC will consider a person to have beneficial interest in a 
commodity if, prior to harvest, such person has obtained title to the 
growing commodity at the same time that such person obtained full title 
to the land on which such crop was growing;
    (f) If marketing assistance loans and loan deficiency payments are 
made available to producers through an approved cooperative marketing 
association in accordance with part 1425 of this chapter, the 
beneficial interest in the commodity must always have been in the 
producer-member who delivered the commodity to the approved cooperative 
marketing association or its member approved cooperative marketing 
association, except as otherwise provided in this section. If the 
producer-member who delivered the commodity does not retain the right 
to share in the proceeds from the marketing of the commodity as 
provided in part 1425 of this chapter, commodities delivered to an 
approved cooperative marketing association shall not be eligible to be 
pledged as collateral for a marketing assistance loan or be taken into 
consideration when a loan deficiency payment is made.
    (g) A producer will lose beneficial interest in a commodity if the 
producer receives any payment from any person under any contractual 
arrangement with respect to a commodity if the person who is making the 
payment, or any person otherwise associated with the person making the 
payment, will at any time have title to the commodity or control of the 
commodity prior to or after harvest, shearing, or slaughter unless:
    (1) Such payment is authorized in accordance with part 1425 of this 
chapter; or
    (2) The payment is made as consideration for an option to purchase 
the commodity and such option contains the following language:
    Notwithstanding any other provision of this option to purchase or 
any other contract, title and control of the commodity and beneficial 
interest in the commodity as specified in 7 CFR 1421.6 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 
that is secured by such commodity;
    (2) The date CCC claims title to such commodity; or
    (3) Such other date as provided in this option.
    (h) Inclusion in a contract of one or more of the following types 
of provisions will not result in the loss of beneficial interest in a 
commodity:

[[Page 32424]]

    (1) A provision that allows the producer to select the sales price 
of the commodity at the time the contract is entered into or at a later 
date, for example, a contract normally referred to as a deferred price 
contract or a price later contract; or
    (2) A provision in contract between the producer and a warehouse 
approved in accordance with Sec.  1421.103(c) for the storage of CCC 
loan collateral that provides the producer with no more than 15 days 
from the date of physical delivery of the commodity to the warehouse to 
elect whether the commodity is to be stored on behalf of the producer 
or is to be considered transferred to the warehouse, for example, a 
contract normally referred to as an open storage contract.
    (i) Commodities produced under a contract in which the title to the 
seed remains with the entity providing the seed to the producer, 
including contracts for the production of hybrid seed, genetically 
modified commodities, and other specialty seeds as approved in writing 
by CCC, are eligible to be pledged as collateral for a marketing 
assistance loan and a loan deficiency payment may be made with respect 
to such production if, at the time of the request for such a loan or 
payment, the producer has not:
    (1) Received a payment under the contract; or
    (2) Delivered the commodity to another person.

0
5. Amend Sec.  1421.10 by revising paragraphs (b)(2), (c)(2), and 
(c)(5) to read as follows, and removing paragraph (c)(6):


Sec.  1421.10  Market rates.

* * * * *
    (b) * * *
    (2) To the extent practicable, CCC shall determine and announce the 
alternative repayment rate, based upon the market prices at appropriate 
U.S. markets as determined by CCC, to: Minimize loan forfeitures of 
such commodities; minimize the Federal Government-owned inventory of 
such commodities; minimize the storage costs incurred by the Federal 
Government; allow such commodities produced in the United States to be 
marketed freely and competitively domestically and internationally; and 
minimize discrepancies in marketing loan benefits across State 
boundaries and across county boundaries. The alternative repayment rate 
may be adjusted to reflect quality and location for each crop of a 
commodity as follows:
* * * * *
    (c) * * *
    (2) To the extent practicable, CCC shall determine and announce 
periodically an alternative repayment rate for peanuts, wool, and 
mohair to: Minimize loan forfeitures of such commodities; minimize the 
Federal Government-owned inventory of such commodities; minimize the 
storage costs incurred by the Federal Government; allow such 
commodities produced in the United States to be marketed freely and 
competitively domestically and internationally; and minimize 
discrepancies in marketing loan benefits across State boundaries and 
across county boundaries.
* * * * *
    (5) The adjusted world price for each class of rice, loan rate 
basis, shall be determined by CCC and announced, to the extent 
practicable, on or after 7 a.m. Eastern Standard Time each Wednesday or 
more frequently as determined necessary by CCC, continuing through the 
later of:
    (i) The last Wednesday of July 2007; or
    (ii) The last Wednesday of the latest month the 2007-crop rice 
loans mature, or
    (iii) In the event that Wednesday is a non-workday, the 
determination will be made on the next work day, on or after 7 a.m. 
Eastern Standard Time.

0
6. Revise Sec.  1421.13 to read as follows:


Sec.  1421.13  Special marketing assistance loans and loan deficiency 
payments.

    (a) Commodities stored in an unapproved storage facility may be 
pledged as collateral for a marketing assistance loan if the producer:
    (1) Makes a request for the marketing assistance loan and obtains 
the commodity certificate to immediately exchange for the requested 
loan collateral at the same time at the county office that, under part 
718 of this title, is responsible for administering the programs for 
the farm on which the commodity was produced.
    (2) Submits the marketing assistance loan request and the commodity 
certificate exchange before or on the date of delivery to the 
unapproved facility.
    (b)(1) Eligible producers of unshorn pelts produced from live sheep 
and hay and silage derived from an eligible loan commodity as provided 
in Sec.  1421.5 are eligible to request unshorn pelt, hay, and silage 
quantities for a loan deficiency payment under subpart C of this part.
    (2) Unshorn pelts, hay, and silage derived from an eligible loan 
commodity is not eligible to be pledged as collateral to obtain a 
marketing assistance loan under subpart B of this part.

Subpart B--Marketing Assistance Loans

0
7. Amend Sec.  1421.104 by revising paragraph (a) to read as follows:


Sec.  1421.104  Marketing assistance loan making.

    (a)(1) CCC will conduct lien searches with respect to all 
commodities pledged as collateral for marketing assistance loan 
disbursements in amounts greater than $25,000 and perfect its security 
interest in such commodity as provided for under State law. With 
respect to marketing assistance loan disbursements of $25,000 or less, 
CCC may conduct a lien search when it is determined that CCC's interest 
is at risk and perfect its security interest in such commodity as 
provided for under State law. In all instances, if a producer has 
violated the provisions of this part in the crop year preceding the 
crop year in which the marketing assistance loan is being requested, 
CCC will conduct a lien search with respect to all commodities pledged 
as collateral for a marketing assistance loan and perfect its security 
interest in such commodity as provided for under State law.
    (2) The cost for terminating the financing statement for marketing 
assistance loans disbursed under paragraph (a)(1) of this section 
before the end of the term shall be paid by the producer.
    (3) If there are any liens or encumbrances on the commodity pledged 
as collateral for a marketing assistance loan made under this part, 
waivers that fully protect CCC's interest must be obtained even though 
the liens or encumbrances are satisfied from loan proceeds disbursed 
under this part. No additional liens or encumbrances shall be placed on 
the commodity after such a loan is approved.
* * * * *

0
8. Amend Sec.  1421.109 by revising paragraphs (d), (e), (f), (g), and 
(h) to read as follows:


Sec.  1421.109  Personal liability of the producer.

* * * * *
    (d) Liquidated damages assessed in accordance with this section 
will be determined by multiplying the quantity involved in the 
violation by 10 percent of the marketing assistance loan rate 
applicable to the loan note.
    (e) When it has been determined that a violation of the terms and 
conditions of the note and security agreement has occurred as a result 
of unauthorized

[[Page 32425]]

removal or disposition, CCC will determine the quantity of the 
commodity involved with respect to such violation and require the 
repayment of that portion of the marketing assistance loan which is 
commensurate to such quantity of the commodity. In the case of these 
violations, if CCC determines the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages shall be assessed according to paragraph (d) of this section 
and the commodity involved in the violation must be redeemed at the 
lesser of:
    (i) The rate at which the loan was disbursed, plus interest and any 
other charges assessed under the note and security agreement; or
    (ii) The alternative repayment rate in effect on the date of the 
determination is issued by CCC that a violation has occurred, plus 15 
percent of the original loan rate as provided on the note and security 
agreement.
    (2) Did not act in good faith when the violation was committed, 
liquidated damages shall be assessed in accordance with paragraph (d) 
of this section, and administrative actions shall be taken in 
accordance with paragraph (h) of this section. The loan must be 
redeemed at the rate at which the loan was disbursed, plus interest and 
any other charges assessed under the note and security agreement.
    (f) When it has been determined that a violation of the terms and 
conditions of the note and security agreement has occurred as result of 
an incorrect certification, CCC will determine the quantity of the 
commodity involved with respect to such violation and require the 
repayment of that portion of the marketing assistance loan which is 
commensurate to such quantity of the commodity. In the case of an 
incorrect certification, if CCC determines the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages shall be assessed according to paragraph (d) of this section, 
and the commodity involved in the violation must be redeemed at the 
rate at which the loan was disbursed, plus interest and any other 
charges assessed under the note and security agreement.
    (2) Did not act in good faith about the violation, liquidated 
damages shall be assessed in accordance with paragraph (d) of this 
section and administrative actions shall be taken in accordance with 
paragraph (h) of this section. The loan must be redeemed at the rate at 
which the loan was disbursed, plus interest and any other charges 
assessed under the note and security agreement.
    (g) If the producer fails to pay such amount within 30 days from 
the date of notification of violations as provided in paragraphs (e)(1) 
and (f)(1) of this section, the producer must immediately repay the 
marketing assistance loan at the rate at which the loan was disbursed 
plus interest, and any other charges assessed under the note and 
security agreement.
    (h) For violations subject to paragraphs (e)(2) and (f)(2) of this 
section, the producer must immediately repay the marketing assistance 
loan at the rate at which the loan was disbursed plus interest, and any 
other charges assessed under the note and security agreement. If the 
loan has already been repaid, any market gain previously realized on 
the loan, plus interest, must be refunded to CCC.
* * * * *

0
9. Amend Sec.  1421.112 by revising paragraph (a)(3) to read as 
follows:


Sec.  1421.112  Loan settlement.

    (a) * * *
    (3) If CCC sells the commodity described in paragraph (a)(1) and 
(a)(2)of this section in settlement of the marketing assistance loan, 
the sales proceeds shall be applied to the amount owed CCC by the 
producer. The producer shall be responsible for any costs incurred by 
CCC in completing the sale and CCC will deduct the amount of these 
costs from the sales proceeds. If CCC sells any commodity obtained by 
delivery or forfeiture under a non-recourse marketing assistance loan, 
CCC will, in all instances, retain all proceeds obtained from the sale 
of the commodity and will not make any payment of any amount of such 
proceeds to any party, including the producer who had satisfied their 
obligation under the loan through forfeiture of the commodity to CCC.
* * * * *

Subpart C--Loan Deficiency Payments

0
10. Amend Sec.  1421.200 by revising paragraph (c) to read as follows:


Sec.  1421.200  Applicability.

* * * * *
    (c)(1) A producer must submit a completed request for a loan 
deficiency payment agreement and request form on or before the date 
beneficial interest is lost in the commodity and before the final loan 
availability date for the commodity. Producers must, on a form 
prescribed by CCC, indicate their intentions, in which the producer 
also agrees to the terms and conditions of the loan deficiency payment 
program, to receive a loan deficiency payment and submit the prescribed 
form to the FSA Service Center on or before beneficial interest is lost 
in such quantity. A producer may not obtain loan deficiency payment 
benefits, if the applicable form is not received in the FSA Service 
Center on or before beneficial interest is lost in the requested 
commodity.
    (2) With respect to a request for a loan deficiency payment for 
unshorn pelts, a completed request for such a payment must be submitted 
on or before the earlier of the date of slaughter of the lamb or the 
loss of beneficial interest in the lamb or the unshorn pelt produced 
from the lamb. In addition, the lamb must have been owned for not less 
than 30 days prior to the date such application is filed with CCC and 
must have been slaughtered for personal use, or sold for slaughter and 
slaughtered within 10 calendar days after the sale.
* * * * *

0
11. Amend Sec.  1421.201 by revising paragraph (b) to read as follows:


Sec.  1421.201  Loan deficiency payment rate.

* * * * *
    (b) The loan deficiency payment rate will be:
    (1) For 2005 and preceding crop years, for loan deficiency payment 
other than field direct loan deficiency payments, the rate in effect in 
the county where the commodity is stored as of the day the producer 
submits to the FSA county service center a completed request for 
payments;
    (2) For 2005 and preceding crop years, for field direct loan 
deficiency payments, the rate in effect for the county in which the 
farm is administratively located for CCC program purposes as of the 
date the commodity was delivered to a processor, buyer warehouse, 
cooperative marketing association, or similar entity.
    (3) For 2006 and subsequent crop years, the loan deficiency payment 
rate in effect in the county where the commodity was marketed or stored 
on the date:
    (i) The request for benefits is received in the FSA Service Center, 
if the producer retains beneficial interest in the quantity on that 
date.
    (ii) Beneficial interest was lost, as determined by CCC and as 
provided in Sec. Sec.  1421.6 and 1421.13, if on the date the request 
for benefits was received in the FSA Service Center the producer no 
longer has beneficial interest in the requested quantity.
* * * * *

0
12. Amend Sec.  1421.203 by revising paragraphs (a)(1), (b), and (c), 
deleting paragraph (d), and renumbering paragraphs (e) through (j) as 
paragraphs

[[Page 32426]]

(d) through (i), respectively. Revised paragraph (a)(1), (b) and (c) 
read as follows:


Sec.  1421.203  Personal liability of the producer.

    (a) * * *
    (1) When signing the Loan Deficiency Payment Agreement and Request, 
as applicable, that the producer will not provide an incorrect 
certification of the quantity or make any fraudulent representation, 
that CCC will rely upon in determining a loan deficiency payment; and
* * * * *
    (b) Liquidated damages assessed in accordance with this section 
will be determined by multiplying the quantity involved in the 
violation by 10 percent of the loan deficiency payment.
    (c) If CCC determines that the producer:
    (1) Acted in good faith when the violation occurred, liquidated 
damages will be assessed in accordance with paragraph (b) of this 
section and the producer must repay the loan deficiency payment 
applicable to the loan deficiency quantity involved in the violation 
and charges, plus interest applicable to the amount repaid. If the 
producer fails to pay such amount within 30 days from the date of 
notification the producer must repay the entire loan deficiency payment 
and charges plus interest.
    (2) Did not act in good faith when the violation was committed, 
liquidated damages will be assessed in accordance with paragraph (b) of 
this section and the producer shall repay the entire loan deficiency 
payment and charges plus interest.
* * * * *

PART 1427--COTTON

0
13. 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

0
14. Amend Sec.  1427.5 by re-designating paragraphs (g) and (h) as 
paragraphs (m) and (n), respectively; revising paragraphs (e) and (f), 
and adding new paragraphs (g) through (l), to read as follows:


Sec.  1427.5  General eligibility requirements.

* * * * *
    (e) To be eligible to receive marketing assistance loans and loan 
deficiency payments, a producer must have beneficial interest in the 
cotton that is tendered to CCC for a marketing assistance loan or loan 
deficiency payment. For the purposes of this part, the term 
``beneficial interest'' refers to a determination by CCC that a person 
has the requisite title to and control of cotton that is tendered to 
CCC as collateral for a marketing assistance loan or is the cotton that 
will be used to determine a loan deficiency payment. A determination of 
whether a person has beneficial interest in cotton is made by CCC in 
accordance with this part and is not based upon a determination under 
any State law or any other regulation of a Federal agency.
    (f) Except as provided in paragraph (h) of this section, when 
requesting a marketing assistance loan, in order to have beneficial 
interest in the cotton tendered as collateral for the loan, a person 
must:
    (1) Be the producer of the cotton as determined in accordance with 
Sec.  1427.4;
    (2) Have had ownership of the cotton from the time it was planted 
through the earlier the date the loan was repaid or the maturity date 
of the loan;
    (3) Have control of the cotton from the time of planting through 
the maturity date of the loan. To have control of the cotton, such 
person must have complete decision making authority regarding whether 
the cotton will be tendered as collateral for a loan, when the loan 
will be repaid or if the collateral will be forfeited to CCC in 
satisfaction of the loan obligations of such person, and where the 
cotton will be maintained during the term of the loan; and
    (4) Not have received any payment from any party with respect to 
the cotton.
    (g) Except as provided in paragraph (h) of this section, when 
requesting a loan deficiency payment, in order to have beneficial 
interest in the cotton a person must:
    (1) Be the producer of the cotton as determined in accordance with 
Sec.  1427.4;
    (2) Have had ownership of the cotton from the time it was planted 
through the date the producer has elected to determine the loan 
deficiency payment rate; and
    (3) Have control of the cotton from the time of planting through 
the date the producer has elected to determine the loan deficiency 
payment rate. To have control of the cotton, such person must have 
complete decision making authority regarding whether a loan deficiency 
payment will be requested with respect to the cotton; when the loan 
deficiency rate will be selected; and where the cotton will be 
maintained prior to the date on which the loan deficiency payment rate 
will be determined;
    (4) Not have received any payment from any party with respect to 
the cotton; and
    (5) If the cotton has been physically delivered to a location other 
than a location owned or under the total control of the producer, have 
delivered the cotton to a warehouse approved in accordance with Sec.  
1427.10. Delivery of the cotton to a location other than to such an 
approved warehouse will result in the loss of beneficial interest in 
the cotton on the date of physical delivery and the producer will be 
considered to have lost beneficial interest as of 11:59 p.m. of such 
day regardless of any other action or agreement between the entity 
where the cotton was delivered and the producer, unless such an entity 
has been approved by CCC under Sec.  1427.10.
    (h) Notwithstanding paragraphs (f) and (g) of this section, in 
order to facilitate the handling of situations involving the death of a 
producer, CCC will consider an estate and a person to whom title to 
cotton has passed by virtue of State law upon the death of the producer 
to have beneficial interest in the cotton produced by the producer 
under the same terms and conditions that would otherwise be applicable 
to such producer;
    (i) Notwithstanding paragraphs (f) and (g) of this section, a 
person who purchases or otherwise acquires cotton from a producer under 
any circumstances does not obtain beneficial interest to the cotton 
whether such purchase or acquisition is made prior to the harvest of 
the crop or after harvest except in one instance. CCC will consider a 
person to have beneficial interest in cotton if, prior to harvest, such 
person has obtained title to the growing cotton at the same time that 
such person obtained full title to the land on which such crop was 
growing;
    (j) A producer will lose beneficial interest in cotton if the 
producer receives any payment from any person under any contractual 
arrangement with respect to cotton if the person who is making the 
payment, or any person otherwise associated with the person making the 
payment, will at any time have title to the cotton or control of the 
cotton prior to or after harvest unless:
    (1) Such payment is authorized in accordance with part 1425 of this 
chapter; or
    (2) The payment is made as consideration for an option to purchase 
the cotton and such option contains the following provision:
    Notwithstanding any other provision of this option to purchase or 
any other contract, title and control of the cotton and beneficial 
interest in the cotton as specified in 7 CFR 1427.5 shall remain

[[Page 32427]]

with the producer until the buyer exercises this option to purchase the 
cotton. 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 
that is secured by such cotton;
    (2) The date CCC claims title to such cotton; or
    (3) Such other date as provided in this option.
    (k) Absent other provisions causing the producer to lose beneficial 
interest in the cotton, inclusion in a contract of a provision that 
allows the producer to select the sales price of the cotton at the time 
the contract is entered into or at a later date, a contract normally 
referred to as a deferred price contract or a price later contract, 
will not result in the loss of beneficial interest in the cotton.
    (l) Commodities produced under a contract in which the title to the 
seed remains with the entity providing the seed to the producer, 
including contracts for the production of hybrid seed, genetically 
modified commodities and other specialty seeds as approved in writing 
by CCC, are eligible to be pledged as collateral for a marketing 
assistance loan and a loan deficiency payment may be made with respect 
to such production if at the time of the request for such a loan or 
payment the producer has not:
    (1) Received a payment under the contract; or
    (2) Delivered the commodity to another person.
* * * * *

0
15. Amend Sec.  1427.18 by revising paragraphs (e) and (f) to read as 
follows:


Sec.  1427.18  Liability of the producer.

* * * * *
    (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 
involved in the violation. Liquidated damages assessed in accordance 
with this section will be determined by multiplying the quantity 
involved in the violation by 10 percent of the marketing assistance 
loan rate applicable to the loan note.
    (f) When it has been determined that a violation of the terms and 
conditions of a loan deficiency application has occurred, CCC will 
determine the quantity of the cotton involved with respect to such 
violation and assess liquidated damages by multiplying the quantity of 
cotton involved in the violation by 10 percent of the marketing 
assistance loan rate.
* * * * *

0
16. Amend Sec.  1427.21 by adding a new paragraph (e) to read as 
follows:


Sec.  1427.21  Settlement.

* * * * *
    (e) If CCC sells the commodity described in paragraph (a) of this 
section in settlement of the recourse loan, the sales proceeds shall be 
applied to the amount owed CCC by the producer. The producer shall be 
responsible for any costs incurred by CCC in completing the sale and 
CCC will deduct the amount of these costs from the sales proceeds. When 
CCC sells any cotton obtained by forfeiture under a marketing 
assistance loan, CCC will, in all instances, retain all proceeds 
obtained from the sale of the cotton and will not make any payment of 
any amount of such proceeds to any party, including the producer who 
had satisfied their obligation under the loan through forfeiture of the 
cotton to CCC.

0
17. Amend Sec.  1427.23 by revising paragraph (a)(3) to read as 
follows:


Sec.  1427.23  Cotton loan deficiency payments.

    (a) * * *
    (3) A producer must submit a completed request for a loan 
deficiency payment for a quantity of eligible cotton under Sec.  
1427.5(a) on or before the date beneficial interest is lost in the 
commodity and before the final loan availability date for the 
commodity. Producers must, on a form prescribed by CCC, indicate their 
intentions to receive a loan deficiency payment and submit the 
prescribe form to the FSA Service Center on or before beneficial 
interest is lost in such quantity. A producer may not file such a form 
after beneficial interest is lost.
* * * * *

    Signed in Washington, DC, on May 10, 2006.
Teresa C. Lasseter,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 06-5078 Filed 6-5-06; 8:45 am]
BILLING CODE 3410-05-P