[Federal Register Volume 71, Number 120 (Thursday, June 22, 2006)]
[Rules and Regulations]
[Pages 35771-35775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-9834]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 71, No. 120 / Thursday, June 22, 2006 / Rules 
and Regulations  

[[Page 35771]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1423

RIN 0560-AE50


Standards for Approval of Warehouses for Storage of CCC 
Commodities

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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

SUMMARY: This rule revises the regulations covering the storage of 
commodities owned by the Commodity Credit Corporation (CCC). For the 
most part, these commodities are acquired under various mandatory 
marketing assistance and price support programs that benefit producers. 
This rule will consolidate the regulations for all commodities stored 
by CCC into one set of regulations. In addition, this rule will revise, 
in some instances, the substantive provisions that are in effect under 
the existing regulations.

DATES: Effective June 22, 2006.

FOR FURTHER INFORMATION CONTACT: Howard Froehlich, Warehouse and 
Inventory Division, Farm Service Agency, United States Department of 
Agriculture, 1400 Independence Avenue, SW., STOP 0553, Washington, DC 
20250-0553, telephone (202) 720-7398, FAX (202) 690-3123, e-mail 
address: [email protected]. Persons with disabilities who 
require alternative means for communication for regulatory information 
(Braille, large print, audiotape, etc.) should contact USDA's TARGET 
Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Discussion of the Final Rule

    CCC acquires agricultural commodities in the administration of its 
programs under various circumstances. For instance, under Title I of 
the Farm Security and Rural Investment Act of 2002, the CCC makes 
marketing assistance loans to producers that can lead to forfeiture of 
the commodities to CCC. To provide for the storage of various 
commodities it acquires, CCC may enter into storage agreements with 
private warehouse operators. Further, section 5 of the CCC Charter Act 
(7 U.S.C. 714c) requires that in purchasing, selling, warehousing, 
transporting, or handling agricultural commodities, CCC shall use, to 
the maximum extent practicable, the usual and customary channels, 
facilities, and arrangements of trade and commerce.
    CCC has regulations covering commodity storage at 7 CFR 1421.5551-
1421.5559, part 1423, and 1427, subpart E. A proposed rule addressing 
consolidation of the approval regulations at one location in the Code 
of Federal Regulations and other technical and clarifying changes in 
the wording and structure of the regulation and other substantive 
changes was published in the Federal Register on November 20, 2003 (68 
FR 65412). The comment period expired January 20, 2004, but was 
reopened and extended until March 11, 2004.

Comments on the Proposed Rule

    Responses to the proposed rule were received from 18 interested 
parties as follows: Eight from cotton associations, cooperatives, 
merchandisers, or individuals; five from grain associations, 
cooperatives, warehouses, or individuals; one from a processed 
commodities warehouse operator; two from Federal government employees; 
one from a commission firm; and one from a certified public accountant 
(CPA). Most respondents made multiple comments. The specific comments 
received and the Agency response follows.

Cotton Flow

    CCC received 19 comments addressing issues of loading cotton from 
warehouses (cotton flow) and arbitration of disputes arising from the 
cotton flow standard. Seven respondents favored a minimum cotton flow 
standard of 4.5 percent per week of approved capacity. One respondent 
opposed the 4.5 percent cotton flow standard and suggests a three 
percent standard instead. This issue was not addressed in previous 
regulation; however, the cotton flow standard can have an impact on 
warehouse operators with a Cotton Storage Agreement (CSA). CCC has 
addressed this issue by including the 4.5 percent cotton flow standard 
and an arbitration clause in the CSA instead of in the regulations. 
Thus, the respondent's suggestion for a three percent standard was not 
adopted.

Outside Storage of Cotton

    Five respondents supported section 1423.4(d)(4), which states that 
commodities shall not be subject to greater than normal risk of fire, 
flood, or other hazards. Two respondents opposed warehouse operators 
being allowed to store cotton in excess of their licensed warehouse 
capacity. Another respondent was in favor of establishing a licensed 
warehouse capacity for cotton prior to a ``receiving'' season, then not 
permitting a reduction of that capacity during the crop year. Section 
1423.4 provides general requirements for warehouse operators storing 
CCC-interest commodities. CCC storage agreements require storage of 
commodities in approved space. Establishing a warehouse capacity based 
on a ``receiving'' season would be cumbersome for warehouse operators 
and difficult for CCC to monitor. Thus, the suggestion was not adopted.

Financial Statement Reports and Net Worth

    CCC received 11 comments on removing the option of submitting a 
financial statement compilation report prepared by a commission or 
management firm. Seven comments were received supporting submission of 
compilation reports: four from grain warehouses or cooperatives, two 
from cotton associations, and one from a commission firm. One warehouse 
operator suggested that a report by the commission house accountant 
would be reliable because the commission house accountant ``is very 
qualified in the grain industry'' and ``is top notch.'' Other comments 
opposed the proposed provision and suggested that, ``cost would be a 
major factor for our budget,'' and ``if it isn't broke don't fix it.'' 
The commission firm requested that CCC continue to accept compilation 
reports and submitted a list of employees servicing country elevator 
accounts, their education and years of experience,

[[Page 35772]]

as well as a list of the 77 country elevators that subscribe to their 
reporting services.
    Four comments support the requirement that warehouse operators 
submit an audit or review financial statement prepared by an 
independent CPA or independent public accountant. The four comments are 
from a grain warehouse, grain association, a CPA, and cotton warehouse 
association. The grain warehouse operator states, ``This is a great 
requirement. It will add credibility to grain elevator financial 
statements.'' The grain warehouse association supports disallowing 
compilation financial statements and suggests a phase-in period to 
provide time for warehouse operators to arrange for audit or review-
level financial statements. The comments from the CPA suggested that 
compilation financial statements are untrustworthy because there was a 
``lack of independence with these clients'' and that ``management firms 
have control over every facet'' of the country elevator's business. The 
response from the cotton warehouse association supports ``requiring 
financial statements be reviewed or audited by a certified public 
accountant or an independent public accountant.''
    In response to comments received in favor of retaining the current 
regulation language, CCC will maintain the provisions which allow for 
the submission of financial reports prepared by a CPA or independent 
public accountant, a commission or management firm staff member. 
Because current regulations for the CCC storage agreements are 
inconsistent, Sec.  1423.6 will be revised from the proposed regulation 
to allow CCC to revise its storage agreements to include language 
specific to each agreement.
    Three respondents requested that the net worth provisions for each 
type of storage agreement be included in the regulations. The three 
comments were from cotton warehouse associations, who expressed concern 
that ``warehouse operators will not know their net worth requirements 
until they apply for a CSA and review its provisions.'' It is 
understandable that respondents and prospective CCC agreement holders 
would want to see net worth requirements in the regulations. However, 
because of the differences in warehousing of various commodities, 
having separate requirements for each agreement type in the regulations 
could lead to misunderstandings. When new warehouse operators request 
information on a CCC storage agreement, they are provided with a 
complete information package, which includes the regulations, storage 
agreement, and other related information. Therefore, CCC finds it 
unnecessary to include the net worth requirements in the regulations, 
but CCC storage agreements will be revised to include minimum net worth 
requirements. Two of the three respondents suggesting the net worth 
provisions be included in the regulations also suggest that the 
``minimum net worth as stated in the current rule be continued.'' CCC's 
required net worth and the method of calculating net worth relate 
closely to the type of commodity program that each storage agreement 
supports and the industry served. The different methods for required 
net worth amounts can be more effectively dealt within in each storage 
agreement rather than in the regulations.
    Two warehouse associations suggested that CCC include a provision 
in the regulation that CCC provide a 120-day public notice of changes 
to any provision of CCC storage agreements. Both respondents state that 
the 120-day time-period is similar to the time period required in the 
proposed rule for notice of cancellation of bonds or letters of credit. 
CCC disagrees with this recommendation because such a requirement would 
unnecessarily delay needed changes to agreements. Nonetheless, CCC 
acknowledges that when a major rewrite of a CCC storage agreement is 
planned a Notice will be published in the Federal Register. However, 
storing commodities for CCC is voluntary, and a warehouse operator 
always has the option of terminating the agreement.
    CCC received two comments in support of the provision in the 
proposed rule that proposed removing the possibility of a warehouse 
operator obtaining legal liability insurance as an alternative to 
meeting minimum net worth requirements.

Comments on Other Sections

    Two comments support the provisions regarding adequate firefighting 
equipment, and one comment suggested adding a provision making fire 
insurance mandatory for those warehouses with a CSA. Warehouse 
operators are not required to insure CCC-owned commodities. However, 
CCC storage agreements address the requirements of insuring warehouse-
stored commodities pledged as collateral. Because an insurance 
provision is in CCC storage agreements, a provision in this regulation 
would be unnecessary and redundant; thus, the comment was not adopted. 
CCC will determine whether such insurance is needed to protect its 
interest as a prudent lender depending on the facts and circumstances 
at the time the agreements are in force.
    One comment specifically addressed proposed Sec.  1423.4(b) and the 
requirement to use pre-numbered warehouse receipts. The respondent 
suggests ``the language be further modified to state that warehouses 
may only use pre-assigned warehouse receipt numbers'' to reflect the 
practice of numbering electronic receipts. CCC agrees with this 
suggestion and added wording in this rule to address electronic receipt 
practices.
    Two comments addressed section 1423.4(d)(2) regarding the 120-day 
cancellation notice for leases. One respondent expressed concern that 
``some warehouse operators may not be able to negotiate such terms.'' 
Another respondent suggested that CCC ``specify in the regulations the 
specific lease terms which are most important to securing approval.'' 
The 120-day notice is a CCC requirement designed to address CCC's 
operational needs under the Processed Commodities Storage Agreement 
(PCSA). Because not all operational needs of CCC programs are the same, 
CCC will not require a 120-day notice for all agreements as provided in 
the proposed rule, but will address each agreement's operational need 
within the terms and conditions of each agreement.
    One respondent asked that wording in section 1423.8 be amended to 
more closely resemble the wording from the previous regulations. The 
previous regulation stated, ``CCC will approve the warehouse if the 
warehouseman establishes that the causes for CCC's rejection of 
approval have been remedied.'' The wording of the proposed rule for 
this section stated, ``* * * CCC may reconsider a warehouse for 
approval when the warehouse operator establishes that the reasons for 
rejection have been remedied * * *''. The respondent stated, ``This 
change represents a shift in the requirements burden of proof in a 
rejection situation and also relieves the CCC from any requirement that 
it approve a warehouse that has remedied its deficiencies.'' It was not 
CCC's intent to change to a new standard for reconsideration allowing 
CCC to refuse to act; therefore, CCC will maintain the word ``will'' in 
this final rule.
    One respondent asked that Sec.  1423.2(b) more clearly address 
temporary storage conditions. CCC has revised this section to only 
state in general terms the authority to administer this section. CCC 
will address its requirements to hold an agreement for prompt shipment

[[Page 35773]]

and short term handling of commodities within the applicable agreement.

Definitions

    Several respondents asked that specific wording associated with 
cotton flow (receiving period, non-receiving period, staged, and 
satisfactory record of performance) be defined, that qualitative items 
(e.g. good state of repair, etc.) be moved from the definition of 
warehouse to another section, and whether electronic documents are 
considered ``in writing.'' CCC has addressed the issue of cotton flow 
in its CSA and will not include related definitions in this regulation. 
CCC agrees that the qualitative items contained in the definition of a 
warehouse should be placed elsewhere and will now be included in 
section 1423.4, which will contain a more detailed requirement. And, 
CCC considers electronically-signed documents as if the document were 
signed ``in writing.''

Executive Order 12866

    This rule has been determined to be ``Not Significant'' under 
Executive Order 12866 and has not, therefore, been reviewed by the 
Office of Management and Budget (OMB).

Federal Assistance Programs

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

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule because CCC is not required by 5 U.S.C. 553 or 
any other law to publish a notice of proposed rulemaking for the 
subject matter of this rule.

Environmental Assessment

    The environmental impacts of this rule have been considered in 
accordance with the provisions of the national Environmental Policy Act 
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and FSA's 
regulations for compliance with NEPA, 7 CFR part 799. To the extent 
these authorities may apply, CCC has concluded that this rule is 
categorically excluded from further environmental review as evidenced 
by the completion of an environmental evaluation. No extraordinary 
circumstances or other unforeseeable factors exist which would require 
preparation of an environmental assessment or environmental impact 
statement. A copy of the environmental evaluation is available for 
inspection and review upon request.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. In accordance with this Executive Order: 
(1) All State and local laws and regulations that are in conflict with 
this rule will be preempted; (2) except as specifically stated in this 
rule, no retroactive effect will be given to this rule; and (3) 
administrative proceedings in accordance with 7 CFR part 780 must be 
exhausted before seeking judicial review.

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 3015, subpart V, 
published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does 
not apply to this rule because CCC is not required by 5 U.S.C. 553 or 
any other law to publish a notice of rulemaking for the subject matter 
of this rule. Further, this rule contains no unfunded mandates as 
defined in sections 202 and 205 of UMRA.

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 CCC 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 the warehousing matters 
covered by this rule are fully implemented for the public to conduct 
business with CCC electronically. Documents also may be obtained by 
mail or fax.

List of Subjects in 7 CFR Part 1423

    Agricultural commodities, Approval of warehouses, Dairy products, 
Feed grains, Oilseeds, Price support programs, Processed commodities, 
Surplus agricultural commodities.

0
For the reasons set forth in the preamble, 7 CFR part 1423 is revised 
to read as follows:

PART 1423--COMMODITY CREDIT CORPORATION APPROVED WAREHOUSES

Sec.
1423.1 Applicability.
1423.2 Administration.
1423.3 Definitions.
1423.4 General requirements.
1423.5 Application requirements.
1423.6 Financial information documentation requirements.
1423.7 Net worth alternatives.
1423.8 Approval or rejection.
1423.9 Examination of warehouses.
1423.10 Exceptions for United States Warehouse Act licensed 
warehouses.
1423.11 Reserved.
1423.12 Application, inspection, and annual agreement fees.
1423.13 Appeals, suspensions, and debarment.

    Authority: 15 U.S.C. 714b and 714c.


Sec.  1423.1  Applicability.

    (a) This part sets forth the terms and conditions for approval of a 
warehouse operator by the Commodity Credit Corporation (CCC) to store 
and handle CCC interest commodities, which are owned by CCC and, as may 
be required under parts 1421, 1427 and 1435 of this title, with respect 
to commodities pledged as security for a loan made by CCC. CCC may 
require that a warehouse enter into a storage agreement under this part 
to store such commodities. The execution of such a storage agreement by 
CCC does not constitute a commitment that CCC will use the warehouse.
    (b) By entering into a storage agreement with CCC, the warehouse 
operator agrees to comply with the terms and conditions of the storage 
agreement.


Sec.  1423.2  Administration.

    On behalf of CCC, the Farm Service Agency (FSA) will administer 
this part under the supervision of the Deputy Administrator for 
Commodity Operations (Deputy Administrator), FSA.


Sec.  1423.3  Definitions.

    Agreement means agreements covering storage and handling of any 
such commodity CCC may determine appropriate for storage.
    KCCO means the FSA, Kansas City Commodity Office.
    Warehouse means a building, structure, or other protected 
enclosure, in good state of repair, and adequately equipped to receive, 
handle, store, preserve, and deliver the applicable commodity.
    Warehouse operator means an individual, partnership, corporation, 
association, or other legal entity engaged

[[Page 35774]]

in the business of storing or handling for hire, or both, the 
applicable commodity.


Sec.  1423.4  General requirements.

    (a) Unless otherwise provided in this part, approved warehouse 
operators must maintain a current and valid license for the kind of 
storage operation for which the warehouse operator seeks approval if 
such a license is required by State or local laws or regulations and 
maintain accurate and complete inventory and operating records.
    (b) Approved warehouse operators may only use pre-numbered 
warehouse receipts, or pre-assigned ranges of numbers for electronic 
warehouse receipts as set forth in the agreement, and may only use pre-
numbered scale tickets, if applicable, as CCC may approve.
    (c) In addition, the warehouse operator must:
    (1) Be in compliance with state and local laws regarding fire 
safety;
    (2) Furnish a copy of any written lease agreement to CCC with the 
application. All leases are subject to CCC approval; and
    (3) Have sufficient employees and management with technical 
qualifications and skills in the warehousing business regarding the 
commodities subject to the agreement.
    (d) Unless otherwise provided in this part, each approved warehouse 
shall:
    (1) Be maintained under the control of the warehouse operator;
    (2) Be maintained in a good state of repair; and
    (3) Maintain adequate equipment to receive, handle, store, preserve 
and deliver the applicable commodity.


Sec.  1423.5  Application requirements.

    To apply for approval under this part, a warehouse operator shall 
submit to CCC the following:
    (a) An application as prescribed by CCC for the applicable 
commodity storage agreement;
    (b) Evidence of compliance with Sec.  1423.4;
    (c) Current financial information sufficient to meet the 
requirements of Sec.  1423.6;
    (d) For State licensed or non-licensed warehouse operators, a 
sample copy of the warehouse operator's warehouse receipts or 
electronic warehouse receipt record descriptor when applicable; and
    (e) Such other documents or information as CCC may require to make 
a determination that the warehouse operator can comply with the 
provisions of this part.


Sec.  1423.6  Financial information documentation requirements.

    To be approved under this part, a warehouse operator shall submit a 
current financial statement at the time of application, and annually 
thereafter, as provided for in the applicable storage agreement.


Sec.  1423.7  Net worth alternatives.

    Warehouse operators with net worth equal to or greater than the 
minimum net worth required, but less than the total net worth for the 
commodity involved in the particular agreement, may satisfy the net 
worth deficiency by furnishing one of the following:
    (a) A bond which:
    (1) Is executed by a surety approved by the U.S. Department of the 
Treasury so long as the surety maintains someone authorized to accept 
service of legal process in the State where the warehouse is located.
    (2) Is executed on either a bond form obtained from CCC, or which 
is furnished under State law or operational rules for non-governmental 
supervisory agencies, if approved by CCC, so long as CCC determines 
that such alternative bond:
    (i) Provides adequate protection to CCC;
    (ii) Has been executed by a surety approved by the U.S. Department 
of the Treasury or has an acceptable blanket rider and endorsement 
executed by such a surety with the liability of the surety under such 
rider or endorsement being the same as that of the surety under the 
original bond; and
    (iii) Is effective for at least 1 year and cannot be canceled 
without 120 days notice to CCC. Excess coverage on a bond for one 
warehouse will not be accepted by CCC against insufficient bond 
coverage on other warehouses;
    (b) Cash and negotiable securities. Any such cash or negotiable 
securities accepted by CCC will be returned to the warehouse operator 
when the period for which coverage was required has ended and CCC 
determines there is no liability under the storage agreement;
    (c) An irrevocable letter of credit meeting CCC requirements that 
is effective for at least 1 year and cannot be canceled without 120 
days notice to CCC. The issuing bank must be a commercial bank insured 
by the Federal Deposit Insurance Corporation or a financial institution 
subject to the Farm Credit Act, or
    (d) Other alternative instruments and forms of financial assurance 
as the Deputy Administrator determines appropriate to secure the 
warehouse operator's compliance with this section.


Sec.  1423.8  Approval or rejection.

    (a) CCC will notify warehouse operators approved under this part in 
writing. Such approval does not relieve the warehouse operator of any 
obligation under any agreement to CCC or any other agency of the United 
States, and does not obligate CCC to use the warehouse.
    (b) CCC will notify the warehouse operator of rejection under this 
part in writing. The notification will state the cause(s) for 
rejection. Except for rejections due to the requirements of Sec.  
1423.4(c)(5), CCC will reconsider a warehouse for approval when the 
warehouse operator establishes that the reasons for rejection have been 
remedied or requests reconsideration of the action and presents to the 
Director, KCCO, in writing, information in support of such request. The 
warehouse operator may, if dissatisfied with the Director's 
determination, obtain a review of the determination and an informal 
hearing by submitting a request with the Deputy Administrator. Appeals 
shall be as prescribed in part 780 of this title.


Sec.  1423.9  Examination of warehouses.

    Before approval, and while a storage agreement is in effect, a 
warehouse must be examined by a person designated by CCC periodically 
to determine compliance with this part. CCC or any other agency of USDA 
shall, at any time, have the right to inspect the warehouse storage 
facilities and any applicable records. Inspection or examination by CCC 
does not absolve the warehouse operator of any failure to comply with 
this part that CCC does not discover. Failure to allow access to 
facilities as required under this paragraph will result in rejection or 
revocation of approval.


Sec.  1423.10  Exceptions for United States Warehouse Act licensed 
warehouses.

    The financial requirements, net worth alternatives and examination 
provisions of this part do not apply if the warehouse operator is 
licensed under the U.S. Warehouse Act (USWA) for such commodities, but 
an examination under this part will be made of such a warehouse 
whenever CCC determines such action is necessary to protect its 
interests.


Sec.  1423.11  Reserved.


Sec.  1423.12  Application, inspection, and annual agreement fees.

    Each warehouse operator not licensed under USWA shall pay to CCC a 
fee or fees, including an application fee, inspection fee, and an 
annual agreement fee for each warehouse approved by

[[Page 35775]]

CCC or for which approval is sought. The terms and conditions of such 
fees will be set forth in the applicable agreement.


Sec.  1423.13  Appeals, suspensions, and debarment.

    (a) After initial approval, warehouse operators may request that 
CCC reconsider adverse actions when the warehouse operator establishes 
that the reasons for the action have been remedied or requests 
reconsideration of the action and presents to the Director, KCCO, in 
writing, information in support of such request. The warehouse operator 
may, if dissatisfied with the Director's determination, obtain a review 
of the determination and an informal hearing by submitting a request to 
the Deputy Administrator. Appeals shall be as prescribed in part 780 of 
this title, and under such regulations the warehouse operator shall be 
considered as a ``participant.''
    (b) Suspension and debarment actions taken under this part shall be 
conducted in accordance with part 1407 of this chapter. After 
expiration of the suspension or debarment period, a warehouse operator 
may, at any time, apply for approval under this part.

    Signed at Washington, DC, on June 7, 2006.
Glen L. Keppy,
Acting Executive Vice President, Commodity Credit Corporation.
 [FR Doc. E6-9834 Filed 6-21-06; 8:45 am]
BILLING CODE 3410-05-P