[Federal Register Volume 71, Number 145 (Friday, July 28, 2006)]
[Rules and Regulations]
[Pages 42749-42750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-12068]



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 Rules and Regulations
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  Federal Register / Vol. 71, No. 145 / Friday, July 28, 2006 / Rules 
and Regulations  

[[Page 42749]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1425

RIN 0560-AH42


Cooperative Marketing Associations

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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SUMMARY: This final rule amends the regulations for the Commodity 
Credit Corporation (CCC) governing Cooperative Marketing Associations 
(CMA's). This rule provides that a CMA is no longer required to 
distribute Marketing Assistance Loan (MAL) and Loan Deficiency Payment 
(LDP) proceeds directly to members of the CMA within 15 days of receipt 
of such proceeds from CCC, and makes additional policy clarifications 
on CMA distributions to members. The intent of this rule is to remove 
regulatory requirements that are outdated and unnecessary.

DATES: This rule is effective July 28, 2006.

FOR FURTHER INFORMATION CONTACT: Chris Kyer, phone: (202) 720-7935; e-
mail: [email protected].

SUPPLEMENTARY INFORMATION: 

Discussion of Final Rule

    CCC has made commodity loans available to producers through 
agricultural marketing cooperatives for over 70 years, beginning in 
1934 with loans to cotton cooperatives. Today, there are a total of 30 
cooperatives approved for CMA status by CCC to receive MAL's and LDP's 
on behalf of their producer members. These CMA's receive MAL's and 
LDP's on grains, oilseeds, rice, and cotton, and disburse marketing 
loan gains and LDP's to their members who have delivered commodities to 
the CMA for marketing on a pool basis, in addition to disbursing 
marketing proceeds. Members enter into marketing agreements with CMA's, 
which give the CMA authority to request a CCC loan or LDP on the 
commodity and to perform marketing functions on behalf of the members. 
This arrangement gives professional marketing decision making authority 
to the Cooperative member and optimizes marketing returns. 
Additionally, according to the terms of the typical CMA marketing 
agreement, producers receive an advance payment from the CMA soon after 
delivery of the commodity, at a rate usually equivalent to CCC loan 
rate. After the CMA has taken title to the commodity, the CMA obtains 
loans or LDP's from CCC and, if applicable, repays loans at opportune 
times at rates less than the loan rate, thus potentially maximizing 
marketing loan gains. Then, periodic subsequent payments may be made 
during the crop year to members, with final settlement occurring at the 
end of the crop year at a rate dependent upon the total marketing 
proceeds, total loan gains, and total LDP's earned by the marketing 
pool after taking into account advance payments and expenses.
    Currently, most CMA marketing agreements permit members to receive 
deferred payments, such that producers can defer payments from the CMA 
into a subsequent tax year. This practice conflicts with the regulation 
at 7 CFR 1425.18 which, in part, states that related CCC loan or LDP 
proceeds shall be distributed to members participating in the loan pool 
within 15 work days from the date the CMA receives loan or LDP proceeds 
from CCC, except when loans are redeemed within 15 work days of the 
date of the loan.
    Reviews of CMA's conducted by CCC staff during 2004 and 2005, 
revealed that this provision, also known as the ``15-day rule,'' is 
being interpreted and administered differently from CMA to CMA. For 
example, one CMA believed that the 15-day rule allowed them to obtain 
loan gains and hold those gains under a deferred payment contract with 
the producer because this qualified as constructive receipt of the 
funds by the member. This CMA stated that use of a deferred payment 
contract by Cooperatives meets the definition of constructive receipt 
of income used by the United States Internal Revenue Service (IRS) 
because, under IRS tax deferral rules, constructive income is received 
when proceeds are made available in the producer's CMA account, but the 
producer may choose when to accept actual payment.
    Furthermore, an unanticipated consequence of the 15-day rule is 
that, if the producer requested a delayed payment from the CMS pursuant 
to a deferred payment agreement, some cotton CMA's have delayed 
submitting bales of cotton for loan until after the beginning of the 
next year, or until the last 15 days of the calendar year. As a result, 
this places a large amount of cotton under loan at the same time, 
sometimes as many as 800,000 bales in one evening, significantly 
stressing the CMA as well as the CCC loan making systems.
    To resolve problems and avoid any unnecessary involvement with 
payments schedules between CMA's and their members, 7 CFR 1425.18 is 
amended by this rule to specifically permit delayed payment under a 
deferred payment agreement between the CMA and its members. CCC is not 
a party to the agreement between the CMA and the member producer, which 
is governed by a contract between those parties. Therefore, CCC has no 
privity of contract with the CMA members. As such, failure of a CMA to 
distribute proceeds to its members in a timely manner is a dispute only 
between its members and the CMA. Nonetheless, CCC has found that most 
CMA's distribute loan and LDP proceeds to pool accounts or directly to 
members well within the 15 work day policy. Furthermore, IRS 
regulations govern cooperative member accounting and disbursement 
functions and contain guidance on deferred payments. Any CCC regulation 
requiring cooperatives to treat payments differently could be 
contradictory. Therefore, 7 CFR 1425.18(a)(1) will be amended in the 
manner indicated.

Notice and Comment

    Section 1601(c) of the Farm Security and Rural Investment Act of 
2002 (Pub. L. 107-171) requires the Secretary to promulgate the 
regulations necessary to implement Title I of the 2002 Act, including 
those which provide for the programs addressed by this rule, without 
regard to the notice and comment provisions of 5 U.S.C. 553 or

[[Page 42750]]

the Statement of Policy of the Secretary of Agriculture effective July 
24, 1971, (36 FR 13804) relating to notices of proposed rulemaking and 
public participation in rulemaking. These regulations are thus issued 
as final. In addition, section 1601(c)(3) of the 2002 Act provides that 
the Secretary, in carrying out the rulemaking exception, shall utilize 
the authority in section 808 of title 5 of the U.S. Code. Accordingly, 
under 5 U.S.C. 808, it is further found that it would be contrary to 
the public interest to delay implementation of this rule for the 
special Congressional review provisions provided for in 5 U.S.C. 802 et 
seq., to the extent, if any, that they would otherwise apply.

Executive Order 12866

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

Regulatory Flexibility Act

    The Regulatory Flexibility Act does not apply to this rule because 
CCC is not required by 5 U.S.C. 553 or any other law to publish a 
notice of proposed rulemaking with respect to the subject 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 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

    The rule has been reviewed in accordance with Executive Order 
12988. This rule preempts State laws to the extent such laws are 
inconsistent with it. This rule is not retroactive. Before judicial 
action may be brought concerning this rule, all administrative remedies 
set forth at 7 CFR parts 11 and 780 must be exhausted.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires 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 proposed rulemaking for the 
subject of this rule. Further, this rule contains no unfunded mandates 
as defined in sections 202 and 205 of UMRA.

Paperwork Reduction Act

    Under 7 U.S.C. 7991(c)(2)(A) these regulations may be promulgated 
and the program administered 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 provisions authorized by these 
regulations are not subject to review by the Office of Management and 
Budget under the Paperwork Reduction Act.

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 the FSA in particular, to provide 
the public the option of submitting information or transacting business 
electronically to the maximum extent possible. Most forms used by CMA's 
may be submitted to CCC by electronic submission.

List of Subjects in 7 CFR Part 1425

    Agricultural commodities, Cooperatives, Cotton, Feed grains, 
Oilseeds, Price support programs.

0
For the reasons set out in the preamble, 7 CFR part 1425 is amended as 
set forth below.

PART 1425--COOPERATIVE MARKETING ASSOCIATIONS

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

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

0
2. Amend Sec.  1425.18 by revising paragraph (a)(1) to read as follows:


Sec.  1425.18  Distribution of proceeds.

    (a)(1) If CCC makes loans or LDP's for any quantity in a loan pool, 
the related proceeds shall be distributed or otherwise made available 
to the members account:
    (i) Based on the quantity and quality of the commodity delivered by 
each member;
    (ii) Less any authorized charges for services performed or paid by 
the CMA necessary to condition or otherwise make the commodity eligible 
for loans or LDP's, according to the marketing agreement provided for 
in Sec.  1425.13;
    (iii) Within 15 work days from the date the CMA receives loan or 
LDP proceeds from CCC, or held according to the terms of a deferred 
payment agreement if requested by the member.
* * * * *

    Signed in Washington, DC, on July 17, 2006.
Teresa C. Lasseter,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. E6-12068 Filed 7-27-06; 8:45 am]
BILLING CODE 3410-05-P