[Federal Register Volume 78, Number 222 (Monday, November 18, 2013)]
[Rules and Regulations]
[Pages 68983-68985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27533]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 27

[AMS-CN-13-0043]
RIN 0581-AD33


Cotton Futures Classification: Optional Classification Procedure

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Agricultural Marketing Service (AMS) is amending 
regulations to allow for the addition of an optional cotton futures 
classification procedure--identified and known as ``registration'' by 
the U.S. cotton industry and the Intercontinental Exchange (ICE). In 
response to requests from the U.S. cotton industry and ICE, AMS will 
offer a futures classification option whereby cotton bales may be 
certificated for the purpose of an exchange's cotton futures contract 
using Smith-Doxey data to verify that submitted bales meet more 
restrictive quality requirements and age parameters established by that 
exchange. AMS anticipates that the futures classification option will 
be available in time for the implementation of ICE's Cotton Resolution 
No. 2, which is scheduled to commence with the March 2014 contract 
month.

DATES: Effective Date: November 19, 2013.

FOR FURTHER INFORMATION CONTACT: Darryl Earnest, Deputy Administrator, 
Cotton & Tobacco Program, AMS, USDA, 3275 Appling Road, Room 11, 
Memphis, TN 38133. Telephone (901) 384-3060, facsimile (901) 384-3021, 
or email [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be not significant for purposes of 
Executive Order 12866; and, therefore has not been reviewed by the 
Office of Management and Budget (OMB).

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. It is not intended to have retroactive effect. There 
are no administrative procedures that must be exhausted prior to any 
judicial challenge to the provisions of this rule.

Regulatory Flexibility Act and Paperwork Reduction Act

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), AMS has considered the economic impact of 
this action on small entities and has determined that its 
implementation will not have a significant economic impact on a 
substantial number of small businesses.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so that small businesses will not be 
disproportionately burdened. There are approximately 60 cotton merchant 
organizations of various sizes active in trading U.S. cotton. Cotton 
merchants voluntarily use the AMS cotton futures classification 
services under the Cotton Futures Act (Act) (7 U.S.C. 15b). Many of 
these cotton merchants are small businesses under the criteria 
established by the Small Business Administration (13 CFR Sec.  
121.201). Establishing the registration option for cotton futures 
classification will not significantly affect small businesses as 
defined in the RFA because:
    (1) The established user fee for cotton futures classification 
services is $3.50 per bale (7 CFR Sec.  27.80). Users choosing the 
registration option would incur no additional charges;
    (2) The established cotton futures classification fee represents a 
very small portion of the cost per-unit currently borne by those 
entities utilizing the service;
    (3) The average price paid to producers for cotton from the 2012 
crop was 73.22 cents per pound, making a 500 pound bale of cotton worth 
an average of $366.10. The current user fee

[[Page 68984]]

for futures classification services, $3.50 per bale, is less than one 
percent of the average value of a bale of cotton;
    (4) The fee for this service will not affect competition in the 
marketplace;
    (5) The futures classification option is expected to streamline 
marketing and create logistical efficiencies for all entities utilizing 
this option; and
    (6) The use of futures classification services is voluntary. For 
fiscal year 2013, there were 913,179 cotton futures samples 
(approximately 5.4 percent of the 16,942,409 Smith-Doxey 
classifications) voluntarily submitted for the futures classification 
service.
    In compliance with OMB regulations (5 CFR part 1320), which 
implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501), the 
information collection requirements associated with this rule have been 
previously approved by OMB and were assigned OMB control number 0581-
0008, Cotton Classing, Testing, And Standards.

Background

    The Act requires USDA-verified quality measurements for each bale 
to be included in futures contracts for the purpose of verifying that 
each bale meets the minimum quality requirements for cotton futures 
trading. Furthermore, the Act authorizes the charging of user fees 
required to recover the cost associated with providing futures quality 
verification services.
    USDA was first directed to provide cotton classification services 
to producers of cotton under the Smith-Doxey Act of April 13, 1937 
(Pub. L. 75-28). Therefore, the original classification of a cotton 
bale's sample and quality data which results from this classification 
is commonly referred to as the Smith-Doxey classification or Smith-
Doxey data. While cotton classification is not mandatory, practically 
every cotton bale grown in the United States today is classed by AMS 
under the authority of the Cotton Statistics and Estimates Act (7 
U.S.C. 471-476) and the U.S. Cotton Standards Act (7 U.S.C. 51-65) and 
under regulations found in 7 CFR part 28--Cotton Classing, Testing, and 
Standards. The U.S. cotton industry uses Smith-Doxey data to assign 
quality-adjusted market values to U.S. cotton and market U.S. cotton 
both domestically and internationally. Smith-Doxey data is commonly 
used by the cotton merchant community to indicate which bales may be 
tenderable against a cotton futures contract.
    Conventional procedures employed for verifying quality measurements 
for bales to be included in futures contracts consists of two futures 
classifications: 1) initial futures classification and 2) final futures 
classification. AMS, Cotton and Tobacco Program revised these 
procedures to incorporate Smith-Doxey data into the cotton futures 
classification process in March 2012 (77 FR 5379). When verified by a 
futures classification, Smith-Doxey data serves as an initial futures 
classification with the verifying futures classification serving as a 
final futures classification. The use of Smith-Doxey data significantly 
reduced the number of futures classifications required for many of the 
bales that were submitted for certification.
    The successful incorporation of Smith-Doxey data into the futures 
classification procedures prompted the U.S. cotton industry and ICE to 
request that the AMS, Cotton and Tobacco Program use Smith-Doxey data 
to certify that bales submitted for quality verification meet more 
restrictive quality requirements and age parameters set by ICE for use 
in a cotton futures contract. The U.S. cotton industry and ICE refer to 
this optional procedure as the ``registration option''.
    The established user fee for cotton futures classification services 
is $3.50 per bale (7 CFR 27.80). Customers choosing this cotton futures 
classification option will incur this charge. In the event that AMS 
determines that a bale submitted under this option fails to meet 
quality or age parameters set by the exchange inspection agency, the 
owner of the bale will be notified of the bale's failure.
    AMS, Cotton and Tobacco Program is amending regulations in 7 CFR 
part 27 to allow for the use of original Smith-Doxey data to certify 
that bales submitted for quality verification meet quality and age 
parameters set by the applicable exchange inspection agency. 
Accordingly, the definition of ``Classification'' in Sec.  27.2, 
paragraph (n) is amended to allow the registration option for the 
futures classification services. Also in Sec.  27.2, the term ``Smith-
Doxey data'' is defined in new paragraphs (p).

Summary of Comments

    A proposed rule was published in the Federal Register on September 
9, 2013, with a comment period of September 9, 2013 through October 9, 
2013 (78 FR 54970). AMS received two comments: one from a national 
trade organization representing cotton merchant firms that handle over 
80 percent of the U.S. cotton sold in domestic and foreign markets; and 
one from an American commodities exchange that operates regulated 
exchanges and clearing houses for energy, agricultural, credit, 
currency, emissions, and equity index products. Both comments expressed 
support for all provisions outlined in the proposed rule and the future 
classification services provided by the AMS Cotton and Tobacco Program. 
Comments may be viewed at www.regulations.gov.
    The U.S. cotton industry and ICE requested that AMS, Cotton and 
Tobacco Program make this option available in December 2013 to coincide 
with the implementation of ICE's Cotton Resolution No. 2, which is 
scheduled to commence with the March 2014 contract month. Accordingly, 
pursuant to 5 U.S.C. 553, it is found and determined that good cause 
exists for not postponing the effective date of this rule until 30 days 
after publication in the Federal Register.

List of Subjects in 7 CFR Part 27

    Commodity futures, Cotton.

    For the reasons set forth in the preamble, 7 CFR part 27 is amended 
to read as follows:

PART 27--[AMENDED]

0
1. The authority citation for 7 CFR part 27 is revised to read as 
follows:

    Authority: 7 U.S.C. 15b, 7 U.S.C. 473b, 7 U.S.C. 1622(g).


0
2. In Sec.  27.2, paragraph (n) is revised and new paragraph (p) is 
added to read as follows:


Sec.  27.2  Terms defined.

* * * * *
    (n) Classification. The classification of any cotton shall be 
determined by the quality of a sample in accordance with the Universal 
Cotton Standards (the official cotton standards of the United States) 
for cotton property measurements of American Upland cotton. High Volume 
Instruments will determine all cotton property measurements except 
extraneous matter. Cotton classers authorized by the Cotton and Tobacco 
Program will determine the presence of extraneous matter. Original 
Smith-Doxey data may serve as certification that bales submitted for 
quality verification meet quality and age parameters set by an 
applicable exchange inspection agency as a futures classification 
option.
* * * * *
    (p) Smith-Doxey data. Data reflecting the original classification 
of a cotton bale provided to producers of cotton under the Smith-Doxey 
Act of April 13, 1937 (Pub. L. 75-28).


[[Page 68985]]


    Dated: November 5, 2013.
Rex A. Barnes,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2013-27533 Filed 11-15-13; 8:45 am]
BILLING CODE 3410-02-P