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Grains and Similarly Handled Commodities-Marketing Assistance Loans and Loan Deficiency Payments for the 2006 Through 2007 Crop Years; Cotton
Note: EPA no longer updates this information, but it may be useful as a reference or resource.
[Federal Register: June 6, 2006 (Volume 71, Number 108)]
[Rules and Regulations]
[Page 32415-32427]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jn06-1]
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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
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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.
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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:
Kimberly.Graham@usda.gov. 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.
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\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.
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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]
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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.
? 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
? 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
? 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.
? 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.
? 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.
? 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.
? 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
? 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.
* * * * *
? 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.
* * * * *
? 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
? 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.
* * * * *
? 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.
* * * * *
? 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
? 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
? 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.
* * * * *
? 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.
* * * * *
? 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.
? 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