Revisions to the Upland Cotton User Marketing Certificate Program

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1427

RIN 0560-AD58

Revisions to the Upland Cotton User Marketing Certificate Program

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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SUMMARY: Concerns have been raised about the cost of the upland cotton

user marketing certificate program and the way in which it has been

administered. Although the Step 2 program, in place since August 1991,

has accomplished some of its intended objectives, it has distorted

normal export sales patterns, disadvantaged small-scale cotton

exporters, and placed U.S. mills at a price disadvantage vis-a-vis

foreign mills. A proposed rule regarding the program was published in

the Federal Register on March 1, 1994, at 59 FR 9674. Comments were

solicited with respect to proposed changes in the formula for

determining the user marketing payment rate; whether export contracts

that specify shipment after September 30 of the next marketing year

should be eligible for payments beginning the week that includes

October 1, and, if so, whether the maximum payment rate should be 2.5

cents per pound until such time as the payment rate calculation is

based entirely on northern Europe forward prices; and whether a

destination should be required to be declared for export sales

contracts. This final rule sets forth changes with respect to these

issues.

EFFECTIVE DATE: April 12, 1994.

FOR FURTHER INFORMATION CONTACT: Wayne Bjorlie, Fibers and Rice

Analysis Division, Agricultural Stabilization and Conservation Service,

United States Department of Agriculture (USDA), room 3754-S, PO Box

2415, Washington, DC 20013-2415 or call 202-720-7954.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This final rule is issued in conformance with Executive Order

12866. Based on information compiled by USDA, it has been determined

that this final rule is economically significant because it will

materially alter the budgetary impacts of entitlements. A change in the

method of determining the payment rate under the program could raise

payment rates for domestic textile mills and lower payment rates for

exporters of U.S.-grown cotton, reducing budgetary expenditures. The

ability of exporters to earn a payment on forward-crop sales beginning

earlier in the marketing year could afford them greater benefits under

the program and result in more price competition.

These program changes are projected to increase the average rate at

which domestic mills are being paid by about 0.25 cent per pound and to

decrease the average rate at which exporters are being paid by about

1.0 cent per pound. These changes are not significant enough to have

any impact on acreage reduction programs, supply, offtake, prices, or

farm income. Government outlays for Step-2 payments are projected to be

reduced by an average of about $20 million per year.

Other than the impacts indicated above, this action:

(1) Will not have an annual effect on the economy of $100 million

or more or adversely affect in a material way the economy, a sector of

the economy, productivity, jobs, the environment, public health or

safety, or State, local or tribal governments or communities,

(2) Will not create a serious inconsistency or otherwise interfere

with an action taken or planned by another agency,

(3) Will not materially alter the budgetary impacts of user fees or

loan programs, and

(4) Will not raise novel legal or policy issues arising out of

legal mandates, the President's priorities, or the principles set forth

in Executive Order 12866.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this final rule since the Commodity Credit Corporation is

not required by 5 U.S.C. 553 or any other provision of law to publish a

notice of proposed rulemaking with respect to the subject matter of

these determinations.

Environmental Evaluation

It has been determined by an environmental evaluation that this

action will not have a significant impact on the quality of the human

environment. Therefore, neither an Environmental Assessment nor an

Environmental Impact Statement is needed.

Federal Assistance Program

The title and number of the Federal Assistance Program, as found in

the Catalog of Federal Domestic Assistance, to which this rule applies

are: Cotton Production Stabilization--10.052.

Executive Order 12778

This final rule has been reviewed in accordance with Executive

Order 12778. The provisions of this final rule do not preempt State

laws, are not retroactive, and do not involve administrative appeals.

Executive Order 12372

This program/activity is not subject to the provisions of Executive

Order 12372, which requires intergovernmental consultation with State

and local officials. See notice related to 7 CFR part 3015, subpart V,

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

Paperwork Reduction Act

The information collection requirements contained in the current

regulations have been approved by the Office of Management and Budget

(OMB), under the provisions of 44 U.S.C. chapter 35, through August 31,

1994 (OMB No. 0560-0136). Changes made to the Upland Cotton Domestic

User/Exporter Agreement as a result of this final rule have been

submitted to OMB for approval.

Final Regulatory Impact Analysis

The Final Regulatory Impact Analysis describing the options

considered in developing this final rule and the impact of the

implementation of each option is available on request from the above-

named individual.

Background

This final rule amends 7 CFR part 1427 to set forth changes with

respect to the upland cotton user marketing certificate program. A

proposed rule with respect to these changes was published on March 1,

1994, at 59 FR 9674. A total of 46 comments was received. Twenty-nine

respondents specifically commented on the Step 2 formula calculation.

Of these, thirteen respondents favored a 4-week moving average of the

U.S. Northern Europe price minus the Northern Europe price minus 1.25

cents per pound for both current and forward payment rate calculations.

Seven respondents favored changing only the forward Step-2 payment rate

to be equal to the lower of: The difference between the U.S. Northern

Europe forward price minus 1.25 cents per pound and the Northern Europe

forward price in the preceding week; or 25 percent of the difference

between the U.S. Northern Europe forward price minus 1.25 cents per

pound and the Northern Europe forward price in the preceding week plus

the payment rate for which such contracts were eligible in the

preceding week. Six respondents favored blending the current and

forward prices over a 6-week period to make the transition from current

to forward price quotations. Two respondents suggested that there was

no need to change the Step-2 payment rate calculation. One respondent

recommended paying forward sales the lower of the current Step-2

payment rate or the forward Step-2 payment rate.

Eight respondents commented on the proposal of allowing forward

sales to be eligible for payments beginning October 1 of the previous

year up to the time the forward payment rate is available, with a

maximum rate of 2.5 cents per pound. Seven respondents were in favor of

this proposal. One respondent questioned whether this proposal would be

effective, but did not oppose it.

Thirty-eight respondents commented on the proposed requirement to

require the country of destination be specified in order to set the

Step-2 payment rate. Thirty-four respondents opposed the country of

destination requirement. Four respondents favored the requirement.

After considering these comments, the following changes will be

made with respect to the regulations governing the upland cotton user

marketing certificate program:

(1) Allow export contracts that specify delivery after September 30

to qualify for payments beginning the Friday through Thursday week that

includes October 1 of the previous year. Such contracts would earn the

lower of the rate in effect for a given week or 2.5 cents per pound

until such time as the payment rate is based entirely on Northern

Europe forward prices; and

(2) Change the rate applicable to forward export sales, beginning 4

weeks after the northern Europe prices become available until the

Thursday following July 31, to be the lower of: The difference between

the U.S. Northern Europe forward price minus 1.25 cents per pound and

the Northern Europe forward price in the preceding week; or 20 percent

of the difference between the U.S. Northern Europe forward price minus

1.25 cents per pound and the Northern Europe forward price in the

preceding week plus the payment rate for which such contracts were

eligible in the preceding week.

Reasons for Selection of Options

Allowing forward sales to be registered early using the current

rate with a 2.5-cent maximum will permit more orderly marketing and

encourage competition prior to the availability of forward payment

rates. The selected payment rate formula was the option deemed most

likely to prevent sudden spikes in the forward export payment rate. The

proposal to require a country of destination will not be implemented

now because it is expected that the change in the payment rate formula

will eliminate peak payment rates. If problems persist, the destination

requirement could be implemented at a later date.

List of Subjects in 7 CFR Part 1427

Cotton, Loan programs/agriculture, Packaging and containers, Price

support programs, Reporting and recordkeeping requirements, Surety

bonds, Warehouses.

Accordingly, 7 CFR part 1427 is amended as follows:

PART 1427--COTTON

1. The authority citation for 7 CFR part 1427 continues to read as

follows:

Authority: 7 U.S.C. 1421, 1423, 1425, 1444, and 1444-2; 15

U.S.C. 714b and 714c.

2. Section 1427.107 is amended by:

A. Revising paragraphs (a)(1)(i) and (a)(1)(ii) to read as follows,

B. Revising paragraphs (a)(2)(i) through (a)(2)(iv) to read as

follows,

C. Redesignating paragraph (a)(2)(v) as paragraph (a)(2)(viii),

D. Adding new paragraphs (a)(2)(v), (a)(2)(vi), and (a)(2)(vii) to

read as follows, and

E. Revising paragraph references in paragraph (c)(2) to read

``(a)(1)(ii), (a)(2)(ii), and (a)(2)(v)''.

Sec. 1427.107 Payment rate.

(a) * * *

(1) * * *

(i) For bales opened beginning the Friday following August 1 and

ending the week in which the Northern Europe current price and the

Northern Europe forward price first become available, the payment rate

shall be the difference between the U.S. Northern Europe price minus

1.25 cents per pound, and the Northern Europe price in the fourth week

of a consecutive 4-week period in which the U.S. Northern Europe price

exceeded the Northern Europe price each week by more than 1.25 cents

per pound, and the adjusted world price (AWP) did not exceed the

current crop-year loan level for the base quality of upland cotton by

more than 130 percent in any week of the 4-week period.

(ii) For bales opened during the period beginning the Friday

through Thursday week after the week in which the Northern Europe

current price and the Northern Europe forward price first become

available and ending the Thursday following July 31, the payment rate

shall be the difference between the U.S. Northern Europe current price

minus 1.25 cents per pound and the Northern Europe current price in the

fourth week of a consecutive 4-week period in which the U.S. Northern

Europe current price exceeded the Northern Europe current price each

week by more than 1.25 cents per pound, and the AWP did not exceed the

current crop-year loan level for the base quality of upland cotton by

more than 130 percent in any week of the 4-week period.

* * * * *

(2) * * *

(i) For contracts entered into beginning the Friday following

August 1 and ending the week in which the Northern Europe current price

and the Northern Europe forward price first become available which

specify shipment of the cotton by not later than September 30 of the

following marketing year, the payment rate shall be the difference

between the U.S. Northern Europe price minus 1.25 cents per pound, and

the Northern Europe price in the fourth week of a consecutive 4-week

period in which the U.S. Northern Europe price exceeded the Northern

Europe price each week by more than 1.25 cents per pound, and the AWP

did not exceed the current crop-year loan level for the base quality of

upland cotton by more than 130 percent in any week of the 4-week

period.

(ii) For contracts entered into during the period beginning the

Friday through Thursday week after the week in which the Northern

Europe current price and the Northern Europe forward price first become

available and ending the Thursday following July 31 which specify

shipment of the cotton by not later than September 30 of such year, the

payment rate shall be the difference between the U.S. Northern Europe

current price minus 1.25 cents per pound and the Northern Europe

current price in the fourth week of a consecutive 4-week period in

which the U.S. Northern Europe current price exceeded the Northern

Europe current price each week by more than 1.25 cents per pound, and

the AWP did not exceed the current crop-year loan level for the base

quality of upland cotton by more than 130 percent in any week of the 4-

week period.

(iii) For contracts entered into prior to the Friday through

Thursday week that includes October 1 which specify shipment after

September 30 of the year following such contract period, the payment

rate shall be zero.

(iv) For contracts entered into during the period beginning the

Friday through Thursday week that includes October 1 until the Friday

through Thursday week after the week in which the Northern Europe

current price and the Northern Europe forward price first become

available which specify shipment of the cotton after September 30

following such contract period, payments shall be made whenever the

U.S. Northern Europe price exceeds the Northern Europe price by more

than 1.25 cents per pound for the preceding consecutive 4-week period

and the AWP did not exceed the current crop year loan level for the

base quality of upland cotton by more than 130 percent in any week of

such 4-week period. The payment rate shall be the lower of:

(A) The difference between the U.S. Northern Europe price minus

1.25 cents per pound and the Northern Europe price in the fourth week

of such 4-week period; or

(B) 2.5 cents per pound.

(v) For contracts entered into beginning the Friday through

Thursday week after the week in which the Northern Europe current price

and the Northern Europe forward price first become available through

the third Friday through Thursday week after the Northern Europe

current price and the Northern Europe forward price first become

available which specify shipment of the cotton after September 30

following such contract period, payments shall be made whenever the

U.S. Northern Europe current price exceeds the Northern Europe current

price by more than 1.25 cents per pound for the preceding consecutive

4-week period and the AWP did not exceed the current crop year loan

level for the base quality of upland cotton by more than 130 percent in

any week of such 4-week period. The payment rate shall be the lower of:

(A) The difference between the U.S. Northern Europe current price

minus 1.25 cents per pound and the Northern Europe current price in the

fourth week of such 4-week period; or

(B) 2.5 cents per pound.

(vi) Notwithstanding the provisions of paragraphs (a)(2)(iv) and

(a)(2)(v) of this section, with respect to contracts which specify

shipment of the cotton after September 30, 1994, but before September

30, 1995, no payments will be made on contracts made prior to the

fourth Friday through Thursday week after the Northern Europe current

price and the Northern Europe forward price first become available

during calendar year 1994.

(vii) For contracts entered into during the period beginning the

fourth Friday through Thursday week after the Northern Europe current

price and the Northern Europe forward price first become available and

ending the Thursday following July 31 which specify shipment of the

cotton after September 30 following such contract period, payments

shall be made whenever the U.S. Northern Europe forward price exceeds

the Northern Europe forward price by more than 1.25 cents per pound for

the preceding consecutive 4-week period and the AWP did not exceed the

loan level for the upcoming marketing year for the base quality of

upland cotton by more than 130 percent in any week of such 4-week

period. The payment rate shall be the lower of:

(A) The difference between the U.S. Northern Europe forward price

minus 1.25 cents per pound and the Northern Europe forward price in the

fourth week of such 4-week period; or

(B) 20 percent of the difference between the U.S. Northern Europe

forward price minus 1.25 cents per pound and the Northern Europe

forward price in the fourth week of such 4-week period plus the payment

rate for which such contracts were eligible in the preceding week.

* * * * *

Signed at Washington, DC, on April 12, 1994.

Grant Buntrock,

Executive Vice President, Commodity Credit Corporation.

[FR Doc. 94-9183 Filed 4-12-94; 3:10 pm]

BILLING CODE 3410-05-P