USDA Amends Cotton Loan Program

WASHINGTON - Aug 298/06 - SNS -- The USDA's Commodity Credit Corporation (CCC) amended regulations affecting the marketing assistance loan (MAL) program for the 2006 and subsequent crops of upland and Extra Long Staple (ELS) cotton.

"The provisions help protect the quality of cotton and relieve regional storage congestion," the USDA said. "They also modify storage incentives that benefit some in the industry and cause producers to delay cotton marketing."

The revised regulations provide the following policy changes:

* Outside storage of loan cotton – CCC will allow cotton pledged for loan to be stored outside subject to special warehouse receipting, storage, reporting and insurance requirements and approval by CCC. The regulations provide that the warehouse must be in an area that CCC determines as having inadequate approved indoor capacity to store the current crop. Previously, CCC loan regulations required loan cotton to be stored inside.

* Storage credits unavailable for outside stored loan cotton – CCC will not provide storage credits to upland cotton loan collateral for any period that it is stored outside subject to a 15-day grace period. CCC will consider outside storage to begin at a warehouse on the 16th day following the day the warehouse was notified that the bale has been pledged as collateral for a CCC marketing assistance loan.

* Storage credit rates capped – CCC’s maximum storage credit rate for the 2006 and subsequent crops of upland cotton will be the lesser of the 2005-crop tariff rate for the warehouse or $4.37 per bale per month for warehouses located in Arizona and California or $2.66 per bale per month for warehouses located in all other cotton-storing states. Warehouse tariff rates remain unregulated by CCC and may exceed the rate used by CCC for calculating storage credits. Previously, CCC based storage credits on tariff rates established by individual warehouses.

* Bale eligibility requirements – To be eligible for loan, CCC requires cotton to be in good condition and not wet cotton. The regulations will define wet cotton as a bale that, at a gin, exceeds 7.5 percent moisture at any point in the bale. CCC defines good condition as a bale of cotton that, by comparison with the photographic standards of the Joint Cotton Industry Bale Packaging Committee, is determined to be Grade A or Grade B. In the past, CCC regulations were less specific about these bale eligibility requirements.

* Transfer of cotton loan collateral – CCC will allow producers, or producers’ agents vested with this specific authority, to request the transfer of cotton loan collateral to another CCC-approved cotton warehouse. CCC will base loan settlements of transferred cotton on rates applicable at the original storage location. CCC may limit storage credits based on the circumstances of the transfer. Previous regulations allowed CCC to relocate loan cotton but did not provide authority for producers or their agents to request the transfer. Any costs associated with the transfer of cotton loan collateral shall be paid by the requestor of the transfer and not by CCC.

* Producer liability for unpaid charges - CCC will bill producers for any unpaid warehouse compression fees or other unpaid charges for forfeited cotton. This new provision will be consistent with CCC loan policy that loan collateral must be unencumbered by liens or unpaid charges. Previously, CCC cotton loan settlement regulations did not require producers to refund CCC for any unpaid warehouse compression charges.