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[Federal Register Volume 76, Number 189 (Thursday, September 29, 2011)]
[Proposed Rules]
[Pages 60388-60390]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25078]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 27

[Doc. AMS-CN-10-0073; CN-10-005]
RIN 0581-AD16

Revision of Cotton Futures Classification Procedures

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Agricultural Marketing Service (AMS) is proposing to 
update the procedures for cotton futures quality classification 
services by using Smith-Doxey classification data in the cotton futures 
classification process. In addition, references to a separate and 
optional review of cotton futures certification would be eliminated to 
reflect current industry practices. These proposed changes in 
procedures for cotton futures quality classification services, as well 
as proposed conforming changes, reflect advances in cotton fiber 
quality measurement and data processing made since the regulations were 
last updated in 1992.

DATES: Comments must be received on or before October 31, 2011.

ADDRESSES: Interested persons may comment on the proposed rule using 
the following procedures:
     Internet: http://www.regulations.gov.
     Mail: Darryl Earnest, Deputy Administrator, Cotton & 
Tobacco Programs, AMS, USDA, STOP 0224, 1400 Independence Avenue, SW., 
Washington, DC 20250-0224. Comments should be submitted in triplicate. 
All comments should reference the docket number, date, and page number 
of this issue of the Federal Register.
    All comments will be available for public inspection at Cotton & 
Tobacco

[[Page 60389]]

Program, AMS, USDA, Room 2637-S, 1400 Independence Avenue, SW., 
Washington, DC 20250 during regular business. Comments, including the 
identity of the commenter can also be reviewed on: http://www.regulations.gov. A copy of this notice may be found at: http://www.ams.usda.gov/cotton/rulemaking.htm.

FOR FURTHER INFORMATION CONTACT: Darryl Earnest, Deputy Administrator, 
Cotton & Tobacco Programs, AMS, USDA, STOP 0224, 1400 Independence 
Avenue, SW., Washington, DC 20250-0224. Telephone (202) 720-2145, 
facsimile (202) 690-1718, or e-mail darryl.earnest@ams.usda.gov.

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

Executive Order 12988

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

Regulatory Flexibility Act

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), AMS has considered the economic impact of 
this action on small entities and has determined that its 
implementation will not have a significant economic impact on a 
substantial number of small entities. Fees paid by users of the service 
are not changed by this action; implementation of the new procedures 
indicates the existing fees remain sufficient to fully reimburse AMS 
for provision of the services.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so that small businesses will not be 
disproportionately burdened. There are approximately sixty cotton 
merchant organizations of various sizes active in trading U.S. cotton. 
Cotton merchants voluntarily use the AMS cotton futures classification 
services annually under the Cotton Futures Act (Act) (7 U.S.C. 15b). 
Many of these cotton merchants are small businesses under the criteria 
established by the Small Business Administration (13 CFR 121.201).
    Revisions being proposed reflect the progress made in quality 
determination and data dissemination. The proposed process changes in 
the classification of cotton futures will yield increases of efficiency 
to the benefit of the cotton marketing industry.

Paperwork Reduction Act

    In compliance with Office of Management and Budget (OMB) 
regulations (5 CFR part 1320) which implement the Paperwork Reduction 
Act (PRA) (44 U.S.C. 3501-3520) the information collection requirements 
contained in the regulation to be amended have been previously approved 
by OMB and were assigned control number 0581-0029.

Background

    AMS Cotton and Tobacco Programs is proposing to revise procedures 
for providing services related to the classification of cotton futures 
as authorized by Act by using Smith-Doxey classification data in the 
cotton futures classification process. The Act requires USDA-certified 
quality measurements for each bale included in futures contracts for 
the purpose of verifying that each bale meets the minimum quality 
requirements for cotton futures trading.
    USDA was first directed to provide cotton classification services 
to producers of cotton under the Smith-Doxey Act of April 13, 1937 
(Pub. L. 75-28). Therefore, the original classification of a cotton 
bale's sample and quality data which results from this classification 
is commonly referred to as the Smith-Doxey classification or Smith-
Doxey data. While cotton classification is not mandatory, practically 
every cotton bale grown in the United States today is classed by USDA 
under the authority of the Cotton Statistics and Estimates Act (7 
U.S.C. 471-476) and the U.S. Cotton Standards Act (7 U.S.C. 51-65) and 
under regulations found in 7 CFR part 28--Cotton Classing, Testing, and 
Standards. The U.S. cotton industry uses Smith-Doxey classification 
data to assign quality-adjusted market values to U.S. cotton and market 
U.S. cotton both domestically and internationally. Although the Smith-
Doxey classification and the futures classification are independent 
measures of cotton quality that serve different purposes, the Smith-
Doxey data is used by the cotton merchant community to indicate which 
bales may be tenderable against a cotton futures contract.
    USDA's cotton classification capabilities have dramatically 
improved as a result of the extensive technological progress, 
increasing data accuracy and operational efficiency. In addition to the 
increased accuracy and reliability of Smith-Doxey data, improvements in 
data management and the desire to increase operational efficiencies 
have prompted the Cotton and Tobacco Programs to propose the use of 
Smith-Doxey classification data in the cotton futures classification 
process.
    Currently, the futures classification process is a two-step process 
that occurs after the Smith-Doxey classification in which an initial 
futures classification is immediately verified by a review--commonly 
referred to as a final futures classification. When verified by a 
futures classification, Smith-Doxey classification data will serve as 
the initial futures classification with the verifying futures 
classification serving as the final futures classification, reducing 
the number of futures classifications required in many instances. 
Verification of Smith-Doxey classing data is necessary because certain 
quality characteristics--especially color--are known to change over 
time and when cotton is subjected to certain environmental conditions.
    In cases where the comparison of Smith-Doxey data and futures 
classification data fail to pass pre-established tolerances, the first 
futures classification becomes the initial futures classification and a 
second futures classification (final futures classification) will be 
required. The use of Smith-Doxey classification data will significantly 
reduce the need for yet another cotton futures classification. The 
proposed changes would improve operational efficiency while potentially 
improving the integrity and accuracy of classification data provided to 
the cotton industry.
    For the reasons set forth above, this proposal would amend 7 CFR 
part 27-- Cotton Classification Under Cotton Futures Legislation, which 
establishes the procedures for determining cotton classification for 
cotton submitted for futures certification. Specific changes required 
to implement the proposed futures classification procedure include the 
elimination of outdated procedures in sections 27.61-27.67, 27.69 and 
27.72 used to guide optional reviews of futures classifications and the 
elimination of references to fees charged for ``initial classification 
and certification'', ``review classification and certification'' and 
``combination services'' in section 27.80. Conforming changes would 
also remove references to eliminated sections 27.9, 27.14, 27.21., 
27.36 and 27.47 and apply current organizational terminology in 
paragraph (h) of section 27.2 and section 27.39.
    As stated above, the cotton futures classification includes a 
process by which an initial futures classification is followed up by a 
futures final

[[Page 60390]]

classification. While not mandatory, this two-stage process has been 
deemed appropriate by the industry. Therefore, sections 27.61-27.67, 
27.69 and 27.72, which address optional reviews of futures 
classifications, are irrelevant. Furthermore, reference to ``initial 
classification and certification'' fees in paragraph (a) of section 
27.80 are removed to avoid confusion with Smith-Doxey classifications 
and to reflect that initial classification fees are already specified 
in paragraph (b) of 7 CFR 28.909. Likewise, reference to ``review 
classification and certification'' fees in paragraph (b) of section 
27.80 are removed since fees for review classifications are already 
specified in 7 CFR 28.911.
    The term ``combination services'' in paragraph (d) of section 27.80 
reflects the current practice of performing an ``initial'' futures 
classification and an immediate ``review'' futures classification. 
Since Smith-Doxey classification data will serve as the initial futures 
classification when verified by a ``review'' futures classification, 
these services will be simply defined as ``futures classification 
services.''

List of Subjects in 7 CFR Part 27

    Commodity futures, Cotton.

    For the reasons set forth in the preamble it is proposed that 7 CFR 
part 27 be amended as follows:

PART 27--[AMENDED]

    1. The authority citation for 7 CFR part 27 continues to read as 
follows:

    Authority: 7 U.S.C. 15b, 7 U.S.C. 4736, 7 U.S.C. 1622(g).

    2. In Sec.  27.2, paragraph (h) is revised to read as follows:

Sec.  27.2  Terms defined.

* * * * *
    (h) Cotton Quality Assurance Division. The Cotton Quality Assurance 
Division at Memphis, Tennessee, shall provide supervision of futures 
cotton classification.
* * * * *
    3. Section 27.9 is revised to read as follows:

Sec.  27.9  Classing Offices; Cotton Quality Assurance Division.

    Classing Offices shall be maintained at points designated for the 
purpose by the Administrator. The Cotton Quality Assurance Division 
shall provide supervision of futures cotton classification and perform 
other duties as assigned by the Deputy Administrator.
    4. Section 27.14 is revised to read as follows:

Sec.  27.14  Filing of classification requests.

    Requests for futures classification shall be filed with the Cotton 
Quality Assurance Division within 10 days after sampling and before 
classification of the samples.

Sec.  27.21  [Removed and Reserved]

    5. Section 27.21 is removed and reserved.
    6. Section 27.36 is revised to read as follows:

Sec.  27.36  Classification determinations based on official standards.

    All cotton shall be classified on the basis of the official cotton 
standards of the United States in effect at the time of such 
classification.
    7. Section 27.39 is revised to read as follows:

Sec.  27.39  Issuance of classification records.

    Except as otherwise provided in this section, as soon as 
practicable after the classification of cotton has been completed by 
the Cotton and Tobacco Programs, the Cotton Quality Assurance Division 
shall issue an electronic cotton classification record showing the 
results of such classification. Each electronic record shall bear the 
date of its issuance. The electronic record shall show the 
identification of the cotton according to the information in the 
possession of the Cotton and Tobacco Programs, the classification of 
the cotton and such other facts as the Deputy Administrator may 
require.
    8. Section 27.47 is revised to read as follows:

Sec.  27.47  Tender or delivery of cotton; conditions.

    Subject to the provisions of Sec. Sec.  27.52 through 27.55, no 
cotton shall be tendered or delivered on a basis grade contract unless 
on or prior to the date fixed for delivery under such contract, and in 
advance of final settlement of the contract, the person making the 
tender shall furnish to the person receiving the same a valid 
outstanding cotton classification record complying with the regulations 
in this subpart, showing such cotton to be tenderable on a basis grade 
contract.

Sec.  27.61  [Removed and Reserved]

    9. The undesignated center heading preceding Sec.  27.61 is removed 
and Sec.  27.61 is removed and reserved.--27.67, 27.69 and 27.72 are 
removed and reserved.

Sec. Sec.  27.62-27.67  [Removed and Reserved]

    10. Sections 27.62 through 27.67 are removed and reserved.

Sec.  27.69  [Removed and Reserved]

    11. Section 27.69 is removed and reserved.

Sec.  27.72  [Removed and Reserved]

    12. Section 27.72 is removed and reserved.
    13. Section 27.80 is revised to read as follows:

Sec.  27.80  Fees; review classification, futures classification and 
supervision.

    For services rendered by the Cotton Division pursuant to this 
subpart, whether the cotton involved is tenderable or not, the person 
requesting the services shall pay fees as follows:
    (a) [Reserved]
    (b) [Reserved]
    (c) [Reserved]
    (d) Futures classification--$3.50 per bale.

    Dated: September 23, 2011.
David R. Shipman,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2011-25078 Filed 9-28-11; 8:45 am]
BILLING CODE 3410-02-P
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