[Federal Register Volume 78, Number 222 (Monday, November 18, 2013)]
[Rules and Regulations]
[Pages 68983-68985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27533]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 27
[AMS-CN-13-0043]
RIN 0581-AD33
Cotton Futures Classification: Optional Classification Procedure
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
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SUMMARY: The Agricultural Marketing Service (AMS) is amending
regulations to allow for the addition of an optional cotton futures
classification procedure--identified and known as ``registration'' by
the U.S. cotton industry and the Intercontinental Exchange (ICE). In
response to requests from the U.S. cotton industry and ICE, AMS will
offer a futures classification option whereby cotton bales may be
certificated for the purpose of an exchange's cotton futures contract
using Smith-Doxey data to verify that submitted bales meet more
restrictive quality requirements and age parameters established by that
exchange. AMS anticipates that the futures classification option will
be available in time for the implementation of ICE's Cotton Resolution
No. 2, which is scheduled to commence with the March 2014 contract
month.
DATES: Effective Date: November 19, 2013.
FOR FURTHER INFORMATION CONTACT: Darryl Earnest, Deputy Administrator,
Cotton & Tobacco Program, AMS, USDA, 3275 Appling Road, Room 11,
Memphis, TN 38133. Telephone (901) 384-3060, facsimile (901) 384-3021,
or email [email protected].
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be not significant for purposes of
Executive Order 12866; and, therefore has not been reviewed by the
Office of Management and Budget (OMB).
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. It is not intended to have retroactive effect. There
are no administrative procedures that must be exhausted prior to any
judicial challenge to the provisions of this rule.
Regulatory Flexibility Act and Paperwork Reduction Act
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601-612), AMS has considered the economic impact of
this action on small entities and has determined that its
implementation will not have a significant economic impact on a
substantial number of small businesses.
The purpose of the RFA is to fit regulatory actions to the scale of
businesses subject to such actions so that small businesses will not be
disproportionately burdened. There are approximately 60 cotton merchant
organizations of various sizes active in trading U.S. cotton. Cotton
merchants voluntarily use the AMS cotton futures classification
services under the Cotton Futures Act (Act) (7 U.S.C. 15b). Many of
these cotton merchants are small businesses under the criteria
established by the Small Business Administration (13 CFR Sec.
121.201). Establishing the registration option for cotton futures
classification will not significantly affect small businesses as
defined in the RFA because:
(1) The established user fee for cotton futures classification
services is $3.50 per bale (7 CFR Sec. 27.80). Users choosing the
registration option would incur no additional charges;
(2) The established cotton futures classification fee represents a
very small portion of the cost per-unit currently borne by those
entities utilizing the service;
(3) The average price paid to producers for cotton from the 2012
crop was 73.22 cents per pound, making a 500 pound bale of cotton worth
an average of $366.10. The current user fee
[[Page 68984]]
for futures classification services, $3.50 per bale, is less than one
percent of the average value of a bale of cotton;
(4) The fee for this service will not affect competition in the
marketplace;
(5) The futures classification option is expected to streamline
marketing and create logistical efficiencies for all entities utilizing
this option; and
(6) The use of futures classification services is voluntary. For
fiscal year 2013, there were 913,179 cotton futures samples
(approximately 5.4 percent of the 16,942,409 Smith-Doxey
classifications) voluntarily submitted for the futures classification
service.
In compliance with OMB regulations (5 CFR part 1320), which
implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501), the
information collection requirements associated with this rule have been
previously approved by OMB and were assigned OMB control number 0581-
0008, Cotton Classing, Testing, And Standards.
Background
The Act requires USDA-verified quality measurements for each bale
to be included in futures contracts for the purpose of verifying that
each bale meets the minimum quality requirements for cotton futures
trading. Furthermore, the Act authorizes the charging of user fees
required to recover the cost associated with providing futures quality
verification services.
USDA was first directed to provide cotton classification services
to producers of cotton under the Smith-Doxey Act of April 13, 1937
(Pub. L. 75-28). Therefore, the original classification of a cotton
bale's sample and quality data which results from this classification
is commonly referred to as the Smith-Doxey classification or Smith-
Doxey data. While cotton classification is not mandatory, practically
every cotton bale grown in the United States today is classed by AMS
under the authority of the Cotton Statistics and Estimates Act (7
U.S.C. 471-476) and the U.S. Cotton Standards Act (7 U.S.C. 51-65) and
under regulations found in 7 CFR part 28--Cotton Classing, Testing, and
Standards. The U.S. cotton industry uses Smith-Doxey data to assign
quality-adjusted market values to U.S. cotton and market U.S. cotton
both domestically and internationally. Smith-Doxey data is commonly
used by the cotton merchant community to indicate which bales may be
tenderable against a cotton futures contract.
Conventional procedures employed for verifying quality measurements
for bales to be included in futures contracts consists of two futures
classifications: 1) initial futures classification and 2) final futures
classification. AMS, Cotton and Tobacco Program revised these
procedures to incorporate Smith-Doxey data into the cotton futures
classification process in March 2012 (77 FR 5379). When verified by a
futures classification, Smith-Doxey data serves as an initial futures
classification with the verifying futures classification serving as a
final futures classification. The use of Smith-Doxey data significantly
reduced the number of futures classifications required for many of the
bales that were submitted for certification.
The successful incorporation of Smith-Doxey data into the futures
classification procedures prompted the U.S. cotton industry and ICE to
request that the AMS, Cotton and Tobacco Program use Smith-Doxey data
to certify that bales submitted for quality verification meet more
restrictive quality requirements and age parameters set by ICE for use
in a cotton futures contract. The U.S. cotton industry and ICE refer to
this optional procedure as the ``registration option''.
The established user fee for cotton futures classification services
is $3.50 per bale (7 CFR 27.80). Customers choosing this cotton futures
classification option will incur this charge. In the event that AMS
determines that a bale submitted under this option fails to meet
quality or age parameters set by the exchange inspection agency, the
owner of the bale will be notified of the bale's failure.
AMS, Cotton and Tobacco Program is amending regulations in 7 CFR
part 27 to allow for the use of original Smith-Doxey data to certify
that bales submitted for quality verification meet quality and age
parameters set by the applicable exchange inspection agency.
Accordingly, the definition of ``Classification'' in Sec. 27.2,
paragraph (n) is amended to allow the registration option for the
futures classification services. Also in Sec. 27.2, the term ``Smith-
Doxey data'' is defined in new paragraphs (p).
Summary of Comments
A proposed rule was published in the Federal Register on September
9, 2013, with a comment period of September 9, 2013 through October 9,
2013 (78 FR 54970). AMS received two comments: one from a national
trade organization representing cotton merchant firms that handle over
80 percent of the U.S. cotton sold in domestic and foreign markets; and
one from an American commodities exchange that operates regulated
exchanges and clearing houses for energy, agricultural, credit,
currency, emissions, and equity index products. Both comments expressed
support for all provisions outlined in the proposed rule and the future
classification services provided by the AMS Cotton and Tobacco Program.
Comments may be viewed at www.regulations.gov.
The U.S. cotton industry and ICE requested that AMS, Cotton and
Tobacco Program make this option available in December 2013 to coincide
with the implementation of ICE's Cotton Resolution No. 2, which is
scheduled to commence with the March 2014 contract month. Accordingly,
pursuant to 5 U.S.C. 553, it is found and determined that good cause
exists for not postponing the effective date of this rule until 30 days
after publication in the Federal Register.
List of Subjects in 7 CFR Part 27
Commodity futures, Cotton.
For the reasons set forth in the preamble, 7 CFR part 27 is amended
to read as follows:
PART 27--[AMENDED]
0
1. The authority citation for 7 CFR part 27 is revised to read as
follows:
Authority: 7 U.S.C. 15b, 7 U.S.C. 473b, 7 U.S.C. 1622(g).
0
2. In Sec. 27.2, paragraph (n) is revised and new paragraph (p) is
added to read as follows:
Sec. 27.2 Terms defined.
* * * * *
(n) Classification. The classification of any cotton shall be
determined by the quality of a sample in accordance with the Universal
Cotton Standards (the official cotton standards of the United States)
for cotton property measurements of American Upland cotton. High Volume
Instruments will determine all cotton property measurements except
extraneous matter. Cotton classers authorized by the Cotton and Tobacco
Program will determine the presence of extraneous matter. Original
Smith-Doxey data may serve as certification that bales submitted for
quality verification meet quality and age parameters set by an
applicable exchange inspection agency as a futures classification
option.
* * * * *
(p) Smith-Doxey data. Data reflecting the original classification
of a cotton bale provided to producers of cotton under the Smith-Doxey
Act of April 13, 1937 (Pub. L. 75-28).
[[Page 68985]]
Dated: November 5, 2013.
Rex A. Barnes,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2013-27533 Filed 11-15-13; 8:45 am]
BILLING CODE 3410-02-P