[Federal Register Volume 77, Number 23 (Friday, February 3, 2012)]
[Rules and Regulations]
[Pages 5379-5381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2382]

Rules and Regulations
                                                Federal Register

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Federal Register / Vol. 77, No. 23 / Friday, February 3, 2012 / Rules 
and Regulations

[[Page 5379]]


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: Final rule.


SUMMARY: The Agricultural Marketing Service (AMS) is amending 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 are being eliminated to reflect current 
industry practices. These 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: Effective Date: March 5, 2012.

FOR FURTHER INFORMATION CONTACT: Darryl Earnest, Deputy Administrator, 
Cotton & Tobacco Programs, AMS, USDA, 3275 Appling Road, Memphis, TN 
38133. Telephone (901) 384-3060, facsimile (901) 384-3021, or email 


Executive Order 12866

    This final 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 final 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 final rule.


    AMS Cotton and Tobacco Programs is revising 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 
    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, a second 
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 rule amends 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 revised 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 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.

[[Page 5380]]

    As stated above, the cotton futures classification includes a 
process by which an initial futures classification is followed up by a 
futures final 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 serves as the initial futures 
classification when verified by a ``review'' futures classification, 
these services are simply defined as ``futures classification 

Summary of Comments

    A proposed rule was published on September 29, 2011, with a comment 
period of September 29, 2011 through October 31, 2011. (76 FR 60388). 
No comments were received by AMS from individuals or various 
organizations representing segments of the cotton industry.

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 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.
    There are no Federal rules that duplicate, overlap, or conflict 
with this rule.
    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 0581-0008, 
Cotton Classing, Testing and Standards.

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 
as follows:


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

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

2. Section 27.2 paragraph (h) is revised to read as follows:

Sec.  27.2  Terms defined.

* * * * *
    (h) Quality Assurance Division. The Quality Assurance Division at 
Memphis, Tennessee; shall provide supervision of futures cotton 
* * * * *

3. Section 27.9 is revised to read as follows:

Sec.  27.9  Classing Offices; Quality Assurance Division.

    Classing Offices shall be maintained at points designated for the 
purpose by the Administrator. The 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 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 

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 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 

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.

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

10. Sections 27.62-27.67 are removed and reserved.

[[Page 5381]]

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 

    For services rendered by the Cotton and Tobacco Programs 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: January 30, 2012.
David R. Shipman,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2012-2382 Filed 2-2-12; 8:45 am]