Cotton Policy Issues

1
Cotton Policy Issues

• Recent Changes

2
Summary of Topics

• Repayment Examples as AWP Increases
• Storage Credits for loan bales
• Outside storage of Loan Cotton
• Revised Settlement Policies
• Transfer of Loan Cotton
• Revised Forms
• New Barter Policy Regarding CCC Inventory

3
Loan Redemption Policy as AWP Increases

• Refer to examples
• Repay amount (f) AWP, loan term
• Two General Rules
• Producer/merchant never pays CCC more than PI,
  as when AWPgt PIS
• When AWP is lt PIS, the total of accrued storage
  CCC repayment amount AWP

4
Rates Affecting Storage Credits 2006 and 2007

• Public Tariff Rate.
• Set by cotton storage warehouses - not
  negotiated.
• Not regulated by CCC
• CSA Loan Rate (insured)
• Established in a warehouses CSA.
• Rate at which the warehouse stores and insures
  cotton while pledged as collateral for a CCC
  loan.
• Negotiated annually with CCC with annual increase
  usually permitted.
• At forfeiture, paid by CCC for the entire period
  that the cotton was in storage, including
  pre-loan period.

5
Rates Affecting Storage Credits 2006 and 2007

• CSA Owned Rate (un-insured)
• Rate at which the warehouse stores but does not
  insure CCC-owned cotton.
• Storage Credit Rate
• Established by price-support regulations - not a
  provision of any CSA.
• The lower of the 2005 public tariff rate or 4.37
  for AZ/CA locations or 2.66 for all other
  locations for both 2006 and 2007.

6
Credits Not Available to Outside-Stored Loan
Bales

• Outside Storage may be approved for 2006 and
  2007 loan cotton
• None approved for 2006-crop
• Bales ineligible for storage credits while
  outside
• Loan bales eligible for unlimited credits if
  transferred from warehouse using yard storage for
  loan bales.

7
Requirements for Warehouse Approval for Yard
Storage

• In a CCC-determined storage-deficit area
• Must report
• yard-storage dates per bale to Provider
• Weekly report of yard bales to CCC
• Agree to CCC yard-storage requirements
• Dunnage
• Slip covers
• insurance

8
Determining 2007-Crop Storage Deficit Areas

• Announcement likely week of 8/13
• Regs Deficit area..where production exceeds
  combined inside storage capacity of CSA
  warehouses.
• NASS estimates state level buy by district for
  Texas
• Storage capacity approved CSA capacities less
  carryin and other deductions.

9
Transfer vs Reconcentration

• Reconcentration
• Means moving CCC-owned cotton inventory
• CCC responsible for all charges
• Transfer
• Means movement of producer-owned loan cotton
• Producer or merchant (never CCC) responsible for
  all charges

10
Transfer Process for Loan Bales

• Genesis
• Damage to outside-stored 2004/2005
• Merchant allegations of delayed shipments
• Claimed by merchants as essential for marketing
  2006 crop
• Starting point for merchants to co-sign loans
  and cotton loan collateral
• Effective for 2006, subsequent crops

11
Transfer Process Concerns

• Producers
• Requested CCC clarify merchant responsibility for
  charges/losses
• CCC-601 and 605 have been amended accordingly
• Warehouses
• Initially concerned about being emptied out
• No complaints or problems thus far
• NCC request to remove the 75-day limit
• Other
• Started along with mandatory weekly reporting by
  whse
• Use of process has been minimal
• Merchant complaints about delays possible
  lessened

12
Change to Forfeiture Charges Paid by Producer

• Previously
• Storage accrued prior to loan
• Warehouse receiving
• Effective with 2006 Crop
• Pre-loan accrued storage
• Warehouse receiving
• Compression
• Loan period storage charges exceeding charges
  based on capped rate.

13
Warehouse Compression

• Ranged from 2.10 to 12.00/bale
• Weighted Average rate 8.35/bale
• Charged by 63 percent of CSA warehouses
• Unrelated to other warehouse tariffs
• Generally described as gin rebate.
• No service rendered by warehouse.

14
Rationale for Billing Compression to Producer

• 7 CFR 1427.12 Waivers that fully protect the
  interest of CCC must be obtained before loan
  disbursement if there are any liens or
  encumbrances on the cotton
• Policy changed because
• Compression also component of AWP adjustment
• Inconsistent with other MAL commodities
• Inconsistent with lien requirement

15
Latest Revisions to CCC-605

• Part E Holder ID moved here from Part F
• Part F (for CCC use)
• Removal of signature element because CCC is not
  signator to this agreement
• Part G
• Item 2 inserts agent agreement to be responsible
  for charges and losses
• Item 5 CCC holds producer liable for charges if
  unpaid by agent authorized by producer

16
Latest Revisions to CCC-601

• Item 10(e)
• (ii) producer charges for transferred cotton
  that forfeits based on receiving warehouse
• (iii) Transfer requestor is assumes
  responsibility for charges, and producer held
  responsible only if merchant does not pay
• (iv) Producer responsible for losses even if
  agent of producer had agreed to pay for such
  losses.

17
Barter of CCC-Owned Cotton

• Announced July 6, 2007
• No cash sales of CCC-owned cotton
• CCC to tender for domestic/international foods to
  be paid with CCC-owned commodities
• Rationale
• Extend food-aid budget

18
Amendment 35 to 7-CN

• Bale eligibility is not a function of whether the
  double-cropping practice used in its production
  was approved.
• In line with 1-CM, any member of general
  partnership may sign for such partnership and
  bind all members unless Articles of Partnership
  provide otherwise.
• Cotton pledged as collateral for a seed cotton
  loan may receive a ginned cotton loan if proceeds
  are jointly ayable to producer and CCC.
• Amended instructions provide that no date is
  required in item 54 of CCC-633EZ