(a) Seed cotton pledged as collateral for a loan must be tendered to CCC by an eligible producer and must:
(1) Be in existence and in good condition at the time of disbursement of loan proceeds;
(2) Be stored in identity-preserved lots in approved storage meeting requirements of § 1427.171;
(3) Be insured at the full loan value against loss or damage by fire;
(4) Not have been sold, nor any sales option on such cotton granted, to a buyer under a contract which provides that the buyer may direct the producer to pledge the seed cotton to CCC as collateral for a loan;
(5) Not have been previously sold and repurchased; or pledged as collateral for a CCC loan and redeemed;
(6) Be production from acreage that has been reported timely under part 718 of this title; and
(b) The quality of cotton that may be pledged as collateral for a loan is the estimated quality of lint cotton in each lot of seed cotton as determined by the FSA county office, except that if a control sample of the lot of cotton is classed by an AMS Cotton Classing Office or other entity approved by CCC, the quality for the lot is the quality shown on the applicable documentation issued for the control sample.
(c) To be eligible for loan, the beneficial interest in the seed cotton must be in the producer who is pledging the seed cotton as collateral for a loan as provided in § 1427.5(c).