China's government will begin a cotton purchase and reserve policy this year, its first such mechanism aimed at stabilising production, a top economic planning body said on Wednesday. The policy was launched just as Chinese cotton farmers start planting the crop, and may "attract those farmers who are still hesitating on their planting decisions to grow," said Dong Shuangwei, an analyst at Capital Futures.
The government will purchase standard ginned cotton at 19,800 yuan ($3,018) per tonne in 13 major producing regions if the local average cotton price falls below that level for five consecutive working days, the National Development and Reform Commission (NDRC) said in a statement on its web site. Prices will be calculated by the National Cotton Market Monitoring System and China Cotton Association, it said.
The stockpiling of the 2011/2012 crop year will run from September 1, 2011 to next March 31, the NDRC said. China's cotton prices have been volatile, with the three-month rolling cotton contract on the Zhengzhou Commodity Exchange trading in a range of 24,170 yuan ($3,684) to 34,580 yuan ($5,271) per tonne since September.
"The volatility in cotton prices is not favourable to the cotton industry's healthy development," said Guo Rongmin, China business manager with Cotlook Ltd, which publishes Cotton Outlook, adding that the new policy will help though is unlikely to boost the planting area. The China Cotton Association this month forecast China's cotton acreage will expand by 5.1 percent this year, paring an earlier estimate of 9.8 percent. The Ministry of Agriculture has forecast an increase of 5.4 percent. Capital Futures' Dong said the new policy could mean growth of 8 to 10 percent.
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