BEIJING (Reuters) - China, the world’s biggest cotton consumer, on Wednesday stood by plans for a trial farmer subsidy program in its key growing region of Xinjiang, even as it offered few details on this replacement to its stockpiling policy.
Citing a government document, the China Cotton Association said that if market prices fall below its target of 19,800 yuan ($3,225) per ton, the government will top up the difference based on farmers’ planting area and volume sold to cotton ginners.
The document gave no details on what support will be given to growers in other provinces such as Shandong and Hubei. Xinjiang produced about 55 percent of the country’s cotton crop, or 3.5 million tonnes, in 2013.
Questions have mounted over how Beijing will implement its new program after cotton prices collapsed in recent months, leading to a yawning gap between the government’s price and local and global market rates.
Beijing’s target price equates to about $1.46 per lb, 30 percent higher than Chinese futures prices. That compares with a 17 percent difference in April when the state price was first announced.
Changes to Beijing’s years-long stockpiling policy, which have bolstered global prices and roiled trade, are closely watched by domestic farmers as well as traders, mills and growers across the globe.
Cotton futures in China have fallen nearly 15 percent this year amid concerns that the end of the stockpiling program means prices in the 2014/15 marketing year would slump on the back of ample supply and weak demand.
Concerns that Chinese demand for U.S. fiber would fall with the end to the stockpiling policy contributed to U.S. prices’ slump to near-five-year lows in August.
On Wednesday, benchmark ICE cotton futures were little changed, up 0.1 cent, or 0.2 percent, at 65.67 cents a lb by 11:13 a.m. EDT as uncertainty over key details lingered.
Prices dropped 3.6 percent in the prior two sessions on expectations of an announcement from Beijing.
The “details of exactly how the subsidy system works are still unclear. Also, (there is) no news yet in regards to import quota policy,” said Peter Egli, director of risk management at British merchant Plexus Cotton Ltd.
A separate notice from the ministry of agriculture said that the market price will be based on average selling prices in Xinjiang during the months of September to November.
Use of an average price will give farmers an incentive to produce higher quality cotton, said the ministry, as those growers who can sell their fiber at a higher price will receive the same subsidy as those producing lower quality cotton.
Industry participants are still concerned about a possible lack of demand for locally grown fiber. Under the previous system, the government bought up the bulk of the domestic crop for its state reserves.
Additional reporting by Chris Prentice in New York; Editing by Michael Urquhart and David Gregorio