April 20 (Bloomberg) -- Cotton plantings in some areas of China, the largest importer, have fallen as record prices failed to spur increased acreage, according to the top economic planning agency, which highlighted a problem in the biggest producing region. Futures reversed losses to gain 1 percent.
“Cotton used to be a pillar industry in Xinjiang, if Xinjiang cotton has a problem, the foundation of our cotton-producing ability will be rocked,” Fang Yan, deputy head of rural affairs at the National Development and Reform Commission, said in an online briefing. Other cotton-growing areas along the Yellow, Huai and Yangtze river plains have shrunk as growers in Henan and Shandong ramped up grain output instead, Fang said.
Lower cotton output in China, or a smaller-than-expected gain in acreage and production, may reignite a rally that drove prices to a record last month. Futures have tumbled into a bear market since then on speculation that global output, including in the U.S. and India, is set to increase, boosting stockpiles.
“It’s inevitable that China will expand cotton imports,” Du Ying, an analyst at Wanda Futures Co., said from Urumqi, Xinjiang. China imported 2.84 million metric tons in 2010, up 86 percent from 2009, according to customs data. “Xinjiang farmers favor other cash crops such as apricots, dates and walnuts, so cotton isn’t gaining much acreage,” Du said.
Cotton on ICE Futures U.S. in New York reached an all-time high of $2.1970 per pound on March 7. The July-delivery contract reversed losses today to gain as much as 1.74 cents to $1.7290, paring the fall since the record to 21 percent. A slump of 20 percent or more signifies a bear market to some investors.
The cotton-production situation in Xinjiang “is not optimistic,” Fang said in the briefing yesterday, without giving precise forecasts for national acreage or output. Farmers have been favoring grain crops because of high subsidies and the need for less labor due to mechanization, Fang wrote.
China’s farmers were expected to plant more cotton this season, helping to underpin a gain in global output. In the 2011-2012 crop year, production in China may climb 13 percent to 34 million, 480-pound bales, according a February forecast from the U.S. Department of Agriculture, or USDA. That would account for about 27 percent of the global harvest in the year from Aug. 1, which was forecast to gain 11 percent to 127.5 million bales.
China’s “cotton acreage this year may rise a bit on higher prices, but farmers these days favor grains or abandon farming altogether as labor elsewhere makes much more money,” said Dong Shuzhi, manager at Shanghai Jinhuicheng International Trade Co.
The cotton area in China may rise 9.8 percent to 84.55 million mu (13.9 million acres) this year, the China Cotton Association said in February, citing a survey. China’s Ministry of Agriculture forecast a gain of 5.4 percent last month.
Cotton has rallied over the past year as China’s imports have surged, driven by increased textile production. In the year to July 31, the nation will use 17.5 million more bales than it grows, the USDA has estimated. China’s economy grew at a faster-than-estimated 9.7 percent in the first quarter.
Cotton in China reached a record 34,870 yuan ($5,344) per ton on the Zhengzhou Commodity Exchange on Feb. 17 as demand from the textile industry soared. The most-active contract ended at 27,715 yuan per ton today.
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