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China’s Cotton Policies ‘Misread’ by Global Markets, Group Says

China, the world’s biggest cotton grower and consumer, has amassed record reserves by buying local harvests in the last two years to protect farmers and not to control global markets, an state-run trade group said.

The stockpiling measure was originally drafted as a temporary backup plan when supply exceeds demand, the China Cotton Association said in a statement on its website. Because the global financial crisis reduced demand and prevented a rebound in prices, the policy continued through the entire marketing year, it said.

The country has bought local cotton since 2011 to ease a plunge in prices and boost farmers’ profits. The measure has distorted global market and may reduce world demand for the fiber, Joseph Nicosia, executive vice president of Louis Dreyfus Commodities LLC, said on Nov. 2. Cotton in New York has dropped 65 percent from a record in March 2011.

“Some participants in the global cotton industry misread China’s policies and believed China had certain deeper motives and connived to manipulate the global market using massive stockpiles,” the group said. China will adhere to the principle of not curbing market prices when it sells reserves, it said.

China stockpiled 5.83 million metric tons from last year’s harvest, about 85 percent of the total output, as of Jan. 22, the group said. Purchases in 2011 were 3.12 million tons, the National Development and Reform Commission said in a statement on its website dated Dec. 28.

Futures on the Zhengzhou Commodity Exchange dropped 8.4 percent last year, while cotton on ICE Futures U.S. fell 18 percent. World reserves may climb to a record 18 million tons in 2012-2013, with about half held by China, Australia & New Zealand Banking Group Ltd. said in a report yesterday.

The government will likely continue stockpiling this year in line with its policies on protecting farmers’ interests, the group said.

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