Cotton prices in China rose by the most in more than a year as the world’s largest producer and consumer of the commodity set a reference price to subsidize farmers in Xinjiang region at a higher-than-expected level.
The commodity for January delivery on the Zhengzhou Commodity Exchange climbed 2.4 percent to 16,210 yuan ($2,613) a metric ton, the biggest gain for a most-active contract since January of 2013.
China this week set a cotton reference price at 19,800 yuan a ton for the 2014 crop year, according to a statement on Gov.cn. The government will subsidize producers if market prices fall below the level, it said.
“The reference price was much higher than expectations,” Xi Jin, a manager at China National Cotton Information Center, said by phone from Beijing. “That fueled a rally in the local market.”
China has been stockpiling local crops at above-market prices to aid farmers, boosting government inventories. The country holds more than half the global cotton inventory, the U.S. Department of Agriculture estimates.
Futures for May delivery in New York rose 0.6 percent to 91.19 cents per pound at 3:55 p.m. Beijing time. Prices have tumbled 59 percent from a record $2.197 a pound in 2011.