Market News & Headlines >> China to End Cotton, Soy Stockpiling

China will scrap its cotton and soybean stockpiling programs in 2014 and try direct subsidies to farmers instead, the central government confirmed in a policy document published late on Sunday.

The announcement is the first official confirmation that the widely-anticipated changes will be made this year. Meanwhile, Beijing said it would continue to stockpile rapeseed, corn and sugar, as well as continuing to offer a minimum purchase price for wheat and rice.

The No. 1 central document, which typically lays out priorities for the agricultural sector, lacked specific details on the timing, as well on the structure and size of the planned direct subsidies, so it is unclear how successful the shift might be. "The key is not that they're subsidizing farmers but how much they will give," a trade source, who declined to be named, told Reuters News Service.

Trials for the soybean subsidy system will be rolled out in northeastern China and Inner Mongolia, while cotton subsidies will be tested in the far western province of Xinjiang, which accounts for about 60% of China's cotton output, including much of its higher quality fibers.

According to the policy document, the new subsidies will be based on a target price, following a system similar to one used in the United States. The move to direct subsidies comes after several years of stockpiling failed to encourage an increase in cotton and soybean plantings and pushed domestic prices for the two commodities well above the world market, encouraging imports. China’s cotton stockpile also more than quadrupled within two years and the government may have to sell large supplies at a loss. According to USDA, Chinese cotton stocks totaled 50.6 million metric tons at the end of 2012/13, up from 11.6 million at the end of 2010/11.