The China Cotton Association reports that the government will auction off 600,000 metric tons of cotton from its reserves to satisfy the market until the new crops arrive. The sale will be conducted through a series of auctions, with the minimum price of US $2,439 per ton.

To prevent speculators from having an impact, textile companies will only be allowed to buy enough cotton to sustain their operations (and purchases can only be made once per week). Buyers of the state-auctioned cotton will be prohibited from selling it to other companies, running the risk of both a fine and being banned from future stockpile sales for three years if they are caught.

The 2009 cotton output in China was only 6.4 million tons, a drop of nearly 15 percent from the previous year’s totals. As a result, in May 2010, prices in Zhengzhou rocketed to a record of more than US $2,712 per ton – although they have dropped 9 percent since then in anticipation of the Chinese government’s decision to auction off some of its reserves. The problem could continue if China’s production drops 5 percent to 10 percent in the current year, which is a possibility due to adverse weather and a reduction in cotton planting.