To strengthen the management of reserved cotton, optimize the reserved cotton structure and improve the reserved cotton quality, the National Food and Strategic Reserves Administration and the Ministry of Finance announces to reserve some 2019/20 Xinjiang cotton into state warehouses, saying on November 14, 2019.

The state cotton reserves will run from December 2, 2019 to March 31, 2020, with a total quantity of 500kt of Xinjiang cotton from 2019/20 season, and the daily purchasing volumes will be around 7,000 tons.

The bidding process will be subjected to a maximum price, which will be related with the Chinese spot cotton price, and the price will be adjusted every week. During the reserves, if the Chinese cotton prices are 800yuan/mt higher than international cotton for three consecutive days, the reserves will be suspended, and the reserves will resume when the price spread falls back to 800yuan/mt.

The reserved cotton is required to be 2019/20 Xinjiang cotton, grade-1/2/3 white cotton, length 28mm and above, Micronaire B-grade and above, breaking tenacity medium-grade and above.

Calculation:
1. The maximum price of reserved cotton (grade3128 cotton)=average price of prior week's domestic cotton prices*(1+2%)

Domestic cotton price=(China Cotton Index+CNcotton)/2

2. Price spread of domestic and international cotton=China spot cotton index-international spot cotton index

International spot cotton index=Cotlook A Index*exchange rate*(1+1%import duty)*(1+9%VAT)

The exchange rate is the benchmark exchange rate of the foreign currency against the RMB announced by the People's Bank of China, based on the customs taxation method and the third Wednesday of the previous month (if it is on public holiday, the fourth Wednesday is postponed).