Cotton futures tumbled after China, the top cotton consumer, revealed it was to slash import quotas, amid reforms aimed at reversing the country's build-up of huge inventories of the fibre.

Cotton for December, the best-traded contract, stood 3.1% lower at 62.41 cents a pound in late deals in New York, with the spot October contract down 4.2% at 63.25 cents a pound.

The declines followed the announcement by China's important National Development and Reform Commission that the country would issue just 894,000 tonnes of levy-free import quota for 2015, the minimum permitted by agreements with the World Trade Organization.

In 2013-14, the country is believed to have offered a further 600,000 tonnes of quota, which is not subject to a 40% duty.

Actual imports have been far bigger than quota levels, at 3.08m tonnes in 2013-14, peaking at 5.34m tonnes in 2011-12, swollen by the premium of Chinese prices - supported by a guarantee of elevated values for growers - compared with those on the international market.

'No extra quota'

However, in a move viewed as undermining domestic values, China has already ditched its guaranteed price regime in favour a system based around paying direct subsidies to cotton farmers.

While this support was initially unveiled only for the top growing province of Xinjiang, the NDRC said on Monday it would be extended to other areas.

And on imports, Liu Xiaonan, vice head of the commission's economy and trade department, said that "apart from the 894,000 tonnes of quota required under WTO entry commitments...we will not issue additional import quota".

The NDRC will instead focus on "domestic textile companies to use more Chinese cotton", he added.

While China's cotton stocks are difficult to estimate, the US Department of Agriculture believes they ended 2013-14 at 13.5m tonnes (62.0m bales) of cotton in inventories – enough for nearly 22 months' consumption.

The International Cotton Advisory Committee has a smaller estimate, of 11.6m tonnes, although this is still enough for 18 months' use, and equated to 57% of the world's overall inventories, on its data.

Indian competition

At US broker Keith Brown & Co, Keith Brown said that China's stance represented a dramatic turnaround, from a market perspective, from the previous two-or three seasons, "when China was the sole support, through its state cotton procurement programmes, for the US market".

Furthermore, Beijing's reforms had come at a time of strong output too in India, which is expected to take over this season from China as the top cotton producer, and is already the second-ranked exporter after the US.

"China and India have not always got on well - they have in the past exchanged artillery fire - but money has a habit of making strange bedfellows," Mr Brown told Agrimoney.com.

'In a coma'

Indeed, there was the prospect for price weakness to continue in New York even though domestic US production prospects have waned, with the USDA two weeks ago cutting by 210,000 tonnes to 3.60m tonnes its forecast for the domestic harvest.

The lower estimate was "more realistic", Mr Brown said, noting that storms over the past week in the southern US had further threatened crop prospects.

Nonetheless, cotton now looked like it was in a "trend lower".

"Cotton looks like it is going to be in a coma for a little while," he said.