China plans to rebuild a cotton reserve this year to help encourage domestic production as farmers fret that prices could tumble from historic highs.

China is the world’s top producer of cotton, but a strong local textile industry also makes the country the largest cotton consumer and importer. Demand from Chinese mills played a key role in driving New York cotton prices to a record $2.27 a pound this month, up 175 per cent over the last year.

Beijing said it would buy cotton for a “temporary” reserve from September 1 2011 to March 31 2012, covering the fall harvest season. The minimum purchase price for cotton feeding the reserve would be Rmb19,800 per tonne, the government said. That is about $1.40 per pound, slightly more than the price of benchmark New York cotton for December delivery.