China will set up a national soybean reserve and purchase grains, oilseeds and cotton for reserves at prices above current market levels in order to help shore up incomes of farmers whose commodity prices are falling sharply, a key government policy commission said on Monday.

The moves are in line with a pledge by top policy makers this month to increase rural incomes and also serve to put a floor under softening crop prices, so that discouraged farmers continue to plant crops next year.

China will set up a reserve of domestically produced soybeans, the National Development and Reform Commission (NDRC) said on Monday, helping most soy futures in Dalian to rise by their daily trading limit. The reserve could purchase about 1.5 million metric tons of soybeans, traders said.

The government will also purchase corn and rapeseed for reserves, as it did last year, the NDRC said without specifying amounts.

China will raise the minimum price paid for wheat purchased by the state reserves system in 2009 by 13-5.3%, the NDRC said. The higher minimum price is in line with current market prices, but provides a guaranteed return to farmers still deciding what to plant.

The state reserve system will increase purchases of rapeseed in important growing areas along the Yangtze Valley, and of cotton in Xinjiang, while also aiding the transport of cotton to central and coastal China, the NDRC said.

It will increase subsidies for rice shipments out of the northeast, and buy late paddy rice from the south for reserves.

Farmers growing wheat, paddy rice, corn and soybeans in the northeast will also enjoy greater subsidies, as part of an overall plan to maintain national grains production at over 500 million metric tons a year. China plans to continue to supply about 95% of the grains it consumes.

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.