China's protein and edible oil markets are "hot", which is a result of a shortfall in the domestic soybean crop and robust demand. China's 2007 domestic soybean production will decline over one million tons below the last official estimate and over four million tons from last year, which has triggered surging prices. The sharp increase in soybean, soybean meal and soybean oil prices has ignited very brisk demand for cottonseed meal and oil, while the brisk offtake of cotton linters was driven by other influences.

In Xinjiang, cotton ginners are reported to have sold out of their inventories of cottonseed meal, oil and linters. This demand has pushed cottonseed oil prices to 8,800 yuan per ton at the gin, a 100-yuan per ton gain this week. Cotton linters have reached 7,050 yuan per ton for first cut and 6,050 yuan per ton for second cut, and cottonseed meal and oil prices have soared at the Eastern gins as well. In Jiangsu, cottonseed oil prices have rallied 200 yuan per ton.

The sharp rally in by-product prices is now a major driver in seed cotton prices, which have again moved higher. In Shandong's Dezhou district, seed cotton prices for T328 have averaged 6.990 yuan per kilogram, which is up 1.56 yuan per ton or 22.6 percent from a year ago and is now in reach of the record 2003 seed cotton price of over 7.0 yuan per kilogram. So far, this renewed strength in seed cotton prices has squeezed ginners' profit margins, as lint cotton prices have stagnated, remaining near an average of 13,670 yuan per ton, delivered the mill.