Overnight activity has the grain/oilseed complex opening on a lower note, with wheat leading the way. Northeast China has received rainfall over the last few days, bringing some relief to the provinces that have been affected by the recent drought in the region (particularly Shandong and Henan provinces). While the rains have eased some of the fears of traders in the short term, the longer range pattern still is facing some significant challenges, as it takes more than a few days of rain to end a severe drought. We are noting that the pattern is showing the potential for improvement in the coming weeks, but there is still a long way to go before we can say that the region is out of danger. There has already been a likely yield limitation on the current winter wheat crop, which we discussed in last week’s note. In addition, while our forecast shows improvement, it is a slow improvement, and conditions may not return to a favorable pattern until after planting of the spring corn and wheat crops. While we may see a brief pullback in the market, we are looking at this as a favorable entry point for July positions.
