Geopolitics, weather, and a wooden horse

Firstly, President Trump got called out for rehashing his rather predictable pattern of backpedaling from some of his tough tariff rhetoric. When questioned by a journalist about his famous U-turns, he quite predictably went on the offensive. Now, steel and aluminium tariffs have doubled, and he has gone rogue on the Chinese, accusing them of violating the principle of the trade truce. The issue seems to be around China restricting the exports of rare earths, critical in US high-tech manufacturing. A phone call to President Xi is hoped to find common ground, with both parties agreeing in principle to further talks.

The second bit of market-moving politics occurred earlier this week when the Ukrainians hit major airfields deep inside Russia. The use of drones to target long-range bombers is being hailed as a modern-day Trojan Horse. Like something out of a 1960s spy novel, the Ukrainians built wooden huts and storage containers right under the noses of the Russians. From these huts and truck-mounted containers, hundreds of drones were hidden and, when initiated, orchestrated a surprise attack that destroyed something like 41 aircraft (allegedly), including long-range bombers.

While quick to celebrate this audacious attack, I can’t help but think the retaliation will be savage and will set back any chance of peace by years. Wheat markets closed higher in response to this escalation and the expectation of Russian revenge attacks. Egypt’s main state buyer (one of Russia’s biggest customers) has also determined that the risk in the Black Sea warrants a directive to diversify origins to maintain supply.

There have been some late-developing ‘weather market’ type stories doing the rounds. A late cold snap in Ukraine is believed to have cooked about 50k hectares of crop. This could be the equivalent of 100-150kmt that will need to come off their production estimates. The USDA released its crop condition report last week, which showed a relatively surprising decrease in the good-to-excellent score. The concerns were raised mainly about the spring wheat in the Dakotas, which is delayed by cold and wet conditions. Further south, harvest has started in the HRW states of Texas and Oklahoma and just in time for some serious wet weather to descend in the area. Winter red wheats can handle a bit of rain – better than our white wheats – but there is a limit. There has been widespread 25-50mm across Oklahoma and Kansas in the past week, with another 25-75mm in the 7-day forecast.

There are also a few rumblings about the Canadian Prairies, which look OK but have very little stored moisture after a mild winter. Not sure if it is something to get excited about, as there is plenty of time for these crops.

In a Reuters article (see article here), early harvest results in China have been described as disappointing.  While the sample size is small, any wheat grown in unirrigated areas is reported to be down 40% from last year, while irrigated areas are about the same. While the heat and dry conditions that prevailed should be good for protein, questions will remain if the test weights and screenings will make acceptable milling standards.