Wheat and maize prices surged on Tuesday following the collapse of a Key dam in Ukraine, raising market concerns over the country’s capacity to export food to Africa, the Middle East, and parts of Asia while fighting Russia.
Concerns have been raised about the disruption of Ukraine’s affordable supplies of wheat, barley, maize, and sunflower oil reaching developing countries where people are suffering from hunger and high food prices following the destruction of the Kakhovka dam and hydroelectric power station on the Dnieper River in a Russian-controlled area.
“There’s a lot of concern whenever this war shows signs of escalation,” said Joseph Glauber, a senior research fellow at the International Food Policy Research Institute. “Markets will react to that.”
Due to the war’s interruption of their exports, both Ukraine and Russia, which are both important agricultural exporters, exacerbated the world food crisis brought on by droughts and other reasons. Food was once again going through the Black Sea last year thanks to groundbreaking accords made by the U.N. and Turkey, but there have been setbacks.
Russia threatened to exit the agreement again, is accused of stalling supplies from Ukraine, and has only agreed to extend it for periods of two months at a time. Russia briefly withdrew from the agreement last year.
According to Glauber, a former head economist at the U.S. Department of Agriculture, “People will be watching to see what happens with the agreement.” This serves as a reminder to everyone that the agreement is not only formal and that it may be violated, which would be a very severe event.
While the fall of the dam has threatened crops in the route of the floodwaters, there are substantial agricultural areas in southern Ukraine where the dam burst, and Glauber claims that less wheat has been sown there because it is close to the fighting and much is growing elsewhere.
Drinking water supplies have been jeopardized by the collapse, and officials have warned of an impending environmental catastrophe, citing oil leaking from the dam’s equipment and substantial flooding.
The dam collapse appeared to be “a big escalation with dire consequences and huge headline risk,” according to Andrey Sizov, general director of the Black Sea agricultural markets research firm SovEcon.
This might only be the beginning of the bull run, Sizov tweeted early on Tuesday.
The price of wheat, vegetable oil, and other basic items has decreased from record highs when Russia invaded Ukraine last year in part because of the Black Sea grain agreement, but the price relief has not yet reached markets, supermarkets, and household tables.
The Citi commodities analysts described the dam disaster as a “reminder of lingering inflationary risk in the goods market.”
Analysts believe that temporary price increases may occur; in the aftermath of major news events such as the dam collapse.
However, circumstances are critical, and expectations for Ukrainian food exports will likely “continue to diminish as we recognize that Ukrainian production will continue to be severely impaired due to the war,” according to Joe Janzen, assistant professor at the University of Illinois Urbana-Champaign’s College of Agricultural, Consumer, and Environmental Sciences.
According to; Glauber, Ukraine’s grain supply is 40% lower than two years ago.
Wheat Long (Buy)
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