June 8, 2023
Ukraine dam collapse sparks concerns over food exports, wheat and corn prices surge
Global wheat and corn prices experienced a sharp increase on Tuesday following the collapse of a major dam in Ukraine, which has reignited market fears about the country's ability to ship food to Africa, the Middle East, and parts of Asia amidst its ongoing war with Russia, AP reported.
In early trading on the Chicago Mercantile Exchange, wheat prices rose by 2.4% to reach US$6.39 per bushel, while the cost of corn saw a more than 1% increase to US$6.04 per bushel.
The collapse of the Kakhovka dam and hydroelectric power station, located in a Russian-controlled area on the Dnieper River, has raised concerns about potential disruptions to Ukraine's affordable supplies of wheat, barley, and corn.
Both Ukraine and Russia are significant agricultural suppliers, and the war has further exacerbated the global food crisis, which has been impacted by droughts and other factors. While breakthrough agreements facilitated by the UN and Turkey last year helped resume food shipments through the Black Sea, the process has encountered setbacks.
Russia briefly withdrew from the agreement last year, has threatened to do so again, is accused of slowing down shipments from Ukraine, and has only agreed to renew the deal for two-month intervals.
The collapse of the dam has affected drinking water supplies, and officials have issued warnings of an impending environmental disaster, citing oil leakage from the dam machinery and extensive flooding.
Andrey Sizov, managing director of the Black Sea agricultural markets research firm SovEcon, described the dam collapse as a significant escalation with potentially dire consequences and substantial headline risk, adding that this could be just the start of the bull run.
Although wheat futures rallied overnight and early on Tuesday, the momentum waned as the day progressed. By around 3 pm ET, the price of wheat had declined to US$6.27 per bushel.
Joseph Glauber, senior research fellow at the International Food Policy Research Institute, said that Ukraine's grain exports are currently 40% lower than they were two years ago.