Major Dam Collapse in Southern Ukraine Causes Surge in Wheat Prices

Ukraine: After a major dam in Ukraine collapsed on Tuesday, the prices of Wheat and Maize surged worldwide, sparking worries in the market about the country's capacity to export food to regions in Africa, the Middle East, and certain parts of Asia, especially as it continues to fight a war with Russia. Wheat prices rose 2.4% in early trade Tuesday, reaching $6.39 per bushel. Corn prices increased by more than 1% to $6.04 per bushel, and oat prices increased by 0.73% to $3.46 a unit. Prices increased early in the day but then decreased.

Concerns were raised about the disruption of Ukraine's affordable supplies of Wheat, Barley, Maize and Sunflower oil reaching developing countries where people are battling hunger and high food prices after the Kakhovka dam and hydroelectric power station, located in a Russian-controlled area on the Dnieper River, was destroyed. These countries have high food prices and a severe food shortage.

There is a lot of worry whenever this conflict shows symptoms of escalating further since Ukraine and Russia are both important agricultural exporters, and the disruption of their shipments by the war exacerbated a worldwide food crisis linked to droughts and other issues. Food was once again going through the Black Sea last year thanks to ground-breaking 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 renew it for periods of two months at a time. Russia briefly withdrew from the agreement last year. People will be keeping an eye on the accord to see how it plays out. This serves as a reminder to everyone that the agreement is not merely pro forma and that it may be broken, which would be a very severe development.

While the fall of the dam has endangered crops in the path of the floodwaters, there are substantial agricultural areas in southern Ukraine where the dam burst, and less Wheat has been sown there because it is close to the fighting, and much is growing elsewhere. Officials have warned of an impending environmental catastrophe due to the collapse, citing the threat to drinking water sources as well as flooding and oil leaking from the dam's mechanism.

The dam failure appeared to be a significant escalation with serious implications and a significant headline risk. The overnight and early Tuesday rise in Wheat futures started to fade as the day went on. For instance, the cost of Wheat had dropped to $6.27 a bushel as of around 3 p.m.

Thanks in part to the Black Sea grain deal, the prices of Wheat, vegetable oil, and other basic commodities have declined from record highs after Russia's invasion of Ukraine, but the price relief has not yet reached markets, supermarkets, and home tables. Price fluctuations could occur briefly after major news events like the dam disaster.

But the situation is what matters, and when we realise that Ukrainian output will continue to be severely hampered by the war, expectations for food exports from Ukraine are likely to decline. Ukraine can export 40% less grain than it could do two years ago.