What Could the Ukraine Dam Explosion Mean for Global Ag Markets?

    Ukraine Dam Explosion (EOS Data Analytics)

    Farmers in Ukraine are assessing the damage after major dam explosion in the southeastern part of the country, which has been occupied by Russia.

    The critical Nova Kakhovka dam and hydroelectric power station sits on the Dnipro River. Ukraine accused Russian forces of blowing up the dam while Russian officials blame Ukrainian bombardment for it in the contested area.

    According to the Ukrainian military, the incident occurred on Tuesday, June 6 at 2:50 a.m. local time (which is Monday, June 4 at 7:50 p.m, eastern time.)

    Its destruction raised anxiety about potential disruption to global grain supplies pushing up some prices around the world. For example, wheat prices surged at one point up 3%.

    “During the course of the evening and night when that news came out the market was up sharply. But as the day wore on, we’ve slipped back into negative territory,” says Chuck Shelby, Risk Management Commodities. “It just seems that this war continues to go on, and the market makes a reaction but doesn’t know what to make of it. World buyers have not been showing up as we would like to see.”

    There are massive agricultural fields in the southern part of Ukraine where that dam burst. The collapse as endangered crops and the country’s breadbasket and threatened drinking water supplies with officials also warning of a looming environmental disaster pointing to oil escaping from the dam machinery and significant flooding.

    This comes amid word that Ukraine’s ag output is expected to decline by 36% this year, compared to 2021. The estimated costs for the eventual reconstruction of Ukraine’s agricultural sector has now reached around $411 billion.

    “In the long run, I do believe, though, that the production out of Ukraine as this war intensifies during the summer is certainly not going to be what it was,” Shelby says. “And how much grain gets exported out of country is going to continue to decline.”

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