Grains in Ukraine: the consequences of destruction
Ukrainian agriculture has been significantly impacted by the destruction of the Kakhovka dam on June 6, which flooded much of the Kherson region. Then, a few hours later, an explosion of an ammonia pipeline, essential for fertilizer exports, took place. The Black Sea Grain Agreement – extended in extremis by two months until July 16 – is likely to be in danger again, as grain prices have been rising in recent days. Meanwhile, the European Union has authorized the Central European countries bordering Ukraine* to be extended until September 15, 2023 their restrictions…
Pipeline explosion Togliatti-Odessa : a negative impact on the current agreement
Out of service since 2022, this ammonia pipeline located in the Kharkiv region was one of Russia's export routes. It allowed Russia to export annually more than 2.5 million tons of ammonia (raw material essential for the production of nitrogen fertilizers), particularly for the European Union.
For the Russians, the reopening of this pipeline was one of the key points of the negotiations around the Black Sea grain agreement. This corridor has allowed the export of more than half of Ukrainian grain since the start of the conflict.
This destruction will change the contours of the upcoming negotiations around the corridor. Dmitry Peskov, the Kremlin spokesman, declared on June 7 that it had "a negative impact," knowing that Moscow has been demanding guarantees for its own fertilizer exports for several weeks.
Destruction of the Kakhovka Dam: Thousands of hectares of agricultural land flooded
This environmental disaster—the explosion causing massive flooding downstream—occurs in one of the country's main wheat and oilseed-producing regions. The Ukrainian Ministry of Agrarian Policy and Food has assessed the damage. The massive flooding caused by the dam's destruction has interrupted the irrigation system in the Kherson region for a long time. According to preliminary estimates, nearly 10,000 hectares of agricultural land – mainly cereals and oilseeds – will be flooded on the right bank of the Dnieper.
Market concern, rising prices?
While the tense negotiations surrounding the latest renewal of the Black Sea Grain Agreement had left the markets virtually indifferent, the rise in geopolitical risk has been compounded by the prevailing concerns over weather conditions in recent days. Droughts in Europe and the United States, as well as the expected shortfall in Australian wheat harvests, are worrying experts. Grain prices have started to rise again in recent days, sign of an accumulation of uncertainties in the markets.
While Russia remains strongly present in wheat markets at very competitive prices, new wheat crops from the Northern Hemisphere are expected to gradually arrive on the markets over the coming weeks.
Which markets will Ukrainian wheat go to? given the tensions around the solidarity corridors and the Black Sea corridor? Ukraine, in partnership with the European Union, is seeking to increase transit capacity via the solidarity lanes, while the volumes of cereals actually transiting** through these routes remain minimal to date.
* Romania, Hungary, Slovakia, Poland and Bulgaria
** Volumes having been re-exported to destinations outside the EU after transit through solidarity lanes
