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Ukrainian dam collapse leads to more uncertainty for Washington wheat farmers

By James Hanlon, The Spokesman-Review
Published: June 8, 2023, 7:40am

SPOKANE — A dam collapse in southern Ukraine spiked global wheat prices this week, but the long-term consequences in Washington — where it’s one of the largest crops — remain uncertain.

Ukraine and Russia, at war for more than a year, produce a large portion of the world’s wheat supply. But the Kakhovka dam will flood tens of thousands of hectares of agricultural land in southern Ukraine, the country’s agriculture ministry said. The disaster could leave more than 500,000 hectares without irrigation and could turn those fields into “deserts.”

Wheat futures jumped 3% to $6.47 a bushel in trading Tuesday on the Chicago Mercantile Exchange before receding to $6.15 Wednesday afternoon.

Casey Chumrau, CEO of the Washington Grain Commission, said 3% is significant even in a volatile market, but it is still too early to know whether this will have a lasting effect on the market or if this was a short-term bump.

“The wheat markets don’t like uncertainty,” Chumrau said. “There has been a lot of volatility since the beginning of the Ukraine-Russia war.”

Ukraine and Russia blamed each other for the destruction of the hydroelectric dam on the Dnieper River.

Wheat prices skyrocketed at the beginning of the war until the two countries negotiated a tenuous export agreement last summer.

“It has been miraculous what Ukraine has been able to produce and export despite the turbulent circumstances the last 15 months,” Chumrau said. “I am hesitant to predict how much this is going to affect further operations because they have been really resilient so far.”

Wheat prices have gradually stabilized as the market factors in “a new normal,” Chumrau said.

Prices have continued to decline in recent months, even below the price before Russia invaded Ukraine in February 2022.

Marci Green, a wheat farmer south of Spokane near Fairfield, said she has not noticed a jump and that the price has been fairly steady.

At the same time, production costs have gone up with inflation, supply shortages and increased borrowing costs.

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Wheat farmers are price-takers, not price-makers, Chumrau explained. That means the market dictates the price of the product. So even when input costs go up, farmers cannot increase their prices to compensate.

“It cuts down their margins significantly,” she said.

This year’s crop in Washington is about average, Chumrau said. Warm temperatures earlier than normal have started to stress the crop, so more rain is needed this month.

Green said her crop is looking OK so far. Other parts of the state have been much drier, she said.

“Prices are lower than we’d like, input costs are higher than we’d like and we could use some rain,” Green said.