Nuclear Fallout: The Looming Threat to Global Food Security
My mentor often says, “I spend most of my time figuring out how not to get torpedoed.”
These words have stuck with me.
His point was not that we fixate on the possibility of Black Swans, a term Taleb made famous in his work on outlier events.
Instead, once we have a profitable business, our paramount responsibility is never to expose ourselves to catastrophic outcomes.
Here is an article (Part 1 and Part 2) about the outsized impact losses have. It’s easy to see why significant losses can quickly become catastrophic.
Let's explore how a nuclear threat fits into the four quadrants of known and unknown risks. Every risk a business faces can be categorized into one quadrant.
Known Knowns: Surprises in monthly USDA or jobs reports
Known Unknowns: Theft prevention or cyber security attacks
Unknown Knowns: The impact of climate change on different aspects of crop production
Unknown unknowns: One-off events that we don’t know the impact. AKA, the events most likely to torpedo us due to their rare nature and unpredictable outcomes.
Every risk fits into one of these 4 categories
Why is this a real risk? Why now?
Nuclear detonation is a very serious topic. We don’t write about it lightly, and readers should be skeptical.
Russia’s nuclear doctrine was updated in response to NATO’s active involvement and Putin’s underperforming military campaign. The Biden administration and the European Union are pushing for more financial and military support prior to the new US administration in early 2025. Both sides are pushing for the “decisive victory.”
Putin's defeat would be a total loss for his regime and, by default, the Axis of China, North Korea, Iran, and Venezuela. Beijing could be the most affected. The US is ratcheting up the pressure on Chinese companies to circumvent tariffs and provide support to Putin. Trump has promised 50% to 200% tariffs on imported goods.
We dove into the Mexico loophole Chinese and American companies were prepared to expand here (YouTube Video).
FT published this article, although it went mostly unnoticed.
When Putin updated the nuclear doctrine, Russian news outlets took the announcement seriously. The US media was busy gushing about President Zelensky’s visit. Much of this went unnoticed in the West. Below are the headlines and the announcement's text.
This is from the Kremlin.
Putin press conference from September 12, 2024.
Question: Over the past few days, we have been hearing statements at a very high level in the UK and the United States that the Kiev regime will be allowed to strike targets deep inside Russia using Western long-range weapons. Apparently, this decision is either about to be made, or has already been made, as far as we can see. This is actually quite extraordinary. Could you comment on what is going on?
President of Russia Vladimir Putin: What we are seeing is an attempt to substitute notions. Because this is not a question of whether the Kiev regime is allowed or not allowed to strike targets on Russian territory. It is already carrying out strikes using unmanned aerial vehicles and other means. But using Western-made long-range precision weapons is a completely different story.
The fact is that – I have mentioned this, and any expert, both in our country and in the West, will confirm this – the Ukrainian army is not capable of using cutting-edge high-precision long-range systems supplied by the West. They cannot do that. These weapons are impossible to employ without intelligence data from satellites which Ukraine does not have. This can only be done using the European Union’s satellites, or US satellites – in general, NATO satellites.
This is the first point.
The second point – perhaps the most important, the key point even – is that only NATO military personnel can assign flight missions to these missile systems. Ukrainian servicemen cannot do this.
Therefore, it is not a question of allowing the Ukrainian regime to strike Russia with these weapons or not. It is about deciding whether NATO countries become directly involved in the military conflict or not.
If this decision is made, it will mean nothing short of direct involvement – it will mean that NATO countries, the United States, and European countries are parties to the war in Ukraine.
This will mean their direct involvement in the conflict, and it will clearly change the very essence, the very nature of the conflict dramatically.
This will mean that NATO countries – the United States and European countries – are at war with Russia. And if this is the case, then, bearing in mind the change in the essence of the conflict, we will make appropriate decisions in response to the threats that will be posed to us.
Putin has drawn the red lines for tactical nuclear deterrence as an option, and arguably, some have already been crossed. Even US government agencies are taking this threat seriously.
This is an RFQ on SAM.gov from the US Army Corps of Engineers.
It was switched to inactive only a week after getting posted.
"regions beyond eastern Europe and western Russia"
What a nuclear detonation might mean for trade and prices.
Do we have any historical examples of this? Actually, yes. Chernobyl’s meltdown and the market fallout on April 26, 1986. Routine safety maintenance with inexperienced personnel caused an explosion in reactor number 4. The subsequent meltdown of the containment infrastructure led to 10 days of radiation released into the atmosphere (background here).
One crucial fact is this was viewed as a major embarrassment to the Communist leadership, and most of the information at the time was suppressed. The rest of the world did not know what had happened or the magnitude of the radiation released. There is still a 30-kilometer exclusion zone today.
Today, any nuclear scenario will be met with a much more rapid and coordinated response. Even if governments suppress information, social media will be ablaze.
Sugar is a great case study of how. Immediately after the event, a wire was sent indicating that mutant sugar beets weighing hundreds of pounds could multiply production. An office of the USDA sent the alert, and it got out to the public.
We don’t have a copy of the transcript but we have read the cable. An absurd rumor with almost no information caused panic. Ultimately, shorting sugar was the right move because of the demand destruction that followed.
Sugar peaked in the 1970s at 60 cents/lb. This was 7 years later down 98%.
The consequences were twofold. First, giant mutant sugar beets would flood the market with sugar. Traders began selling immediately. Once this erroneous report was understood, the selling continued because demand destruction kicked in. Mutant sugar beets would, in fact, be radioactive with cesium-137 and iodine-131. Sugar was off the menu.
Corn rallied initially, but after two weeks, it began selling off. Corn prices fell from $2.50 in May of 1986 to $1.50 in mid-September of that same year. Corn was much less a “global commodity,” with international pricing driven by US production and stocks.
Here are the precipitation and NDVI from the US summer of 1986. It was warm in the southeast, but ample precipitation supported a new record at 120 bu/ac. The Midwest experienced conditions for a record corn campaign, which almost certainly was a more critical driver to the sell-off that summer than Chernobyl.
NDVI shows good production across the central and eastern corn belt.
All of the major corn producing states other than MO were well above average.
As a quick aside, many hold up 2012 as the poster child for bad crop years, but take a quick look at the heat anomalies in 1988.
IL temps averaged 6.1% above normal v 2012 at 5.4%.
Russia and Ukraine were not the massive grain producers they are today. Further, the collective Soviet farming model made much of Eastern Europe and the Black Sea inefficient producers—the exact opposite of the world’s grain basket they have become in recent years.
How much grain could be affected?
EU neighboring countries produce 30 million tonnes of corn (40%) and 40 million tonnes of wheat (30%).
Ukraine and Russia combine to produce 110 M tonnes of wheat, 41 M corn, and 28 M barley.
More importantly, the world has come to rely on grain exports from the region since the Trade War reshaped global agricultural flows.
The global export market share for the Eastern EU, Ukraine, and Russia has been 15% for corn and greater than 33% for wheat. This does not include large central European producers that do not share a border with Ukraine or Russia.
The world might have gotten a glimpse of what could happen when wheat prices skyrocketed after the invasion of Ukraine.
Buyers were rewarded waiting for cheaper and cheaper wheat. Is this over?
Nuclear Risks Scenarios:
A small-scale tactical nuclear detonation that ends the war and remains contained.
A small-scale tactical nuclear detonation expands the conflict, but there is no nuclear response.
A nuclear detonation leads to a nuclear response (MAD is the ultimate extreme).
A small-scale, tactical nuclear weapon. Similar to Hiroshima (15 kilotons)
Radiation affecting crops and soil in the blast radius
Radiation leaching into water sources
Destruction of agriculture infrastructure
Death of livestock and contamination fallout
Supply chain disruptions locally and abroad
Government reactionary policies: restrictions/bans, strategic stockpiling, domestic support programs, etc.
Due to radiation fallout, expect the immediate suspension of the supply chain within “a safe” distance. Policies will be rapidly enacted to ensure testing and proof of origin for regional exports. Trade may get pushed into the “black market,” similar to what happened with Russian oil, or countries may shun the region entirely.
Governments will have to err on the side of caution. Chernobyl was deflationary for agricultural prices, partially due to the 1980s and idiosyncratic events. The FSU was going broke, and people had to go with less.
A nuclear detonation in one of the world's major breadbaskets will be an inflationary impulse, possibly much more so than the Russian invasion. This begs the question of whether governments will allow companies to raise prices like the post-pandemic/invasion 2021-2023.
The public backlash will be severe. Social media ensures that rumors and facts alike circle the globe immediately. All of this will be happening while governments decide whether or not to respond to a nuclear weapon in kind and shape the narrative to justify it.
“Think of the press as a great keyboard on which the government can play.”
The second scenario is nearly identical to the one above, but the war theatre expands. While this may seem like a technicality, it would raise the stakes for other reasons, such as how information and propaganda are weaponized. Citizens, grain buyers, and traders would not know what to believe. This is why we bring up the sugar example post-Chernobyl.
The Soviet attempts to hide the tragedy may have done more damage than the initial blast due to the uncertainty it created and the lack of containment. The pandemic is another example of how suppressing information led to mass confusion.
Social media users shared images of Wuhan lockdowns worldwide, yet people had no clue what to make of it. American politicians still said two weeks to stop the spread months after China had locked down travel and cities.
There is a lot of work being done to improve communication and coordination.
Consider the earliest days of the pandemic or the price spikes for wheat and crude oil after the Russian invasion. Mutant sugar beets might be the least of people’s concerns should a nuclear bomb detonate.
Sabotage or targeting of existing infrastructure. Ukraine has 4 operational nuclear plants and 15 reactors. 50% of Ukraine’s energy generation is nuclear-powered. Russia has 11 nuclear plants and 38 reactors operational. Both countries are targeting power generation but have steered clear of nuclear targets (mostly).
We will not explore the third scenario here. We can only hope cooler heads prevail, no matter how dire the situation.
How it will go and what to watch
In conclusion, a nuclear weapon will be an inflationary impulse, causing buyers to panic and look for alternative origins immediately. Policies will need to be adjusted immediately.
The European Union’s focus will shift from deforestation to “Where can I ensure supplies? " It will place much greater emphasis on acting fast if the broader risk of war looms. Ample power generation will be a crucial focus.
Governments will try to address price gouging and may even resort quickly to price controls. Friend-shoring commodity supply chains may need to align with picking sides in the conflict. The de-deglobalization trend will continue to accelerate.
An important country to watch will be Brazil. Brazil’s largest trade partner is China. Its trade flows with Russia have increased since the Ukraine invasion and depends heavily on fertilizer imports. Lula has more often sided with the Global South while always walking a fine line to keep the USA leadership pacified.
India has made clear its obligation is to its citizens, not picking sides.
The most important question is how NATO and the USA will respond. No one wants nuclear war. Would an outgoing Biden administration be willing to risk a nuclear response? Is Trump just crazy enough to follow through on his threats (as many allege)? How would countries like India or Turkey (a NATO member) react? China and Russia are permanent members of the UN Security Council.
These are impossible questions to answer with any certainty, and let’s hope we never have to. Unfortunately, this is fast becoming a threat traders must consider, placed squarely in the “unknown unknowns.”
Here are additional resources:
Nuclear Energy Agency (NEA): Chernobyl agricultural and environmental impacts
Friend-shoring global value chains: a model-based assessment
ArchaiQ (AiQ) is a partner of Easy Newz. This is not trading or investment advice. Trading Futures is high-risk; please consult with a professional. AiQ receives input from partners and experts worldwide. Sign up for a free weekly global production and weather risks update on our website.
