While in the election season much focus gets put on domestic problems, and while we have many, they are not of the scale that are likely going to be the trigger to set off a world encompassing calamity.

Geopolitically we are the global foundation that the rest of the world relies upon to keep things from blowing up or collapsing. U.S. weaknesses are exaggerated for political gain. Besides us, there are few other nations in the world capable of producing fall-out of a magnitude that the world order could not stabilize. I think that such candidates may include the Japanese yen carry trade, the new tri-Axis powers Russia, Iran and North Korea as well as the obvious suspect …China. Of those likely suspects, it is China that has the larger destabilizing potential to upend the world economy. China is also the most directly linked to the U.S. ag economy. What happens to the Chinese economy is going to carry through to the Corn-Belt economy giving us in the farm sector greater vulnerability than the country as a whole.

I am cautious about predicting catastrophes. As Ronald Reagan once put it … if a convoy of trucks is careening down the highway and you are standing in the middle of the road in front of them … 9 out of 10 will swerve into the ditch before they hit you. Most of the time, providence will save you, but then again once in a while the meteor hits destroying the dinosaurs. At that magnitude there is not much you can do to survive.

Most calamities will not be that catastrophic of a scale that they will not be survivable. If you duck and hide, you make it. Right now, for whatever reason, Warren Buffett is getting smaller. He is reducing Berkshire Hathaway’s financial profile and exposure so as to avoid some risk as yet to be determined. He is acting in a preemptive manner, benefiting from a melt-up in equity values to go to cash. In almost every financial calamity in history, with the possible exception of the Weimar republic in Germany, “Cash is King!”

Grain farmers do not have the options or luxury that Buffett now has to cash out at exceptionally good profitable price levels. The September rally in corn and soybeans did not reach levels that produced serious profitability or attracted much farmer selling. It did offer an opportunity for liquidity, to reduce inventories and shrink risk. My belief was that rally was a correction in a bear market and that the August lows are a very vulnerable bear market target. It is harvest, and farmers again own the grain … holding the bag. They are “it.” Most grain sales are forced either by cash flow or lack of adequate on-farm storage. Elevators are forcing sales decisions with high commercial storage rates.

Circling back to China. It was Chinese gross domestic product growth that boosted global commodity demand the past couple decades. Farmers the world over, but particularly in Brazil, responded with relentless expansion of production. China initially focused their demand on buying in the U.S. where they were selling their goods. Making a long story short, acrimony developed, efforts to negotiate accommodations such as the Phase One trade deal failed and that has left the U.S. in the position of being their last resort as a source for commodities. The U.S. has become the global residual supplier and the holder of carryover stocks after demand has been satisfied. China avoids the U.S. market except when it makes no sense financially to do so, which severely limits U.S. access to their demand. After the exchange of tariffs initiated by then president Donald Trump, China switched dancing partners, making a new alliance with Brazil becoming their primary source of food commodities. There are some significant logistical investments that have been made between China and Brazil that will not be easily reversed.

Nothing that I see currently incentivizes China to return to make the U.S. its primary food commodity supplier. Initially U.S. soy sales shifted from China to others, but Brazil, with a competitive cost of production to ours, is now capable of flooding the world market with supply. With a projected U.S. carryover of 550 million bushels of soybeans, the U.S. has a burdensome supply that it cannot find a buyer for. On top of that, CONAB forecasts 2025 Brazilian soybean production of 166.1 mmts, up over 12% from what they said Brazil produced last year. As we have noted, the late monsoon should not harm Brazil’s soybean production.

While the U.S. in general should not be threatened by a Chinese economic collapse, sectors of it such as ours, agriculture, will not be so lucky. The world would be awash with commodities and those holding an inventory will be bloodied.

My advice is to not hold an inventory. If you are planning to plant again next year, that is of course impossible to do. You sell one inventory only to grow another. Hedging in futures markets is one way to shrink inventory. Costs have been slow to adjust. Pare the advice down to “get smaller.” Getting stuck with inventory that devalues is staying on the road to perdition.

If the Chinese economic calamity destabilizes the Communist ruling party, there is no way to predict how such events could metastasize. A dying regime could lash out in a last gasp grasp at survival.

A Chinese economic calamity is just one reason that the global economy could go south. We should not pretend that we can see all of the potential arrows coming.

I will discuss risk of an unwinding of the Japanese yen carry trade and the alliance of Russia, Iran and North Korea as existential threats to the global economy in a report to follow.