Sort & Cull

Meat producers headed to the Hallmark store to choose just the right card for OPEC, recognizing the traditional price-setter of the global oil market, better plan on an extra measure of time. The effort could make commemorating Grandma's elopement with the pool boy look easy.

OPEC's decision last week to keep the cartel's daily output at 30 million barrels has predictably caused plunging oil prices to implode even more. Brent crude is set to close the week under $70, nearly 40% below its late June high.

This refusal to turn down the taps across the 12-country membership means that oil supplies will continue to flood the sagging economies of China and Europe. Many market analysts now anticipate that oil and gas market will stay depressed through much of 2015.

While such a definitive act deserves formal recognition by those significantly impacted by the lower cost of energy, livestock producers are understandably confused over the appropriate response. Should the card be a flowery "Thank You" or a somber note of we-feel-your-pain condolence?

Here's the crisis of protocol in a nutshell: When it comes to the profitable marketing of beef, pork, and chicken, the reality of sharply lower oil prices cuts both ways.

On one hand, crashing oil and gas prices should be great news for the average consumer budget, especially given news just released by the Labor Department of accelerating employment in November replete with the biggest gain in average hourly earnings since June 2013

The nationwide average for a gallon of gas was $2.71 Friday, nearly $1 below this year's peak of $3.70 in June. Gas hasn't been this cheap since October 2010. Indeed, I just read a wire story that several stations in Texas and Oklahoma were actually selling gas with 10% ethanol for under $2.

Less money required for gas and transportation could mean more dough to blow on steaks, burgers and chops. That's the kind of calculus (on top of cheaper operating costs) that producers can readily take to the bank.

Yet the flip side of plunging oil prices could be more problematic. A falling oil market is bullish for the U.S. dollar, taking the risk of inflation to virtually zero, eliminating the short-term threat of rising interest rates, and reducing the trade deficit.

But a stronger dollar (i.e., the dollar index is currently at its highest level since the first quarter of 2006) is bad news for the affordability and attractiveness of U.S. meat exports, forcing foreign buyers to use more of their own currency to redeem every greenback of value.

In short, the natural tango between cheap oil and a stronger dollar is likely to make for tougher sledding for U.S. exporters next year, possibly throwing more unsold tonnage on the domestic market, perhaps enough to offset any advantage in terms of greater consumer spending.

If the card store manager starts looking at his watch around closing time and you're still not sure about what to mail, I'd probably lean more toward than the cheerful greeting than the shared sympathy. Just go easy on the enthusiasm, mindful that every silver lining still contends with a dark cloud.

For more from John see www.feelofthemarket.com

(AG)

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