Consumer Sentiment Index Could Suffer From Poor Job Growth

The Consumer Sentiment Index at the end of May was reported by the University of Michigan to be 94.7, a substantial jump from April’s 89, but the joy may be short-lived, cutting into choice beef demand in coming months, says a University agricultural economist.

Brenda Boetel, Professor of Agricultural Economics at the University of Wisconsin-River Falls, said in an article Tuesday that the poor non-farm payrolls report for May could beget a poor Consumer Sentiment Index for June.  And because of a strong relationship between consumer sentiment about the economy and demand for choice beef, there is reason to believe choice beef demand will show a decline in June as well.

Friday, the US Bureau of Labor Statistics reported that US non-farm payrolls increase only 39,000 in May, well below economist estimates of 164,000, leading many to conclude the Federal Open Market Committee will not increase the Fed Funds interest rate at its June 14-15 meeting.

The growing belief that interest rates will not increase in June was behind the pressure on the US dollar on Friday, Boetel said.




Consumer confidence made a significant jump in May, reaching its highest point since June 2015 when it was 96.1, and typically, an increase in consumer sentiment would be seen as bullish for beef and cattle prices, she said.

“However, the poor job growth will likely create some pessimism in consumer sentiment, and a decrease in the index may be seen in June,” Boetel said.




Since 2010, there has been a strong positive relationship between consumer sentiment and choice boxed beef prices, she said.  The relationship was weaker in 2008 and 2009 when prices were declining along with consumer sentiment, but since January 2010, the relationship has been stronger.

But, (and this is important) “a strong relationship between consumer sentiment and boxed beef prices does not necessarily indicate a direct response,” Boetel said.  This can be seen by comparing a graph of weekly choice cutout values with the graph of consumer sentiment.

However, a decline in consumer sentiment likely will not allow beef prices to increase any, especially considering the additional pork and poultry available this year, she said.

Futures traders Tuesday said nearby contracts were energized at the expense of deferred contracts by higher wholesale beef prices.  The midday choice beef price was reported at $224.41 per cwt, up $0.31 from Monday, while select cuts jumped $2.29 to $202.37.

And even in Tuesday’s market comment, traders were more excited by the jump in select beef than in the small rise in choice where she was making a correlation.




Cash cattle markets Tuesday were quiet with no bids reported.  Asking prices were around $132 per cwt on a live basis and $210 in dressed-basis markets.

Cattle Friday traded $3 to $7 per cwt higher at $128 to $132.50 on a live basis.  Cattle traded at $203 per cwt, down $1, on a dressed basis early in the week, but moved to $2 to $3 higher at $206 to $207 later.

The USDA’s choice cutout Tuesday was $0.17 per cwt higher at $224.27 per cwt, while select was up $1.08 at $201.16.  The choice/select spread narrowed to $23.11 from $24.02 with 119 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $148.08 per cwt, down $0.63.  This compares with the Aug settlement Tuesday of $145.45, down $0.07.