The consumer sentiment index from the University of Michigan at the end of May was 94.7, substantially higher than the April level of 89. Since January 2007 there have been only four other months with higher levels than May, and all four of these months occurred in 2015. Despite meager GDP growth and a higher inflation rate, consumers appeared to be more optimistic about their financial situation.
One week later, on June 3, however, the US Bureau of Labor Statistics reported that US non-farm payrolls increased by only 38,000 in May, significantly lower than the expected growth of 164,000, and the smallest monthly increase since September 2010. Due to this poor job growth, the Fed will likely not increase interest rates after their meeting on June 14-15. The abysmal jobs report and subsequent belief regarding no increase in interest rates sent the US dollar lower on Friday.
What do these macroeconomic indicators have to do with cattle and beef markets? Typically an increase in consumer sentiment would be viewed as a positive for beef and cattle prices. However, the poor job growth will likely create some pessimism in consumer sentiment and a decrease in the index may be seen in June.
The extent of the relationship between job growth and the consumer's current state of mind shows that a decrease in job growth is related to decreasing consumer sentiment, and decreasing consumer sentiment is related to decreasing boxed beef prices. Since 2010 there has been a strong positive relationship between consumer sentiment and choice boxed beef. The strength of this relationship during this time period is stronger than it was during the January 2008 to December 2009 time period, when prices were declining along with consumer sentiment. A strong relationship between consumer sentiment and boxed beef prices does not necessarily indicate direct response; however a decrease in consumer sentiment will likely not allow beef prices to increase any, especially considering the additional pork and poultry available in 2016.
Corn and soybeans continue their trek higher and are pressuring cattle futures lower. On Monday, live cattle futures opened strong but closed lower. Futures prices have not moved in tandem with the cash market however. Cash cattle trade saw higher prices on Friday with increased showlists last week. The cash market should continue to strengthen through mid June as retailers stock up on beef prior to the July 4th holiday.
Beef cut-outs were down for the week ending June 3 with Choice beef down $0.80 and Select down $4.20. On Monday cut-outs were mixed with Choice up $1.06, while Select was down $0.39. Week ending June 3, 2016 slaughter was 520,000 head, down 11% from last week and 6% from last year, mostly due to the Memorial Day holiday.