The Michigan Consumer Sentiment Index (MCSI) measures consumer sentiment on a wide range of economic topics, including personal finances, housing, and business conditions. For market participants within the protein markets, understanding consumer attitudes relative to their economic situation can prove to be beneficial in understanding any shifts in market demand.

Given the current economic climate, consumer sentiment this year hovered close to record lows. At the same time, many protein prices remain elevated. From 2017 through April 2022, the UB Retail Feature Beef Index and the MSCI illustrated a strong inverse correlation. It is important to note here that correlation does not suggest causation. Correlation simply measures the strength of two variables’ linear relationship.  With an already strong correlation, can consumer sentiment and beef prices be useful in understanding each other’s movements?

To further investigate the relationship between the MSCI and beef prices, we broke down our dataset into two separate time frames: pre-pandemic and pandemic. The separation of the dataset helps us determine a relevance factor that may play a part in further exploring the relationship. This quick exercise revealed correlations between the variables investigated at various degrees — all negative relationships.

Prior to the pandemic, we found a moderate to a strong negative correlation between wholesale beef prices and the MSCI when lagged for 3 months. In other words, low consumer sentiment had a relationship with high beef prices 3 months after. Again, this doesn’t mean causation.

Since the inception of the pandemic through April 2022, we found a strong correlation between beef retail feature prices and consumer sentiment. In this case, consumer sentiment was a leading variable. Essentially, high beef prices showed strong relationships with low consumer sentiment 2 months after. This suggests that rising beef prices may play a part in consumers’ attitudes toward their financial situations. In other words, if we use the price of beef as a benchmark for consumer purchasing power, rising prices relative to income could result in worsening sentiment.

The findings presented here offer insightful correlations between beef prices and the MSCI. Overall, we found that consumer sentiment and beef prices had negative correlations between one another at both the wholesale and retail levels, whether leading or lagging. This relationship held before and after the inception of the pandemic.

Again, correlation does not mean causation. It is unfair to assume that the variables investigated in this exercise have a direct effect on one another. However, after this quick exercise, and given the current inflationary environment, it is not unreasonable to empirically suggest that higher beef prices could affect consumer sentiment negatively. Still, additional analysis and modeling would be required to confidently measure this relationship. But finding these correlations is one way to begin that process.

Photo Credit: Natalia Lisovskaya / Shutterstock.com

Andrei Rjedkin
Urner Barry
1-732-240-5330 ext 293
arjedkin@urnerbarry.com

Angel Rubio
Urner Barry
1-732-240-5330
arubio@urnerbarry.com

Akash Pandey
Urner Barry
1-732-240-5330
apandey@urnerbarry.com