The cattle crisis: 100 years of Canadian cattle prices

Graph of Canadian cattle prices, historic, 1918-2018
Canadian cattle prices at slaughter, Alberta and Ontario, 1918-2018

Earlier this month, Brazilian beef packer Marfrig Global Foods announced it is acquiring 51 percent ownership of US-based National Beef Packing for just under $1 billion (USD).  The merged entity will slaughter about 5.5 million cattle per year, making Marfrig/National the world’s fourth-largest beef packer.  (The top-three are JBS, 17.4 million per year; Tyson, 7.7 million; and Cargill, 7.6.)  To put these numbers into perspective, with the Marfrig/National merger, the largest four packing companies will together slaughter about 15 times more cattle worldwide than Canada produces in a given year.  In light of continuing consolidation in the beef sector it is worth taking a look at how cattle farmers and ranchers are fairing.

This week’s graph shows Canadian cattle prices from 1918 to 2018.  The heavy blue line shows Ontario slaughter steer prices, and is representative of Eastern Canadian cattle prices.  The narrower tan-coloured line shows Alberta slaughter steer prices, and is representative for Western Canada.  The prices are in dollars per pound and they are adjusted for inflation.

The two red lines at the centre of the graph delineate the price range from 1942 to 1989.  The red lines on the right-hand side of the graph delineate prices since 1989.  The difference between the two periods is stark.  In the 47 years before 1989, Canadian slaughter steer prices never fell below $1.50 per pound (adjusted for inflation).  In the 28 years since 1989, prices have rarely risen that high.  Price levels that used to mark the bottom of the market now mark the top.

What changed in 1989?  Several things:

1.       The arrival of US-based Cargill in Canada in that year marked the beginning of integration and consolidation of the North American continental market.  This was later followed by global integration as packers such as Brazil-based JBS set up plants in Canada and elsewhere.

2.       Packing companies became much larger but packing plants became much less numerous.  Gone were the days when two or three packing plants in a given city would compete to purchase cattle.

3.       Packer consolidation and giantism was faciliated by trade agreements and global economic integration.  It was in 1989 that Canada signed the Canada-US Free Trade Agreement (CUSTA).  A few years later Canada would sign the NAFTA, the World Trade Organization (WTO) Agreement on Agriculture, and other bilateral and multilateral “free trade” deals.

4.       Packing companies created captive supplies—feedlots full of packer-owned cattle that the company could draw from if open-market prices rose, curtailing demand for farmers’ cattle and disciplining prices.

Prices and profits are only partly determined by supply and demand.  A larger factor is market power.  It is this power that determines the allocation of profits within a supply chain.  In the late ’80s and continuing today, the power balance between packers and farmers shifted as packers merged to become giant, global corporations.  The balance shifted as packing plants became less numerous, reducing competition for farmers’ cattle.  The balance shifted still further as packers began to utilize captive supplies.  And it shifted further still as trade agreements thrust farmers in every nation into a single, hyper-competitive global market.  Because market power determines profit allocation, these shifts increased the profit share for packers and decreased the share for farmers.   The effects on cattle farmers have been devastating.  Since the latter-1980s, Canada has lost half of its cattle farmers and ranchers.

For more background and analysis, please see the 2008 report by the National Farmers Union: The Farm Crisis and the Cattle Sector: Toward a New Analysis and New Solutions.

Graph sources: numerous, including Statistics Canada CANSIM Tables 002-0043, 003-0068, 003-0084; and  Statistics Canada “Livestock and Animal Products”, Cat. No. 23-203



There are just two sources of energy

Graph of global primary energy supply by fuel or energy source, 1965-2016
Global primary energy consumption by fuel or energy source, 1965-2016

Our petro-industrial civilization produces and consumes a seemingly diverse suite of energies: oil, coal, ethanol, hydroelectricity, gasoline, geothermal heat, hydrogen, solar power, propane, uranium, wind, wood, dung.  At the most foundational level, however, there are just two sources of energy.  Two sources provide more than 99 percent of the power for our civilization: solar and nuclear.  Every other significant energy source is a form of one of these two.  Most are forms of solar.

When we burn wood we release previously captured solar energy.  The firelight we see and the heat we feel are energies from sunlight that arrived decades ago.  That sunlight was transformed into chemical energy in the leaves of trees and used to form wood.  And when we burn that wood, we turn that chemical-bond energy back into light and heat.  Energy from wood is a form of contemporary solar energy because it embodies solar energy mostly captured years or decades ago, as distinct from fossil energy sources such as coal and oil that embody solar energy captured many millions of years ago.

Straw and other biomass are a similar story: contemporary solar energy stored as chemical-bond energy then released through oxidation in fire.  Ethanol, biodiesel, and other biofuels are also forms of contemporary solar energy (though subsidized by the fossil fuels used to create fertilizers, fuels, etc.).

Coal, natural gas, and oil products such as gasoline and diesel fuel are also, fundamentally, forms of solar energy, but not contemporary solar energy: fossil.  The energy in fossil fuels is the sun’s energy that fell on leaves and algae in ancient forests and seas.  When we burn gasoline in our cars, we are propelled to the corner store by ancient sunlight.

Wind power is solar energy.  Heat from the sun creates air-temperature differences that drive air movements that can be turned into electrical energy by wind turbines, mechanical work by windmills, or geographic motion by sailing ships.

Hydroelectric power is solar energy.  The sun evaporates and lifts water from oceans, lakes, and other water bodies, and that water falls on mountains and highlands where it is aggregated by terrain and gravity to form the rivers that humans dam to create hydro-power.

Of course, solar energy (both photovoltaic electricity and solar-thermal heat) is solar energy.

Approximately 86 percent of our non-food energy comes from fossil-solar sources such as oil, natural gas, and coal.  Another 9 percent comes from contemporary solar sources, mostly hydro-electric, with a small but rapidly growing contribution from wind turbines and solar photovoltaic panels.  In total, then, 95 percent of the energy we use comes from solar sources—contemporary or fossil.  As is obvious upon reflection, the Sun powers the Earth.

The only major energy source that is not solar-based is nuclear power: energy from the atomic decay of unstable, heavy elements buried in the ground billions of years ago when our planet was formed.  We utilize nuclear energy directly, in reactors, and also indirectly, when we tap geothermal energies (atomic decay provides 60-80 percent of the heat from within the Earth).  Uranium and other radioactive elements were forged in the cores of stars that exploded before our Earth and Sun were created billions of years ago.  The source for nuclear energy is therefore not solar, but nonetheless stellar; energized not by our sun, but by another.  Our universe is energized by its stars.

There are two minor exceptions to the rule that our energy comes from nuclear and solar sources: Tidal power results from the interaction of the moon’s gravitational field and the initial rotational motion imparted to the Earth; and geothermal energy is, in its minor fraction, a product of residual heat within the Earth, and of gravity.  Tidal and geothermal sources provide just a small fraction of one percent of our energy supply.

Some oft-touted energy sources are not mentioned above.  Because some are not energy sources at all.  Rather, they are energy-storage media.  Hydrogen is one example.  We can create purified hydrogen by, for instance, using electricity to split water into its oxygen and hydrogen atoms.  But this requires energy inputs, and the energy we get out when we burn hydrogen or react it in a fuel cell is less than the energy we put in to purify it.  Hydrogen, therefore, functions like a gaseous battery: energy carrier, not energy source.

Understanding that virtually all energy sources are solar or nuclear in origin reduces the intellectual clutter and clarifies our options.  We are left with three energy supply categories when making choices about our future:
– Fossil solar: oil, natural gas, and coal;
– Contemporary solar: hydroelectricity, wood, biomass, wind, photovoltaic electricity, ethanol and biodiesel (again, often energy-subsidized from fossil-solar sources); and
– Nuclear.

Knowing that virtually all energy flows have their origins in our sun or other stars helps us critically evaluate oft-heard ideas that there may exist undiscovered energy sources.  To the contrary, it is extremely unlikely that there are energy sources we’ve overlooked.  The solution to energy supply constraints and climate change is not likely to be “innovation” or “technology.” Though some people hold out hope for nuclear fusion (creating a small sun on Earth rather than utilizing the conveniently-placed large sun in the sky) it is unlikely that fusion will be developed and deployed this century.  Thus, the suite of energy sources we now employ is probably the suite that will power our civilization for generations to come.  And since fossil solar sources are both limited and climate-disrupting, an easy prediction is that contemporary solar sources such as wind turbines and solar photovoltaic panels will play a dominant role in the future.


Graph sources: BP Statistical Review of World Energy 2017