economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

, the term pork cycle, hog cycle, or cattle cycle describes the phenomenon of cyclical fluctuations of

supply Supply may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as in confidenc ...

and prices in

livestock Livestock are the domesticated animals raised in an agricultural setting to provide labor and produce diversified products for consumption such as meat, eggs, milk, fur, leather, and wool. The term is sometimes used to refer solely to animals ...

markets. It was first observed in 1925 in

pig The pig (''Sus domesticus''), often called swine, hog, or domestic pig when distinguishing from other members of the genus '' Sus'', is an omnivorous, domesticated, even-toed, hoofed mammal. It is variously considered a subspecies of ''Sus ...

market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...

s in the US by Mordecai Ezekiel and in Europe in 1927 by the German scholar .

Explanations of cycles in livestock markets

The cobweb model

Nicholas Kaldor Nicholas Kaldor, Baron Kaldor (12 May 1908 – 30 September 1986), born Káldor Miklós, was a Cambridge economist in the post-war period. He developed the "compensation" criteria called Kaldor–Hicks efficiency for welfare comparisons (1939), d ...

proposed a model of fluctuations in agricultural markets called the

cobweb model The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen bef ...

, based on production lags and

adaptive expectations In economics, adaptive expectations is a hypothesized process by which people form their expectations about what will happen in the future based on what has happened in the past. For example, if people want to create an expectation of the inflatio ...

. In his model, when prices are high, more investments are made. However, the effect of these investments is delayed due to the breeding time - the production lag. Eventually, the market becomes saturated, leading to a decline in prices. Production is thus decreased and again, this takes time to be noticed, leading to increased demand and again increased prices. The cycle continues to repeat, producing a supply-demand graph resembling a cobweb. The model has also been applied in certain labour sectors: high salaries in a particular sector lead to an increased number of students studying the relevant subject; when these students enter the job market at the same time after several years of studying, their job prospects and salaries are much worse due to the new surplus of applicants. This in turn deters students from studying this subject, producing a deficiency and higher wages once again.

An alternative model

Kaldor's model involves an assumption that investors make systematic mistakes. In his model, investing (i.e. breeding cattle rather than slaughtering them) when prices are high causes future prices to fall - foreseeing this (i.e. slaughtering more when prices are high) can yield higher profits for the investors.

Sherwin Rosen Sherwin Rosen (September 29, 1938 – March 17, 2001) was an American labor economist. He had ties with many American universities and academic institutions including the University of Chicago, the University of Rochester, Stanford University a ...

Kevin M. Murphy Kevin Miles Murphy (born 1958) is the George J. Stigler Distinguished Service Professor of Economics at the University of Chicago Booth School of Business and a Senior Fellow at the Hoover Institution. In 1997 Murphy was awarded the prestigi ...

, and

José Scheinkman José Alexandre Scheinkman (born January 11, 1948) is a Brazilian economist, currently the Charles and Lynn Zhang Professor of Economics at Columbia University and the Theodore A. Wells '29 Professor of Economics Emeritus at Princeton University. ...

(1994) proposed an alternative model in which cattle ranchers have perfectly

rational expectations In economics, "rational expectations" are model-consistent expectations, in that agents inside the model A model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16 ...

about future prices. They showed that even in this case, the three-year lifetime of beef cattle would cause rational ranchers to choose breeding versus slaughtering in a way that would cause cattle populations to fluctuate over time.

Explanations of cycles in livestock markets

The cobweb model

An alternative model

See also

References

Further reading