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

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

supply Supply or supplies 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 ...

and prices in

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 *Marketing, the act of sat ...

s. It was first observed in 1925 in the

pig The pig (''Sus domesticus''), also called swine (: swine) or hog, is an omnivorous, domesticated, even-toed, hoofed mammal. It is named the domestic pig when distinguishing it from other members of the genus '' Sus''. Some authorities cons ...

market in the US by

Mordecai Ezekiel Mordecai Joseph Brill Ezekiel (May 10, 1899 – October 31, 1974) was an American agrarian economist who worked for the United States government and the United Nations Food and Agriculture Organization (FAO). He was a "New Deal economic adviso ...

and in Europe in 1927 by the German scholar . In short, the pork cycle runs as thus: # As pork, being a rare good, is a high-priced item, a few farmers decide to start raising pigs. While pig supply is limited, prices remain high. # More farmers realise the value potential and also begin raising pigs. As more and more piggeries come 'online' and start delivering pigs, the price begins to decrease. # At some point, demand and supply equalise. Pig farms are still producing pigs and supply begins to outstrip demand. The prices decrease further. Pork becomes a common commodity, and consumers may get bored of pork. # In view of the decrease in prices, farmers turn away from raising pigs, and go back to more valuable crops or livestock. # As a result, the pork supply begins to decline, eventually below demand, and then pork goes back to being a high-priced item. # The cycle begins all over. While the pork cycle is so named for its genesis in the economic analysis of a

livestock Livestock are the Domestication, domesticated animals that are raised in an Agriculture, agricultural setting to provide labour and produce diversified products for consumption such as meat, Egg as food, eggs, milk, fur, leather, and wool. The t ...

market, the phenomenon can be observed on the markets of many goods.

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 Hungarian-born British economist. He developed the "compensation" criteria called Kaldor–Hicks efficiency for welfare spending, welfare comparisons ...

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 may be subjected 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, Kevin M. Murphy, and

José Scheinkman José Alexandre Scheinkman (born January 11, 1948) is a Brazilian-American 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 Un ...

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

rational expectations Rational expectations is an economic theory that seeks to infer the macroeconomic consequences of individuals' decisions based on all available knowledge. It assumes that individuals' actions are based on the best available economic theory and info ...

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