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Economic Dynamics of the German Hog-Price Cycle

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  • Berg, Ernst
  • Huffaker, Ray

Abstract

We investigated the economic dynamics of the German hog-price cycle with an innovative ‘diagnostic’ modeling approach. Hog-price cycles are conventionally modeled stochastically—most recently as randomly-shifting sinusoidal oscillations. Alternatively, we applied Nonlinear Time Series analysis to empirically reconstruct a deterministic, low-dimensional, and nonlinear attractor from observed hog prices. We next formulated a structural (explanatory) model of the pork industry to synthesize the empirical hog-price attractor. Model simulations demonstrate that low price-elasticity of demand contributes to aperiodic price cycling – a well know result – and further reveal two other important driving factors: investment irreversibility (caused by high specificity of technology), and liquidity-driven investment behavior of German farmers.

Suggested Citation

  • Berg, Ernst & Huffaker, Ray, 2015. "Economic Dynamics of the German Hog-Price Cycle," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 6(2), pages 1-17, July.
    • Handle: RePEc:ags:ijofsd:208872
    DOI: 10.22004/ag.econ.208872
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    References listed on IDEAS

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    1. Dermot J. Hayes & Andrew Schmitz, 1987. "Hog Cycles and Countercyclical Production Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(4), pages 762-770.
    2. Holzer, Christian & Precht, Manfred, 1993. "Der chaotische Schweinezyklus - Analyse der Schweinepreise mit Instrumenten der Chaostheorie," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 42(07).
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    5. Hassani, Hossein, 2007. "Singular Spectrum Analysis: Methodology and Comparison," MPRA Paper 4991, University Library of Munich, Germany.
    6. Huffaker, Ray G., 2010. "Phase Space Reconstruction from Economic Time Series Data: Improving Models of Complex Real-World Dynamic Systems," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 1(3), pages 1-10, October.
    7. Arthur A. Harlow, 1960. "The Hog Cycle and the Cobweb Theorem," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 42(4), pages 842-853.
    8. Phillip S. Parker & J. S. Shonkwiler, 2014. "On the centenary of the German hog cycle: new findings," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 41(1), pages 47-61, February.
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    10. Matthew T. Holt & Lee A. Craig, 2006. "Nonlinear Dynamics and Structural Change in the U.S. Hog—Corn Cycle: A Time-Varying STAR Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 215-233.
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    Cited by:

    1. Huffaker, R. & Canavari, M. & Muñoz-Carpena, R., 2018. "Distinguishing between endogenous and exogenous price volatility in food security assessment: An empirical nonlinear dynamics approach," Agricultural Systems, Elsevier, vol. 160(C), pages 98-109.
    2. Ray Huffaker, 2015. "Building Economic Models Corresponding to the Real World," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 37(4), pages 537-552.
    3. Ray Huffaker & Garry Griffith & Charles Dambui & Maurizio Canavari, 2021. "Empirical Detection and Quantification of Price Transmission in Endogenously Unstable Markets: The Case of the Global–Domestic Coffee Supply Chain in Papua New Guinea," Sustainability, MDPI, vol. 13(16), pages 1-18, August.
    4. Duden, C. & Offermann, F., 2019. "Farmers' risk exposition and its drivers," 171st Seminar, September 5-6, 2019, Zürich, Switzerland 333722, European Association of Agricultural Economists.
    5. Berg, Ernst, 2017. "Impacts of Inventory Management on Price Volatility in Agricultural Commodity Markets: Insights from a System Dynamics Model," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261281, European Association of Agricultural Economists.

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