Pig cycle

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Pig cycle refers to a periodic fluctuation in the amount of supply and the market price . Arthur Hanau coined the term “pig price cycle” in his agricultural science dissertation on pig prices in 1927 ; the term “pig cycle” is common in economics .

model

Schematic representation of the pig cycle

When market prices are high, there is increased investment . Because of the rearing time, these only have a delay effect ("time lag") on the supply and lead to an oversupply and price decline . Many suppliers reduce their production, which also only has a delayed effect - and then in turn leads to a relative excess of demand ( supply gap ) and thus increasing prices.

These time delays in the regulating mechanism between supply, demand and price create a market situation that causes supply to fluctuate. Only when the pig farmers orient themselves to the prices to be expected at the time of marketing instead of the current pig prices at the time of the investment decision will the volatility of the market price decrease.

In terms of method, Hanau's work is based on US preliminary work by Mordecai Ezekiel and GC Haas, which statistically described fluctuations in pig prices in the USA from 1925 onwards.

The cobweb theorem , which is also based on Mordecai Ezekiel, tries to give a theoretical explanation for the pig cycle .

meaning

In economics, the term is used figuratively for analog processes in other markets. In labor markets, for example, high salaries or generally good opportunities in a certain area lead to an increasing number of first-year students who then push their way onto the labor market at the same time after several years. The poorer job prospects then put off potential new students. Examples of such labor markets in Germany are the engineering profession and the teaching profession.

The pig cycle can also be observed in the production of industrial goods such as computer chips : high prices for memory chips lead to an increase in investments and, with a delay, to the build-up of new capacities. When the new capacities are on the market, an oversupply arises, which causes prices to fall and leads to reduced investments until demand again exceeds supply, which in turn only reacts with a delay. Markets can also behave according to the pig cycle on real estate markets (cf. real estate clock ) or when extracting raw materials such as crude oil . The effect can also be observed to some extent in the case of electricity markets . Here, the investment cycles are particularly long due to the long implementation times for new power plants in terms of dead time ( time lag ) and the useful lives of energy technology systems. However, there is no excess demand for electricity, as this would lead to the immediate collapse of the network ( blackout ). Jan Tinbergen identified a shipbuilding cycle and a housing cycle.

Footnotes

  1. ↑ See Horst Wildemann, manager magazin online, August 20, 2008: "The pig cycle"
  2. ↑ Hans-Willy Bein, Das Parlament, April 20, 2009: "The Steel and the Pig Cycle" ( Memento from September 7, 2014 in the Internet Archive )
  3. ↑ Ralf Drescher, Handelsblatt online, August 12, 2010: "Raw materials - The mother of all pig cycles"

literature

  • A. Hanau (1928), 'The forecast of pig prices' (PDF, 2 MB). In: Quarterly issues on economic research , Reimar Hobbing publishing house, Berlin.

Web links

Wiktionary: pig cycle  - explanations of meanings, word origins, synonyms, translations