Why Do Pig Prices Swing Every Few Years? Everybody Planted Last Year's Price
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When producers decide how much to make based on today's price but sell at a price set much later, the market can oscillate indefinitely instead of settling down.
The situation being modelled
Some goods take a long time to produce, so the decision about how much to supply is made long before the selling price is known. A farmer decides how many animals to raise or how much land to plant, and the harvest reaches the market a year or more later. If that decision is based on the price observed at planting time, then a high price now produces a large quantity later, and that large quantity depresses the price when it arrives. The low price then leads to a small quantity in the following cycle, which raises the price again.
What determines the outcome
Whether the swings grow or shrink depends on a comparison:
- •Compare how strongly supply responds to price
- •Against how strongly demand responds to price
- •If demand responds more strongly, the swings shrink and settle
- •If supply responds more strongly, the swings grow indefinitely
- •If they respond equally, the oscillation continues unchanged
- •Drawing the path on a supply and demand diagram spirals, hence the name
Where it has been observed
The model was developed in the 1930s to explain patterns already visible in agricultural statistics, and the clearest case remains the multi-year cycle in pig prices, documented across several countries and long enough to have acquired its own name. Similar cycles appear in beef, where the delay is longer, and in tree crops where a planting decision commits a grower for many years. It has been applied to markets for professional training, where the number of people starting a long qualification responds to current salaries and the graduates arrive years later, producing alternating gluts and shortages.
The other kind of overshoot
A related pattern appears where the delay is in building capacity rather than in growing a crop, and the two are worth distinguishing. Shipping, property development, semiconductor plants and mining all involve investments that take years to complete, so a period of high prices triggers construction that arrives together long after demand has moved on. The resulting glut can last for years because the capacity cannot be uninstalled, which makes the downswing far longer than the upswing that caused it. The mechanism is the same lag between decision and delivery, with the added feature that the excess is durable.
Why the swings do not last forever
The model assumes producers are naive, believing the current price will hold, and real producers are not that naive, which is the main criticism of it. Once a cycle is recognised, some producers plan against it and expand when prices are low, which damps the oscillation. Futures markets exist precisely so that a producer can fix a selling price at planting time rather than guessing. Storage smooths supply between periods. Government intervention has frequently been justified on these grounds. The model survives as an illustration of how time lags alone can generate instability, without anybody behaving irrationally within their own information.
The takeaway
Where production takes a year or more, deciding quantity from today's price sends a large crop into a low price and a small one into a high price, which can oscillate indefinitely. Whether swings grow or shrink depends on whether supply or demand responds more strongly to price. Pig price cycles are the classic case, and futures markets and storage exist partly to damp them.