Postprint version. Published in American Journal of Agricultural Economics, Volume 82, Issue 1, February 1, 2000, pages 82-96. Copyright © 2000 Agricultural and Applied Economics Association. Published by Blackwell. The definitive version is available at http://dx.doi.org/10.1111/0002-9092.00008.
NOTE: At the time of publication, the author Stephen Hamilton was not yet affiliated with Cal Poly.
Recent evidence suggests that cyclical cattle inventories are driven by exogenous shocks. This article examines a second possible contributing factor to the cattle cycle: a market timing effect that arises from individual attempts to maintain countercyclical inventories. The model uncovers an important conceptual point: to the extent that cycles are driven by exogenous shocks, a representative producer should outperform one who maintains a constant inventory; whereas, for cycles induced by market timing, a representative producer should underperform one with a constant inventory. Simulated net returns over 1974–98 reveal that a constant-inventory manager significantly outperformed the representative U.S. producer, which indicates that market timing influences the cattle cycle.