Paper presented at:

The 22 International Conference of the System Dynamics Society

Oxford, England, July 25-29, 2004
nd

The Dynamics of Agricultural Commodities and

Their Responses to Disruptions of Considerable Magnitude
Stephen H. Conrad
Sandia National Laboratories1
P. O. Box 5800, Albuquerque, New Mexico, USA 87185-1138
Phone: 505 844 5267, Fax: 505 844 3850
Email: shconra@sandia.gov
Abstract
An agricultural commodity production cycle model consisting of corn, beef, and dairy sectors
was constructed for the purpose of exploring the propagating effects of large-scale disruptive
events. In an initial proof-of-concept exercise, we considered an agricultural disruption scenario
in which foot-and-mouth disease (FMD) is introduced into the U.S., causing a large-scale
outbreak of the disease in both beef and dairy cattle. The magnitude of disruption to the beef and
dairy sectors are presented under the existing FMD response policy and then improvements
under two alternative policies are shown.
Introduction and Motivation
A project team consisting of participants from Argonne National Laboratory, Los Alamos
National Laboratory, and Sandia National Laboratories has been tasked by the U.S. Department
of Homeland Security with developing a risk-based decision support system that provides
insights for making critical infrastructure protection decisions by considering all 14 critical
infrastructures and their primary interdependencies. The purpose of this modeling effort is to
simulate disruption scenarios, evaluate consequences, and evaluate the effectiveness of proposed
mitigation actions.
In the initial 6-month, proof-of-concept phase, our goal was to demonstrate capabilities in
building and linking SD models of multiple infrastructures to begin developing insight into
infrastructures as dynamic systems. In this first phase we exercised the system of linked models
using two disruption scenarios one in telecommunications and one in agriculture. The
telecommunications disruption scenario explored categorical complexity as the effects of a
disruption telecommunications cascaded into other linked infrastructures such as electric power
1

Sandia is a multi-program laboratory operated by Sandia Corporation, a Lockheed Martin Company, for
the United States Department of Energys National Nuclear Security Administration under Contract DEAC04-94AL85000.

and banking and finance. The disruption in agriculture was more self-contained, with interesting
dynamics generated by the structural complexity to be found in agricultural commodity
production systems. The purpose of this paper is to describe the model of agricultural production
that was developed and to present some interesting initial results.
Model description
This work builds on the seminal publication of Meadows (1970) on commodity production
cycles (that is, the hogs model). The basic feedback structure for production cycles proposed
by Meadows is shown in the CLD in Figure 1. Meadows showed that exogenous fluctuations
propagate to cause oscillatory/cyclic behavior and that cycle periods from the model compared
well with the durations of historical commodity cycles. The purpose of Meadows modeling effort
was to develop a more powerful tool for the design of commodity stabilization policies.
+

Production
Capacity
+

Inventory

+
Inventory
Coverage

Consumption
-

Price

Figure 1. Feedback loop structure for commodity production cycles (after Meadows, 1970).
Our purpose for modeling agricultural commodity production is somewhat different. In our work
for the Department of Homeland Security, we are tasked with understanding the propagating
effects of large-scale disruptive events (whether they occur naturally or by malevolent attack).
Comparing the relative magnitude of various disruptive events can help to guide investments for
prevention. In building and analyzing SD models, we hope to develop insights about the
robustness of existing systems to various disruptions. Given that an event occurs, we can
evaluate various policies for how best to mitigate the disruption and facilitate restoration.
The initial incarnation of the agricultural commodities model simulates interacting agricultural
commodities corn, beef, and dairy. Together, these three sectors account for nearly 40% of
cash receipts for agricultural products in the U.S. (see figure 2). Our intent is to eventually

expand the model to include soybeans, broilers, and hogs. Animal feed is a very elastic market
where the relative pricing of other feeds such as soymeal can have a great deal of impact on corn
prices. On the demand side, hogs and broilers compete with cattle for animal feed. In addition,
prices for alternative meats affect consumer demand for beef. Eventual inclusion of these six
sectors will allow us to account for almost 60% of cash receipts for agricultural products in the
U.S. (see again, figure 2).

Figure 2. Values of the top 10 agricultural commodities, 1996.

Figure 3 illustrates how corn production interacts with beef production. In the U.S., almost 60%
of corn production is used as animal feed. The CLD in Figure 4 shows the interactions between
the three modeled agricultural sectors currently implemented in the U.S. agriculture commodities
model. Here the price of corn affects beef and dairy production because added costs affect profit
margins. Although hogs and broilers are not yet modeled explicitly, a simple elasticity is used to
vary their consumption of feed as a function of the corn price. Similarly, corn exports are varied
elastically as a function of corn price. (For readability exports were not shown in the figure.)

Corn
Inventory

Corn
Consumption

+
Corn
Production
+

Corn
Coverage

Beef
Inventory

+
Corn
Price

Beef
Production
+

Beef
Coverage

Beef
Consumption
-

Beef
Price

Figure 3. An example interaction between agricultural commodity production cycles.

Beef Inventory

Beef
Production

Corn Inventory

Beef Coverage

Beef
Consumption

Beef Price
Corn
Production

Corn
Coverage

Animal Feed
Consumption
Dairy Inventory

Corn Price
Dairy
Production

Hog and
Poultry
Production
(not modeled)

Dairy
Coverage

Dairy
Consumption

Dairy Price

Figure 4. Interactions between the corn, beef, and dairy sectors in the U.S. agricultural
commodities model.

Figure 5 shows the stock and flow diagram for the corn sector. The negative feedback loop for
production is identified by the orange arrows. Since corn production is so strongly seasonal
(planted in the spring and harvested in the fall), seasonal effects are explicitly captured in the
model. Although in reality, farmers can respond to price signals during the growing season by
varying their applications of fertilizer and pesticide, the foremost way they respond to price is in
their decision about how much corn to plant in the spring. In the model this is the only way for
corn producers to respond to price. Harvested corn accumulates in the fall and is depleted over
the course of the year until the next harvest. Harvested corn is distributed three main ways. Of
course, corn to be used as animal feed is of primary interest to us. The relatively high elasticity
of this demand for corn is captured either explicitly in the beef and dairy sectors or implicitly
using a simple elasticity for hogs and broilers. Initially in equilibrium, animal feed accounts for
58% of total demand. The demand for corn that goes to milling operations is inelastic relative to
animal feed and is assumed constant for the purposes of this model. Milling operations process
corn for food and industrial applications. Major products include ethanol, high fructose corn
syrup and other sweeteners, starches, cereal, and alcohol. Milling operations account for 23% of
demand. Exports account for 19% of demand. The feedback loop for consumption does not
explicitly appear in this sector because it occurs by way of the beef and dairy sectors.

<relative expected
corn price for
consumers>

corn crop losses

disease
duration
onset of disease

losses from
corn disease

time to begin
harvesting

acres of corn at
onset of disease

planting corn

corn sales
elasticity

acres of corn at
beginning of harvest
harvesting
acres of corn

acres of
corn

time to complete
harvesting

corn
exports

time to complete
planting
desired acres
of corn

price effect on
planting corn

expected
harvest

corn sales to
cattle feedlots

max acres of
corn
normal total
corn sales

normal acres
of corn

desired corn
coverage f

corn planting
elasticity

relative expected
corn price for
growers

time to form
expectation about
corn price

harvested
corn

harvesting
tonnes of corn

desired corn
coverage

corn price

corn
inventory at
dairies
corn
inventory at
feedlots

feeding dairy
cows

feeding beef
cattle
cows on
feedlots

sales to
dry mills

sales to
wet mills

beef cattle corn

consumption

relative corn
coverage

corn coverage
elasticity

normal
corn price

expected
corn price
for growers

dairy cows

anticipated
inventory

corn coverage

time to get to
normal corn price

dairy cow corn

consumption

other corn
feed sales
corn sales to
dairies

average corn
yield

time to begin
planting

normal other corn

feed sales

coverage effect
on corn price

unsubsidized
corn price

subsidized corn
price
expected
corn price for
consumers

initial corn price

relative expected corn
price for consumers

Figure 5. Stock and flow diagram of the corn sector. The variables highlighted in blue introduce
feedbacks from the beef and dairy sectors. The negative feedback loop for production is
identified by the orange arrows.

Figure 6 shows the stock and flow diagram for the beef sector. The brown arrows indicate the
relatively rapid negative feedback loop for consumption and the red arrows indicate the slower
negative feedback loop for production. As in Meadows hogs model, there is also a positive
feedback loop in the production cycle (indicated as the green shortcut through the production
loop) and operating as follows:
1. As beef prices rise, there is a desire to acquire more breed stock to produce more beef to
take advantage of favorable prices.
2. Acquiring more breed stock removes cattle from later in the aging chain. (In reality,
ranchers release fewer female calves to market, retaining more of these calves to increase
their breed stock.)
3. Cattle removed (or withheld) from the aging chain eventually lowers the beef inventory
causing prices to rise.
The prime cattle at the end of the aging chain reside on feedlots and consume a diet that consists
mainly of corn feed. The size of this population affects corn consumption. Any seasonal effects
in beef production are considered to be secondary and therefore ignored.
FMD fractional
disease to cow&calf
operations

FMD fractional
disease

disease to beef
calves in utero

beef calf breeding

disease to beef
calves

disease to
prime cattle

disease to
stockers

beef calves
in utero

beef
calving

beef
calves

stockers
weaning beef
calves

fattening
beef cattle

prime
cattle

slaughtering
beef cattle

population

beef cattle fertility

getting beef cattle
breed stock
disease to
beef cattle
breed stock

beef packing

beef cattle
breed stock

reducing beef
cattle breed stock

<dairy cows to
slaughter>

time to get normal

breed stock

normal wholesale
beef price per pound

proportional
beef yield

per cap
demand
for beef

relative beef
consumption

desired beef
coverage

desired breed
stock

breeding price
elasticity

time to change
consumption

beef
sales

beef coverage

breeding stock
acquisition delay

normal
breed stock

beef
inventory

price effect on
breeding

break even
beef price

beef coverage
elasticity

coverage effect
on beef price

time to get normal

beef price
time for beef price
expectations

normal beef
price

unsubsidiz ed
beef price

Indicated
demand for beef

normal beef
consumption

change in demand
with recovery

marketing
margin for beef

price effect on
beef demand

beef price
elasticity

fractional increase in
retail price of beef
retail beef price

beef subsidy
price

feed price effect

on beef price

normal cost of
corn feed

fractional change
in demand for
beef

beef price

expected
beef price

live weight of
slaughtered cows

time to recover

Normal retail
beef price

<relative expected
corn price for
consumers>

Figure 6. Stock and flow diagram of the beef sector. The variables highlighted in blue introduce
feedbacks from the corn and dairy sectors. The variables highlighted in orange indicate where
disruptions are introduced. The negative feedback loop for consumption is identified by the
brown arrows. Feedbacks in production are identified by the red and green arrows.
Figure 7 shows the stock and flow diagram for the dairy sector. The brown arrows indicate the
relatively rapid negative feedback loop for consumption and the red, pink, and green arrows
indicate the slower feedback loops for production. Diary production differs from beef (or hog)
production in that the breed stock is not at all separate, but instead exists at the end of the aging
6

chain. Cows give milk only after giving birth; milk cows produce both milk and calves. Milk
prices affect the desired size of the dairy herd, which affect milk production which, in turn,
affects milk prices. The dairy herd size can be adjusted downward through a combination of
slaughtering more female dairy calves2 (pink arrows) or more immediately by culling the
milking herd (green arrows). Following the path through the pink arrows first:
1. Lower milk prices leads to a desire to adjust downward the size of the dairy herd.
2. Slaughtering more dairy calves leads to fewer heifers and eventually fewer milk cows.
3. Having fewer milk cows leads to less milk production, thus stabilizing milk prices.
4. But, fewer milk cows also leads to less breeding and eventually through the aging chain
to still fewer milk cows and still less milk production (unless the slaughtering of dairy
calves is adjusted downward to provide a sufficient number of replacement heifers to
stabilize the size of the milking herd).
Now following the green arrows:
1. Lower milk prices leads to a desire to adjust downward the size of the dairy herd.
2. Increased culling of milk cows in the dairy herd leads to less milk production, thus
stabilizing milk prices.
3. But again, having fewer milk cows also leads to less breeding and eventually through the
aging chain to still fewer milk cows and still less milk production (unless the slaughtering
of dairy calves is adjusted downward to provide a sufficient number of replacement
heifers to stabilize the size of the milking herd).
Perhaps this failure recognize that reducing the size of the dairy herd not only reduces milk
production, but also reduces the size of the breed stock may account for the notorious cyclic
volatility in milk prices. Milk marketing boards have been established to smooth milk prices and
thereby dampen volatility, but they have been only modestly effective. This could be a fruitful
area for additional work to explore this issue further.
As in the beef sector, any seasonal effects in dairy production are considered to be secondary and
therefore ignored.
Some Initial Results
The model was initially set in equilibrium. First, lets look at a step change in the demand for
beef to see how this perturbation can initiate oscillatory behavior. The 30-year simulation in
Figure 8 shows that a 5% drop in demand that persists for one year can cause the population of
beef cattle to oscillate with a cycle of about 11 years consistent with data presented in the
agricultural literature (e.g., Mathews et al., 1999; Mundlak and Huang, 1996; Rosen et al., 1994;
Trapp, 1986; Crom, 1981) and in Sterman (2000) showing that the cattle cycle averages about
10-12 years.
This model can be used to explore a variety of agricultural disruptions such as:
Change in demand for beef or dairy products
Significant corn crop losses due to disease or drought
Forced reduction in beef cattle breed stock as the carrying capacity of western range land
is diminished due to drought
2

Virtually all male dairy calves are slaughtered because they have negligible value except as veal.

Loss of exports (such as the U.S. is currently experiencing due to detection of BSE in the
state of Washington)
Widespread cattle disease
dairy breed
stock

dairy fertility

disease to
heifers

disease to dairy
calves

dairy calf
breeding

dairy calves
in utero

disease to dairy
calves in utero

dairy calving

dairy
calves

maturing

heifers

disease to milk
cows

milk production
per head

milk cows
first calving

culling dairy
herd

adjusting using old

cows or calves?

slaughtering
dairy calves

milking duration

milk production

milk
inventory

time to adjust
dairy herd size
desired dairy
herd size

milk coverage
elasticity

break even
milk price

fractional feed
cost

normal dairy
consumption

<relative expected
corn price for
consumers>

indicated demand
for dairy products

time to form milk

price expectation
market pressure
on milk price

expected
milk price

feed price effect on

milk production cost

per cap
demand for
dairy products

desired milk
coverage
coverage effect
on milk price

price effect on
dairy herd size

dairy herd
elasticity

<population>

milk coverage

normal dairy
herd size

<time to change
consumption>

milk sales

adjusting dairy
herd size

milk price

milk support
price

milk
marketing
order price

initial milk
marketing order
price

price effect on
dairy demand

time to update milk

marketing order price

fractional increase in
retail dairy price
retail price of
dairy products

marketing
margin for dairy

dairy demand
elasticity

normal retail
dairy price

normal milk
price
time to get normal
milk price

Figure 7. Stock and flow diagram of the dairy sector. The variable highlighted in blue introduces
feedbacks from the corn sector. The variables highlighted in orange indicate where disruptions
are introduced. The negative feedback loop for consumption is identified by the brown arrows.
Feedbacks in production are identified by the red, pink, and green arrows.
As an example of using the model to explore the consequences of widespread cattle disease, we
considered an agricultural disruption scenario in which foot-and-mouth disease (FMD) is
introduced into the U.S., causing a large-scale outbreak of the disease in both beef and dairy
cattle. FMD is a highly contagious viral infection that is transmitted via: direct or indirect contact
with infected animals or contaminated materials; aerosol from infected animals; humans carrying
FMD virus in their system; contaminated feed; or, contact with contaminated objects. Clinical
signs of the disease develop in 3 to 5 days. While he morbidity rate is nearly 100%, the mortality
rate is less than 1%. The course of infection is 2 to 3 weeks in cattle, but secondary infection
may delay recovery. Lactating animals may not recover to pre-infection production. Beef cattle
will lose weight during the course of infection and may not regain weight at previous rates. FMD
does not affect humans.

total beef cattle

70 M
68.75 M
67.5 M
66.25 M
65 M
0

36

72

108

144 180 216

Time (Month)

total beef cattle : step chg in beef demand

total beef cattle : equilibrium

252

288

324

360
cows
cows

Figure 8. Dampening oscillations in the population of beef cattle initiated by a 5% drop in

demand for beef in month 5 and lasting for 12 months.
Existing policy for responding to an outbreak of FMD requires quarantining and depopulating all
diseased herds and adjacent herds within the quarantine area. In this scenario, we assume that
implementation of this procedure results in reduction of the size of the cattle population by 10%.
Furthermore, other nations will impose an import ban will remain in effect until the country can
be shown to be disease free for at least 6 months. We assume that this ban remains in effect for 1
year. Since exports account for about 10% of beef sales, we will reduce demand for beef by 10%
for one year and assume that domestic demand remains unchanged (except as affected by price).
It is reasoned that aggressive quarantining and destruction of herds are warranted to stop the
spread of the disease and to reestablish exports as quickly as possible.
The simulation in Figure 9 shows significant oscillations in beef cattle populations and beef
prices. Dairy cattle populations show much less oscillation, but milk prices oscillate relatively
rapidly with a cycle period of about 4 years. Interestingly, as the length of the export ban is
extended, both beef prices and beef cattle populations become much more stable, counterintuitively suggesting that aggressive action taken to restore the export market as quickly as
possible may be counterproductive. A comparison of beef prices for a 1-year versus a 2-year
export ban is shown in Figure 10.

beef price

total beef cattle

80 M

2,000

75 M

1,500

70 M

1,000

65 M

500
0

60 M
0

36

72

108

144
180
216
Time (Month)

252

288

324

total beef cattle : 10% depop

total beef cattle : equilibrium

360
cows
cows

36

72

108

144 180
216
Time (Month)

252

288

324

beef price : 10% depop

beef price : equilibrium

total dairy cattle

360
$/cow
$/cow

milk marketing order price

15.04 M

25.17

14.39 M

21.29

13.75 M

17.41

13.10 M

13.52

12.45 M

9.642
0

36

72

108

total dairy cattle : 10% depop

total dairy cattle : equilibrium

144 180 216

Time (Month)

252

288

324

360
cows
cows

36

72

108

144 180
216
Time (Month)

milk marketing order price : 10% depop

milk marketing order price : equilibrium

252

288

324

360
$/cwt
$/cwt

Figure 9. Effects of a nearly instantaneous 10% reduction in the size of the U.S. cattle
population combined with a simultaneous 10%, one-year drop in demand for beef (due to loss of
exports).
Understanding both the structure inherent in the beef cattle aging chain and the geography of
cattle ranching in the American west suggests an improvement to the existing quarantine and
depopulation policy. Herds of beef cattle breed stock graze on ranches and public lands that exist
predominantly in the lightly-populated, Mountain Time zone region. These herds, together with
their calves, are commonly called cow&calf operations. Calves are sold and shipped to stocker
and feedlot operations located in the Great Plains. Cow&calf operations tend to be relatively
isolated and far less prone to contagion than cattle further along the aging chain that are truck
transported through a succession of trading barns, feedlots, and packing plants. So, in addition to
relying solely on quarantining and destruction of herds, we propose that perhaps relatively low
cost preventative measures to protect cow&calf operations could be instituted. Figures 11
through 13 compare the effects of a 10% cattle loss versus a 10% cattle loss excepting the
cow&calf operations. These figures show that protecting cow&calf operations help stabilize beef
prices, beef sales, and beef cattle populations respectively. Likewise, corn prices and corn sales
to feedlots are stabilized as well. Unfortunately, this policy option does little to help stabilize the
dairy sector because the dairy breed stock the milk cows are not nearly as isolated from
contagion and therefore not as easily protected.

10

beef price
2,000
1,500
1,000
500
0
0

36

72

108

144
180
216
Time (Month)

252

288

324

beef price : 10% depop, 2yr export ban

beef price : 10% depop
beef price : equilibrium

360
$/cow
$/cow
$/cow

Figure 10. Extending the export ban helps to stabilize beef prices.

beef price
2,000
1,500
1,000
500
0
0

36

72

108

144
180
216
Time (Month)

beef price : 10% depop, except C&C

beef price : 10% depop
beef price : equilibrium

252

288

324

360
$/cow
$/cow
$/cow

Figure 11. Protection of cow&calf operations helps to stabilize beef prices.

11

beef sales
2.975 M
2.697 M
2.419 M
2.141 M
1.863 M
0

36

72

108

144 180 216

Time (Month)

252

288

beef sales : 10% depop, except C&C

beef sales : 10% depop
beef sales : equilibrium

324

360

cows/Month
cows/Month
cows/Month

Figure 12. Protection of cow&calf operations helps to stabilize beef sales.

total beef cattle

80 M
75 M
70 M
65 M
60 M
0

36

72

108

144
180
216
Time (Month)

total beef cattle : 10% depop, except C&C

total beef cattle : 10% depop
total beef cattle : equilibrium

252

288

324

360
cows
cows
cows

Figure 13. Protection of cow&calf operations helps to stabilize the beef cattle population.

12

A Concluding Remark
Even though the agricultural commodity model presented here is still very much a work in
progress, preliminary model analysis using a single disruption scenario has demonstrated its
promise in helping government agencies formulate improved policies for responding to major
disruptive events in agriculture.
Acknowledgements
Funding for this work was provided by the Department of Homeland Security, Science &
Technology Directorate under the direction of Dr. John Cummings and Dr. John Hoyt. Thanks to
Andy Ford of Washington State University for comprehensive model review and to Joe Davis of
Agrilogic Inc. for agricultural domain expertise and model review. Thanks also to Paul Kaplan
and Nancy Brodsky from Sandia National Laboratories and Mike Ebinger, Naomi Becker, and
Steen Rasmussen from Los Alamos Laboratory.
References
Crom, R.J., 1981, The Cattle Cycle Looking to the 80s, ESS Staff Report No. AGESS810105,
USDA, 15p.
Mathews, K.M., W.F. Hahn, K.E. Nelson, L.A. Duewer, R.A. Gustafson, 1999, U.S. Beef
Industry: Cattle Cycles, Price Spreads, and Packer Concentration, ERS Technical Bulletin No.
1874, USDA, 44p.
Mundlak, Y., H. Huang, 1996, International Comparison of Cattle Cycles, American Journal of
Agricultural Economics, vol.78, pp.855-868.
Meadows, D.L., 1970, Dynamics of Commodity Production Cycles, Wright-Allen Press, 104p.
Rosen, S., K.M. Murphy, J.A. Scheinkman, 1994, Cattle Cycles, Journal of Political Economy,
vol.102, no.3, pp.468-492.
Sterman, J.D., 2000, Chapter 20.The Invisible Hand Sometimes Shakes: Commodity Cycles
Business Dynamics Systems Thinking and Modeling for a Complex World, McGraw-Hill, pp.
791-841.
Trapp, J.N., 1986, Investment and Disinvestment Principles with Nonconstant Price and Varying
Firm Size Applied to Beef-Breeding Herds, American Journal of Agricultural Economics,
vol.68, pp.691-703.

13