DUBUQUE, Iowa — A tremendous amount of factors affect the cattle industry.

“We can’t do anything about the factors, but we do need to be aware there are lots of things at the global level like the situation in Europe and our own macro economy,” said Derrell Peel, Breedlove professor of agribusiness and Oklahoma State University Extension livestock marketing specialist.

The drought of 2012 is no news to the cattlemen who were gathered at the Driftless Region Beef Conference, sponsored by Iowa State University Extension and Outreach, University of Illinois Extension, University of Minnesota Extension and University of Wisconsin Extension.

“It’s dry here, it’s dry where I live and it’s dry everywhere in between,” Peel said. “In the southern Plains, 2012 was a treading water kind of year compared to 2011. We had our big liquidation in 2011 — in Oklahoma, we liquidated about 14.5 percent of our beef herd.”

As of Jan. 1, the U.S. Department of Agriculture reported the number of beef cows across the nation totaled 29.3 million head, down 3 percent from the 2012 estimate.

“We continue to get smaller. We don’t need to be smaller, but in the short run, Mother Nature is holding all the cards in terms of what we can do relative to what we would like to do,” Peel said. “We’ve had record high grain and forage prices, generally record high cattle prices in the last year, but not necessarily at record levels this moment.”

At the wholesale beef level, the specialist said, choice boxed beef prices are higher than one year ago.

“It has been weakening the last two to three weeks, although it is a little seasonal. I’m not too surprised to see it happening,” he added.

Three times last year, the choice boxed beef price pushed up against the $2-per-pound mark.

“I think that $2 level is a psychological barrier in the market,” Peel said. “We’ve been unable to push the prices above $2, and that’s affecting the margins for everybody in the cattle industry.”

Peel expects the wholesale price to go above $2.

“It’s a question of how fast retail prices rise relative to the pressure from the supply side of the market to push those prices higher,” he said.

Although there were record-high fed cattle prices for a spring peak in 2012, the price average for the entire year was relatively flat, Peel said.

“We’ve been locked in this live basis of $120 to $130 range for quite awhile. I expect cattle prices to push up, and I wouldn’t be surprised to see it peak at $135 because there is plenty of supply support to go that high.”

Calf prices are starting about where they were in 2012.

“The lightweight calves are at or a little above $2 per pound, and they’ll go back up this spring,” Peel said. “The real key here is the question of what happens over the next few weeks with respect to drought conditions because the clock is ticking on us in Oklahoma — it will either get better or worse.”

In 2011, there was an “enormous” movement of cull cows in the southern Plains, the specialist said.

“At one point, you had to schedule sales at the local auctions,” he said.

“Prices stayed strong in 2012 — into the $90s — and we had sales last year over $1 per pound. If we moderate drought conditions and don’t see an additional round of liquidation over the next two to three months, I expect cull prices to move up to the $1-per-pound range. We have the potential to average 90 cents or higher for the whole year.”

At $1 per pound, a 1,300-pound cow is worth $1,300 “between slices of bread,” which will set the base for the female market, Peel said.

“We’re going to see females move to phenomenal heights when we get to the point where we can do what we want to do,” he said. “The beef cow herd in the U.S. is the lowest since 1962, and the all cattle inventory is the lowest since 1952. And in my estimates, the 2013 calf crop will be the smallest since 1942, so we have been getting smaller for a long period of time.”

“Much of that liquidation was a result of things we didn’t plan to do,” he explained. “In the mid-’90s, we went from high to low prices cyclically like we’ve done for 100 years, and we started cyclical liquidation. We tried to start rebuilding in 2004-2005, and then input prices caused tremendous shocks in 2007-2008.”

The recession was next from 2008 to 2010.

“In 2011, the beef industry was ready to rebuild from lower levels than we intended to be, and then we had drought the last two years that has taken us even lower,” Peel said. “There’s a lot of incentive to rebuild, but we’re trapped with production conditions that won’t support it.

“If drought conditions change and we stop liquidating and start rebuilding, because of where we begin, by 2017, we could be where we were in 2011,” he said. “We’re in a hole that takes a long time to rebuild, so the general record cattle price environment is going to be there for awhile.”

During most of this period of shrinking cattle inventory, beef production didn’t change much due to productivity increases, according to Peel.

“We don’t need as many cattle to produce the same amount of beef,” he said.

Regardless of whether the drought continues, Peel expects beef production to drop 4.5 to 5 percent this year.

“Cattle slaughter was down 3.3 percent last year, but heavier carcass weights offset much of that decrease, so total beef production was only down 1.1 percent,” he said. “This year, we don’t expect to see that increase in carcass weights.”

According to the pasture condition report released at the end of October 2012, 54 percent of the pastures in the country were in poor to very poor condition.

“So we went into winter with pastures in horrible condition,” Peel said.

On Dec. 1, 2012, the USDA estimated U.S. hay stocks were the lowest level since 1957.

“We are at the end of our rope,” Peel said. “We use ponds for the cattle, and many of our producers are out of water. They’re trying to hang on to get spring calves born, but we need heavy rains to rebuild the ponds.”