U.S. feeder cattle futures settled firm on Thursday as corn prices drifted lower, but eased from a six-month high in response to live cattle market losses, said analysts and traders.
CME January feeder cattle closed up 0.375 cent per pound to 153.125 cents. March was 0.35 cent lower at 155.075 cents (all figures US$).
"Lower corn prices are creating additional demand for replacement cattle at feedlots," said Brock Associates analyst Doug Houghton.
Also, fewer feeder cattle are available after back-to-back droughts reduced the U.S. cattle herd to its lowest in 60 years, he said.
Smaller U.S. cattle supplies are seen pushing cattle and beef prices to record highs next year, Rabobank said on Thursday in a quarterly beef report.
Live cattle fall
CME live cattle posted modest losses on profit taking and caution as investors wait for the bulk of this week's cash cattle trade to develop, traders and analysts said.
Late-session profit taking wiped out initial live cattle futures gains, in part supported by expectations for cash cattle to trade about steady with last week's $124-per-hundredweight (cwt) sales.
"Packer margins are on the mend after they cut their kills, although there also fewer cattle around than a year ago," said Oak Investment Group president Joe Ocrant, adding that a $124/cwt cash trade is possible.
Still, some see packers drawing from pre-contracted supplies and reducing slaughter rates to avoid buying cattle on the cash market.
A small number of cash cattle sold in Nebraska on Tuesday at $123/cwt. Packers raised bids in parts of the state to $122 to $123 from $121 earlier this week versus $126 asking prices, said feedlot sources.
Cash bids elsewhere in the Plains stood at $121 against feedlots who priced their animals at $126 or more, they said.
HedgersEdge.com put the average beef packer margin for Thursday at a negative $26.18 per head, compared with a negative $30.25 on Wednesday and a negative $58.70 on Dec. 6.
Spot December cattle closed off 0.15 cent/lb. at 126.2 cents. Most actively traded February ended 0.325 cent lower at 131.475 cents.
Hogs rise with cash, spreads
Hog futures moved higher with the bounce in cash hog prices as packers booked hogs for the remainder of this week's slaughter, according to analysts and traders.
Processors may "pull the plug" on cash bids next week as the plant closures during the Christmas holiday limit their need for supplies, a trader said.
USDA Thursday quoted the average price for hogs in the most-watched Iowa/Minnesota direct market at $79.24/cwt, up 29 cents from Wednesday.
Also December futures, which will expire from trading on Friday, drew support from its discount to CME's lean hog index at 84.51 cents.
Spot December hog futures settled at 82.125 cents/lb., up 0.05 cent. Most actively traded February finished at 85.9 cents/lb., 0.25 cent higher.
The trader said February buyers were motivated by the prospect that hog numbers will tighten next year after hog farmers culled herds after historic drought shot feed prices to all-time highs.
-- Theopolis Waters writes for Reuters from Chicago.