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Cattle, Hogs Rise as Higher Feed Costs May Reduce Meat Supplies

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Oct. 8 (Bloomberg) -- Cattle futures jumped the most in 15 months on signs that higher costs for livestock feed will curb U.S. meat output. Hog futures also gained.

Corn, used in animal rations, surged 6 percent on the Chicago Board of Trade after the U.S. cut its harvest estimate. Higher costs will mean reduced production of cattle, said Christian Mayer, a market adviser at Northstar Commodity Investments Co. in Minneapolis. Producers may feed animals less grain, lowering weights, he said.

“For live cattle, the weights are already down pretty hard,” Mayer said. “This would likely continue with higher feed costs.”

Cattle futures for December delivery rose 1.775 cents, or 1.8 percent, to settle at 98.875 cents a pound at 2:08 p.m. on the Chicago Mercantile Exchange in the biggest gain for a most-active contract since June 29, 2009. The commodity gained 0.5 percent this week and is up 15 percent this year.

The corn crop in the U.S. will be 3.8 percent smaller than projected a month ago, the government said, citing lower Midwest yields because of flooding in June and hot, dry weather in August.

“We may see a more definitive shift toward lighter cattle,” said Dan Vaught, the owner of Vaught Futures Insights in Altus, Arkansas. “That was what we saw in 2008 when corn prices went to the moon.”

Corn futures reached a record $7.9925 a bushel on June 27, 2008, on the Chicago Board of Trade. The price closed today at $5.2825.

Hogs Gain

Hog futures for December settlement gained 2.55 cents, or 3.6 percent, to 73.85 cents a pound, the biggest one-day increase since March 29. The commodity advanced 1.3 percent this week and has gained 13 percent this year.

“Cattle and hogs have got to go up simply because of the corn market,” said Chad Henderson, a market analyst at Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. “The general consensus is we need to keep prices up stronger to keep people in business, with feed costs going through the roof.”

Feeder-cattle futures for November settlement fell 1.325 cents, or 1.2 percent, to $1.0765 a pound, the fifth straight decline. Prices dropped 4.1 percent this week and are down 12 percent for 2010.

Feeder cattle are young animals that weigh 500 pounds (227 kilograms) to 800 pounds. They are fattened in feedlots on corn until they weigh about 1,200 pounds, and then sold to meatpackers.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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