Cattle for February delivery rose 1.2 cents, or 1%, to $1.2580 a pound in trading at the Chicago Mercantile Exchange. April cattle traded higher by 1 cent, or 0.8%, to $1.2917 a pound. January feeder cattle rose 0.3% to $1.5232 a pound.

Cattle futures extended their recent rally during the session after being cheered higher by improving wholesale beef prices and expectations for a coming USDA supply report--which both added to lingering support from two-straight weeks of unexpectedly strong prices in cash cattle markets.

The recent bullish turn for the cattle complex has caught some investors by surprise, especially since wholesale beef prices and profit margin estimates for processors have been languishing for weeks. The surge in cash cattle markets is a sign that supplies of animals are tightening more quickly than expected, participants widely say, and the upward momentum of cattle futures has in recent sessions drawn a surge of fresh investments from managed funds.

Wholesale beef prices closed higher on Monday and opened higher yet again on Tuesday. The U.S. Department of Agriculture reported midday choice boxed beef prices up 80 cents at $184.32 and select up $1.21 to $178.98 a hundred pounds. Total sales were reported at 93 loads. Those values rose $1.52 and $2.21 on Monday, respectively.

Although the USDA wholesale prices capture a small fraction of the industry's total sales, many investors watch the government reports for clear signs of direction.

Profit-margin estimates for beef processors remain a warning sign. The latest HedgersEdge packer margin index was minus $96.95 per head, compared with minus $102.05 the previous day. This is an estimate of packer returns on cattle slaughtered and processed expressed in the form of an index. Actual profit margins will vary by processor because the estimates don't capture privately agreed-to contracts or export sales, which are generally more lucrative than domestic sales.

Cattle owners in cash markets are asking higher prices for their animals this week, fueled in part by strong gains in live cattle futures and advances in wholesale beef prices following strength in cash prices last week.

Owners in Texas, western Oklahoma and Kansas are pricing their cattle at $1.28 a pound or more on a live basis. Sales last week were from $1.25 to as high as $1.2725 a pound in Texas and mostly $1.26 a pound in Kansas.

In Nebraska, owners are asking mostly $2.08 on a dressed basis following sales last week from $2.00 to $2.05 dressed. Live sales prices there a week ago from $1.25 to $1.28 a pound.

Analysts predict packers will further trim their slaughter schedules this week from the 628,000 head estimated for last week. Through the first two days, slaughter stands at 248,000 head, down 14,000 from the same time a week ago.