U.S. live cattle futures rose to fresh record highs on Friday due to a surge in demand from beef processors in cash markets.

Cattle for February delivery rose as high as $1.28825 a pound at the Chicago Mercantile Exchange, a fresh record intraday high for the spot contract, or soonest-expiring futures. They closed up 1.4% to $1.286 a pound. April cattle finished up 1% to $1.309 a pound.

Cattle futures reflected a record-setting day in cash cattle markets, where prices rose as high as $1.295 a pound, an all-time high. Despite a number of warning signs at beef packers -- including negative profit margins and recent reductions in meat production -- processors were forced to pay higher prices to get cattle they need for next week's slaughter plans. Some processors need fresh supplies to fill orders for the start of the spring grilling season, which often starts in March. A recent rally in cattle futures, meanwhile, has given cattle owners incentive to hold out for higher prices.

"It's a big squeeze between these packers," said Troy Vetterkind, president of Vetterkind Cattle Brokerage.

Processors in fact increased their meat production this week, slaughtering 616,000 head of cattle, up from 602,000 a week ago. That marked the second straight week of higher slaughter rates following a series of cuts earlier this year.

There are warning signs for supplies in coming weeks. Cattle owners have at times in recent weeks agreed to sell fewer cattle in order to keep prices high. The average weight of slaughter-ready animals, meanwhile, has steadily climbed upward, suggesting some owners are holding animals longer than expected.

The U.S. Department of Agriculture reported midday choice boxed beef prices up 2 cents per hundredweight at $190.22 and select off 10 cents at $185.43 a hundred pounds. Total sales were reported at 82 loads.

Cash cattle trading got underway today in the Plains at the highest prices ever paid in Texas, western Oklahoma and Kansas. Sales started in Kansas at $1.28 a pound, up 5 cents from a week ago. Later sales there were up to $1.29 a pound.

Cattle feeders in Texas passed bids at $1.28 and $1.285 a pound then sold when packers bumped prices up to $1.29 a pound, also up 5 cents from last week's trades. A few cattle traded as high as $1.295 a pound.

Volume estimates were last around 30,000 in Kansas and 15,000 to 17,000 in Texas, analysts said.

In eastern Nebraska, some early sales were reported at $2.02 a pound dressed to a regional processor but prices then moved up to mostly $2.03 a pound. In central and western areas of the state, live sales were reported from $1.28 up to $1.295 a pound. Estimates of volume of sales for the state were from 30,000 to nearly 40,000 head.

Gains in futures prices and wholesale beef prices this week contributed to the bullish views among cattle owners.

The latest HedgersEdge packer margin index was minus $15.10 per head, compared with minus $22.35 the previous day. The weekly average was minus $31.09. This is an estimate of packer returns on cattle slaughtered and processed expressed in the form of an index.

HOGS COMPLEXLean hog futures finished mixed in light volumes on Friday as traders weighed a pullback in pork prices against support from other markets.

April hog futures rose 0.15 cent, or 0.2%, to 90.37 cents a pound in trading at the Chicago Mercantile Exchange. CME May hog futures finished up 0.45 cent, or 0.5%, to 98.90 cents a pound.

The USDA's pork carcass composite value, a measure of wholesale prices, on Thursday fell $1.89 a hundred pounds to $86.32, erasing the vast majority of the previous day's gain. Pork prices jumped $2.41, or nearly 3%, on Wednesday, sparking a rally in hog futures.

Outside markets added support. Higher cattle prices can support hog futures since pork is cheaper for consumers.

Corn futures also rose, closing up 0.9% to $6.41 3/4 a bushel at the Chicago Board of Trade. Higher corn costs can depress livestock production.

Cash hog prices were reported generally steady, or flat, in light trading volume. Buying interest varied from deliveries scheduled for early in the week to as late as Wednesday and beyond.

Overall, supplies of slaughter-ready animals and demand for them appear to be basically well balanced. That led to predictions of mostly steady for prices on Monday.

Two eastern plants were closed Friday due to thin-to-negative margins and sluggish mid-month demand. USDA estimated today's slaughter at 394,000 and the week's total at 2.149 million, up 0.9% from a year ago.

On Monday, two other eastern plants are scheduled to be down but one is for maintenance work over the long weekend, analysts said. Monday's slaughter is projected to be around 385,000.

The terminal markets traded mostly steady in light volume tests.

-By Marshall Eckblad and Curt Thacker, Dow Jones Newswires; 312-750-4070; marshall.eckblad@dowjones.com

(END) Dow Jones Newswires

February 17, 2012 15:38 ET (20:38 GMT)