LIVESTOCK-Cattle surge to 2-mo high as funds buy

By Bob Burgdorfer

CHICAGO, July 1 (Reuters) - Cattle futures closed at a two-month high at the Chicago Mercantile Exchange on Wednesday on a mix of fund and commercial buying prompted in part by a smaller cattle supply.

However, beef demand remains weak and some analysts and traders doubt the higher trend can continue, particularly with the lead August contract at a premium to recent cash prices.

"Cattle and hogs have been under pressure for a long time, so they needed a bounce," said Doug Harper, analyst at Brock Associates.

Beef sales will need to improve if the rise in cattle is to continue, he said.

The recession has hurt sales of all meats, as a result beef prices have struggled.

Cattle producers have been losing money on cattle for a year or more and have responded by reducing supplies. That smaller supply should be evident this summer, which some traders hope will drive up cattle prices.

Cash cattle traded at $82 per cwt last week and there were predictions for sales at $83 to $84 this week.

The August futures 2LCQ9 already reflect a higher cash market closing Wednesday at 85.75 cents per lb, which is the same as $85.75 per cwt. Also, that is the highest close for a lead cattle contract since April 30.

Commercial buying started August higher and then fund buying took it to 86.00 cents per lb. Late in the session October/August spreading closed it at 85.75 cents, up 0.500 cent for the day.

The October cattle futures 2LCV9 closed at 90.775 cents, up 0.600 cent, lifted in part by the October/August spreading. That spreading should increase next week as wealthy investment funds move longs to October from August.

October's move above 90 cents this week sets a strong technical tone for the market, said Harper. Until this week, the contract had largely been under 90 cents since January.

Feeder cattle closed higher, benefiting from higher cattle futures and higher cash feeder markets.

August feeders 2FCQ9 closed up 0.950 cent at 103.775 cents per lb and September 2FCU9 up 0.375 at 102.175.

Chicago hog futures closed mostly higher for the third straight day, helped by short covering, fund buying, and mildly bullish news on Wednesday that Russia has partially lifted bans on U.S. meat.

The bans began in late April in reaction to the swine flu outbreaks here and overseas. The flu is not spread by hogs or pork, but countries still banned them as a precaution.