* Feeder cattle futures post new high
* Mostly lower CME hogs settlement
By Theopolis Waters
CHICAGO, July 28 (Reuters) - Chicago Mercantile Exchange live cattle on Monday settled mixed on spreads after hitting a new high, fueled partly by Friday's bullish U.S. Department of Agriculture cattle report, traders said.
Friday's report revealed a bigger-than-expected drop in the number of cattle moved into feedlots in June after sufficient grazing land allowed animals to be fattened outside of feedyards longer.
Last week's record-high returns for market-ready, or cash, cattle and Monday's strong wholesale beef quotes encouraged futures buyers.
Last week, cash cattle in the U.S. Plains moved at $162 to $165 per hundredweight (cwt), up as much as $9 from the prior week.
Monday morning's choice wholesale beef price rose $1.39 per cwt from Friday to a record $258.77. Select beef climbed $1.71 to a new top of $256.04, the U.S. Department of Agriculture said.
Scarce cattle forced packers to spend more for supplies, prompting processors to pass that cost on to retailers.
CME live cattle eased from morning highs after some investors claimed profits following recent market advances.
A few traders sold October futures and simultaneously bought deferred months in a trading strategy known as bear spreading.
Bullish market participants expect packers to again run short of supplies, and hike cash bids as long as grocers buy beef at higher prices.
Market bears contend that by maintaining their discounts to cash cattle prices, futures are anticipating lower cash prices soon.
August live cattle closed down 0.050 cent per lb at 159.050 cents, and October 0.725 cent lower at 159.075.
December finished at 159.250 cents, up 0.475 cent, and February 0.650 higher at 157.500.
CME feeder cattle marked a new high on back-month live cattle market gains. Traders cited the exchange's feeder cattle index jump to 221.95 cents for July 25 from 214.13 for July 24.
August closed up 1.925 cents per lb to 220.175 cents and September 1.950 cents at 221.200.
CME hogs ended mostly lower after traders sold back months and simultaneously bought August in a trading strategy known as bullish spreads.
Traders were also lured to August's discount to the exchange's hog index at 130.33 cents, despite sharply lower hog prices.
The morning's average price of cash hogs in Iowa/Minnesota slumped $3.54 per cwt from Friday to $121.83, according to USDA.
Year-over-year hog weight increases prevented the acute shortage of pork and contributed to the drop in cash prices, said Archer Financial Services broker Dennis Smith.
August finished up 0.050 cent per lb at 123.675 cents. October was down 0.650 cent to 106.625, and December was at 97.350 cent, 0.800 lower. (Reporting by Theopolis Waters; editing by Gunna Dickson)