CHICAGO - U.S. feeder cattle futures declined nearly 2 percent on Thursday, and some months sank by their 3-cent daily trading limit, as corn prices surged more than 5 percent after a U.S. Department of Agriculture report.

The USDA estimated smaller-than-expected corn production that will likely put more pressure on feed costs for livestock producers, said traders and analysts.

Spot October feeder cattle closed 1.975 cents lower, or 1.36 percent, at 142.750 cents. Most-actively traded November closed at 143.800 cents, 2.900 cents lower or 1.98 percent.

Funds actively liquidated positions in the Chicago Mercantile Exchange November feeder cattle contract after it slipped below the 10-day moving average of 145.88 cents.

FEEDERS WEIGH ON LIVE CATTLE

CME feeder cattle fallout seeped into the live cattle sector, overshadowing early signs of higher prices for cattle in the cash market.

Spot October closed down 0.325 cent per lb, or 0.26 percent, to 124.600 cents.

December ended at 125.925 cents, 0.650 cent lower or 0.51 percent. It could not hold above technical levels captured earlier in the session.

"With the corn rallying like this and feeders getting trashed it's hard to sustain a rally anywhere," said Pete Adams, a principal with PNM Trading.

A light number of cattle in Kansas moved at $125 per cwt, $1 higher than last week, a feedlot manager said.

He said sellers were holding out for more money given tight supplies, recent futures' gains and Thursday's wholesale beef price rebound.

On Thursday morning, USDA estimated the wholesale choice beef price at $191.46 per cwt, up 48 cents from Wednesday. Select cuts rose 96 cents to $177.88 cents.

"Packers wouldn't have throttled up their kills or hiked bids for cattle if they didn't need them," said the feedlot manager.

From Monday to Thursday, packers processed 502,000 head of cattle, 10,000 more than a week earlier but down by the same number a year ago during the same period.