Chicago Mercantile Exchange live cattle futures closed higher on Wednesday, driven by short-covering and expectations that some processors by Friday might pay the same or more for cash cattle than last week, traders said.

February live cattle closed 2.700 cents per lb higher at 135.725 cents, and April ended up 1.850 cents to 135.250.

On Wednesday, bids for market-ready, or cash, cattle in Texas surfaced at $130 per cwt versus up to $138 asking prices there and elsewhere in the U.S. Plains, said feedlot sources.

Last week, cash cattle sold at $130 to $135 per cwt.

A few packers cut slaughters to avoid raising cash cattle bids while attempting to improve wholesale beef demand and protect their slim margins, traders and analysts said.

But, they said pockets of tight supplies and futures' two-day rally could prompt processors to compete for cattle.

The average beef packer margin for Wednesday was $8.70 per head, down from $19.85 for Tuesday and $86.00 a week ago, as calculated by HedgersEdge.com.

Wednesday morning's wholesale choice beef price fell $1.43 per cwt from Tuesday to $221.58. Select cuts dropped $1.30 to $215.12, the U.S. Department of Agriculture said.

In a trading strategy known as bull spreading, investors bought February and simultaneously sold deferred months, stirred by cash price expectations.

CME's thinly traded January feeder cattle contract, set to expire on Thursday, closed at 160.925 cents per lb, down 0.175 cent. It was pressured by its premium to CME's feeder cattle index for Jan. 26 at 158.90 cents.

Remaining feeder cattle trading months drew support from live cattle market advances. March feeders closed up 0.675 cent per lb to 159.925 cents, and April ended 0.950 cent higher at 159.600.

STRONG HOG MARKET CLOSE

Bull spreads, spillover cattle futures support and upward-trending cash prices sent CME lean hogs higher, traders said.

Spot February finished 1.050 cents per lb higher at 65.375 cents, and April ended 0.875 cent higher at 70.475 cents.

The morning's cash hog prices in the Midwest were $1 per cwt higher with processors struggling to fill inventories as supplies decline seasonally, dealers said.

Nearby contracts triggered buy stops after topping Tuesday's highs.

And, fund buying developed after April futures surpassed the 200-day moving average of 69.793 cents.