Chicago | Reuters — CME Group live cattle futures gained on Thursday ahead of a closely watched monthly Cattle on Feed report, due out on Friday from the U.S. Agriculture Department.

Traders anticipate the report will show fewer cattle heading into feedlots, as recent rallies in the grain market have increased feed costs.

“The incentive, for the last three months, has been to limit the cattle you place,” said Altin Kalo, economist at Steiner Consulting Group. “It becomes more and more expensive to add pounds inside the feedlot.”

CME April live cattle futures ended 1.075 cents higher at 119.95 cents/lb. on Thursday, while March feeder cattle gained 1.625 cents to settle at 139.15 cents (all figures US$).

Supplies of market-ready cattle could further tighten in the coming months, livestock market analysts warn, as feedlots try to manage costs.

If the cattle stay on pasture longer, “it slows down the whole chain,” said Kalo, and could mean even fewer market-ready cattle available to packers this spring and summer.

Boxed beef cutout values continue to strengthen, with select cuts gaining for a sixth consecutive session, adding $3/cwt, to $210.28, and choice cuts adding $2.29, to $221.20/cwt, according to the USDA.

Meanwhile, USDA reported on Thursday the daily cattle slaughter was 120,000 head processed — with 469,000 slaughtered so far this week, a four per cent drop from the same week last year, according to USDA data.

Lean hog futures also gained, with CME’s most-active April lean hogs adding 0.825 cents to close at 73.9 cents/lb., while the spot February contract slid 0.325 cents to end at 68.1 cents/lb.

The CME lean hog index for the two days ending Jan. 19 fell to 65.67 cents/lb., 2.43 cents below the February contract.

— Reporting for Reuters by Christopher Walljasper in Chicago.