U.S. live cattle and hog futures fell on Monday as a steep drop in corn futures had investors worried lower feed grain costs would cause producers to fatten more animals and that would pressure livestock prices, analysts and traders said.

Live cattle at the Chicago Mercantile Exchange dropped more than one per cent.

"Funds were backing out of everything, corn and beans were down hard and cash (cattle) has yet to be determined," said Jack Salzsieder, analyst and broker with K+S Financials.

Active fund selling in other commodities seeped into the live cattle market, forcing nearby trading months below key technical support levels.

Spot October live cattle closed down 1.55 cents per pound, or 1.22 per cent, to 125.5 cents. They dropped below the 200- and 20-day moving averages of 126.51 cents and 125.65 cents, respectively (all figures US$).

Most-actively traded December ended 1.625 cents lower, or 1.25 per cent, to 128.3 cents. It drifted below the 20- and 200-day moving average at 128.81 and 128.63 cents.

Also, traders were uneasy about prices for cattle in the cash market as unprofitable packer margins has prompted some processors to reduce production.

Processors are expected to hike wholesale beef prices to counter the recent surge in cattle prices. Cash cattle last week traded at $126 to $127 per hundredweight (cwt), up $2 to $3 from the week before, due to tight supplies.

Overall, there are about 3,000 fewer cattle available for sale this week than a week ago, said feedlot sources.

The government pegged the Monday morning wholesale choice beef price at $192.48 per cwt, up 94 cents from Friday, and select cuts jumped $1.59 to $182.27.

HedgersEdge.com estimated the average beef packer margin for Monday at negative $38.95 per head, compared with negative $7.65 on Sept. 10.

CME feeder cattle ended higher on short-covering prompted by the downturn in corn prices, traders said. Lower corn prices can increase demand for younger cattle.

Spot September feeder cattle closed up 0.325 cent per pound, or 0.22 per cent, to 145.325 cents. Most-actively traded October closed 0.375 cent higher, or 0.26 per cent, at 147 cents.

Hogs slide

CME hogs dropped as abundant cash market supplies continued to drag down cash prices, said analysts and traders.

Fund liquidation hurt nearby hog futures while deferred contracts slid more than one per cent in response to substantial losses in the corn market.

October closed down 0.65 cent/lb., or 0.88 per cent, to 73.375 cents, which was below the 20-day moving average of 73.44 cents.

December hogs ended at 73.35 cents, down 0.55 cent or 0.74 per cent. It was below the 40-day moving average at 73.63 cents.

USDA on Monday morning pegged the average hog price in the most-watched Iowa/Minnesota market at $62.97/cwt, down $1.57 from Friday.

On Monday, packers processed 436,000 hogs, the same as a week earlier and 10,000 more than the same period a year ago, according to USDA.

Some hog farmers continued to reduce their herds due to higher feed costs. The worst drought in more than 50 years hurt crops and sent feed grain prices to all-time highs.

Cooler weather in the Midwest was bearish for hog as it creates less stress on the animals while increasing appetites, prompting faster growth.

— Theopolis Waters writes for Reuters from Chicago.