CHICAGO (Dow Jones)--U.S. lean hogs futures rose Friday after the U.S. Department of Agriculture data signalled supportive fundamentals tied to higher corn costs and strong export demand.

Lean hog contracts for August, which expire Friday, were recently up 0.05 cent to $1.0725 in trading at the Chicago Mercantile Exchange--a potential record for the front-month hog contract if prices remain unchanged before closing. CME October hogs were up 0.52 cent, or 0.6%, to 88.62 cents a pound.

Two USDA reports on Thursday forecast a worse-than-expected corn crop and revised higher its forecasts for U.S. meat export sales in 2011 and 2012. The data suggest higher corn costs will lead livestock producers to trim production, even as demand from foreign buyers remains strong. A separate report on Friday with USDA data showed U.S. pork sales to China--a key factor in pork markets, as it grapples with spiralling food inflation--are up 81% from the same time last year.

The rally Thursday tied to the reports caught some veteran traders by surprise, as USDA export forecasts haven't always moved livestock futures. Others say they watch the reports closely as steadily climbing exports have had an undeniable role in forcing recent hog and pork prices to record highs.

"With pork exports a growing key to pork and hogs values, what the USDA has to show on their monthly supply-demand reports is given more notice than in past years," said Bob Vande Vorde of Mast Group.

Futures also felt support from the wider-than-usual spread -- about 19 cents a pound -- between the shortly expiring August contract and the October contract. Traders have recently pushed down prices for autumn contracts on the belief that China and the U.S. will both boost pork production in coming months.

CASH MARKETS

Cash hog prices are predicted steady to weaker as processors expect slaughter-ready hog supplies to gradually increase through late summer and the fall. Some livestock dealers and market managers said their surveys of local supplies available to be shipped next week are somewhat larger than in recent weeks.

Faster weight gains with the arrival of cooler temperatures will also contribute to the hogs reaching slaughter size quicker, boosting the number of animals available to processors.

The U.S. Department of Agriculture's pork carcass composite value Thursday fell 72 cents to $109.43 a hundred pounds.

Analysts predict Friday's hog slaughter to be around 391,000 head and Saturday's about 28,000.

The latest Dow Jones Newswires pork packer margin index was plus $4.94 per head, compared with plus $6.94 the previous day.

The terminal markets are expected to trade steady to $1 lower with tops from $70 to $74 a hundred pounds.

The latest CME two-day lean hog index, calculated using USDA market data, for Wednesday was up 0.20 cent to $1.0784 a pound.