CHICAGO (Dow Jones)--U.S. livestock futures settled higher Monday, as traders seized on signs of tightening supplies for live cattle and lean hogs.

U.S. lean hog prices also rose Monday on signs of shrinking supplies.

A seasonal reduction in supply is limiting the number of animals being offered for sale, resulting in stronger competition among processors. Yet prices could pullback if some plants trim their slaughter schedules because they aren't making money at current prices.

In addition, the average size of hogs available for purchase has fallen in recent months, said Dan Vaught, president of Vaught Futures Insights. A lower average weight means meat packers may have to purchase more animals in order to meet production targets.

CME lean hog futures for July closed up 2% to 97.55 cents a pound. August hogs settled 1.82 cents, or 1.9%, higher to 96.67 cents per pound.

Cash hog prices were firm overall, with a few locations higher by $1 a hundred pounds.

The USDA's pork carcass composite value, a measure of wholesale prices, Friday was up $2.96 to $95.77 a hundred pounds, the level highest since May 19.

The terminal markets traded steady to higher with top prices from $63 to $65 a hundred pounds on a live basis.

The latest Dow Jones Newswires pork packer margin index was minus $3.56 a head, compared with minus $6.14 a head the previous day.