Cattle futures in Chicago hovered near 26-month highs today amid strong beef demand that’s prompting meatpackers to bid more aggressively for slaughter-ready animals.

Slaughter-ready steers averaged $102.76 per hundred pounds earlier today in major cattle areas of the U.S. Plains, up almost $3 from the end of last week, according to USDA.

Rising prices reflect meat processors stepping up slaughter to keep pace with both improving domestic beef demand and expanding exports, said Paul Nelson, an analyst with EHedger, in Chicago

“Feedlots are holding a lot of pricing power,” Nelson said. “Every week or two we run into these holes, where the packer doesn’t have enough cattle to cover slaughter needs. We’ve been seeing this trend since the spring.”

At today’s close, February live cattle futures traded on CME Group rose 5 cents to the equivalent of $107.60 per hundred pounds. Yesterday, December futures touched $104.675, the highest price for a nearby contract since September 2008.

In other markets, soybean futures rose to a 26-month high and corn futures reached the highest levels in more than six weeks as dry weather hampered crop development in Argentina. Hog futures fell. CME markets will be closed on Christmas Eve tomorrow.

Cattle futures are up 21 percent this year and are expected to continue rallying in 2011, based on CME futures, which indicate fattened animals will command $108 to $109 per hundredweight next summer and $112 a year from now.

Nelson expects cattle prices to climb further into early 2011, assuming demand continues to expand. Slaughter data the USDA released earlier today underscored demand strength, he said. In November, U.S. beef production totaled 2.24 billion pounds, up 11 percent from a the same month in 2009, according to the USDA.

“This is being driven by very strong cattle slaughter for most of this year,” Nelson said. “This rally over the past five to seven days is being driven by people starting to realize that demand is good and packers are not slowing the kill.”

Through the first 10 months of 2010, the U.S. beef and veal exports totaled 1.86 billion pounds, up 17 percent from the same period in 2009, according to USDA data.