Futures traders bellied up to the hog market as March got underway, sensing that shrinking supplies will send prices higher.

They’re also turning their noses up at cattle after a sharp beef price upswing in February.

CME Group lean hog futures for April delivery today rose 0.15 cent to 72.95 cents a pound, the contract’s highest closing price since Jan. 20. April live-cattle futures fell 0.2 cent to 91.725 cents per pound, a two-week low.

Hog's recent price action partly reflects last week's government reports that indicated the contraction in the nation’s pork inventory is expected to continue into 2010, said Bob Short, senior livestock analyst with broker PFGBest in Chicago. Additionally, last month's rally in beef prices is probably going to crimp demand, Short said.

That’s prompting traders to buy nearby lean-hog futures while selling live-cattle futures, Short said.

“From what we knew Friday, short cattle/long hogs is the place to be,” Short said.

U.S. frozen pork inventories at the end of January totaled 495.6 million pounds, down 18 percent from a year earlier and the lowest in three years, USDA  said in its monthly Cold Storage report on Feb. 22.

In its monthly Livestock Slaughter report on Feb. 26, USDA indicated that the nation’s pork production fell 1.7 percent in January to 2.083 billion pounds compared with January 2009's levels. First-quarter pork production is expected to decline 3.1 percent,USDA cited in a separate report last week.

Live-cattle futures may continue to lose ground to lean hogs for the next five to 10 days, Short said. As a result, the price difference between April cattle and April hogs, currently about 19 cents, may narrow as much as 2 cents, he said.

“Pork is high, but beef is higher,” Short said. “We’re pricing ourselves out of business in both of these.”

Choice boxed beef cutout values averaged $1.4962 a pound last week, a jump of 10.28 cents, or 7.4 percent, over the past three weeks, according to USDA figures.

Pork cutout values averaged 83.51 cents a pound last week, up 6.4 percent over the past three weeks.

Some brokers, Short said, “are talking about a break” in ham prices. Bone-in hams averaged 68.55 cents a pound last week, up almost 5 cents, or 7.7 percent, from the end of January.

“We’ll take a look at the ham market at the end of the week,” he said. “If the cash ham market goes to hell, they might reverse those (long hog/short cattle) spreads.”

The outcome of a trade dispute between the U.S. and Russia over poultry imports also is key to the direction of both the cattle and hog markets, Short said.

Russia suspended poultry imports from the U.S. at the beginning of the year, citing concern over a chlorine wash. A prolonged dispute that leads to increased chicken supplies may eventually weigh on pork and beef prices.

A U.S. agricultural delegation arrived in Moscow today to resume talks on poultry imports, according to the Moscow Times.