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* Cargill to shut Texas beef plant on Feb. 1 * Lower cash, wholesale beef prices weigh * Live cattle selloff sinks feeder futures * Hog contracts climb as cash prices surge By Theopolis Waters CHICAGO, Jan 17 (Reuters) - Chicago Mercantile Exchange live cattle futures fell hard Thursday on news that Cargill Inc plans to close its beef packing plant in Plainview, Texas, on Feb. 1 due to tight supplies, traders and analysts said. CME live cattle futures at one point fell by their 3-cent daily price limit, but recovered some of those losses later in the session. "The U.S. cattle herd is at its lowest level since 1952. Increased feed costs resulting from the prolonged drought, combined with herd liquidations by cattle ranchers, are severely and adversely contributing to the challenging business conditions we face as an industry," John Keating, president of Cargill Beef, said in a statement. Spot February closed at 126.600 cents per lb, down 1.925 cents, or 1.5 percent. April ended down 1.825 cents, or 1.38 percent, at 130.875 cents. "It was a case of shoot first and ask questions later," Oak Investment Group president Joe Ocrant said in response to what he called futures' overreaction to news of the plant's closing. There was nothing overly bearish about Cargill's announcement, said Ocrant. It confirmed what people knew all along, that cattle numbers are the lowest in 60 years because of drought, he said. David Hales, president of Hales Trading Co, characterized Thursday's selloff as "panic selling" driven by the belief that the plant closing would create a surplus of cattle, allowing packers to buy them cheaper. "That line of reasoning would only be true if packers were killing at full capacity, and that's not the case," said Hales. CME live cattle futures' sellers outnumbered buyers after grocers showed interest in buying beef only at lower prices. The price for wholesale choice beef Thursday was $192.20 per cwt, $1.63 per cwt lower than Wednesday, with sales volume of 215 loads. It was the most for a Thursday since 217 loads on Dec. 27, according to the U.S. Department of Agriculture. Investors were still reeling from this week's lower cash cattle values as processors reduced spending to realign their margins. Cash cattle in the U.S. Plains fetched $124 to $125 per cwt, compared with $125 to $128 last week, feedlot sources said. HedgersEdge.com put the average beef packer margin for Thursday at a negative $36.95 per head, compared with a negative $46.90 on Wednesday and a negative $66.75 on Jan. 10. CME feeder cattle moved lower for an eighth consecutive day, in sympathy with the steep drop in the live cattle market. January ended 2.675 cents per lb lower, or down 1.82 percent, at 144.400 cents. Most-actively traded March finished at 145.850 cents, down 2.375 cents, or 1.6 percent. HOGS RALLY WITH CASH Hog futures rallied with stronger cash hog prices that sparked short-covering, traders and analysts said. Packers bolstered inventories before the weekend and ahead of the Martin Luther King Jr. holiday on Monday, one trader said. Hog supplies have already tightened seasonally and are expected to get even harder to come by when colder weather moves into the U.S. Plains by Monday, he said. Chilly temperatures slow animal weight gains, limiting supplies available to packers. Some farmers may keep doors to confinement buildings closed to retain heat. The government on Thursday showed the average hog price in the most-watched Iowa/Minnesota market at $86.66 per cwt, $1.82 higher than Wednesday. Spot February hogs settled 0.800 cent per lb higher, or up 0.88 percent, at 85.950 cents. Most-active April ended at 88.075 cents, 0.650 cent higher, or up 0.74 percent.