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* Feeder cattle follow live cattle higher * Live cattle futures help lift CME hogs By Theopolis Waters CHICAGO, Aug 8 (Reuters) - Chicago Mercantile Exchange live cattle futures on Thursday hit a three-month high fueled by speculation that beef prices could rise after Tyson Foods Inc said it would no longer buy cattle given the feed additive Zilmax. In a letter, Tyson Foods, the country's largest meat processor, notified all feedlot operators it would suspend Zilmax-fed cattle purchases starting Sept. 6. Tyson said it made the decision after recent instances of cattle arrived at some of its plants with difficulty walking or unable to move. The company said it was unsure what caused the problems, but some animal health experts suggested a possible link to Zilmax. Zilmax can help put more than 20 pounds on cattle during their last few weeks in feedlots before being sent to packing plants for processing. Livestock economists and analysts believe some cattle given the additive may have been unable to handle the stress of the additional weight. "The futures market has a perfect storm of improved wholesale beef prices, fund buying and now the Tyson news," Oak Investment Group president Joe Ocrant said. He said beef costs could climb as cattle weights come down, if other packers follow Tyson's lead. Also cattle, and thus beef, could be harder to come by after last summer's drought damaged crops which shrunk the U.S. herd to a 61-year low. As the morning progressed, futures eased from session highs as investors took profits while others were more guarded about Tyson's plans. "The decision could help level off and maybe push weights down slightly this year and next, but the declines will not be as significant as some expect," Paragon Economics president Steve Meyer said in his newsletter. "A big wild card is how other packers react and whether lower feed costs encourage producers to feed cattle longer," he said. Recent futures advances and beef cutout gains could prompt packers to spend more for cattle this week, traders said. Cash cattle bids in the Southern Plains were at $117 per cwt with no response from sellers, feedlot sources said. Last week, cash cattle in Texas traded at $119 per cwt and mostly at $119 in Kansas, with some at $120. Most live-basis cattle in Nebraska last week sold at $120.50. The U.S. Department of Agriculture on Thursday afternoon quoted the wholesale price of choice beef at $188.31 per cwt, down 35 cents from Wednesday. Select cuts were up 38 cents to $182.05. August live cattle futures ended up 1.450 cents at 122.675 cents per lb. October closed 2.400 cents higher at 127.075 cents. The contract earlier hit its 3-cent price limit of 128.675 cents. CME feeder cattle drew support from the run up in the live cattle market. August feeders closed at 154.250 cents, up 1.675 cents per lb, while September closed at 157.825 cents, 1.450 cents higher. HOGS UP WITH CATTLE The upswing in the live cattle market and higher wholesale pork values lifted CME hogs, traders and analysts said. "It's possible that higher beef prices could pull up pork along with them," a trader said. Government data Thursday morning showed the wholesale pork price, or cutout, at $105.90 per hundredweight (cwt) which was 78 higher than on Wednesday. Conducive grilling weather and grocers buying meat for the U.S. Sept. 2 Labor Day holiday benefited wholesale pork values. And packers that were closed on Monday for a floater holiday, slowed the flow of fresh pork to end-users. Plants that were dark on Monday plan to make up that downtime on Saturday. A major pork processor will be closed on Friday due to tight hog supplies, according to traders and analysts. Spot August hogs were guided by CME's hog index which was at 101.08 cents. Spot August hogs closed at 100.625 cents per lb, or up 0.400 cent. Most-actively traded October ended at 85.250 cents, or 0.325 cent higher.