* CME feeder cattle drop on higher corn prices * USDA monthly cattle report at 2 p.m. CDT (1900 GMT * Short-covering pares earlier hog futures losses By Theopolis Waters CHICAGO, Aug 23 (Reuters) - Chicago Mercantile Exchange live cattle futures closed lower Friday as traders tweaked positions ahead of the U.S. Department of Agriculture's monthly cattle-on-feed report expected at 2 p.m. CDT (1900 GMT). Analysts polled by Reuters believe the smaller U.S. cattle herd and high-priced feed resulted in feedlots drawing from fewer cattle available for feeding now. Spot August live cattle ended down 0.250 cent at 123.100 cents per lb. Most-actively traded October closed 0.500 cent lower at 126.700 cents. There were no big moves in futures one way or the other with the report hanging over the market and cash prices yet to be decided, Oak Investment Group President Joe Ocrant said. Cash cattle bids in Texas and Kansas stood at $121 per cwt versus $125 and higher asking prices from sellers, feedlot sources said. Last week cash cattle in Texas and Kansas traded at $123 per cwt, and $125 in Nebraska at that time. Investors see producers paying at least steady money for supplies given their profitable margins. Grocers buying fresh beef to feature during the Sept. 2 U.S. Labor Day holiday could lend support to cash prices. Friday morning, the government quoted the wholesale choice beef price, or cutout, at $195.94 per cwt, up 10 cents from Thursday. Select cuts dropped 68 cents to $184.60. CME feeder cattle felt pressure from lower live cattle futures and higher corn prices. Fund selling developed after September feeder cattle dropped below the 20-day moving average of 157.31 cents. Spot August feeder cattle closed at 155.000 cents, down 0.450 cent per lb. Most-actively traded September closed 1.050 cents lower at 156.650 cents. HOGS RALLY AS SHORTS COVER Short-covering helped CME hogs shrug off early-session losses caused by the recent downtrend in cash hog and wholesale pork prices, traders said. October hogs finished 0.700 cent higher at 85.100 cents per lb while December ended up 0.650 cent at 82.250 cents. "You had funds fighting to protect their massive long positions in the market," a trader said. Buying interest developed when October and December futures approached their key 100-day moving averages of 83.61 cents and 80.60 cents, respectively. Lower cash hog and wholesale pork values at times prompted selling as futures rallied. Packers resisted raising cash hog bids as supplies increase seasonally, making more fresh pork available to end users. And supermarkets are not booking large orders of pork as they are close to having all they need for their Labor Day grilling promotions. The government on Friday morning quoted the average hog price in the eastern Midwest market 90 cents per hundredweight (cwt) lower from Thursday, to $91.50. USDA estimated that packers this week will process 2.207 million hogs, up 30,000 from last week and 65,000 more than a year ago for the same period. Government data on Friday morning showed the wholesale pork price, or cutout, at $98.59 per cwt, $1.36 lower than Thursday.