The CRB Index rallied to an 11-month high close at 254 on May 16th. Resistance lies just above that level but, if overcome, would point to a test of the 1996 highs near 264 (April 26th, 1996). Support lies below 246. The outlook remains positive.

Grains and oilseeds remain very choppy though near-term lows may be in and June and July tend to be seasonally firm months for corn and the soybean complex. Wheat is entering the harvest period which could weigh on values unless yield and quality prove to be less than expected. The USDA June 12th Crop report will be an important update. Weekly Crop Progress reports have begun and will become more significant as time goes by. The "silly season" is beginning with crop scares likely whenever conditions are less than ideal. Note that the Indian Monsoon is late this year (concurrent with the appearance of an "El Nino" event in the Pacific) which could have a longer-term positive price influence on oilseeds, wheat, sugar, and cotton prices.

The tight 1997 corn carry out (estimated by the USDA as of May 12th at 909 million bushels) could favor the old-crop July/new-crop December corn spread in the period just ahead. The spread had firmed to near 22 cents July premium (April 1st) but then fell back to the 12-cent July premium level. The spread is trying to stabilize near the middle of the range. Entry into the long old- crop July/short new-crop December corn will be considered near 12- 1/2 cents July premium for a seasonal move in favor of July over the next 4 to 5 weeks. A stop below 11 cents July is suggested with the first objective at 22 cents July.

Wheat/corn spreads have been favoring corn. The July corn/wheat spread had set wheat highs on April 21st at $1.47 wheat premium but has now slipped back to near 82 cents wheat premium. Seasonal tendencies have strongly favored corn over wheat into June but seasonals should now begin to shift in favor of wheat. Traders who are long July corn/short July wheat from $1.25 or more wheat premium should take profits at current levels. Watch the December wheat/corn spread (currently near $1.18 wheat premium). Be prepared to buy December wheat/sell corn on a break back to $1.15 or less wheat premium for a move to perhaps $1.75 or more wheat premium later in the year. A 15-cent stop is suggested. There is a strong seasonal favoring December wheat over corn during the second half of the year.

Interdelivery wheat spreads remain weak. The July/December wheat spread is in a down trend and just above the low of 20 cents December premium. Stand aside.

Intermarket wheat spreads have been choppy and for the most part corrective though still in trends favoring the outside markets. The July Minneapolis/Chicago wheat spread has rallied to near 32 cents Minneapolis premium with support below 20 cents Minneapolis premium. The July Kansas City/Chicago wheat spread is barely steady near 21 cents K.C. premium--some 15 cents below the contract highs of 36-1/2 cents K.C. premium set on April 18th. Fundamentals appear to favor the Minneapolis and K.C. markets over Chicago but current premiums appear to be reflecting that. Stand aside. The December Minneapolis/Chicago wheat spread has resistance near 14 cents Minneapolis premium (May 14th, 30th, and June 4th) with support near 5 cents Minneapolis premium. Stand aside but long December Minneapolis/short Chicago wheat is favored on a set back to even money.

The soybean complex has been very choppy though the overall trend remains positive. The carryout estimate (per the May 12th USDA report) is at a tight 125 million bushels. This leaves virtually no room for any crop problems or greater than expected demand. The new crop is off to an excellent start. Old-crop/new-crop spreads have weakened with resistance at the contract highs. The old-crop July/new-crop November soybean spread rallied to a new contract high (May 30th) of $1.95 July premium but quickly set back 45 cents. The spread should be well supported near $1.40 July premium and remains in an uptrend. The spread could exceed the recent highs into July and especially should any (real or perceived) crop problems develop and/or if demand exceeds current estimates. Traders should note that the September/November soybean spread did not participate in the late May rally and has dropped to 4-month lows near 31 cents September premium. The spread reached an historically high September premium near 70 cents on April 30th. Profits were taken on short September/long November soybean spread (from March 31st at 53 cents September premium) on June 4th at 33 cents September premium. Look to reinstate the position on a rally back above 50 cents September premium. The spread is favored seasonally from June through the beginning of September and rarely achieves September premiums above recent levels. The carryout is tight and this could work against the back spread (as it did last year). Note that new-crop beans are usually available before the expiration of the September contract.

Crush values are weaker with values for July near 23 cents, August near 29 cents, and September near 81 cents. Soy oil product values are barely steady with July through September between 29.6% and 33% with the nearer months weakest. Soy oil spreads are stable. The July/December soy oil spread is holding support near 60 points December. Stand aside but begin watching the December/May soy oil spread--currently near 60 points May premium.

Soybean meal spreads are still looking toppy. The July/December meal spread appears to have a double top at 7,100 points July premium but fundamentals are still favorable. Stand aside. Begin watching the January/May meal spread (currently near 500 points January premium) which often makes a summer low and then rallies into year's end.

The July soybean meal/soy oil spread has eased following the new contract highs of $14,900 meal premium (contract value) set on May 20th. Aggressive traders who established a long July meal/short soy oil position near $12,000 meal premium should have taken profits at $14,000 meal premium. Stand aside.

Meats and meat spreads are mixed with cattle easier and the pork complex steady. The long June/short October cattle spread (from 260 points October premium on December 27th) was stopped out on May 28th at 382-1/2 points October for a 122-1/2 point loss. Hold the long August/short December cattle spread from February 18th at 599 points December premium. The spread had rallied to 4-month highs at 470 points December premium but briefly set back to a new contract low (June 2nd) at 630 points December premium. Seasonals favor August into Summer. The nominal stop is at 630 points December and is in jeopardy as this is written. The first objective is still at 450 points December premium with even money possible.
Cattle/hog spreads have evolved into a choppy trading range centered on 1,400 to 1,600 points hogs premium. The August cattle/hog spread had a low near 1,900 hogs premium (April 24th) and then rallied 700 points in favor of cattle. The spread is now back to the median near 1,600 hogs premium. Stand aside. Interdelivery hog spreads have stabilized. The June/October hog spread had broken to marginal new contract lows (May 16th at 760 points June premium) but then bounced back to 920 points June. Seasonals favor June (and July) over the back months from now into summer. Long June/short October hogs from April 4th at 875 points June premium was stopped out on May 19th at 785 points June premium for a 90 point loss. The July/December hog spread also weakened not break to new lows (April 8th at 1,010 points July premium). Stand aside.

The July belly/hog spread set new highs on May 23rd at 1,120 points bellies premium. The spread should seasonally favor hogs into summer and has now turned in favor of hogs. Stand aside for now but be alert for a potential long July hogs/short bellies
recommendation on a test of recent highs

Old-crop interdelivery belly spreads have weakened. The July/August belly spread is at even which is very unusual (July almost always has at least a 100-point premium). Stand aside. The old-crop August/new-crop February belly spread. The spread has turned in favor of February in line with seasonal tendencies. Orders to buy February/sell August bellies were unable to be initiated at 1,450 August premium and have been canceled. The spread has dropped to near 900 points August. Stand aside but aggressive traders should consider long February/short August bellies above 1,100 August. A 200-point nominal stop is suggested with the first objective at 100 points August and a February premium possible.

T-bonds remain steady near the upper end of the past 3-month range and of the recent 5-week range. The September MOB spread remains firm after generating new contract highs on May 27th at 194/32nds Muni's premium. Long September Muni's/short T-bonds will be considered on a significant set back to perhaps near 148/32nds Muni's premium. Otherwise, stand aside.

The September NOB spread set contract highs on April 11th at 44/32nds T-bonds premium and then broke to the down side. The spread has found some support near 92/32nds T-bonds premium. Aggressive traders might wish to buy the September 10-year note/sell T-bonds on a set back to near 92/32nds T-bonds premium. A nominal 16/32nds stop is suggested with the objective of 48 to 16/32nds T-bonds premium. Otherwise, stand aside.

The September TED spread continues firm with values near contract highs of 65 points T-bills premium. This represents a 10-point increase since February. Further gains though possible, are not likely without a measurable increase in short-term interest rates. The December TED spread presents a different picture with contract highs set above 100 T-bills in April with the current value near 75 points T-bills premium. A bounce to near 85 points T-bills would warrant a long December Eurodollars/short T-bills (reverse TED) position for a move down below 60 points T-bills. A 12-point stop is suggested.

The June Value Line/S&P 500 spread broke to new lows on May 15th, near 10,650 points S&P premium. The spread has since rallied more than 2,000 points in favor of the Value Line. Though the temptation is to pick a bottom (i.e., buy the June Value Line/sell the June S&P) on a test of recent lows (S&P highs), the trend is decidedly in favor of the S&P. Stand aside for now and perhaps wait for the September contracts.

Currency spreads (crosses) have become choppy correcting the dynamic moves of May. The Japanese Yen had exploded to the upside but has been in a corrective mode since May 20th. The June J- yen/Deutschemark spread set its high on that date near 2,950 points J-yen premium but has since slipped more than 200 points. Some support is evident near 2,700 J-yen. However, the focus will now shift to the September spread (currently 100 points richer than the June relationship. Be alert for a potential long September J- yen/short D-mark (or Swiss Franc) spread in the period ahead. The June J-yen/Swiss Franc spread has a similar pattern to the J- yen/D-mark spread as a high was made at 1,700 points J-yen premium on May 20th and the spread then slipped back to near 1,550 points J-yen. Stand aside here for now--at least until a further set back is seen and the September spread is liquid.

The June Swiss Franc/D-mark spread rallied strongly to a high of 1,270 points Swiss premium (May 20th). The Swiss Franc premium over the D-mark was then at an historically high Swiss premium of 21%. Those long June Swiss Franc/short D-mark from 950 points Swiss Franc premium were stopped out near 1,150 Swiss Franc premium on June 4th. All objectives have been achieved. The September spread has a similar pattern though values are 100 points richer.

Precious metals remain barely steady. The spot gold/silver ratio is still holding near 73. The ratio is expected to favor gold over the longer term with 80-85 the objective.

The October platinum/gold spread rallied to new highs (May 29th) at $52 platinum premium. The trend favors platinum and higher platinum premiums could be seen. If long October platinum/short gold, raise the stop (close) to $39 platinum. Otherwise, stand aside.

Copper and copper spreads remain choppy but appear to be turning down. Seasonals favor the back spread. One of the two long December/short July copper spreads (from April 24th at 660 July premium) was liquidated on May 27th at 940 July premium for a 280- point loss per the nominal stop hit on May 22nd. Hold the remaining position (from May 12th at 760 points July premium) with the nominal stop at 950 July. The objective remains at 250 points July premium to even money.

The New York softs are mixed. Coffee has become two sided with a sharp 50 cent break at the turn of the month. The July/December coffee spread set a new contract high on May 29th at 8,675 points July premium but was back to 6,200 July by June 4th. The coffee maker is extremely volatile and the Brazilian freeze season is in effect through the end of June. Stand aside.

Cocoa and cocoa spreads have weakened. The July/December cocoa spread set new contract lows on June 4th near $75 December premium. Stand aside and note that this does not bode well for cocoa. The December/May cocoa spread remains near 50 points May premium. Stand aside.

Sugar has firmed but spreads remain mediocre at best. The fundamental outlook remains negative with the exception of the late Indian monsoon. The October/March sugar spread has rallied three times to 13 points October premium from even money but further gains appear unlikely. Stand aside.

The July/September lumber spread remains steady though the high of 1,350 points July premium (April 14th) represents significant resistance. Stand aside but watch the spread for a test of the high and a potential top. Lumber spreads usually decline into the front month delivery period.

Cotton spreads remain barely steady. The old-crop July/new-crop December cotton spread set contract lows near 290 points December premium on May 5th but is still holding near 240 December. Stand aside.

Long September/short January FCOJ was established at 500 points January premium on May 27th. Seasonals favor September into Summer and especially at 500 points or more premium the back month. Hold the spread with a 200-point stop. The objective is even money to a September premium.

All components of the energy complex are weaker. Intradelivery spreads are weaker. The focus is now on the spreads fronted by July. Only the July/September heating oil spread is holding some 25 points above its lows. Nearby crude oil, heating oil, and natural gas spreads are in a contango (back month at a premium). There is little to warrant taking a position at this time. Stand aside in the intradelivery spreads for now.

Hold the long December heating oil/short unleaded gasoline spread from 150 points heating oil premium (May 15th). Be prepared to add to the spread near even money (currently, the spread is near point of entry). The spread has an excellent potential for a move to 500 points or more heating oil premium later in the year. A nominal 250-point stop is suggested initially.

June 9, 1997
Tiger On Spreads
P.O. Box 1414,
McLean, Virginia

Consensus National Futures and Financial On Line Index

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