Prepared by Phil Tiger

The CRB Index continues choppy. The index broke sharply a week ago–down to 238.3 (October 28th), but has bounced back to near 242. The index continues to display potential up trend development. The area of CRB: 236 to 242 should now provide support and should not be broken to the down side but a sustained up trend would require substantial price work above the 246 level and particularly a move above 252. A seasonal low for the CRB Index in the October-November time frame would not be unusual but confirmation is needed before one can be unequivocally bullish basis the CRB Index.

Grains and oilseeds have turned strong again but are expected to remain choppy. Harvest is virtually complete for soybeans (85%) while corn is more than half way there (75%) and should be finished soon. The USDA report of November 10th should help to resolve anticipated carry out stocks of corn and soybeans for 1998.

The 1998 corn carry out is estimated by the USDA (October 10th) at 781 million bushels. The nearby December/May corn spread is still holding near 15 cents May premium but further gains for the back spread appear limited. Stand aside. The 1998 old-crop/new-crop corn spreads have firmed. Recent lows are expected to hold. The old-crop May/new-crop December 98 corn spread had slipped from near 20 cents May premium (August 25th) to near 1 cent May premium (September 30th) and is now back near 8 cents May premium. Stand aside for now but consider the long May/short December corn spread on a break back to near 4 cents May premium. A 4-cent stop is suggested with 15 to 20 cents May premium the objective. Note however, that a major move in favor of the old-crop May (or July) corn is unlikely before the second quarter of 1998.

Wheat/corn spreads had turned in favor of corn but are now stabilizing near recent lows. The December relationship has dropped as low as 74 cents wheat premium (10/27). The seasonal tendency is for December wheat to gain on corn into November but it appears to have peaked early this year. The next trade to look for in these relationships is to buy July corn/sell July wheat on 4th quarter wheat strength. Keep an eye out for a further wheat rally but stand aside for now.

Intra-delivery wheat spreads remain weak. The December/May wheat spread had dropped to near 22 cents May premium where some support was evident. While carrying charges will inhibit further gains for the back spreads, the forward spreads appear to have at best, limited potential. The old-crop May/new-crop July wheat spread is trading near a weak 2-cent July premium. Stand aside. Intermarket wheat spreads remain quietly steady, though off their best levels. The trend is still positive for December Kansas City versus Chicago wheat and remains positive for Minneapolis versus Chicago wheat as well. The December Minneapolis/Chicago wheat spread had set back 10 cents from the contract high of 37 cents Minneapolis (October 6th) premium but is supported at the lower level. The December K.C./Chicago wheat spread remains steady to near 11 cents K.C. premium–only a few cents off the highs. Stand aside in both K.C. and Minneapolis versus Chicago wheat spreads for now as they appear rather rich.

The soybean complex turned sharply higher October 3rd and then appreciated dynamically. The overall trend is now up with support near $6.85 basis January. The 1998 carryout estimate (per the October 10th USDA report) is at an adequate 270 million bushels but that number could become smaller if demand continues at a pace ahead of a year ago. Harvest is nearly complete. There is some concern over excessive rains in South America which has bean prices testing their recent highs as this is written. The January/July bean spread had slipped to near 23 cents July premium but has rallied back to near 15 cents July. Little if any further strength for the spread is expected. Next year's old-crop July/new-crop November 98 soybean spread had also firmed from near 17 cents July premium to a six-week high of 33 cents July, but then slipped back to near 25 cents July premium. The spread is retesting recent highs but seasonally, the spread should ease in the period just ahead. Stand aside in old-crop/new-crop bean spreads for now.

Nearby crush values are steady with values for December near 78 cents, January near 65 cents, and March near 53 cents. Soy oil product values are steady with December through May between 35.5% and 37% with the nearer months weakest. Soy oil spreads are steady. The December/May soy oil spread is steady, near 50 points May premium. Profits of 70 points were taken on the long May/short December 98 soy oil spread (from 10/8 at 20 points December premium) on November 3rd. Look to reinstate the position on a break back to even money.

Soybean meal spreads had firmed as well. The January/May meal spread had rallied to near 650 points January premium following the low near 300 points January set on October 6th then dropped back to 300 points January before firming to 550 points January premium. Stand aside for now but watch the March/July meal spread for a potential seasonal back spreading opportunity on further strength within the next 90 days (currently near 150 points March premium).

The January soybean meal/soy oil spread had rallied to new highs near $8,300 meal premium (contract value) and is holding near $7,400 meal. Those long January meal/short soy oil were stopped out near break even at $6,500 meal premium a few weeks ago. Stand aside.

Meats and meat spreads remain mixed. The December/February cattle spread had firmed to 3-month highs near 110 points February premium. Hold long December/short February cattle (initiated at 275 points February premium on September 2nd) with the nominal stop now at 225 points February premium and the objective at 100 points February premium. Orders have been placed to take profits at 100 points February. The February/April cattle spread found support at the recent lows of 390 points April premium. Also begin watching the June/October 98 cattle spread for a potential seasonal low in the period just ahead (currently near 225 points October premium–an historically low level). Long June/short October cattle is recommended at the recent low of 275 points October premium for a move to a June premium in the new year.

Cattle/hog spreads have become choppy. The December cattle/hog spread generated new contract highs at 690 points cattle premium (October 22nd) but have set back to the area of 500 points cattle premium. Stand aside at current levels but favor long cattle/short hogs on sharp breaks. Begin watching the February relationship (currently near 650 points cattle premium).

Hog spreads had also bounced in favor of the nearbys but that proved to be short lived. The December/February hog spread has highs near 180 points December premium but had dropped to new contract lows near 60 points February premium (October 20th). The spread bounced but is back to a 50 point February premium. Stand aside. Continue to watch the April/July hog spread (currently near 600 points July premium with a high near 125 points July) for a back-spreading opportunity. Be prepared to initiate the back spread on a rally to 250 points or less July.

The February belly/hog spread rallied to 320 points bellies premium but then set back from that level. Hogs are favored seasonally into the new year but historically, a belly premium of at least 600 points is desirable for initiation of a long February hog/short belly spread. Stand aside for now.

December T-bonds remain firm but are off their best levels now that the stock market is firming once again. Never-the-less, lower rates appear to be in the longer range forecast. The December MOB spread broke to new recent (intraday) lows near 103/32nds Muni's premium (11/3) and continues with a weak tone. A resumption of strength for the MOB is expected but the current technical picture remains negative. Aggressive traders who were long December Muni's/short T-bonds from near 135/32nds Muni's premium were stopped out near point of entry. Stand aside for now.

The December NOB spread broke to new (intraday) lows on 10/31 near 215/32nds T-bonds premium but should bounce back as the current flight to quality subsides. Hold the long December 10-year note/short T-bond spread (NOB) from 175/32nds T-bonds premium (September 24th). A nominal stop of 32/32nds is being used with the first objective at 128/32nds T-bonds and smaller T-bond premiums possible. Aggressive traders should use the current weakness to add to positions.

The December TED spread has broken down as expected and is now down near the first objective at 76 points T-bills premium–down from its recent high of 95 points T-bills premium (10/17). A significant move in the TED spread is not likely without a measurable change in short-term interest rates. Those long December Eurodollars/short T-bills from near 92 points T-bills premium should hold with the stop lowered to 90 points T-bills. Accept profits at or below 70 points T-bills premium. The December 97/December 98 (calendar) Eurodollar spread is steady near 28 points premium the nearby. Those who established the forward spread near 30 points T-bills premium should hold with the nominal stop raised to 25 points premium the nearby. A move to 40-50 points premium the December 97 is anticipated.

The December S&P 500/Value Line spread had weakened on the stock market sell off but is now rebounding in favor of the S&P. Support is near 5,500 points S&P premium. Stand aside for now but the temptation will be to buy the December Value Line/sell the December S&P on a rally to levels above 8,000 points S&P premium for a move of 4,000 points in favor of the Value Line. Note that this is a high risk trade.

Currency spreads (crosses) remain choppy. The U.S. Dollar had weakened on the equity sell off but is now recovering. The December Japanese Yen/Deutschemark spread has slipped again to 6-month lows near 2,415 points Japanese Yen premium (November 4th). The trend is still favoring the Deutschemark. Aggressive traders should consider long December Japanese Yen/short Deutschemark (or Swiss Franc) from near 2,400 points Japanese Yen premium. A nominal 100-point stop is suggested with the objective of 2,900 to 3,300 Japanese Yen premium.

The December Japanese Yen/Swiss Franc spread has a similar pattern to the Japanese Yen/Deutschemark spread. Recent (6- month) lows near 1,080 points Japanese Yen premium should uncover support. Longer term, a shift in favor of the Japanese Yen is expected. Consider long Japanese Yen/short Swiss Franc below 1,100 points Japanese Yen premium with a 100-point nominal stop and a 400- to 900-point profit objective.

The December Swiss Franc/Deutschemark spread had slipped to new (recent) lows in the vicinity of 1,160 points Swiss premium but then rallied sharply in favor of the Swiss Franc. The Swiss Franc had approximately a 20% premium over the Deutschemark at the lower levels. A Swiss premium above 20% is historically high. The spread has since rallied to near 1,360 Swiss premium (October 31st) with a 23½% Swiss premium over the Deutschemark at the high. Those who established the long December Deutschemark/short Swiss Franc cross near 1,350 points Swiss Franc premium should hold with the stop lowered to 1,375 points Swiss premium. The objective is 1,200 points Swiss Franc premium. Longer term, the Deutschemark should be favored.

Precious metals are barely steady but trying to turn up from recent lows. The December gold/silver ratio had slipped to new lows near 64 (a 9-year low) but has found support at that level. The ratio is expected to favor gold over the longer term with 80-85 the objective.

The April platinum/gold spread is barely steady but holding above recent lows (near $85 platinum premium). The spread is a candidate for a potential long platinum/short gold position but wait for a dip below $80 platinum.

Copper and copper spreads remain weak. Seasonals point to a low in the current time frame. The December/May copper spread set a new low near 150 points May premium on October 28th and is trading just above that level. Watch the May/December 98 copper spread for a potential seasonal low within the next 60-60 days and a forward spreading opportunity at a December premium, (currently near 10 points May premium).

New York softs remain mixed. Coffee is two sided. The December/May coffee spread has broken to new 7- month lows under 1,000 May premium (November 4th) stopping out the forward spreads. Stand aside awaiting a low to establish a long July/short December 98 coffee forward spread for the Brazilian freeze season. The spread is currently near 450 points July premium with support near 300 points July. The objective is for a July premium of 1,000 to 1,500 points.

Cocoa and cocoa spreads have eased. The December/May cocoa spread had slipped to near $70 May premium where it remains. The March/July cocoa spread is generating new lows near 45 points July premium. Stand aside for now but keep an eye on the March forward cocoa spreads for a potential forward spreading opportunity on a near-term low.

Sugar and sugar spreads have firmed. The fundamental outlook still appears to be somewhat negative. The March/October sugar spread set new contract highs on November 3rd at 54 points March premium. Further gains to 75 to 120 March premium would warrant initiating the back spread. Otherwise, stand aside.

Stand aside in the lumber spreads.

December cotton has firmed a bit on weather concerns for that cotton that is still in the field. The spreads have steadied. The December/March cotton spread was supported near 150 March premium and has rallied to resistance near 100 points March premium. Stand aside in the cotton spreads.

Hold the long March/short July FCOJ spread (from October 10th at 600 points July premium). The spread should favor March into the new year and especially from current levels where carrying charges act to limit the risk. A nominal 200-point stop is suggested with 400 July to even money as the objective.

The entire energy complex received a boost from a major cold-weather pattern and storm over the past fortnight but has now eased moderately. The entire complex has stabilized near the middle of recent trading ranges. Most trends remain up but choppy. The December/short March heating oil spread had slipped to near 50 points March premium and is oscillating between there and even money. The December/March unleaded gasoline spread is barely steady near 120 points March premium (contango) and has yet to generate either new highs or lows from current levels. The December/March natural gas spread generated new highs near 1070 points December premium on October 27th. Crude oil spreads are weak with the December/March crude spread testing the even money level with contract lows at 10 points March premium (hit several times in June, July, August and October).

The long December heating oil/short unleaded gasoline spread from 150 points heating oil premium (May 15th) was stopped out on October 23rd at 110 points unleaded gasoline premium. Stand aside.

Hold the long January heating oil/short unleaded gasoline spread from 80 points heating oil premium (August 20th). The spread had been holding near point- of-entry but has also slipped to near 50 points unleaded gas premium. The revised nominal stop at even money has been canceled while 500 points or more heating oil premium remains as the objective but any further weakness will be met with liquidation.

November 10, 1997Phil Tiger

Tiger On Spreads, P.O. Box 64401, Chicago, Illinois

Spread Trading
Tiger On Spreads
Consensus National Futures and Financial On Line Index

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