Prepared by Phil Tiger

The CRB Index continues choppy. The index broke sharply at the end of October but rebounded and is now holding at a support/ resistance area centered on 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 had tamed strong again but are experiencing a set back (and possibly a near- term top) following the November 10 USDA Crop Production report. Harvest virtually completed (soybeans at 93% and corn at 91%).

The 1998 corn carry out is estimated by the USDA (November 10) at 929 million bushels. This is an increase over last month's estimate and a negative value. Some analysts foresee even larger carryouts. The 1998 old-crop May/new-crop December corn spread has firmed after slipping back to near recent lows near 2 cents May premium. The July/December 1998 corn spread is a similar situation with support below 5 cents above 15 cents July. Stand aside for now but long May (or July)/short December corn spread on further weakness to near recent lows for a move into the new year. 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 trying to stabilize near recent lows. The December relationship has dropped as low as 68 cents wheat premium where it remains. The December relationship will cease to be of interest another week. The next trade to look for in these relationships is that of buying July corn/selling July wheat on 4th quarter wheat strength (perhaps to near $1.00 wheat premium). Keep an eye out for a wheat rally (currently near 78 cents July wheat premium) but stand aside for now.

Intradelivery wheat spreads remain weak. The December/May wheat spread has dropped to near 23 cents May premium where some support is evident. While carrying charges will inhibit further gains for the back spreads, the forward spreads appear to have at best, limited potential. The 1998 old-crop May/new-crop July wheat spread is trading near a weak 6-cent July premium. Stand aside.

Intermarket wheat spreads remain quietly steady. The trend is still positive for December Kansas City versus Chicago wheat and remains positive for December Minneapolis versus Chicago wheat as well. Both relationships set new contract highs (for Minneapolis–38 cents and KC wheat–15 cents versus Chicago) this past week. Stand aside in both Kansas City and Minneapolis versus Chicago wheat spreads for now as they appear rather rich and shift the focus to the March and May contracts.

The soybean complex turned sharply higher in October but is giving some evidence of having topped (November 11 at $7.49 January). The overall trend is now up with support near $6.85 basis January. However, near-term upside objectives have been satisfied and a test of support could be seen in the period just ahead. The 1998 carryout estimate (per the November 10 USDA report) is at an adequate 255 million bushels (down 15 million bushels from the last report) and that number could become smaller if demand continues at a pace ahead of a year ago. Harvest is nearly complete. There was some concern over excessive rains in South America which had pushed soybean prices to their recent highs but some improvement of the weather situation is being observed as this is written. The January/July bean spread had slipped to near 23 cents July premium but has rallied back to near 7 cents July. Little if any further strength for the spread is expected. Next year's old-crop July/new-crop November 1998 soybean spread had also firmed from near 17 cents July premium to a ten- week high of 42 cents July premium (November 11) but should slip back seasonally in the period just ahead. Stand aside in old- crop/new-crop bean spreads.

Nearby crush values are mixed with values for December near 73 cents, January near 66 cents, March near 57 cents, and May near 51 cents. Soy oil product values are steady with December through May between 36% and 37% with the nearer months weakest though one should note the flattening of values. Soy oil spreads are steady. The December/May soy oil spread has rallied to near 30 points May premium. The May/December 1998 oil spread remains strong near 100 points May premium. Look to reinstate the long May/short December 1998 soy oil spread on a set back approaching even money into year's end.

Soybean meal spreads had firmed but may have peaked. The January/May meal spread rallied to a new high on 1115 near 980 points January premium but has already set back 350 points. The short March/long July meal spread was established on November 10 at 350 points March premium. A second position will be added if the spread can rally to 550 points March premium (unlikely). The nominal stop is at 700 points March while the objective is a July premium of 100 to 500 points. Note that this back spread is one of the most seasonally reliable trades in meal with highs usually made in the fourth quarter of the year and lows generated by the first week of March.

The January soybean meal/soy oil spread had rallied to new highs near $8,300 meal premium (contract value) and has since dropped back to support near $6,750 meal. Stand aside for now but begin looking at long soy oil/short meal for March and May on any near term strength.

Meats and meat spreads remain mixed. The December/February cattle spread has firmed again following the early November break. The February/April cattle spread found support at the recent lows of 390 points April premium and is hovering just above that level. Consider long February/short April cattle at 360 points or more April premium. Use a 45-point nominal stop with the first objective at 250 points April and smaller April premiums possible. Also watch the June/October cattle spread for a potential seasonal low in the period just ahead (currently near 175 points October premium). Long June/short October cattle is recommended near 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 22) 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. Keep an eye on the February relationship (currently near 630 points cattle premium with support 100 points lower.

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 has dropped to new contract lows near 90 points February premium (November 7) and bounced back to even money. Stand aside. Continue to watch the April/July hog spread (currently near 580 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 premium.

The February belly/hog spread rallied to 320 points bellies premium but quickly set back from that level and is now near 300 points hogs premium. 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.

December T-bonds remain strong. The December MOB spread has broken to new recent lows near 90/32nds Muni's premium (November 19) and continues with a weak tone. A resumption of strength for the MOB is expected but the current technical picture remains negative. Continue to stand aside for now but begin watching the March MOB (currently near 75/32nds Muni's premium).

The December NOB spread broke again to new (intraday) lows on November 19 near 238/32nds T-bonds premium. A bounce back in favor of the 10-year note is expected. We are holding the long December 10 year note/short T-bond spread (NOB) from 175/32nds T- bonds premium (September 24). A bounce back to 170-200/32nds is expected by December 28. The position will be liquidated by that time. Thereafter, one should watch the March NOB (also currently near 238/32nds T-bonds premium) for a new long T-note/short T-bond position for the new year.

The December TED spread broke down as expected and attained the first objective at 75 points T-bills premium (down from the contract high of 95 points T-bills premium on October 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 83 points T-bills. Accept profits at or below 70 points T-bills premium. The December 1997/December 1998 (calendar) Eurodollar spread broke to new lows below 19 points premium the nearby. Those who established the forward spread near 30 points T-bills premium were stopped out near 25 points premium the nearby. Stand aside but begin watching the March 1997/1998 calendar spread.

The December S&P 500/Value Line spread has strengthened after basing in the area of 6,500 points S&P premium. Support lies between 5,500 and 7,000 points S&P premium. Stand aside for now but begin watching the March Value Line/S&P spread for potential trading opportunities going into the new year.

Currency spreads (crosses) remain choppy. The U.S. Dollar has strengthened versus most foreign currencies and is now stabilizing. The December Japanese Yen/Deutschemark spread has slipped again to new contract lows near 2,130 points Japanese Yen premium (November 12). The trend is still favoring the Deutschemark. Stand aside.

The December Japanese Yen/Swiss Franc spread has a similar pattern to the Japanese Yen/Deutschemark spread. Contract lows near 765 points Japanese Yen premium (November 12) are expected to uncover support. Longer term, a shift in favor of the Japanese Yen is expected. Stand aside.

The December Swiss Franc/Deutschemark spread rallied to test recent highs near 1,370 Swiss Franc premium. Long December Deutschemark/short Swiss Franc was established by aggressive traders at 1,360 points Swiss premium. The Swiss Franc had approximately a 23.1% premium over the Deutschemark at that level. A Swiss Franc premium above 20% is historically high. Hold the cross with a nominal 25-point stop and a 200-point profit objective. Longer term, the Deutschmark should be favored.

Precious metals remain at best barely steady but trying to stabilize. The December gold/silver ratio has slipped to new lows near 60 (a 9½-year low) but has some 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 and has been setting new (recent) lows. The spread is trying to stabilize at $70-$75 platinum premium and is a candidate for a potential long platinum/short gold spread at current levels. The spread should go back above $100 platinum premium. Risk is estimated to the $60 platinum premium level.

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 28 and is trading just above that level. Watch the May/December 1998 copper spread for a potential seasonal low within the next 60 days and a forward spreading opportunity at a December premium (currently near 40 points May premium) of 100-200 points.

New York softs, remain mixed. Coffee is two sided. The March/May coffee spread is holding near 400 points March premium while the July/December 1998 coffee spread has bounced back to 750 points July premium from recent lows (November 3) of 450 points July. Consider the forward spread on a break with a stop under the recent low. The Brazilian freeze season begins in May. The objective is for a July premium of 1,000 to 1,500 points.

Cocoa and cocoa spreads have eased. The March/July cocoa spread is generating new lows once again near 55 points July premium. Stand aside for now but keep an eye on the March and May forward cocoa spreads for a potential forward spreading opportunity on a near-term low.

Sugar and sugar spreads had firmed. The fundamental outlook still appears to be somewhat negative. The March/October sugar spread set new contract highs on November 3 at 54 points March premium but has slipped 10 points since then. Further gains to 75 to 120 March premium would warrant initiating the back spread for a move back to even money. Meanwhile, stand aside.

Continue to stand aside in the lumber spreads.

December cotton broke to new contract lows on the November 10 USDA report. The spreads also weakened but then bounced back on November 17. The December/March cotton spread had rallied to resistance near 100 points March premium but broke to new contract lows at 165 March premium on the report before, bouncing back to near 100 points March premium. Stand aside in the cotton spreads but begin looking at the 1998 May and July forward spreads.

Hold the long March/short July FCOJ spread (from October 10 at 600 points July premium). The spread should favor March during the turn of 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 very brief boost from a major cold weather pattern but is already easing back as the weather systems moderate. Most values for both the petroleum complex as well as natural gas are now in the middle to lower end of recent price ranges. The long December/short March heating oil spread had slipped to near 50 points March premium but has rallied back to a 40 point December premium as expiration of the December contracts approaches. The December/March unleaded gasoline spread has also firmed to new highs near 20 points March premium–up from near 100 points March premium (contango). Crude oil spreads remain weak with the December/March crude spread still now holding within 20 points of the contract lows of 35 points March premium. The December/March natural gas spread had generated new highs near 1070 points December premium (October 27) but has since set back more than 600 points from those levels.

The December heating oil/short unleaded gasoline spread is near its contract low approaching 200 points unleaded gasoline premium as expiration approaches. Hold the long January heating oil/short unleaded gasoline from 80 points heating oil premium (August 20). The spread had been holding near point-of- entry but then slipped to new lows near 120 points unleaded gas premium in spite of recent cold weather. Be prepared to liquidate the position on a rally approaching even money. Then stand aside. Note that the May unleaded gasoline/heating oil spread is already reflecting a 750 point gasoline premium. Stand aside.

November 24, 1997Phil Tiger

Tiger On Spreads

P.O. Box 64401, Chicago, Illinois

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