FOCUS ON GOLD: The longer-term charts reveal gold's two-year decline and proximity to $281.20, the February 1985 low. Undoubtedly, the loss of confidence in this metal's role as a hedge during times of financial or political chaos, and the recent wholesale purging of reserves by an increasing number of central banks, remain a heavy burden on the backs of the beleaguered bulls. Indeed, projections of seeing prices decline to $250/oz. or lower continues to attract more and more sellers. Even a strong rally in silver could not spur more than a very modest rebound, as many feel that the historic link between the two metals is nearly severed. In this negative environment, the odds of seeing lower prices appears good. Unless some quality dealer buying should appear, or central banks stop offloading their reserves, we'll expect more pressure and a continuation of the long-term bearish trend.

Recommendation–February Gold–Look to sell on a rally back to $295.00/oz. Buy Stop–$302/oz., close only. Objective–$250/oz.

FOCUS ON CORN: Corn prices remained on the defensive this week, as a negative Supply/Demand report and increased selling pressure by heavily long commodity funds helped push corn to its lowest level since last October. In response to lagging exports and strong global competition, the USDA, in its December estimate, saw fit to lower its new-crop export projection by fifty million bushels, which, in turn, helped to raise ending stocks to 953 million bushels, up 25 million from last month. Favorable growing weather in South America has also aided the sellers, who now anticipate more global course grain production that, in fact, was boosted by 3.50 million metric tons in the December report. Nevertheless, fundamentals remain long-term bullish, as the low world corn stock to usage numbers continue to reflect a tight supply situation that may get worse if worries over El Nino related weather problems materialize. For the time being, further long liquidation appears possible, especially if domestic exports remain on the soft side. However, should the drop in U.S. prices spur more export demand, this market could easily enjoy a quick rebound. Technically, prices are about to test trend line support near $2.74/bu. A close below this level would set the stage for further weakness and drop back to the September low some 10 cents/lb. lower.

Recommendation–Look to buy near $2.72/bu. Sell Stop–$2.64/bu., close only. Objective–$2.95/bu.

FOCUS ON SOYOIL: Although the return of favorable growing weather to South America has increased prospects of another year of record soybean production, we continue to favor the outlook for higher world soyoil prices. According to the trade magazine “Oil World,” world fish oil production is expected to fall by 17% this year, to a five-year low of 1.13 million metric tons. Apparently, warm ocean temperatures off the coast of South America, compliments of El Nino, have driven the fish to deeper waters down south. As a result, the low catch has pushed fish meal prices to near record highs, forcing consumers to switch to vegetable oils. However, world vegetable oil supplies remain tight. In Europe, vegetable oil stocks have been cut in half since early 1997. Europe's sunflower crop was late and the oil content is low. Bush fires in Indonesia are expected to limit 1998 palm-oil exports to boost domestic supplies, while Malaysia already plans to subsidize domestic consumption, since last summer's drought is expected to cut palm oil production by 2 to 3% in the coming year. Here at home, cumulative sales of soyoil are up by 33 percent from last year, and commitments are running a substantial 26% higher. This high level of export commitments, complimented by the continued brisk pace of new sales suggests that greater exports are likely in the weeks ahead. Should foreign usage remain strong and demand from South America keeps shifting to the U.S., the outlook for firm prices will remain high. We consider the recent correction from the contract high posted in November now serving to alleviate the excessive level of open interest. Support developing at 25 cents/lb. now appears to be holding up. However, another 50 points could easily be lost if further liquidation pressure should develop. As long-term fundamentals remain promising, we'll consider this pullback as a good buying opportunity.

Recommendation–Look to buy near 24.50 cents/lb. Sell Stop–24 cents/lb., close only. Objective–Initially, 26.50 cents/lb.

FOCUS ON COCOA: Concern over late Ivory Coast arrivals, and growing uncertainty over the possibility of implementing the latest International Cocoa Organization (ICO) production quotas, continues keep nearby futures close to a 9½-year high. According to recent data, exports out of Africa's Ivory Coast have already dropped by 16.5 percent for the first eight months of this year, as supplies from the world's largest cocoa producer continue to fall short of expectation. Uncertainty over prevailing stock levels, which usually equal roughly 40 percent of annual consumption is also having a bullish impact on the market, as concern is growing that, following year's of consumption/production deficits, total stocks of cocoa may have been depleted far below the norm. With the prospect of slower Ivory Coast arrivals having become much more ominous, the possibility of lower ICO production amid tight stocks makes the market reaction not too surprising. Should supply worries continue to intensify, speculative demand could increase and prices catapulted towards $2000/mt., which would equate to nearly a 62% retracement of the long-term sell off that spanned the years 1984 and 1992. On the daily chart, March cocoa faces resistance beginning at $1750/mt. and extending to $1800/mt. The slow stochastic, now reading 92.37 percent is highly overbought. Experience has shown us that once a trend develops in cocoa, the market typically wastes little time in reaching its upside targets. Pullbacks are usually minor and greeted with strong buying support. If indeed world supplies are short, a move to $2000/lb. is quite feasible. However, at the first hint of greater Ivory Coast arrivals, the market could plunge without hesitation, triggering commodity fund sell stops as prices drop. Those contemplating long positions should consider purchasing limited risk call options. However, should prices advance towards $1800/mt., we may be tempted to do a little top picking by purchasing some on-the-money puts.

Recommendation–We'll continue to monitor market action and act as the conditions dictate. Remain in touch with your full service broker.

FOCUS ON THE LEAN HOGS: Support at the 60-cent/lb. level continues to stand firm as short covering on the prospect of seasonal strength and a greater technical correction encourages the bottom pickers. However, from a fundamental perspective, the bears see the current rebound as offering a good selling opportunity down the road, as high hog weights, ample supplies and the prospect of weakening packer profit margins threaten to weigh on cash prices. Moreover, if hog weights stay on the rise, total pork production could easily exceed the USDA estimate for the first quarter of 1998 that is already expected to be at 7.3% over last year. In addition, the fallout from Asia's financial crisis continues to cause demand concerns. Considering the amount of meat exported to countries such as Japan, this could prove to be much more of a problem than many now anticipate. Should packer demand drop, the ample product supplies could weigh heavily on the cash, collapsing futures through the current 60-cent/lb. support. While the onset of cold winter temperatures could retard movement in the weeks ahead and help sustain the correction, we continue to feel that the longer- term outlook remains negative. For this reason, we'll continue to view this market as a sleeping bear and look to see rallies into near-term chart resistance.

Recommendation–Look to sell near 63 cents/lb. Buy Stop–64 cents/lb., close only. Objective–Initially, 58 cents/lb.

FOCUS ON THE STOCK MARKET: A drop in the benchmark 30-year long bond yield below 6 percent, the first time since January 1996, had little impact on the stock market this week, as a sharp drop in technology issues and another series of declines in Asian stock markets sent stock investors seeing a safer haven. Typically, low interest rates have proved to be a boon to the stock indices. However, seeing poor high tech earnings and further declines in the overseas markets, images of the sharp sell off that was posted back in late October were easily conjured up. With year-end fast approaching, concern over book squaring was also evident, although talk of the so-called “January effect” has some looking to take advantage of this well touted phenomenon. Nevertheless, with the market now on the defensive, we feel that odds for seeing more deterioration have increased. The charts suggest a possible 50 percent retracement of the October/December rally, which could see the S&P back near 927. We now seeking a good sell point.

Recommendation–Look to sell near 975. Buy Stop–985, close only. Objective–928.

December 11, 1997 Siegel Trading Company

549 Randolph, Chicago, Illinois

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