Prepared by Phil Tiger

1997 performance was not stellar as the gains seen in the earlier part of the year were, for the most part, erased by December. The CRB Index, viewed by the writer as a good indicator of market behavior, had a peak at 254.8 on May 29th and a secondary peak on October 8th at 247.7. Support has been evident between 232 and 236 but the trend is now negative and, if the support gives way, a test of the 1992/93 lows near 220 could be seen. The upside remains a possibility but only if the resistance at this year's highs can be overcome. Cycle studies' would point to the March-April period for a potential low though a nearer-term low remains possible.

A few words concerning El Nino (a warming of the Equatorial Pacific Ocean and the resultant weather phenomena) are in order. El Nino events are not rare. In fact they occur regularly with varying intensities and effects. This year however, El Nino has received more attention and publicity than ever before. Any and all aggravated weather phenomena seem to be blamed at least in part on El Nino. A few historic patterns: 1) A milder Winter in North America is likely but not certain and the difference is likely to be only a few degrees on average. This is important to energy hedgers but of limited value to others. 2) South American crop yields tend to be enhanced in El Nino years. 3) If crop problems develop for the U.S., they are more likely to develop in the Spring and Summer of 1998 but such problems are not a certainty.

Note that carry out stocks of the major crops–corn, wheat and soybeans–are already predicted to increase from a “tight” situation in 1997 to adequate or more than adequate in 1998. Other agricultural markets are closer to abundance than shortage. These include coffee, cotton and orange juice. Supplies are adequate to ample for all components of the energy complex, cocoa, sugar and livestock.

Also, one should note the recent economic turmoil in Asia. This could make it difficult for many Asian countries to buy as much of our (U.S.) exports as they desire and as we have estimated, thereby shifting supply/demand balances in favor of supply (negative). There also appear to be too many bulls in the market at this time (this includes the equity market).

The picture is not all negative. There could still be production problems in world agricultural markets and populations continue to expand. Gold is at a 13-year low further significant weakness unlikely. Silver and platinum may be bottoming as well. Many commodity prices are historically on the low side. These include cocoa, copper, cotton and pork bellies.

1998 promises to be an interesting year. Volatility should increase into the second quarter of 1998 while the question of overall market direction should be resolved by that time as well. If prices decline over the next 90 days, some stellar buying opportunities may develop. In the meanwhile a negative bias appears to be appropriate.

Spread traders should have plentiful trading opportunities in all markets. Spreads in livestock, soy oil and soybean meal and financial futures should have particular appeal. Specific trading recommendations will be found in regular issues of Tiger on Spreads.

December 15,1997Phil Tiger

Tiger On Spreads

P.O. Box 64401, Chicago, Illinois

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