Prepared by
Prudential Securities, Inc.
MARCH/MAY WHEAT
This spread has been drifting steadily lower, getting closer to the full carrying charge of about 10 cents per bushel, March discount. The behavior of this old-crop/new-crop spread appears similar to old-crop wheat spreads that have fallen close to the full carrying charge of about 5 cents a month and staved there. The nearby pressure stems from commercials who get out of previously placed long hedges that priced export sales because of export cancellations on the part of various countries that normally look to the United States for supplies.
The long-term chart shows that this spread is now approaching the low end of its historical range. Therefore, the risk/reward ratio becomes very favorable at these differentials. We had already recommended this spread at a March discount of 3 cents under May, and are now recommending adding to the position by purchasing March and selling May at a 6-cent March discount, with an objective, of 10-cent March premium, risking 6 cents from entry.
AUGUST/SEPTEMBER 1998 SOYBEAN MEAL
Soybean meal spreads have been extremely strong this year, with nearby contracts reaching historically high premiums relative to the deferreds. This pattern has resulted from an extremely tight situation in the cash market, accentuated by a lack of deliveries against expiring contracts. The current front-month October and December contracts are both holding significant premiums to the deferreds, an unusual situation for new-crop months.
Therefore, it would appear to be advantageous to be forward spread between crop years, as any further bullish news would cause the old-crop August 1998 contract to gain significantly on the new-crop September 1998. Therefore, we recommend buying August and selling September soybean meal at even, with an objective of at least a $10 per ton August premium, risking 250 points from entry.
LONG MARCH/SHORT MAY WHEAT
At 3 cents May premium, with an objective of 10 cents May discount, risking to 12 cents May premium.
LONG DECEMBER/SHORT FEBRUARY CATTLE
At 160 points February premiums with an objective of 100 points February discount, risking to 360 points February premium.
LONG 2 OCTOBER S&P 680 PUTS/
SHORT 2 OCTOBER S&P 750 PUTS
At 25 points credit, collected twice, with an objective of zero, holding the position as long as the market is above 750.
SHORT 2 SEPTEMBER S&P 1020 CALLS/
SHORT 2 SEPTEMBER S&P 700 PUTS
At 35 points credit, collected twice, expired worthless for a total profit of 70 points before commission.
SHORT 2 SEPTEMBER S&P 1020 CALLS/
SHORT 2 SEPTEMBER S&P 725 PUTS
At 35 points credit, collected twice, expired worthless for a total profit of 70 points before commission.
SHORT 2 SEPTEMBER S&P 1020 CALLS/
SHORT 2 SEPTEMBER S&P 720 PUTS
At 35 points credit, collected twice, expired worthless for a total profit of 70 points before commission.
LONG 2 SEPTEMBER S&P 650 PUTS/
SHORT 2 SEPTEMBER S&P 755 PUTS
At 25 points credit, collected twice, expired worthless for a total profit of 50 points before commission.
September 22, 1997
Prudential Securities, Inc.
One New York Plaza, New York, New York
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