Prepared by Phil Tiger

The CRB Index continues choppy with near term resistance at 242 and greater resistance near 246. Support is evident near 237. The trend is neutral for now but must overcome resistance at 246 in order to turn the trend back up. A break of support at 232 would point to a test of the 1994 lows near 219 and possibly the 1992-93 lows near 197. Caution is advised.

Grains and oilseeds are also choppy. The USDA Crop Production report of September 12 will help to resolve questions of crop size and supply and demand. The quality of the crops has been improving. There is some question of a bit too much rain in the forecast which could delay the harvest and, with the tightness in old-crop soybeans, exacerbate near-term volatility.

The 1997 corn carry out (estimated by the USDA as of August 12 at 941 million bushels with the 1998 corn carry out estimated at 847 million bushels) has done little for corn prices though there has been some improvement in the 1998 old-crop/new-crop spreads. Carrying charges limit the potential of the back spreads from current levels. The December/May corn spread is holding between 11 and 15 cents May premium but further gains for the back spread appear limited. Stand aside. The old-crop May/new-crop December 1998 corn spread has slipped from near 20 cents May premium to near 9 cents May premium in the past fortnight. Stand aside for now but consider the long May/short December corn spread on a dip below 6 cents May premium. Note a low in February-March from a December secondary high. Any major move is not likely to develop until after the end of the first quarter of 1998.

Wheat/corn spreads have also been choppy with the December relationship oscillating between 1.03 and $1.30 wheat premium. Hold the two long December wheat/short December corn spreads from $1.13¾ cents (June 16) and $1.03 cents (July 14) for an average of $1.08<$E3/8> wheat premium. The stop is nominally at $1.03 wheat (close) premium for both positions. The objective is a move to $1.55 to $1.80 wheat premium later in the year. There is a strong seasonal favoring December wheat over corn during the second half of the year.

Intradelivery wheat spreads remain weak. The December/May wheat spread has slipped to near 15 cents May premium. While carrying charges will inhibit further gains for the back spreads, the forward spreads appear to have at best, the forward spreads appear to have at best, limited potential. The old-crop May/new-crop July wheat spread is trading near a mediocre 8-cent premium to May. Stand aside.

Intermarket wheat spreads remain choppy and moving mostly sideways. Trends are neutral for both Minneapolis and Kansas City versus Chicago wheat though some modest weakness in Kansas City is being seen. The December Minneapolis/Chicago wheat spread is still holding near 20 cents Minneapolis premium while the December Kansas City/Chicago wheat spread has slipped to near 5 cents Kansas City premium. Stand aside.

The soybean complex is in a choppy trading range. The overall trend is neutral. The 1998 carryout estimate (per the USDA report) is at an ample 305 million bushels but some private forecasters see the carryout as much as 110 million below that figure. Weather remains a focus with some cold and wet weather in the upper mid-west (but no freeze forecast) and talk of the potential El Nino influence on next year's crops. However, the new crop is doing well and there is no evidence of problems at this time. Demand remains good. The November/January soybean spread is steady–approaching even money on the potentially slower than normal harvest and tight nearby supplies. The January/July bean spread is holding near 21 cents July premium. This is a rather wide discount so early in the life of the spread but does not warrant taking a position. Next year's old-crop July/new-crop November 198 soybean spread has firmed to near 22 cents July premium. If the crop continues to develop well and harvest proceeds without difficulty, spreads can be expected to favor the back months. The carryout will expand considerably once the current abundant crop is harvested. Stand aside in the bean spreads for now awaiting the results of the September 12 report.

Crush values remain firm with values for October near $1.18, December near 87 cents, and January near 76 cents. Soy oil product values are a bit easier with October through January between 33% and 35.5% with the nearer months weakest. Soy oil spreads are steady but little changed. The December/May soy oil spread is holding near 60 points May premium. Stand aside but begin watching next year's May/December 198 spread (currently near 5 points December premium) for a potential forward spreading opportunity on weakness.

Soybean meal spreads remain strong. The January/May meal spread rallied to near 900 points January before a minor set back was seen. Stand aside for now.

The January soybean meal/soy oil spread has rallied back to near $7,200 meal premium (contract value) after slipping back to near $5,500 meal premium. Meal is favored but stand aside at current values.

Meats and meat spreads remain mixed. Cattle have been firming, led by the October contract while hogs and bellies have been easier. The October/December cattle spread generated new highs on September 8 near 120 points December premium. Traders who were long December/short October cattle from near 175 points December premium were stopped out near 145 points December premium. Stand aside. The December/February cattle spread has weakened to support at 275 points February premium, down from the recent highs near 100 points February. Long December/short February cattle was initiated at 275 points February premium on September 2. Hold with a 50-point nominal stop and the objective at 100 points February premium.

Cattle/hog spreads remain in a choppy trading range. The October Cattle/hog spread had a low near 800 points hogs premium (April 24) and then rallied as much as 700 points in favor of cattle. The spread broke nearly 400 points in favor of hogs a week ago and then again rebounded in favor of cattle. Stand aside but favor long cattle/short hogs on sharp breaks.

Hog spreads are choppy. The October/December hog spread generated a new high at 435 points October premium on August 1 but then set back 150 points. Aggressive traders who are long December/short October hogs from near 425 points October premium should hold with the stop lowered to 350 points October. The first objective is at 200 points October premium with even money possible. Begin watching the April/July hog spread (currently near 320 points July premium with a high near 125 points July) for a back-spreading opportunity. This is the most reliable of the hog spreads and can be expected to decline to 500 to 700 points July premium. Be prepared to initiate the back spread on a rally to 150 points or less July premium.

The February belly/hog spread had rallied to 860 points bellies premium from the July 14 low of 25 points premium bellies but has slipped back to near 130 points bellies premium. Keep an eye on this one for an opportunity to buy February hogs/sell bellies near 1,000 points bellies premium for a move back to the lows.

T-bonds are still groping for support above recent lows. The MOB spread remains firm while NOB spreads remain little changed. The December MOB spread generated new highs again near 190/32nds Muni's premium on September 8.

December MOB is probably headed for the September MOB highs above 7-0 (224/32nds Muni's premium) but stand aside awaiting a significant set back from current levels.

The December NOB spread remains in a choppy trading range. The spread is currently trading near 128/32nds T-bonds premium and has good support as it approaches 160/32nds T-bonds premium. A long December 10 ten-year note/short T-bond position (NOB spread) will be considered on a set back to that level.

The December TED spread remains quiet and steady with values near recent highs of 77 points T-bills premium. A significant move in the TED spread is not likely without a measurable change in short term interest rates. Stand aside at current levels though long December Eurodollars/short T- bills is being considered on the current rally above 75 points T- bills premium. Also keep an eye on the December 1997/December 1998 (Calendar) Eurodollar spread (currently near 42 points premium the nearby). The forward spread is favored near the recent lows (July 30) of 30 points December 1997 premium. Otherwise, stand aside.

The September S&P 500/Value Line spread continues favoring the Value Line. The highs were set on July 24 near 11,800 points S&P premium. The overall trend which had been favoring the S&P has broken in favor of the Value Line. The focus will now shift to the December relationship (currently near 7,400 S&P premium.) The temptation is to buy the December Value Line/sell the December S&P on a rally to levels near 10,000 points S&P premium for a move of 4,000 points. Note that this is a high risk trade.

Currency spreads (crosses) remain choppy. The December Japanese Yen/Deutschemark spread has slipped to 4-month lows near 2,800 points Japanese Yen premium and could slip further, to support beginning at 2,600 Japanese Yen. The trend is now favoring the Deutschemark but longer term, that is likely to change. Keep an eye on this one but stand aside for now.

The December Japanese Yen/Swiss Franc spread has a similar pattern to the Japanese Yen/Deutschemark spread. Recent (4-month) lows at 1,550 points Japanese Yen premium could extend to the 1,350 yen premium level. Longer term a shift in favor of the Japanese Yen is expected. Stand aside for now.

The December Swiss Franc/Deutschemark spread has established a trading range bounded by 1,180 and 1,320 points Swiss Franc premium. The Swiss Franc has approximately a 23% premium over the Deutschmark at the upper end of the range and near 19½% premium at the lower end of the range. A Swiss Franc premium above 20% is historically high. Entry into the long Deutschmark/short Swiss Franc December cross will be considered on a rally back to near 1,300 points Swiss premium (currently near 1,240 Swiss premium). Longer term, the Deutschemark should be favored.

Precious metals are barely steady. The spot gold/silver ratio is near 69 as is the December ratio. This is the lowest level for the ratio since the end of March. The ratio is expected to favor gold over the longer term with 80-85 the objective.

The October platinum/gold spread is holding steady at lower levels-near $80 platinum premium. Stand aside.

Copper and copper spreads remain weak. Seasonals, point to a low in the October-December period. The December/May copper spread set a new low near even money on September 9. Stand aside in the copper spreads for now but keep an eye on the May/December 1998 copper spread for a potential seasonal low within the next 60-90 days and a forward spreading opportunity at a December premium (currently near 80 points May premium).

New York softs are firm. Coffee remains two sided but with a bullish bias. The December/May coffee spread has bounced off its low near 1,100 December as well as recent lows just under 1,800 May premium. The trend is still in favor of the nearby with the winter demand period in front of the market. Aggressive traders should consider the long December/short May coffee spread on a break below 1,800 points December premium for a move to 2,800 points or more December premium. A nominal 300- point stop is suggested. The December/March coffee spread is similar but with smaller numbers. Consider long December/short March coffee near 1,300 December premium for a move to 2,200 December premium.

Cocoa and cocoa spreads appear to have bottomed. The December/May cocoa spread is holding near $50 May premium. Cocoa had set new highs but is now correcting. Stand aside for now but keep an eye on this one for a potential forward spreading opportunity.

Sugar and sugar spreads remain weak. The fundamental outlook remains negative. The October/March sugar spread set new contract lows once again near 50 points March premium on September 8. Stand aside.

The November/January lumber spread has turned lower as expected and is currently testing contract lows near 800 points January premium. If back spread, take profits. Otherwise, stand aside. Note that seasonal lows are usually generated by mid-October.

December cotton generated contract lows again on. September 8 at 7230. The spreads are mixed. The October/December cotton spread slipped as low as 35 points December premium (August 26) from (contract) highs set on August 4 near 22 points October premium. Aggressive traders who are long December/short October cotton from an October premium should hold for a seasonal move in favor of the back spread and perhaps a test of the contract lows (115 points December premium). The stop can be lowered to even money from 25 points October premium. Longer term, traders should maintain orders to buy December/sell March cotton on a further dip to 150 points March premium. The spread is trading between 120 and 140 points March premium. This limited risk (carrying charge) spread has seasonal potential to favor December into the harvest period.

Begin watching the March/July FCOJ spread. This spread tends to favor March during the turn of the new year and especially when July is at a 550-point (or more) premium March (as it is now). Fundamentals appear to be negative. Nevertheless, the forward spread will be considered on further weakness into the fourth quarter.

The entire energy complex continues within a trading range. Only natural gas remains in an up trend. Nearby petroleum complex spreads remain steady/weaker with only the unleaded gasoline and natural gas spreads showing any sustained strength though unleaded gasoline spreads did weaken this past week. The long December/short March heating oil spread weakened to new lows near 70 points March premium on September 8. Those who established the long December/short March heating oil spread near 40 points March premium (August 25) should hold with a nominal stop (close) at 90 points March. A seasonal move in favor of December is anticipated with 130 to 160 points December premium the objective.

The long December heating oil/short unleaded gasoline spread from 150 points heating oil premium (May 15) rallied 100 points off the lows of 179 points unleaded gas premium (September 2). The spread will be liquidated on further strength as technical and fundamental considerations are now negative in spite of the seasonal which would favor heating oil over unleaded gasoline in the period just ahead.

Hold long January heating oil/short unleaded gasoline from 80 points heating oil premium (August 20). The spread is currently near 50 points unleaded gasoline premium. A nominal stop at 120 points gasoline premium (revised) is suggested. 500 points or more heating oil premium is the objective.

September 15, 1997Tiger On Spreads

P.O. Box 64401, Chicago, Illinois

The Spread Trader | Tiger On Spreads
Consensus National Futures and Financial On Line Index

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