Prepared by
Prudential Securities, Inc.
JANUARY/MAY SOYBEANS
Despite prospects for a very large crop this year, nearby soybean spreads (e.g., November/January) have stayed relatively firm, reflecting sufficient nearby demand. However, from January on out, the spreads reflect a more normal carrying charge structure.
Once the bulk of harvest pressure is alleviated later this year, there is a good possibility that the January contract can narrow its discount to the deferreds. The January/May spread has shown excellent support in the area of 17-18 cents January discount, a level that is close to the full carry of about 22 cents under May. Therefore, we recommend buying January and selling May at 17 cents January discount, with an objective 7 cents January discount. Risk 6 cents from entry.
MAY/SEPTEMBER SOYBEAN MEAL
Soybean meal spreads have been extremely strong this year, with every near-month contract trading at substantial premiums to the deferred deliveries. This situation has occurred because of the lack of deliveries against any front-month contract, reflecting an extremely tight cash market. In recent weeks, however, the large inversions in the three front months (October, December and January) have suffered substantial losses because of harvest pressure. Meanwhile, deferred deliveries have also weakened relative to the months behind them as well. However, carrying charges of about 130 points per month should limit the extent to which they can decline.
We recommend buying May and selling September soybean meal at 400 points May discount, with an objective of 300 points May premium, risking 250 points from entry, If the May discount were to fall closer to the full carry of 520 points, we will add another unit, risking 50 points on this position.
LONG MARCH/SHORT MAY WHEAT
At 3 cents and 6 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 premium, 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.
LONG AUGUST/ SHORT SEPTEMBER SOYBEAN MEAL
At 30 points September premium, with an objective of 500 points September discount, risking to 300 points September premium.
October 6, 1997
Prudential Securities, Inc.
One New York Plaza, New York, New York
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