Prepared by

Prudential Securities, Inc.

DECEMBER/FEBRUARY CATTLE

Even though cattle prices have not changed much this year on an outright basis, the spreads between various delivery months have shown definite and repetitive technical patterns. For example, the soon- to-expire August delivery has gained on December every time that its discount has fallen beyond 600 points. Similarly, the October contract has rallied whenever its discount to December has fallen to the 275- to 295-point area.

We officially recommended buying December and selling February at 160 points February premium since our last report because this discount is at the low end of the historical range, and also because it near this year's record discount of about 180 points. The December contract has had a very strong tendency to gain on February–often quite dramatically–attaining large premiums on many occasions. We will risk 100 points from entry, looking for the spread to reach a December premium of at least 100 points.

MARCH/MAY CHICAGO WHEAT

Wheat spreads have been extremely weak this year, with the nearby contracts falling to the full carrying charge discount against deferred deliveries on the perception that supplies are adequate to meet demand. However, the March/May relationship spans two crop years. Therefore, if you can buy the nearby and sell the deferred at close to the full carrying charge (currently about five cents per month), any sort of bullish news (e.g., crop problems or unexpected export demand) should cause March to gain sharply on May.

The March contract has gone to huge premiums over the May, so this trade would appear to present a very favorable risk-reward ratio at current levels. We are monitoring this spread for potential entry at a March discount of about 3 cents per bushel, adding on a scale-down basis to the 10-cent full carrying charge, March discount.

LONG DECEMBER/SHORT FEBRUARY CATTLE

At 160 points February premium, with an objective of 100 points February discount, risking to 260 points February premium.

LONG 2 AUGUST S&P 675 PUTS/

SHORT 2 SEPTEMBER S&P 700 PUTS

At 25 points credit, collected twice, with an objective of zero, holding the position as long as the market is above 700.

LONG 2 AUGUST S&P 690 PUTS/

SHORT 2 SEPTEMBER S&P 725 PUTS

At 25 points credit, collected twice, with an objective of zero, holding the position as long as the market is above 725.

LONG 2 AUGUST S&P 680 PUTS/

SHORT 2 SEPTEMBER S&P 720 PUTS

At 25 points credit, collected twice, with an objective of zero, holding the position as long as the market is above 720.

LONG 2 SEPTEMBER S&P 650 PUTS/

SHORT 2 SEPTEMBER S&P 755 PUTS

At 25 points credit, collected twice, with an objective of zero, holding the position as long as the market is above 755.

LONG 2 AUGUST S&P 660 PUTS/

SHORT 2 AUGUST S&P 670 PUTS

At 30 points credit, collected twice, expired worthless for a profit of 30 points (times two) before commissions.

August 18, 1997

Don Selkin

Prudential Securities, Inc.

One New York Plaza,

New York, New York

Consensus National Futures and Financial On Line Index

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