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Derivative Instruments and Hedging Activities (Cane) (Teucrium Sugar Fund [Member])
 9 Months Ended
Sep. 30, 2014
Teucrium Sugar Fund [Member]
  
Derivative Instruments and Hedging Activities

Note 5 – Derivative Instruments and Hedging Activities

 

In the normal course of business, the Fund utilizes derivative contracts in connection with its proprietary trading activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The Fund's derivative activities and exposure to derivative contracts are classified by the following primary underlying risks: interest rate, credit, commodity price, and equity price risks. In addition to its primary underlying risks, the Fund is also subject to additional counterparty risk due to inability of its counterparties to meet the terms of their contracts. For the nine months ended September 30, 2014 and 2013, the Fund invested only in commodity futures contracts. 

 

Futures Contracts

 

The Fund is subject to commodity price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. The purchase and sale of futures contracts requires margin deposits with a Futures Commission Merchant (“FCM”).  Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded as unrealized gains or losses by the Fund.  Futures contracts may reduce the Fund's exposure to counterparty risk since futures contracts are exchange-traded; and the exchange's clearinghouse, as the counterparty to all exchange-traded futures, guarantees the futures against default.

 

The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM's proprietary activities.  A customer's cash and other equity deposited with an FCM are considered commingled with all other customer funds subject to the FCM's segregation requirements.  In the event of an FCM's insolvency, recovery may be limited to the Fund's pro rata share of segregated customer funds available.  It is possible that the recovery amount could be less than the total of cash and other equity deposited.  

 

The following table discloses information about offsetting assets and liabilities presented in the statements of assets and liabilities to enable users of these financial statements to evaluate the effect or potential effect of netting arrangements for recognized assets and liabilities. These recognized assets and liabilities are presented as defined in the Financial Accounting Standards Board's (“FASB”) Accounting Standards Update (“ASU”) No. 2011-11 “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities" and subsequently clarified in FASB ASU 2013-01 "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.”

 

The following table also identifies the fair value amounts of derivative instruments included in the statements of assets and liabilities as derivative contracts, categorized by primary underlying risk and held by the FCM, currently Newedge USA LLC, as of September 30, 2014 and December 31, 2013.

 

Offsetting of Financial Liabilities and Derivative Liabilities as of September 30, 2014

 

    (i)     (ii)     (iii) = (i) – (ii)     (iv)     (v) = (iii) – (iv)  
                                     
                      Gross Amount Not Offset in the        
                      Statement of Assets and Liabilities        
          Gross Amount     Net Amount                    
          Offset in the     Presented in the                    
    Gross Amount     Statement of     Statement of                    
    of Recognized     Assets and     Assets and     Futures Contracts     Collateral, Due        
Description    Liabilities     Liabilities     Liabilities     Available for Offset     from Broker     Net Amount  
Commodity price                                                
   Sugar futures contracts   $ 217,235     $ -     $ 217,235     $ -     $ 306,170     $ 88,935  

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2013

 

    (i)     (ii)     (iii) = (i) – (ii)     (iv)     (v) = (iii) – (iv)  
                                     
                      Gross Amount Not Offset in the        
                      Statement of Assets and Liabilities        
          Gross Amount     Net Amount                    
          Offset in the     Presented in the                    
    Gross Amount     Statement of     Statement of                    
    of Recognized     Assets and     Assets and     Futures Contracts     Collateral, Due        
Description    Liabilities     Liabilities     Liabilities     Available for Offset     from Broker     Net Amount  
Commodity price                                    
   Sugar futures contracts $   183,400   $ -   $ 183,400   $ -   $ 261,687   $ 78,287  

 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended September 30, 2014

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Sugar futures contracts   $ (134,792 )   $ (222,499 )

 

 

Three months ended September 30, 2013

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Sugar futures contracts   $ (113,288 )   $ 174,888  

 

Nine months ended September 30, 2014

 

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Sugar futures contracts   $ (131,409 )   $ (33,835 )

 

Nine months ended September 30, 2013

 

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Sugar futures contracts   $ (398,406 )   $ 76,855  

 

Volume of Derivative Activities

 

The average notional market value categorized by primary underlying risk for all futures contracts held was 2.77 million and 2.80 million for the three and nine months ended September 30, 2014, respectively; and 2.56 million and 2.26 million for the same periods in 2013.