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Derivative Instruments and Hedging Activities (Trust) (Teucrium Commodity Trust [Member])
 3 Months Ended
Mar. 31, 2015
Teucrium Commodity Trust [Member]
  
Derivative Instruments and Hedging Activities

Note 6 – Derivative Instruments and Hedging Activities

 

In the normal course of business, the Funds utilize 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 Funds' 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 Funds are also subject to additional counterparty risk due to inability of its counterparties to meet the terms of their contracts. For the three months ended March 31, 2015 and 2014, the Funds invested only in commodity futures contracts specifically related to each Fund. Cleared Swaps have standardized terms similar to, and are priced by reference to, a corresponding Benchmark Component Futures Contract. Additionally, Other Commodity Interests that do not have standardized terms and are not exchange-traded, referred to as “over-the-counter” Interests, can generally be structured as the parties to the Commodity Interest contract desire. Therefore, each Fund might enter into multiple Cleared Swaps and/or over-the-counter Interests intended to exactly replicate the performance of each of the Benchmark Component Futures Contracts for the Fund, or a single over-the-counter Interest designed to replicate the performance of the Benchmark as a whole. Assuming that there is no default by a counterparty to an over-the-counter Interest, the performance of the Interest will not necessarily correlate exactly with the performance of the Benchmark or the applicable Benchmark Component Futures Contract.

 

Futures Contracts


The Funds are subject to commodity price risk in the normal course of pursuing their 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 FCM. Subsequent payments (variation margin) are made or received by each Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded as unrealized gains or losses by each Fund. Futures contracts may reduce the Funds' 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 each 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 combined 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 FASB 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 combined statements of assets and liabilities as derivative contracts, categorized by primary underlying risk and held by the FCM, Jefferies for the three months ended March 31, 2015 and Newedge USA for the year ended December 31, 2014.

 

Offsetting of Financial Assets and Derivative Assets as of March 31, 2015

(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 Assets Liabilities Liabilities Available for Offset to Broker Net Amount
Commodity price
   Wheat futures contracts $ 98,775 $ - $ 98,775 $ 98,775 $ - $ -

 

Offseting of Financial Liabilities and Derivative Liabilities as of March 31, 2015

(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
   Corn futures contracts $ 4,301,113 $ - $ 4,301,113 $ - $ 4,301,113 $ -
   Soybean futures contracts 220,075 - 220,075 - 220,075 -
   Sugar futures contracts 722,366 - 722,366 - 722,366 -
   Wheat futures contracts 1,571,425 - 1,571,425 98,775 1,472,650 -

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 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 Assets Liabilities Liabilities Available for Offset to Broker Net Amount
Commodity price
   Corn futures contracts $ 3,651,637 $ - $ 3,651,637 $ 1,899,925 $ - $ 1,751,712
   Wheat futures contracts 729,626 - 729,626 13,125 60,805 655,696

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 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
   Corn futures contracts $ 1,899,925 $ - $ 1,899,925 $ 1,899,925 $ - $ -
   Soybean futures contracts 277,013 - 277,013 - 277,013 -
   Sugar futures contracts 503,955 - 503,955 - 503,955 -
   Wheat futures contracts 13,125 - 13,125 13,125 - -

The following is a summary of realized and net change in unrealized gains (losses) of the derivative instruments utilized by the Trust:

 

Three months ended March 31, 2015

   Net Change in Unrealized  
Realized Gain (Loss) on Appreciation or Depreciation on
  
Primary Underlying Risk Commodity Futures Contracts
 Commodity Futures Contract
  
Commodity price
Corn futures contracts $ 401,862 $ (6,052,825 )
Soybean futures contracts (583,375 ) 56,938
Sugar futures contracts (333,547 ) (218,411 )
Wheat futures contracts (707,238 ) (2,189,151 )
Total commodity futures contracts $ (1,222,298 ) $ (8,403,449 )

 

Three months ended March 31, 2014

   Net Change in Unrealized
Realized Gain (Loss) on Appreciation or Depreciation on
Primary Underlying Risk Commodity Futures Contracts Commodity Futures Contracts
Commodity price
Corn futures contracts $ 1,283,346 $ 11,085,413
Natural gas futures contracts 214,190 21,160
WTI crude oil futures contracts - 54,650
Soybean futures contracts 26,100 325,351
Sugar futures contracts (3,281 ) 224,246
Wheat futures contracts 230,450 1,486,688
Total commodity futures contracts $ 1,750,805 $ 13,197,508


Volume of Derivative Activities


The average notional market value categorized by primary underlying risk for all futures contracts held was $116.3 million for the three months ended March 31, 2015 and $114.3 million for the same period in 2014.