Derivative Instruments and Hedging Activities (Trust)

9 Months Ended

Sep. 30, 2016

Teucrium Commodity Trust [Member]

Derivative Instruments and Hedging Activities

Note 5 – 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 nine months ended September 30, 2016 and year ended December 31, 2015, the Funds invested only in commodity futures contracts specifically related to each Fund.

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 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, ED&F Man as of September 30, 2016 and December 31, 2015.

Offsetting of Financial Assets and Derivative Assets as of September 30, 2016

(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

Soybean futures contracts

$

143,413

$

-

$

143,413

$

143,413

$

-

$

-

Sugar futures contracts

699,373

-

699,373

29,882

250,600

418,891

Offsetting of Financial Liabilities and Derivative Liabilities as of September 30, 2016

	(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	$	2,720,388	$	-	$	2,720,388	$	-	$	2,720,388	$	-
Soybean futures contracts		387,000				387,000		143,413		243,587		-
Sugar futures contracts		29,882		-		29,882		29,882		-		-
Wheat futures contracts		4,032,213		-		4,032,213		-		4,032,213		-

Offsetting of Financial Assets and Derivative Assets as of December 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

Soybean futures contracts

$

16,175

$

-

$

16,175

$

16,175

$

-

$

-

Sugar futures contracts

364,056

-

364,056

-

-

364,056

Offsetting of Financial Liabilities and Derivative Liabilities as of December 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	$	3,908,550	$	-	$	3,908,550	$	-	$	3,908,550	$	-
Soybean futures contracts		238,662		-		238,662		16,175		222,487		-
Wheat futures contracts		1,924,464		-		1,924,464		-		1,924,464		-

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

Three months ended September 30, 2016

	Realized (Loss) Gain on			Net Change in Unrealized Appreciation or
Primary Underlying Risk	Commodity Futures Contracts			Depreciation on Commodity Futures Contracts
Commodity price
Corn futures contracts	$	(6,486,500	)	$	937,100
Soybean futures contracts		28,163			(1,612,025	)
Sugar futures contracts		948,483			(18,088	)
Wheat futures contracts		(5,677,475	)		(692,500	)
Total commodity futures contracts	$	(11,187,329	)	$	(1,385,513	)

Three months ended September 30, 2015

	Realized Gain (Loss) on			Net Change in Unrealized Appreciation or
Primary Underlying Risk	Commodity Futures Contracts			Depreciation on Commodity Futures Contracts
Commodity price
Corn futures contracts	$	83,175		$	(7,447,263	)
Soybean futures contracts		(356,775	)		(622,013	)
Sugar futures contracts		(446,791	)		116,167
Wheat futures contracts		(744,325	)		(5,046,488	)
Total commodity futures contracts	$	(1,464,716	)	$	(12,999,597	)

Nine months ended September 30, 2016

	Realized (Loss) Gain on			Net Change in Unrealized Appreciation or
Primary Underlying Risk	Commodity Futures Contracts			Depreciation on Commodity Futures Contracts
Commodity price
Corn futures contracts	$	(8,878,588	)	$	1,188,163
Soybean futures contracts		990,062			(21,100	)
Sugar futures contracts		1,957,357			305,435
Wheat futures contracts		(7,244,175	)		(2,107,750	)
Total commodity futures contracts	$	(13,175,344	)	$	(635,252	)

Nine months ended September 30, 2015

	Realized Loss on			Net Change in Unrealized Appreciation or
Primary Underlying Risk	Commodity Futures Contracts			Depreciation on Commodity Futures Contracts
Commodity price
Corn futures contracts	$	(4,245,750	)	$	(3,960,625	)
Soybean futures contracts		(1,091,489	)		(27,462	)
Sugar futures contracts		(1,286,051	)		312,379
Wheat futures contracts		(3,017,638	)		(1,794,075	)
Total commodity futures contracts	$	(9,640,928	)	$	(5,469,783	)

Volume of Derivative Activities

The average notional market value categorized by primary underlying risk for the futures contracts held for the three and nine months ended September 30, 2016, were $154.1 million and $119.1 million, respectively, and for the three and nine months ended September 30, 2015, were $112.8 million and $114.5 million.