weat
March
9, 2022
VIA EDGAR SUBMISSION
Ms.
Sonia Bednarowski
Division
of Corporation Finance
U.S.
Securities & Exchange Commission
100 F
Street, NE
Washington,
D.C. 20549
|
Re:
Teucrium Commodity
Trust
Amendment
No. 1 to Registration Statement on Form S-1
Filed
March 8, 2022
File
No. 333-263293)
Dear
Ms. Bednarowski:
On behalf of the
sponsor, Teucrium Trading LLC (the “Sponsor”), and the
Teucrium Wheat Fund (the “Fund”), a series of the
Teucrium Commodity Trust (the “Trust”), we are
responding to your comments dated March 8, 2022 in regard to the
Fund’s Amendment No. 1 to its registration statement on Form
S-1 filed on March 8, 2022 (“the "Amendment") All capitalized
terms not defined herein shall have the meaning assigned to them in
the Amendment, and any page references refer to the Amendment. For
convenience, each of your comments is restated below, with the
response following.
Amendment No. 1 to Registration Statement on Form S-1
Prospectus Summary
Operation of the Fund, page 1
1.
Comment:
Refer to your response to comment 1. Please place the impacts of
current geopolitical events on the wheat market in context by
quantifying, to the extent information is available, wheat prices,
the price of wheat futures contracts, the extent to which the wheat
futures market is experiencing backwardation, the price of your
shares, and the increased trading volume of wheat futures and your
shares as of the most recent practicable date.
Response. The Fund has added
the requested disclosure on page 2 as follows:
To
place the impacts of the geopolitical events described above in
context, the following table compares the percentage change in
wheat prices, the price of wheat futures contracts, the price of
the Fund's shares, and the increased trading volume of wheat
futures in the nine trading days prior to the date of the Russian
invasion of Ukraine (February 11, 2022 to February 23, 2022),
compared to the nine trading days following (February 24, 2022 to
March 8, 2022).
Recent
geopolitical have also impacted the level of "backwardation"
experienced by the Fund. As illustrated by the table, the Russian
invasion and related developments have placed upward pressure on
the price of wheat and wheat futures contracts. As a result, near
to expire contracts trade at a higher price than longer to expire
contracts, a situation referred to as “backwardation.”
Putting aside the impact of the overall movement in prices of wheat
and wheat futures, the Benchmark Component Futures Contracts (the
wheat futures contracts that the Fund invests in to achieve its
investment objective) would tend to rise as they approach
expiration. This backwardation may benefit the Fund because it will
sell more expensive contracts and buy less expensive contracts on
an ongoing basis. The degree of backwardation is also shown in the
following table.
Conversely, in the
event of a wheat futures market where near to expire contracts
trade at a lower price than longer to expire contracts, a situation
referred to as “contango,” then absent the impact of
the overall movement in wheat prices the value of the Benchmark
Component Futures Contracts would tend to decline as they approach
expiration. If the prices of wheat and wheat futures were to
decline, for example, because of a resolution of the Russia-Ukraine
conflict, the Fund would experience the negative impact of
contango.
DATA POINT
|
FEBRUARY 11, 2022 TO FEBRUARY 23, 2022
(9 TRADING DAYS BEFORE THE RUSSIAN INVASION)
|
FEBRUARY 24, 2022 TO MARCH 8, 2022
(9 TRADING DAYS AFTER THE RUSSIAN INVASION)
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Wheat
prices
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Average
SPOT Wheat Price = $8.1594
|
Average
SPOT Wheat Price = $10.7722
|
Wheat
futures prices
|
Average
Futures Price Across next 4 contracts (excluding SPOT month) =
$8.1356
|
Average
Futures Price Across next 4 contracts (excluding SPOT month) =
$10.1401
|
Average
volume of futures
|
Average
Volume Across next 4 contracts (excluding SPOT month)
=25,469
|
Average
Volume Across next 4 contracts (excluding SPOT month) =
57,215
|
Degree
of backwardation / Roll Yield*
|
Average
Daily Roll Yield to SPOT Across 7 Contracts Period Averaged =
-0.25% (contango)
|
Average
Daily Roll Yield to SPOT Across 7 Contracts Period Averaged =
+31.74% (backwardation)
|
Fund
share prices
|
Average
Price = $7.79125
|
Average
Price = $10.0144
|
Average
share volume
|
1,116,952
|
11,504,099
|
*
Roll yield
is a type of return in
commodity futures investing that comes from "rolling" shorter-dated
contracts for longer-dated contracts. It is driven by the
difference in the price of shorter-dated, closer to maturity
commodity contracts (in the table above the actual spot price of
wheat is used) and their longer-dated counterparts. Roll yields can
either be positive or negative, depending on whether the market is
in backwardation or contango, respectively.
2.
Comment:
Refer to your response to comment 2. Please disclose here the
suspension of creations and summarize the potential impact on the
fund's investment objective, the price of shares in the secondary
market, and the potential for tracking error.
Response: In
the Fund's initial response to comment 2, the Fund added a risk
factor captioned "The event of a suspension in the ability of
Authorized Participants to create or redeem shares" to page 18. The
Fund has revised this new risk factor as follows:
"The event of a suspension in the ability of Authorized
Participants to create or redeem shares
The
ability of Authorized Participants to create or redeem shares may
be suspended for several reasons, including but not limited to the
Fund voluntarily imposing such restrictions. A suspension in the
ability of Authorized Participants would have no impact on the
Fund's investment objective; the Fund's investment objective would
remain the same – to have the daily changes in the
Fund shares’ NAV reflect the daily changes of the price of
wheat for future delivery, as measured by a benchmark. Nor would
the Benchmark change – the benchmark would remain three
stipulated futures contracts.
With respect to the impact of a suspension on the price of Fund
shares in the secondary market, Authorized Participants and other
groups that make a market in shares of the Fund would likely
continue to actively trade the Fund's shares. However, in such a
situation, Authorized Participants and other market makers may seek
to adjust the market they make in the shares. Specifically, such
market participants may increase the spread between the prices that
they quote for offers to buy and sell shares to allow them to
adjust to the potential uncertainty as to when they might be able
to create or redeem additional shares. In addition, Authorized
Participants may be less willing to offer to quote offers to buy or
sell shares in large numbers. The potential impact of either wider
spreads between bid and offer prices, or reduced number of shares
on which quotes may be available, could increase the trading costs
to investors in the Fund compared to the quotes and the number of
shares on which bids and offers are made if the Authorized
Participants still were able to freely create new baskets of
shares. In addition, there could be a significant increase in the
premium/discount between the market price at which shares are
traded and the shares’ net asset value. The net asset value
is the price at which the Fund can be created or redeemed by
Authorized Participants
For example, the Fund suspended creation
units on March 7, 2022 shortly after the opening bell and resulted
in NYSE temporary halting trade of the Fund’s shares per NYSE
Arca rules. Trading in shares of the Fund resumed in approximately
30 minutes with no apparent material disruption in pricing on the
secondary market for the Fund’s shares. The bid/ask spreads
that the Fund was experiencing prior to the suspension of Creation
baskets and the trading halt remained unchanged for the balance of
the futures trading session. On the second day of creation
suspension, March 8, 2022, bid/ask spreads were tight throughout
the futures trading session and slightly wider after futures
trading ceased for the day, which is normal activity for secondary
market trading of the Fund’s shares. Should the suspension of
the sale of shares in the Fund continue, the risk to investors will
increase as bid/ask spreads widen due to the inability of market
makers to create more Fund shares to meet investor
demand."
The
Fund has also added a risk factor to the Principle Risks section of
the prospectus Summary summarizing the facts of the suspension and
explaining what the impact has been to date. The new Summary risk
factor is set forth below:
"The
ability of Authorized Participants to create or redeem shares may
be suspended for several reasons, including but not limited to the
Fund voluntarily imposing such restrictions. A suspension in the
ability of Authorized Participants would have no impact on the
Fund's investment objective – the Fund would continue to seek
to track its benchmark. However, with respect to the impact of a
suspension on the price of Fund shares in the secondary market,
investors may have to pay a higher price to buy shares and receive
a lower price when they sell their shares. This "spread" may
continue to widen the longer the suspension
lasts.
By way of example, the Fund suspended
creation units on March 7, 2022 shortly after the opening bell,
which resulted in the NYSE Arca stock exchange temporarily halting
trade of the Fund’s shares per NYSE Arca rules. Trading in
shares of the Fund resumed in approximately 30 minutes with no
apparent material disruption in pricing on the secondary market for
the Fund’s shares. The bid/ask spreads that the Fund was
experiencing prior to the suspension of creation baskets and the
trading halt remained unchanged for the balance of the futures
trading session. On the second day of creation suspension, March 8,
2022, bid/ask spreads were tight throughout the futures trading
session and slightly wider after futures trading ceased for the
day, which is normal activity for secondary market trading of the
Fund’s shares. Should the suspension of the sale of shares in
the Fund continue, the risk to investors will increase as bid/ask
spreads widen due to the inability of market makers to create more
Fund shares to meet investor demand."
Finally, please
note that we have expanded the risk factor relating to having only
one FCM, which appears in the risk factors section in the
prospectus Summary.
If you
have any questions or comments, please call the undersigned at
(202) 312-3331 or John Sanders at (202) 312-3332.
Very
truly yours,
/s/
W.
Thomas Conner
Shareholder
|
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WTC/JMS
John
Sanders