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Derivative Instruments and Hedging Activities (Teucrium Soybean Fund [Member])
 12 Months Ended
Dec. 31, 2012
Teucrium Soybean Fund [Member]
  
Derivative Instruments and Hedging Activities

Note 4 - 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 years ended December 31, 2012 and 2011, the Fund had invested only in soybean 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 tables identify the fair value amounts of derivative instruments included in the statement of assets and liabilities as derivative contracts, categorized by primary underlying risk, at December 31, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain and loss amounts included in the statement of operations as realized and unrealized gains and losses on trading of commodity futures contracts, categorized by primary underlying risk, for the period ended December 31, 2012 and for the period from the commencement of operations (September 19, 2011) through December 31, 2011.

 

At December 31, 2012, the fair value of derivative instruments was as follows:

 

Primary Underlying Risk   Asset Derivatives     Liability Derivatives   Net Derivatives  
Commodity price                
Commodity futures contracts   $ 63,200     $ (284,575 ) $ (221,375 )
                     

 

At December 31, 2011, the fair value of derivative instruments was as follows:

 

Primary Underlying Risk   Asset Derivatives     Liability Derivatives   Net Derivatives  
Commodity price                
Commodity futures contracts   $ 9,994     $ (164,663 ) $ (154,669 )
                     

 

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

 

For the year ended December 31, 2012

 

    Realized Gain on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price            
Commodity futures contracts   $ 26,281     $ (66,706 )
                 

 

For the period from the commencement of operations (September 19, 2011) to December 31, 2011

 

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price            
Commodity futures contracts   $ (140,281)     $ (154,669 )
                 

 

Volume of Derivative Activities

 

At December 31, 2012, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:

 

    Long Exposure  
    Notional     Number  
Primary Underlying Risk   Amounts     of Contracts  
Commodity price            
Commodity futures contracts   $ 6,629,575       97  
                 

 

At December 31, 2011, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:

 

    Long Exposure  
    Notional     Number  
Primary Underlying Risk   Amounts     of Contracts  
Commodity price            
Commodity futures contracts   $ 2,177,038       36