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Derivative Instruments and Hedging Activities (Teucrium Commodity Trust [Member])
 3 Months Ended
Mar. 31, 2013
Teucrium Commodity Trust [Member]
  
Derivative Instruments and Hedging Activities

Note 4 - 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, 2013, the Funds invested only in commodity futures contracts specifically related to each Fund. For the three months ended March 31, 2012 the Operating Funds invested only in commodity futures contracts and Chicago Mercantile Exchange Calendar Swaps. 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 Futures Commission Merchant ("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 tables identify the fair value amounts of derivative instruments included in the statements of assets and liabilities as derivative contracts, categorized by primary underlying risk, at March 31, 2013 and December 31, 2012. 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 statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts, categorized by primary underlying risk, for the three months ended March 31, 2013 and 2012.

 

As of March 31, 2013:

 

    Gross Amounts Not Offset in the Statements of Assets and Liabilities  
Primary Underlying Risk - Assets   Commodity Futures Contracts   Collateral, Due from Broker  
Commodity price                  
Corn futures contracts   $ -     $ 3,572,300    
Natural gas futures contracts     268,180       -    
WTI crude oil futures contracts     59,032       64,263    
Soybean futures contracts     4,075       399,703    
Sugar futures contracts     -       311,100    
Wheat futures contracts     -       847,255    
Total   $ 331,287     $ 5,194,621    

 

    Gross Amounts Not Offset in the Statements of Assets and Liabilities  
Primary Underlying Risk - Liabilities   Commodity Futures Contracts   Collateral, Due to Broker  
Commodity price                  
Corn futures contracts   $ 2,824,800     $ -    
Natural gas futures contracts     -       136,990    
WTI crude oil futures contracts     19,640       -    
Soybean futures contracts     85,400       -    
Sugar futures contracts     201,499       -    
Wheat futures contracts     630,063       -    
Total   $ 3,761,402     $ 136,990    

 

As of December 31, 2012:

    Gross Amounts Not Offset in the Statements of Assets and Liabilities  
Primary Underlying Risk - Assets   Commodity Futures Contracts   Collateral, Due from Broker  
Commodity price                  
Corn futures contracts   $ -     $ 5,106,775    
Natural gas futures contracts     9,550       367,374    
WTI crude oil futures contracts     44,872       137,328    
Soybean futures contracts     63,200       670,563    
Sugar futures contracts     -       189,259    
Wheat futures contracts     15,762       532,964    
Total   $ 133,384     $ 7,004,263    

 

    Gross Amounts Not Offset in the Statements of Assets and Liabilities  
Primary Underlying Risk - Liabilities   Commodity Futures Contracts   Collateral, Due to Broker  
Commodity price                  
Corn futures contracts   $ 2,213,775     $ -    
Natural gas futures contracts     233,919       -    
WTI crude oil futures contracts     58,090       -    
Soybean futures contracts     284,575       -    
Sugar futures contracts     78,378       -    
Wheat futures contracts     206,850       -    
Total   $ 3,075,587     $ -    

 

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

 

Three months ended March 31, 2013

 

    Realized Loss on   Net Change in Unrealized (Loss)
Primary Underlying Risk   Derivative Instruments   Gain on Derivative Instruments
Commodity price                
Corn futures contracts   $ (1,859,822 )   $ (611,025 )
Natural gas futures contracts     (110,739 )     492,549  
WTI crude oil futures contracts     (9,320 )     52,610  
Soybean futures contracts     (217,575 )     140,050  
Sugar futures contracts     (85,826 )     (123,121 )
Wheat futures contracts     (385,538 )     (438,975 )
Total commodity futures contracts   $ (2,668,820 )   $ (487,912 )

 

Three months ended March 31, 2012

    Realized (Loss) Gain on   Net Change in Unrealized (Loss)
Primary Underlying Risk   Derivative Instruments   Gain on Derivative Instruments
Commodity price                
Corn futures contracts   $ (2,136,224 )   $ (1,442,778 )
Natural gas futures contracts     (504,280 )     132,570  
WTI crude oil futures contracts     5,610       224,520  
Soybean futures contracts     10,341       327,472  
Sugar futures contracts     (9,734 )     153,745  
Wheat futures contracts     (104,150 )     100,225  
Total commodity futures contracts   $ (2,738,437 )   $ (504,246 )

 

Volume of Derivative Activities

At March 31, 2013, 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                
Corn futures contracts   $ 39,975,000       1,373  
Natural gas futures contracts     3,764,890       90  
WTI crude oil futures contracts     1,989,850       21  
Soybean futures contracts     6,514,350       101  
Sugar futures contracts     2,417,856       118  
Wheat futures contracts     6,906,338       197  
Total commodity futures contracts   $ 61,568,284       1,900  

 

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

 

    Long Exposure
    Notional   Number
Primary Underlying Risk   Amounts   of contracts
Commodity price                
Corn futures contracts   $ 37,724,525       1,142  
Natural gas futures contracts     4,623,670       131  
WTI crude oil futures contracts     2,041,180       22  
Soybean futures contracts     6,629,575       97  
Sugar futures contracts     2,215,270       99  
Wheat futures contracts     3,724,237       93  
Total commodity futures contracts   $ 56,958,457       1,584