UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2017.

 

OR

 

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                     to                     .

 

Commission File Number: 001-34765

 

Teucrium Commodity Trust
(Exact name of registrant as specified in its charter)

   
Delaware 61-1604335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

232 Hidden Lake Road, Building A
Brattleboro, Vermont 05301
(Address of principal executive offices) (Zip code)

 

(802) 257-1617
(Registrant’s telephone number, including area code) 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

☒  Yes    ☐  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

☒  Yes     ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

   
Large accelerated filer    ☐ Accelerated filer   ☒
Non-accelerated filer   ☐ Smaller reporting company   ☐
(Do not check if a smaller reporting company) Emerging growth company   ☐

 

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

☐  Yes     ☒  No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date. 

 

    Total Number of Outstanding
Shares as of August 2, 2017		 
Teucrium Corn Fund     3,550,004 
Teucrium Sugar Fund     800,004 
Teucrium Soybean Fund     650,004 
Teucrium Wheat Fund     8,150,004 
Teucrium Agricultural Fund     50,002 
 

 

 

 

 

TEUCRIUM COMMODITY TRUST 

 

Table of Contents 

     
    Page
Part I. FINANCIAL INFORMATION   3
     
Item 1. Financial Statements    3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations    108
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk    148
     
Item 4. Controls and Procedures    150
     
Part II. OTHER INFORMATION   152
     
Item 1. Legal Proceedings    152
     
Item 1A. Risk Factors    152
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   168
     
Item 3. Defaults Upon Senior Securities    172
     
Item 4. Mine Safety Disclosures    172
     
Item 5. Other Information    172
     
Item 6. Exhibits    172

   

2 

 

  

Part I. FINANCIAL INFORMATION

 

Item 1.   Financial Statements.

 

Index to Financial Statements

 

Documents   Page
TEUCRIUM COMMODITY TRUST    
     
Combined Statements of Assets and Liabilities at June 30, 2017 (Unaudited) and December 31, 2016   5
     
Combined Schedule of Investments at June 30, 2017 (Unaudited) and December 31, 2016   6
     
Combined Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and 2016   8
     
Combined Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2017 and 2016   9
     
Combined Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016   10
     
Notes to Combined Financial Statements   11
     
TEUCRIUM CORN FUND    
     
Statements of Assets and Liabilities at June 30, 2017 (Unaudited) and December 31, 2016   24
     
Schedule of Investments at June 30, 2017 (Unaudited) and December 31, 2016   25
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and 2016   27
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2017 and 2016   28
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016   29
     
Notes to Financial Statements   30
     
TEUCRIUM SOYBEAN FUND    
     
Statements of Assets and Liabilities at June 30, 2017 (Unaudited) and December 31, 2016   40
     
Schedule of Investments at June 30, 2017 (Unaudited) and December 31, 2016   41
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and 2016   43
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2017 and 2016   44
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016   45
     
Notes to Financial Statements   46
     
TEUCRIUM SUGAR FUND    
     
Statements of Assets and Liabilities at June 30, 2017 (Unaudited) and December 31, 2016   58
     
Schedule of Investments at June 30, 2017 (Unaudited) and December 31, 2016   59
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and 2016   61

 

3 

 

 

     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2017 and 2016   62
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016   63
     
Notes to Financial Statements   64

 

TEUCRIUM WHEAT FUND    
     
Statements of Assets and Liabilities at June 30, 2017 (Unaudited) and December 31, 2016   75
     
Schedule of Investments at June 30, 2017 (Unaudited) and December 31, 2016   76
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and 2016   78
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2017 and 2016   79
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016   80
     
Notes to Financial Statements   81
     
TEUCRIUM AGRICULTURAL FUND    
     
Statements of Assets and Liabilities at June 30, 2017 (Unaudited) and December 31, 2016   93
     
Schedule of Investments at June 30, 2017 (Unaudited) and December 31, 2016   94
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and 2016   96
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2017 and 2016   97
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016   98
     
Notes to Financial Statements   99

 

4 

 

 

TEUCRIUM COMMODITY TRUST

COMBINED STATEMENTS OF ASSETS AND LIABILITIES

 

   June 30, 2017   December 31, 2016 
   (Unaudited)     
Assets          
Cash and cash equivalents  $149,908,018   $145,323,469 
Interest receivable   1,194    708 
Restricted cash   68,684    151,684 
Other assets   399,601    27,135 
Equity in trading accounts:          
Commodity futures contracts   8,341,454    542,647 
Due from broker   6,730,479    13,782,616 
Total equity in trading accounts   15,071,933    14,325,263 
Total assets  $165,449,430   $159,828,259 
           
Liabilities          
Management fee payable to Sponsor   130,342    129,201 
Other liabilities   54,621    15,916 
Equity in trading accounts:          
Commodity futures contracts   894,269    5,725,955 
Total liabilities  $1,079,232   $5,871,072 
           
Net assets  $164,370,198   $153,957,187 

 

The accompanying notes are an integral part of these financial statements.

 

5 

 

 

TEUCRIUM COMMODITY TRUST

COMBINED SCHEDULE OF INVESTMENTS

June 30, 2017

(Unaudited)

             
Description: Assets  Fair Value   Percentage of
Net Assets		   Shares 
             
Cash equivalents               
Money market funds               
Fidelity Institutional Money Market Funds - Government Portfolio (cost $175,662)  $175,662    0.11%   175,662 

             
           Notional Amount 
             (Long Exposure) 
Commodity futures contracts               
United States corn futures contracts               
CBOT corn futures SEP17 (1,225 contracts)  $58,037    0.04%  $23,336,250 
CBOT corn futures DEC17 (1,023 contracts)   294,275    0.18    20,050,800 
CBOT corn futures DEC18 (1,135 contracts)   581,863    0.35    23,466,125 
                
United States soybean futures contracts               
CBOT soybean futures NOV17 (86 contracts)   1,912    0.00    4,105,425 
                
United States sugar futures contracts               
ICE sugar futures MAY18 (152 contracts)   48,317    0.03    2,468,480 
                
United States wheat futures contracts               
CBOT wheat futures SEP17 (1,048 contracts)   3,168,963    1.93    27,562,400 
CBOT wheat futures DEC17 (859 contracts)   1,720,012    1.05    23,407,750 
CBOT wheat futures DEC18 (904 contracts)   2,468,075    1.50    26,622,800 
Total commodity futures contracts  $8,341,454    5.08%  $151,020,030 

 

       Percentage of   Notional Amount 
Description: Liabilities  Fair Value   Net Assets   (Long Exposure) 
             
Commodity futures contracts               
United States soybean futures contracts               
CBOT soybean futures JAN18 (73 contracts)  $46,388    0.03%  $3,513,125 
CBOT soybean futures NOV18 (86 contracts)   62,212    0.04    4,126,925 
                
United States sugar futures contracts               
ICE sugar futures MAR18 (177 contracts)   525,706    0.32    2,868,533 
ICE sugar futures MAR19 (164 contracts)   259,963    0.16    2,823,161 
Total commodity futures contracts  $894,269    0.55%  $13,331,744 
                
              Shares 
Exchange-traded funds*               
Teucrium Corn Fund  $298,982    0.18%   15,658 
Teucrium Soybean Fund   310,004    0.19    17,131 
Teucrium Sugar Fund   301,904    0.18    31,324 
Teucrium Wheat Fund   342,754    0.21    43,737 
Total exchange-traded funds (cost $1,890,877)  $1,253,644    0.76%     

 

*The Trust eliminates the shares owned by the Teucrium Agricultural Fund from its combined statements of assets and liabilities due to the fact that these represent holdings of the Underlying Funds owned by the Teucrium Agricultural Fund, which are included as shares outstanding of the Underlying Funds.

 

The accompanying notes are an integral part of these financial statements.

  

6 

 

 

TEUCRIUM COMMODITY TRUST

COMBINED SCHEDULE OF INVESTMENTS

December 31, 2016

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
Fidelity Institutional Prime Money Market Portfolio (cost $1,412,423)  $1,412,423    0.92%   1,412,423 

             
           Notional Amount 
           (Long Exposure) 
Commodity futures contracts               
United States soybean futures contracts               
CBOT soybean futures MAR17 (90 contracts)  $107,125    0.07%  $4,518,000 
CBOT soybean futures NOV17 (91 contracts)   250,375    0.16    4,501,088 
                
United States sugar futures contracts               
ICE sugar futures MAR18 (93 contracts)   185,147    0.12    1,935,293 
Total commodity futures contracts  $542,647    0.35%  $10,954,381 

             
       Percentage of   Notional Amount 
Description: Liabilities  Fair Value   Net Assets   (Long Exposure) 
             
Commodity futures contracts               
United States corn futures contracts               
CBOT corn futures MAY17 (1,438 contracts)  $50,713    0.03%  $25,704,250 
CBOT corn futures JUL17 (1,207 contracts)   576,650    0.37    21,982,488 
CBOT corn futures DEC17 (1,347 contracts)   833,437    0.54    25,593,000 
                
United States soybean futures contracts               
CBOT soybean futures MAY17 (76 contracts)   12,025    0.01    3,847,500 
                
United States sugar futures contracts               
ICE sugar futures MAY17 (89 contracts)   105,829    0.07    1,918,840 
ICE sugar futures JUL17 (79 contracts)   225,713    0.15    1,667,848 
                
United States wheat futures contracts               
CBOT wheat futures MAY17 (1,037 contracts)   1,011,350    0.66    21,802,925 
CBOT wheat futures JUL17 (861 contracts)   213,963    0.14    18,694,463 
CBOT wheat futures DEC17 (939 contracts)   2,696,275    1.75    21,831,750 
Total commodity futures contracts  $5,725,955    3.72%  $143,043,064 
                
Exchange-traded funds*             Shares 
Teucrium Corn Fund  $323,979    0.21%   17,258 
Teucrium Soybean Fund   315,486    0.20    16,531 
Teucrium Sugar Fund   342,822    0.22    26,424 
Teucrium Wheat Fund   331,267    0.22    48,087 
Total exchange-traded funds (cost $2,033,919)  $1,313,554    0.85%     

 

*The Trust eliminates the shares owned by the Teucrium Agricultural Fund from its combined statements of assets and liabilities due to the fact that these represent holdings of the Underlying Funds owned by the Teucrium Agricultural Fund, which are included as shares outstanding of the Underlying Funds.

  

7 

 

 

TEUCRIUM COMMODITY TRUST

COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized (loss) gain on commodity futures contracts  $(2,915,768)  $574,407   $(2,673,627)  $(1,988,014)
Net change in unrealized appreciation on commodity futures contracts   11,935,606    163,222    12,630,493    750,261 
Interest Income   417,772    148,903    740,121    275,624 
       Total income (loss)   9,437,610    886,532    10,696,987    (962,129)
                     
Expenses                    
   Management fees   383,816    281,014    776,163    521,497 
   Professional fees   288,414    258,798    631,238    547,949 
   Distribution and marketing fees   659,278    499,737    1,197,615    968,563 
   Custodian fees and expenses   87,724    74,353    171,818    135,289 
   Business permits and licenses fees   21,347    17,778    58,013    43,468 
   General and administrative expenses   78,983    54,778    145,979    113,140 
   Brokerage commissions   39,974    24,736    77,320    51,410 
   Other expenses   23,275    20,832    43,395    40,620 
           Total expenses   1,582,811    1,232,026    3,101,541    2,421,936 
                     
Expenses waived by the Sponsor   (176,704)   (63,219)   (261,465)   (98,556)
                     
Total expenses, net   1,406,107    1,168,807    2,840,076    2,323,380 
                     
Net income (loss)  $8,031,503   $(282,275)  $7,856,911   $(3,285,509)

 

The accompanying notes are an integral part of these financial statements.

 

8 

 

 

TEUCRIUM COMMODITY TRUST

COMBINED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016 
Operations          
Net income (loss)  $7,856,911   $(3,285,509)
Capital transactions          
Issuance of Shares   37,159,575    42,253,974 
Redemption of Shares   (34,604,704)   (15,763,445)
Net change in the cost of the Underlying Funds   1,229    5,427 
Total capital transactions   2,556,100    26,495,956 
           
Net change in net assets   10,413,011    23,210,447 
           
Net assets, beginning of period   153,957,187    99,601,487 
           
Net assets, end of period  $164,370,198   $122,811,934 

  

The accompanying notes are an integral part of these financial statements.

 

9 

 

 

TEUCRIUM COMMODITY TRUST

COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016 
Cash flows from operating activities:          
Net income (loss)  $7,856,911   $(3,285,509)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Net change in unrealized appreciation on commodity futures contracts   (12,630,493)   (750,261)
Changes in operating assets and liabilities:          
Due from broker   7,052,137    (754,133)
Interest receivable   (486)   (1,331)
Restricted cash   83,000    77,999 
Other assets   (372,466)   (474,954)
Due to broker   —    727,637 
Management fee payable to Sponsor   1,141    21,317 
Other liabilities   38,705    (5,603)
Net cash provided by (used in) operating activities   2,028,449    (4,444,838)
           
Cash flows from financing activities:          
Proceeds from sale of Shares   37,159,575    41,432,364 
Redemption of Shares   (34,604,704)   (15,763,445)
Net change in cost of the Underlying Funds   1,229    5,427 
Net cash provided by financing activities   2,556,100    25,674,346 
           
Net change in cash and cash equivalents   4,584,549    21,229,508 
Cash and cash equivalents, beginning of period   145,323,469    92,561,610 
Cash and cash equivalents, end of period  $149,908,018   $113,791,118 

 

 The accompanying notes are an integral part of these financial statements.

 

10 

 

  

NOTES TO COMBINED FINANCIAL STATEMENTS 

June 30, 2017 

(Unaudited) 

 

Note 1 – Organization and Operation 

 

Teucrium Commodity Trust (“Trust”), a Delaware statutory trust organized on September 11, 2009, is a series trust consisting of five series: Teucrium Corn Fund (“CORN”), Teucrium Sugar Fund (“CANE”), Teucrium Soybean Fund (“SOYB”), Teucrium Wheat Fund (“WEAT”), and Teucrium Agricultural Fund (“TAGS”). All these series of the Trust are collectively referred to as the “Funds” and singularly as the “Fund.” The Funds issue common units, called the “Shares,” representing fractional undivided beneficial interests in a Fund.  The Trust and the Funds operate pursuant to the Trust’s Second Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”). 

  

On June 5, 2010, the initial Form S-1 for CORN was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On June 8, 2010, four Creation Baskets for CORN were issued representing 200,000 shares and $5,000,000. CORN began trading on the New York Stock Exchange (“NYSE”) Arca on June 9, 2010. On April 29, 2016, a second subsequent registration statement for CORN was declared effective by the SEC.

  

On June 17, 2011, the initial Forms S-1 for CANE, SOYB, and WEAT were declared effective by the SEC. On September 16, 2011, two Creation Baskets were issued for each Fund, representing 100,000 shares and $2,500,000, for CANE, SOYB, and WEAT.  On September 19, 2011, CANE, SOYB, and WEAT started trading on the NYSE Arca. On July 15, 2016, a subsequent registration statement for WEAT was declared effective. This registration statement for WEAT registered an additional 24,050,000 shares. On May 1, 2017, subsequent registration statements for CANE and SOYB were declared effective by the SEC.

  

On February 10, 2012, the initial Form S-1 for TAGS was declared effective by the SEC. On March 27, 2012, six Creation Baskets for TAGS were issued representing 300,000 shares and $15,000,000. TAGS began trading on the NYSE Arca on March 28, 2012. On April 30, 2015, a subsequent registration statement for TAGS was declared effective by the SEC. 

  

The specific investment objective of each Fund and information regarding the organization and operation of each Fund are included in each Fund’s financial statements and accompanying notes, as well as in other sections of this Form 10-Q filing. In general, the investment objective of each Fund is to have the daily changes in percentage terms of its Shares’ Net Asset Value (“NAV”) reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for certain Futures Contracts for the commodity specified for that Fund.  The investment objective of TAGS is to have the daily changes in percentage terms of NAV of its common units (“Shares”) reflect the daily changes in percentage terms of a weighted average (the “Underlying Fund Average”) of the NAVs per share of four other commodity pools that are series of the Trust and are sponsored by the Sponsor: CORN, WEAT, SOYB, and CANE (collectively, the “Underlying Funds”).  The Underlying Fund Average will have a weighting of 25% to each Underlying Fund, and the Fund’s assets will be rebalanced to maintain the approximate 25% allocation to each Underlying Fund.

  

The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the SEC and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Trust’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K, as applicable. The operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

  

Subject to the terms of the Trust Agreement, Teucrium Trading, LLC in its capacity as the Sponsor (“Sponsor”) may terminate a Fund at any time, regardless of whether the Fund has incurred losses, including, for instance, if it determines that the Fund’s aggregate net assets in relation to its operating expenses make the continued operation of the Fund unreasonable or imprudent. However, no level of losses will require the Sponsor to terminate a Fund.

  

Note 2 – Principal Contracts and Agreements

  

On August 17, 2015 (the “Conversion Date”), U.S. Bank N.A. replaced The Bank of New York Mellon as the Custodian for the Funds. The principal business address for U.S. Bank N.A. is 1555 North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212. U.S. Bank N.A. is a Wisconsin state chartered bank subject to regulation by the Board of Governors of the Federal Reserve System and the Wisconsin State Banking Department. The principal address for U.S. Bancorp Fund Services, LLC (“USBFS”) is 777 East Wisconsin Avenue, Milwaukee, WI, 53202. In addition, effective on the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank, commenced serving as administrator for each Fund, performing certain administrative and accounting services and preparing certain SEC reports on behalf of the Funds, and also became the registrar and transfer agent for each Fund’s Shares. For such services, U.S. Bank and USBFS will receive an asset-based fee, subject to a minimum annual fee. 

 

 11

 

 

For custody services, the Funds will pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1 billion, and .0050% of average gross assets over $1 billion, annually, plus certain per-transaction charges. For Transfer Agency, Fund Accounting and Fund Administration services, which are based on the total assets for all the Funds in the Trust, the Funds will pay to USBFS 0.06% of average gross assets on the first $250 million, 0.05% on the next $250 million, 0.04% on the next $500 million and 0.03% on the balance over $1 billion annually. A combined minimum annual fee of up to $64,500 for custody, transfer agency, accounting and administrative services is assessed per Fund. For the three months ended June 30, 2017 and 2016, the Funds recognized $87,724 and $74,353, respectively, for these services, which are recorded in custodian fees and expenses on the combined statements of operations; of these expenses $1,626 in 2017 and $6,279 in 2016 were waived by the Sponsor. For the six months ended June 30, 2017 and 2016, the Funds recognized $171,818 and $135,289, respectively, for these services, which were recorded in custodian fees and expenses on the combined statements of operations; of these expenses $3,252 in 2017 and $7,044 in 2016 were waived by the Sponsor.

 

The Sponsor employs Foreside Fund Services, LLC (“Foreside” or the “Distributor”) as the Distributor for the Funds. The Distribution Services Agreement among the Distributor and the Sponsor calls for the Distributor to work with the Custodian in connection with the receipt and processing of orders for Creation Baskets and Redemption Baskets and the review and approval of all Fund sales literature and advertising materials. The Distributor and the Sponsor have also entered into a Securities Activities and Service Agreement (the “SASA”) under which certain employees and officers of the Sponsor are licensed as registered representatives or registered principals of the Distributor, under Financial Industry Regulatory Authority (“FINRA”) rules. For its services as the Distributor, Foreside receives a fee of 0.01% of the Fund’s average daily net assets and an aggregate annual fee of $100,000 for all Teucrium Funds, along with certain expense reimbursements. For its services under the SASA, Foreside receives a fee of $5,000 per registered representative and $1,000 per registered location. For the three months ended June 30, 2017 and 2016, the Funds recognized $40,367 and $35,234, respectively, for these services, which was recorded in distribution and marketing fees on the combined statements of operations; of these expenses $13,451 in 2017 and $2,657  in 2016 were waived by the Sponsor. For the six months ended June 30, 2017 and 2016, the Funds recognized $93,786 and $74,043, respectively, for these services, which was recorded in distribution and marketing fees on the combined statements of operations; of these expenses $14,137 in 2017 and $2,993 in 2016 were waived by the Sponsor.

 

ED&F Man Capital Markets, Inc. (“ED&F Man”) serves as the Underlying Funds’ clearing broker to execute and clear the Underlying Funds’ futures and provide other brokerage-related services. ED&F Man is registered as a FCM with the U.S. CFTC and is a member of the NFA.  ED&F Man is also registered as a broker/dealer with the U.S. Securities and Exchange Commission and is a member of the FINRA.  ED&F Man is a clearing member of ICE Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile Exchange, New York Mercantile Exchange, and all other major United States commodity exchanges.  For Corn, Soybean, Sugar and Wheat Futures Contracts ED&F Man is paid $9.00 per round turn. For the three months ended June 30, 2016 and 2017, such expenses, which are recorded in brokerage commissions on the combined statements of operations, totaled $39,974 in 2017 and $24,736 in 2016 for these services and was paid by the Funds. For the six months ended June 30, 2017 and 2016, the Funds recognized $77,320 and $51,410, respectively, for these services, which was recorded in brokerage commissions on the combined statements of operations and were paid for by the Funds.

 

The sole Trustee of the Trust is Wilmington Trust Company, a Delaware banking corporation.  The Trustee will accept service of legal process on the Trust in the State of Delaware and will make certain filings under the Delaware Statutory Trust Act. For its services, the Trustee receives an annual fee of $3,300 from the Trust. For the three and six months ended June 30, 2017 and 2016, the Funds did not recognize any expense for these services. This expense is recorded in business permits and licenses fees on the combined statements of operations.

 

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Note 3 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements have been prepared on a combined basis in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s Accounting Standards Codification and include the accounts of the Trust, CORN, CANE, SOYB, WEAT and TAGS. Refer to the accompanying separate financial statements for each Fund for more detailed information. For the periods represented by the financial statements herein the operations of the Trust contain the results of CORN, SOYB, CANE, WEAT, and TAGS except for eliminations for TAGS as explained below for the months during which each Fund was in operation.

 

Given the investment objective of TAGS as described in Note 1 above, TAGS will buy, sell and hold, as part of its normal operations, shares of the four Underlying Funds. The Trust eliminates the shares of the other series of the Trust owned by the Teucrium Agricultural Fund from its combined statements of assets and liabilities. The Trust eliminates the net change in unrealized appreciation or depreciation on securities owned by the Teucrium Agricultural Fund from its combined statements of operations. The combined statements of changes in net assets and cash flows present a net presentation of the purchases and sales of the Underlying Funds of TAGS.

  

Revenue Recognition

 

Commodity futures contracts are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation or depreciation on commodity futures contracts are reflected in the combined statements of operations as the difference between the original contract amount and the fair market value as of the last business day of the year or as of the last date of the financial statements. Changes in the appreciation or depreciation between periods are reflected in the combined statements of operations. Interest on cash equivalents with financial institutions are recognized on the accrual basis. The Funds earn interest on funds held at the custodian and other financial institutions at prevailing market rates for such investments.

 

Brokerage Commissions

 

Brokerage commissions on all open commodity futures contracts are accrued on the trade date and on a full-turn basis.

 

Income Taxes

 

The Trust, as a Delaware statutory trust, is considered a trust for federal tax purposes and is, thus, a pass through entity. For tax purposes, the Funds will be treated as partnerships. Therefore, the Funds do not record a provision for income taxes because the shareholders report their share of a Fund’s income or loss on their income tax returns. The financial statements reflect the Funds’ transactions without adjustment, if any, required for income tax purposes.

 

The Funds are required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Funds file income tax returns in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states and foreign jurisdictions. For all tax years 2014 to 2016, the Funds remain subject to income tax examinations by major taxing authorities. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized results in the Funds recording a tax liability that reduces net assets. Based on their analysis, the Funds have determined that they have not incurred any liability for unrecognized tax benefits as of June 30, 2017 and for the years ended December 31, 2016, 2015, and 2014. However, the Funds’ conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Funds recognize interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three and six months ended June 30, 2017 and 2016.

 

The Funds may be subject to potential examination by U.S. federal, U.S. state, or foreign jurisdictional authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with U.S. federal, U.S. state and foreign tax laws. The Funds’ management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 

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Creations and Redemptions

 

Authorized Purchasers may purchase Creation Baskets from each Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

  

Authorized Purchasers may redeem shares from each Fund only in blocks of shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

  

Each Fund receives or pays the proceeds from shares sold or redeemed within three business days after the trade date of the purchase or redemption. The amounts due from Authorized Purchasers are reflected in the statements of assets and liabilities as receivable for shares sold.  Amounts payable to Authorized Purchasers upon redemption are reflected in the statements of assets and liabilities as payable for shares redeemed.

  

There are a minimum number of baskets and associated Shares specified for each Fund in the Fund’s respective prospectus, as amended from time to time. If a Fund experienced redemptions that caused the number of Shares outstanding to decrease to the minimum level of Shares required to be outstanding, until the minimum number of Shares is again exceeded through the purchase of a new Creation Basket, there can be no more redemptions by an Authorized Purchaser. These minimum levels are as follows:

  

CORN: 50,000 shares representing 2 baskets 

SOYB: 50,000 shares representing 2 baskets 

CANE: 50,000 shares representing 2 baskets 

WEAT: 50,000 shares representing 2 baskets 

TAGS: 50,000 shares representing 2 baskets (at minimum level as of June 30, 2017 and December 31, 2016)

 

Cash Equivalents 

 

Cash equivalents are highly-liquid investments with maturity dates of 90 days or less when acquired. The Trust reported its cash equivalents in the combined statements of assets and liabilities at market value, or at carrying amounts that approximate fair value, because of their highly-liquid nature and short-term maturities. Each Fund that is a series of the Trust has the balance of its assets on deposit with banks. The Trust had a balance of $175,662 and $1,412,423 in money market funds at June 30, 2017 and December 31, 2016, respectively; these balances are included in cash and cash equivalents on the combined statements of assets and liabilities. Effective in the second quarter 2015, the Sponsor invested a portion of the available cash for the Funds in alternative demand-deposit savings accounts, which is classified as cash and not as cash equivalents. The Funds had a balance of $149,735,620 on June 30, 2017 and $143,915,277 on December 31, 2016 in demand-deposit savings accounts. This change resulted in a reduction in the balance held in money market funds. Assets deposited with the bank may, at times, exceed federally insured limits.

  

Restricted Cash

 

On August 17, 2015 (the “Conversion Date”), U.S. Bank N.A. replaced The Bank of New York Mellon as the Custodian for the Funds. Per the amended agreement between the Sponsor and The Bank of New York Mellon dated August 14, 2015, certain cash amounts for each Fund, except in the case of TAGS, are to remain at The Bank of New York Mellon until amounts for services and early termination fees are paid. The amended agreement allows for payments for such amounts owed to be made through December 31, 2017. Cash balances that are held in custody at The Bank of New York Mellon under this amended agreement are reflected on the combined statements of assets and liabilities of the Fund and the Trust as restricted cash.

 

Due from/to Broker

 

The amount recorded by the Trust for the amount due from and to the clearing broker includes, but is not limited to, cash held by the broker, amounts payable to the clearing broker related to open transactions and payables for commodities futures accounts liquidating to an equity balance on the clearing broker’s records.

 

Margin is the minimum amount of funds that must be deposited by a commodity interest trader with the trader’s broker to initiate and maintain an open position in futures contracts. A margin deposit acts to assure the trader’s performance of the futures contracts purchased or sold. Futures contracts are customarily bought and sold on initial margin that represents a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margin requirements, price fluctuations occurring in the futures markets may create profits and losses that, in relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Funds’ clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

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When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Funds’ trading, the Funds (and not their shareholders personally) are subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated, and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Payable/Receivable for Securities Purchased/Sold

 

Due from/to broker for investments in securities are securities transactions pending settlement. The Trust and the Funds are subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. The management of the Trust and the Funds monitors the financial condition of such brokers and does not anticipate any losses from these counterparties. Since the inception of the Fund, the principal broker through which the Trust and TAGS clear securities transactions for TAGS is the Bank of New York Mellon Capital Markets.

 

Sponsor Fee, Allocation of Expenses and Related Party Transactions

 

The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for investing the assets of the Funds in accordance with the objectives and policies of each Fund. In addition, the Sponsor arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Trust and the Funds. In addition, the Sponsor elected not to outsource services directly attributable to the Trust and the Funds such as accounting, financial reporting, regulatory compliance and trading activities. In addition, the Funds, except for TAGS which has no such fee, are contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum.

 

The Funds pay for all brokerage fees, taxes and other expenses, including licensing fees for the use of intellectual property, registration or other fees paid to the SEC, FINRA (formerly the National Association of Securities Dealers) or any other regulatory agency in connection with the offer and sale of subsequent Shares, after its initial registration, and all legal, accounting, printing and other expenses associated therewith. The Funds also pay the fees and expenses associated with the Trust’s tax accounting and reporting requirements. Certain aggregate expenses common to all Funds within the Trust are allocated by the Sponsor to the respective Fund based on activity drivers deemed most appropriate by the Sponsor for such expenses, including but not limited to relative assets under management and creation and redeem order activity.

 

These aggregate common expenses include, but are not limited to, legal, auditing, accounting and financial reporting, tax-preparation, regulatory compliance, trading activities, and insurance costs, as well as fees paid to the Distributor, which are included in the related line item in the combined statements of operations. A portion of these aggregate common expenses are related to the Sponsor or related parties of principals of the Sponsor; these are necessary services to the Trust and the Funds, which are primarily the cost of performing accounting and financial reporting, regulatory compliance, and trading activities that are directly attributable to the Trust and the Funds. For the three months ended June 30, 2017 and 2016; such expenses, which are primarily included as distribution and marketing fees, totaled $439,583 and $385,990 respectively; of these amounts, $116,679 in 2017 and $28,477 in 2016, were waived by the Sponsor. For the six months ended June 30, 2017 and 2016; such expenses, which are primarily included as distribution and marketing fees, totaled $1,293,133 in 2017 and $1,002,060 in 2016; of these amounts, $123,662 in 2017 and $44,055 in 2016 were waived by the Sponsor. All asset-based fees and expenses for the Funds are calculated on the prior day’s net assets.

 

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The Sponsor has the ability to elect to pay certain expenses on behalf of the Funds or waive the management fee. This election is subject to change by the Sponsor, at its discretion. Expenses paid by the Sponsor and Management fees waived by the Sponsor are, if applicable, presented as waived expenses in the statements of operations for each Fund.

 

For the three months ended June 30, 2017, there were $176,704 of expenses that were on the combined statements of operations of the Trust as expenses that were waived by the Sponsor.  These were specifically: $133,820 for CORN, $12,109 for SOYB, $25,286 for CANE and $5,489 for TAGS.  The Sponsor has determined that there would be no recovery sought for these amounts in any future period.

 

For the three months ended June 30, 2016, there were $63,219 of expenses that were on the combined statements of operations of the Trust as expenses that were waived by the Sponsor.  These were specifically: $58,406 for CANE and $4,813 for TAGS.  The Sponsor has determined that there would be no recovery sought for these amounts in any future period.

 

For the six months ended June 30, 2017 there were $261,465 of expenses that were on the combined statements of operations of the Trust as expenses that were waived by the Sponsor. These were specifically: $168,820 for CORN, $27,109 for SOYB, $38,364 for CANE and $27,172 for TAGS. The Sponsor has determined that there would be no recovery sought for these amounts in any future period.

 

For the six months ended June 30, 2016 there were $98,556 of expenses that were on the combined statements of operations of the Trust as expenses that were waived by the Sponsor. These were specifically: $73,386 for CANE and $25,170 for TAGS. The Sponsor has determined that there would be no recovery sought for these amounts in any future period. 

 

Use of Estimates 

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value - Definition and Hierarchy

 

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

In determining fair value, the Trust uses various valuation approaches. In accordance with U.S. GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Trust. Unobservable inputs reflect the Trust’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 futures contracts held by CORN, SOYB, CANE and WEAT, the securities of the Underlying Funds held by TAGS, and any other securities held by any Fund, together referenced throughout this filing as “financial instruments.” Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

 

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

The availability of valuation techniques and observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the financial instruments existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for financial instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.

 

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Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Trust’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Trust uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many financial instruments. This condition could cause a financial instrument to be reclassified to a lower level within the fair value hierarchy. For instance, when Corn Futures Contracts on the Chicago Board of Trade (“CBOT”) are not actively trading due to a “limit-up” or ‘limit-down” condition, meaning that the change in the Corn Futures Contracts has exceeded the limits established, the Trust and the Fund will revert to alternative verifiable sources of valuation of its assets. When such a situation exists on a quarter close, the Sponsor will calculate the NAV on a particular day using the Level 1 valuation, but will later recalculate the NAV for the impacted Fund based upon the valuation inputs from these alternative verifiable sources (Level 2 or Level 3) and will report such NAV in its applicable financial statements and reports.

 

On June 30, 2017 and December 31, 2016, in the opinion of the Trust, the reported value at the close of the market for each commodity contract fairly reflected the value of the futures and no alternative valuations were required. The determination is made as of the settlement of the futures contracts on the last day of trading for the reporting period. In making the determination of a Level 1 or Level 2 transfer, the Funds consider the average volume of the specific underlying futures contracts traded on the relevant exchange for the periods being reported.

 

For the six months ended June 30, 2017 and year ended December 31, 2016, the Funds did not have any significant transfers between any of the levels of the fair value hierarchy.

 

The Funds and the Trust record their derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations. Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT and the ICE, or reported on another national market, are generally categorized in Level 1 of the fair value hierarchy. OTC derivatives contracts (such as forward and swap contracts), which may be valued using models, depending on whether significant inputs are observable or unobservable, are categorized in Levels 2 or 3 of the fair value hierarchy.

 

Investments in the securities of the Underlying Funds are freely traded and listed on the NYSE Arca. These investments are valued at the NAV of the Underlying Fund as of the valuation date as calculated by the administrator based on the exchange-quoted prices of the commodity futures contracts held by the Underlying Fund.

 

Expenses

 

Expenses are recorded using the accrual method of accounting.

 

New Accounting Pronouncements

  

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323)”. These amendments require disclosure of the impact that recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Funds. The Sponsor has included the impact of new accounting standards in this section of the Form 10-Q.

 

The FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Trust and the Funds are currently evaluating the impact on the financial statements and disclosures; but, based on our review to date, we do not expect the update will have a material impact on the financial statements and disclosures of the Trust or the Funds.

 

The FASB issued ASU 2016-19, “Technical Corrections and Improvements”. The amendments in this update represent changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The amendments are effective for fiscal years, and interim periods with those fiscal years, for all entities beginning after December 15, 2016. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Funds.

 

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The FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This update is not expected to have a material impact on the financial statements and disclosures of the Trust or the Funds. The Sponsor believes there will be a change in presentation of restricted cash on the statements of cash flows.

 

The FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That are under Common Control”. The amendments in this update alters how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. The new guidance amends ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, issued in February 2015. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Funds.

  

The FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The amendments provide cash flow statement classification guidance. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The Trust and the Funds are currently evaluating the impact on the financial statements and disclosures, but do not expect the adoption to have a material impact on the financial statements and disclosures of the Trust or the Funds. The Trust and the Funds do not expect to adopt the guidance until the effective date.

 

The FASB issued ASU 2014-09 in May 2014, “Revenue from Contracts with Customers (Topic 606),” which replaces the revenue recognition requirements of “Revenue Recognition (Topic 605).” This ASU is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 by one year to fiscal years beginning after December 15, 2017. ASU 2015-14 also permits early adoption of ASU 2014-09, but not before the original effective date, which was for fiscal years beginning after December 15, 2016. The Trust and the Funds record income or loss from the recognition and measurement of futures contracts and from interest income under Subtopic 825-10.  Revenue from financial instruments which are valued under Subtopic 825 will not be subject to the application of ASU 2014-09 and 2015-14. Therefore, these standards will not apply or have a material impact on the financial statements and disclosures of the Trust or the Funds.

 

The FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”. The amendments make targeted improvements to clarify the principal versus agent assessment and are intended to make the guidance more operable and lead to more consistent application. The Trust and the Funds record income or loss from the recognition and measurement of futures contracts and from interest income under Subtopic 825-10.  Revenue from financial instruments which are valued under Subtopic 825 will not be subject to the application of ASU 2016-11. Therefore, this standard will not apply or have a material impact on the financial statements and disclosures of the Trust or the Funds.

 

The FASB issued ASU 2016-02, “Leases (Topic 842).” The amendments in this update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018. This update is not expected to have a material impact on the financial statements and disclosures of the Trust or the Funds.

 

The FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this update are intended to improve the recognitions measurement and disclosure of financial instruments. The amendments to this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. These amendments are required to be applied prospectively. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures; but based on our review to date we do not expect the update will have a material impact on the financial statements and disclosures of the Trust or the Funds.

 

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Note 4 – Fair Value Measurements

 

The Trust’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Trust’s significant accounting policies in Note 3. The following table presents information about the Trust’s assets and liabilities measured at fair value as of June 30, 2017 and December 31, 2016:

 

June 30, 2017

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2017 
Cash equivalents  $175,662   $—   $—   $175,662 
Commodity futures contracts                    
Corn futures contracts   934,175    —    —    934,175 
Soybean futures contracts   1,912    —    —    1,912 
Sugar futures contracts   48,317    —    —    48,317 
Wheat futures contracts   7,357,050    —    —    7,357,050 
Total  $8,517,116   $—   $—   $8,517,116 

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2017 
Commodity futures contracts                    
Soybean futures contracts  $108,600   $—   $—   $108,600 
Sugar futures contracts   785,669    —    —    785,669 
Total  $894,269   $—   $—   $894,269 

 

December 31, 2016                
               Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2016 
Cash equivalents  $1,412,423   $—   $—   $1,412,423 
Commodity futures contracts                    
Soybean futures contracts   357,500    —    —    357,500 
Sugar futures contracts   185,147    —    —    185,147 
Total  $1,955,070   $—   $—   $1,955,070 

  

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2016 
Commodity futures contracts                    
Corn futures contracts  $1,460,800   $—   $—   $1,460,800 
Soybean futures contracts   12,025    —    —    12,025 
Sugar futures contracts   331,542    —    —    331,542 
Wheat futures contracts   3,921,588    —    —    3,921,588 
Total  $5,725,955   $—   $—   $5,725,955 

  

For the six months ended June 30, 2017 and year ended December 31, 2016, the Funds did not have any significant transfers between any of the levels of the fair value hierarchy.

 

See the Fair Value - Definition and Hierarchy section in Note 3 above for an explanation of the transfers into and out of each level of the fair value hierarchy.

  

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 six months ended June 30, 2017 and year ended December 31, 2016, the Funds invested only in commodity futures contracts specifically related to each Fund.

 

 19

 

 

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 June 30, 2017 and December 31, 2016.

  

Offsetting of Financial Assets and Derivative Assets as of June 30, 2017

 

   (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  $934,175   $—   $934,175   $—   $—   $934,175 
Soybean futures contracts   1,912    —    1,912    1,912    —    — 
Sugar futures contracts   48,317    —    48,317    48,317    —    — 
Wheat futures contracts   7,357,050    —    7,357,050    —    —    7,357,050 

  

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2017

 

    (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                                                
Soybean futures contracts   $ 108,600     $ —     $ 108,600     $ 1,912     $ 106,688     $ —  
Sugar futures contracts     785,669       —       785,669       48,317       737,352       —  

 

 20

 

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 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  $357,500   $ —    $ 357,500    $ 12,025    $—   $345,475 
  Sugar futures contracts   185,147     —      185,147      185,147     —    — 

  

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 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  $1,460,800   $—   $1,460,800   $—   $1,460,800   $— 
   Soybean futures contracts   12,025    —    12,025    12,025    —    — 
   Sugar futures contracts   331,542    —    331,542    185,147    146,395    — 
   Wheat futures contracts   3,921,588    —    3,921,588    —    3,921,588    — 

 

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

 

Three months ended June 30, 2017

         
Primary Underlying Risk  Realized Loss on
Commodity Futures Contracts		   Net Change in Unrealized Appreciation or
Depreciation on Commodity Futures Contracts		 
Commodity price        
Corn futures contracts  $(727,988)  $1,454,725 
Soybean futures contracts   (311,413)   378,988 
Sugar futures contracts   (1,381,867)   (214,032)
Wheat futures contracts   (494,500)   10,315,925 
Total commodity futures contracts  $(2,915,768)  $11,935,606 

 

Three months ended June 30, 2016

 

Primary Underlying Risk  Realized (Loss) Gain on
Commodity Futures Contracts		   Net Change in Unrealized Appreciation or
Depreciation on Commodity Futures Contracts		 
Commodity price        
Corn futures contracts  $(300,213)  $403,163 
Soybean futures contracts   861,575    1,246,300 
Sugar futures contracts   1,010,632    325,998 
Wheat futures contracts   (997,587)   (1,812,239)
Total commodity futures contracts  $574,407   $163,222 

 

 21

 

  

Six months ended June 30, 2017 

Primary Underlying Risk  Realized (Loss) Gain on
Commodity Futures Contracts		    Net Change in Unrealized Appreciation or
Depreciation on Commodity Futures Contracts		  
Commodity price          
Corn futures contracts  $(447,212)  $2,394,975 
Soybean futures contracts   31,500    (452,163)
Sugar futures contracts   (1,588,115)   (590,957)
Wheat futures contracts   (669,800)   11,278,638 
Total commodity futures contracts  $(2,673,627)  $12,630,493 

  

Six months ended June 30, 2016

 

Primary Underlying Risk  Realized (Loss) Gain on
Commodity Futures Contracts		    Net Change in Unrealized Appreciation or
Depreciation on Commodity Futures Contracts		  
Commodity price          
Corn futures contracts  $(2,392,088)  $251,063 
Soybean futures contracts   961,900    1,590,925 
Sugar futures contracts   1,008,874    323,523 
Wheat futures contracts   (1,566,700)   (1,415,250)
Total commodity futures contracts  $(1,988,014)  $750,261 

  

Volume of Derivative Activities

  

The average notional market value categorized by primary underlying risk for the futures contracts held was $157.9 million and $156.1 million for the three and six months ended June 30, 2017 and $116 million and $106.4 million for the same periods in 2016.

  

Note 6 - Organizational and Offering Costs

  

Expenses incurred in organizing of the Trust and the initial offering of the shares, including applicable SEC registration fees, were borne directly by the Sponsor for the Funds and will be borne directly by the Sponsor for any series of the Trust which is not yet operating or will be issued in the future. The Trust will not be obligated to reimburse the Sponsor.

 

Note 7 – Detail of the net assets and shares outstanding of the Funds that are a series of the Trust

 

The following are the net assets and shares outstanding of each Fund that is a series of the Trust and, thus, in total, comprise the combined net assets of the Trust:

  

June 30, 2017      
       
   Outstanding Shares    Net Assets  
Teucrium Corn Fund   3,500,004   $66,830,725 
Teucrium Soybean Fund   650,004    11,762,511 
Teucrium Sugar Fund   850,004    8,192,411 
Teucrium Wheat Fund   9,900,004    77,583,718 
Teucrium Agricultural Fund:          
   Net assets including the investment in the Underlying Funds   50,002    1,254,477 
   Less: Investment in the Underlying Funds        (1,253,644)
   Net for the Fund in the combined net assets of the Trust        833 
Total       $164,370,198 

  

December 31, 2016

       
   Outstanding Shares    Net Assets  
Teucrium Corn Fund   3,900,004   $73,213,541 
Teucrium Soybean Fund   675,004    12,882,100 
Teucrium Sugar Fund   425,004    5,513,971 
Teucrium Wheat Fund   9,050,004    62,344,759 
Teucrium Agricultural Fund:          
   Net assets including the investment in the Underlying Funds   50,002    1,316,370 
   Less: Investment in the Underlying Funds        (1,313,554)
   Net for the Fund in the combined net assets of the Trust        2,816 
Total       $153,957,187 

 

 22

 

 

The detailed information for the subscriptions and redemptions, and other financial information for each Fund that is a series of the Trust are included in the accompanying financial statements of each Fund.

 

Note 8 – Subsequent Events

 

Management has evaluated the financial statements for the quarter-ended June 30, 2017 for subsequent events through the date of this filing and noted no material events requiring either recognition through the date of the filing or disclosure herein for the Trust and Funds other than those noted below:

 

CORN: Nothing to Report

 

SOYB: Nothing to Report

 

CANE: As of this filing, $14,000 of cash that had been held in custody at The Bank of New York Mellon was transferred to the Fund’s account at U.S. Bank. The balance for Restricted Cash is $19,068.

 

WEAT: The total net assets of the Fund decreased by $19,247,933 or 24.8% the period from June 30, 2017 through August 2, 2017. This was driven by a 17.7% decrease in the shares outstanding and an 8.7% decrease in the net asset value per share.

 

TAGS: Nothing to Report

 

 23

 

 

TEUCRIUM CORN FUND 

STATEMENTS OF ASSETS AND LIABILITIES

 

   June 30, 2017   December 31, 2016 
    (Unaudited)      
Assets          
Cash and cash equivalents  $61,724,071   $69,072,284 
Interest receivable   352    339 
Other assets   141,510    10,451 
Equity in trading accounts:          
   Commodity futures contracts   934,175    — 
Due from broker   4,131,631    5,664,656 
      Total equity in trading accounts   5,065,806    5,664,656 
Total assets  $66,931,739   $74,747,730 
           
Liabilities          
Management fee payable to Sponsor   54,374    65,165 
Other liabilities   46,640    8,224 
Equity in trading accounts:          
Commodity futures contracts   —    1,460,800 
Total liabilities   101,014    1,534,189 
           
Net assets  $66,830,725   $73,213,541 
           
Shares outstanding   3,500,004    3,900,004 
           
Net asset value per share  $19.09   $18.77 
           
Market value per share  $19.05   $18.71 

 

The accompanying notes are an integral part of these financial statements.

 

 24

 

 

TEUCRIUM CORN FUND 

SCHEDULE OF INVESTMENTS 

June 30, 2017
(Unaudited)

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
   Fidelity Institutional Money Market Funds - Government Portfolio (cost $10,951)  $10,951    0.02%   10,951 
                
              Notional Amount 
              (Long Exposure) 
Commodity futures contracts               
United States corn futures contracts               
  CBOT corn futures SEP17 (1,225 contracts)  $58,037    0.09%  $23,336,250 
  CBOT corn futures DEC17 (1,023 contracts)   294,275    0.44    20,050,800 
  CBOT corn futures DEC18 (1,135 contracts)   581,863    0.87    23,466,125 
Total commodity futures contracts  $934,175    1.40%  $66,853,175 

 

The accompanying notes are an integral part of these financial statements.

 

 25

 

 

TEUCRIUM CORN FUND 

SCHEDULE OF INVESTMENTS 

December 31, 2016

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
   Fidelity Institutional Money Market Funds - Government Portfolio (cost $692,293)  $692,293    0.95%   692,293 
                
         Percentage of    Notional Amount 
Description: Liabilities   Fair Value    Net Assets    (Long Exposure) 
                
Commodity futures contracts               
United States corn futures contracts               
   CBOT corn futures MAY17 (1,438 contracts)  $50,713    0.07%  $25,704,250 
   CBOT corn futures JUL17 (1,207 contracts)   576,650    0.79    21,982,488 
   CBOT corn futures DEC17 (1,347 contracts)   833,437    1.14    25,593,000 
Total commodity futures contracts  $1,460,800    2.00%  $73,279,738 

 

The accompanying notes are an integral part of these financial statements.

 

 26

 

 

TEUCRIUM CORN FUND 

STATEMENTS OF OPERATIONS 

(Unaudited)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016 
Income                    
Realized and unrealized gain (loss) on trading of commodity futures contracts:                    
Realized loss on commodity futures contracts  $(727,988)  $(300,213)  $(447,212)  $(2,392,088)
Net change in unrealized appreciation on commodity futures contracts   1,454,725    403,163    2,394,975    251,063 
Interest income   183,500    87,118    331,872    164,229 
           Total income (loss)   910,237    190,068    2,279,635    (1,976,796)
                     
Expenses                    
   Management fees   167,806    163,420    348,974    308,872 
   Professional fees   133,771    182,000    308,701    413,825 
   Distribution and marketing fees   344,557    265,400    596,297    554,250 
   Custodian fees and expenses   40,650    40,200    82,375    81,460 
   Business permits and licenses fees   5,644    3,050    16,229    7,600 
   General and administrative expenses   38,162    23,500    71,632    57,005 
   Brokerage commissions   20,935    14,400    42,225    32,600 
   Other expenses   11,101    8,350    20,861    18,060 
           Total expenses   762,626    700,320    1,487,294    1,473,672 
                     
Expenses Waived by the Sponsor   (133,820)   —    (168,820)   — 
                     
Total expenses, net   628,806    700,320    1,318,474    1,473,672 
                     
Net income (loss)  $281,431   $(510,252)  $961,161   $(3,450,468)
                     
Net income (loss) per share  $0.08   $0.15   $0.32   $(0.90)
Net income (loss) per weighted average share  $0.08   $(0.17)  $0.26   $(1.20)
Weighted average shares outstanding   3,553,301    3,012,641    3,677,766    2,886,542 

 

 The accompanying notes are an integral part of these financial statements.

 

 27

 

 

TEUCRIUM CORN FUND 

STATEMENTS OF CHANGES IN NET ASSETS 

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016 
Operations          
Net income (loss)  $961,161   $(3,450,468)
Capital transactions          
  Issuance of Shares   12,892,765    18,282,392 
  Redemption of Shares   (20,236,742)   (9,775,885)
    Total capital transactions   (7,343,977)   8,506,507 
Net change in net assets   (6,382,816)   5,056,039 
           
Net assets, beginning of period  $73,213,541   $61,056,223 
           
Net assets, end of period  $66,830,725   $66,112,262 
           
Net asset value per share at beginning of period  $18.77   $21.24 
           
Net asset value per share at end of period  $19.09   $20.34 
           
Creation of Shares   650,000    825,000 
Redemption of Shares   1,050,000    450,000 

 

The accompanying notes are an integral part of these financial statements.

 

 28

 

 

TEUCRIUM CORN FUND 

STATEMENTS OF CASH FLOWS 

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016 
Cash flows from operating activities:          
Net income (loss)  $961,161   $(3,450,468)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Net change in unrealized appreciation on commodity futures contracts   (2,394,975)   (251,063)
Changes in operating assets and liabilities:          
     Due from broker   1,533,025    548,119 
         Interest receivable   (13)   (680)
         Other assets   (131,059)   (143,371)
         Management fee payable to Sponsor   (10,791)   7,211 
         Other liabilities   38,416    (3,254)
Net cash used in operating activities   (4,236)   (3,293,506)
           
Cash flows from financing activities:          
         Proceeds from sale of Shares   12,892,765    18,282,392 
         Redemption of Shares   (20,236,742)   (9,775,885)
Net cash (used in) provided by financing activities   (7,343,977)   8,506,507 
           
Net change in cash and cash equivalents   (7,348,213)   5,213,001 
Cash and cash equivalents, beginning of period   69,072,284    57,110,089 
Cash and cash equivalents, end of period  $61,724,071   $62,323,090 

 

The accompanying notes are an integral part of these financial statements.

 

 29

 

 

NOTES TO FINANCIAL STATEMENTS 

June 30, 2017 

(Unaudited) 

 

Note 1 – Organization and Operation

 

Teucrium Corn Fund (referred to herein as “CORN,” or the “Fund”) is a commodity pool that is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust formed on September 11, 2009. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “CORN,” to the public at per-Share offering prices that reflect, among other factors, the trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for corn interests. The Fund’s Shares trade in the secondary market on the NYSE Arca at prices that are lower or higher than their NAV per Share.

 

The investment objective of CORN is to have the daily changes in percentage terms of the Shares’ Net Asset Value (“NAV”) reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for corn (“Corn Futures Contracts”) that are traded on the Chicago Board of Trade (“CBOT”):

 

CORN Benchmark 

CBOT Corn Futures Contract Weighting
Second to expire 35%
Third to expire 30%
December following the third to expire 35%

 

The Fund commenced investment operations on June 9, 2010 and has a fiscal year ending on December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009.

  

On June 5, 2010, the Fund’s initial registration of 30,000,000 shares on Form S-1 was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On June 9, 2010, the Fund listed its shares on the NYSE Arca under the ticker symbol “CORN.” On the day prior to that, the Fund issued 200,000 shares in exchange for $5,000,000 at the Fund’s initial NAV of $25 per share. The Fund also commenced investment operations on June 9, 2010 by purchasing commodity futures contracts traded on the CBOT. On April 29, 2016, a second subsequent registration statement for CORN was declared effective by the SEC.

 

The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the SEC and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K, as well as the most recent Form S-3 filing, as applicable. The operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

  

Subject to the terms of the Trust Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor (“Sponsor”), may terminate a Fund at any time, regardless of whether the Fund has incurred losses, including, for instance, if it determines that the Fund’s aggregate net assets in relation to its operating expenses make the continued operation of the Fund unreasonable or imprudent. However, no level of losses will require the Sponsor to terminate a Fund.

  

Note 2 – Principal Contracts and Agreements

 

On August 17, 2015 (the “Conversion Date”), U.S. Bank N.A. replaced The Bank of New York Mellon as the Custodian for the Fund. The principal business address for U.S. Bank N.A. is 1555 North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212.  U.S. Bank N.A. is a Wisconsin state chartered bank subject to regulation by the Board of Governors of the Federal Reserve System and the Wisconsin State Banking Department.  The principal address for U.S. Bancorp Fund Services, LLC (“USBFS”) is 777 East Wisconsin Avenue, Milwaukee, WI, 53202. In addition, effective on the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank, commenced serving as administrator for each Fund, performing certain administrative and accounting services and preparing certain SEC reports on behalf of the Funds, and also became the registrar and transfer agent for each Fund’s Shares. For such services, U.S. Bank and USBFS will receive an asset-based fee, subject to a minimum annual fee.

 

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For custody services, the Funds will pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1 billion, and .0050% of average gross assets over $1 billion, annually, plus certain per-transaction charges. For Transfer Agency, Fund Accounting and Fund Administration services, which are based on the total assets for all the Funds in the Trust, the Funds will pay to USBFS 0.06% of average gross assets on the first $250 million, 0.05% on the next $250 million, 0.04% on the next $500 million and 0.03% on the balance over $1 billion annually. A combined minimum annual fee of up to $64,500 for custody, transfer agency, accounting and administrative services is assessed per Fund. For the three months ended June 30, 2017 and 2016, the Fund recognized $40,650 and $40,200, respectively, for these services, which was recorded in custodian fees and expenses on the statements of operations and paid for by the Fund. For the six months ended June 30, 2017 and 2016, the Fund recognized $82,375 and $81,460, respectively, for these services, which was recorded in custodian fees and expenses on the statements of operations and paid for by the Fund.

 

The Sponsor employs Foreside Fund Services, LLC (“Foreside” or the “Distributor”) as the Distributor for the Funds. The Distribution Services Agreement among the Distributor and the Sponsor calls for the Distributor to work with the Custodian in connection with the receipt and processing of orders for Creation Baskets and Redemption Baskets and the review and approval of all Fund sales literature and advertising materials. The Distributor and the Sponsor have also entered into a Securities Activities and Service Agreement (the “SASA”) under which certain employees and officers of the Sponsor are licensed as registered representatives or registered principals of the Distributor, under Financial Industry Regulatory Authority (“FINRA”) rules. For its services as the Distributor, Foreside receives a fee of 0.01% of the Fund’s average daily net assets and an aggregate annual fee of $100,000 for all Teucrium Funds, along with certain expense reimbursements. For its services under the SASA, Foreside receives a fee of $5,000 per registered representative and $1,000 per registered location. For the three months ended June 30, 2017 and 2016, the Fund recognized $18,967 and $18,272, respectively, for these services, which was recorded in distribution and marketing fees on the statements of operations; of these amounts, $11,036 and $0 were waived by the Sponsor in 2017 and 2016 respectively. For the six months ended June 30, 2017 and 2016, the Fund recognized $44,912 and $37,875, respectively, for these services, which was recorded in distribution and marketing fees on the statements of operations; of these amounts, $11,036 and $0 were waived by the Sponsor in 2017 and 2016 respectively. 

 

ED&F Man Capital Markets, Inc. (“ED&F Man”) serves as the Underlying Funds’ clearing broker to execute and clear the Underlying Funds’ futures and provide other brokerage-related services. ED&F Man is registered as a FCM with the U.S. CFTC and is a member of the NFA.  ED&F Man is also registered as a broker/dealer with the U.S. Securities and Exchange Commission and is a member of the FINRA.  ED&F Man is a clearing member of ICE Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile Exchange, New York Mercantile Exchange, and all other major United States commodity exchanges.  For Corn, Soybean, Sugar and Wheat Futures Contracts ED&F Man is paid $9.00 per round turn. For the three months ended June 30, 2017 and 2016, the Fund recognized $20,935 and $14,400, respectively, for these services, which was recorded in brokerage commissions on the statements of operations and was paid for by the Fund. For the six months ended June 30, 2017 and 2016, the Fund recognized $42,225 and $32,600, respectively, for these services, which was recorded in brokerage commissions on the statements of operations and was paid for by the Fund.

 

The sole Trustee of the Trust is Wilmington Trust Company, a Delaware banking corporation.  The Trustee will accept service of legal process on the Trust in the State of Delaware and will make certain filings under the Delaware Statutory Trust Act. For its services, the Trustee receives an annual fee of $3,300 from the Trust. For the three and six months ended June 30, 2017 and 2016, the Fund did not recognize any expense for these services. This expense is recorded in business permits and licenses fees on the statements of operations.

 

Note 3 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s Accounting Standards Codification.

 

Revenue Recognition

 

Commodity futures contracts are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation or depreciation on commodity futures contracts are reflected in the statements of operations as the difference between the original contract amount and the fair market value as of the last business day of the year or as of the last date of the financial statements. Changes in the appreciation or depreciation between periods are reflected in the statements of operations. Interest on cash equivalents with financial institutions are recognized on the accrual basis. The Funds earn interest on funds held at the custodian and other financial institutions at prevailing market rates for such investments.

 

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Brokerage Commissions

 

Brokerage commissions on all open commodity futures contracts are accrued on the trade date and on a full-turn basis.

 

Income Taxes

 

For tax purposes, the Fund will be treated as a partnership. The Fund does not record a provision for income taxes because the shareholders report their share of the Fund’s income or loss on their income tax returns. The financial statements reflect the Fund’s transactions without adjustment, if any, required for income tax purposes.

 

The Fund is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states and foreign jurisdictions. For all tax years 2014 to 2016, the Fund remains subject to income tax examinations by major taxing authorities. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized results in the Fund recording a tax liability that reduces net assets. Based on its analysis, the Fund has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2017 and for the years ended December 31, 2016, 2015 and 2014. However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three and six months ended June 30, 2017 and 2016.

 

The Fund may be subject to potential examination by U.S. federal, U.S. state, or foreign jurisdictional authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with U.S. federal, U.S. state and foreign tax laws. The Fund’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 

Creations and Redemptions

 

Authorized Purchasers may purchase Creation Baskets consisting of 25,000 shares from CORN. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The Fund receives or pays the proceeds from shares sold or redeemed within three business days after the trade date of the purchase or redemption. The amounts due from Authorized Purchasers are reflected in the Fund’s statements of assets and liabilities as receivable for shares sold. Amounts payable to Authorized Purchasers upon redemption are reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed.

  

As outlined in the most recent Form S-3 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares. If the Fund experienced redemptions that caused the number of Shares outstanding to decrease to the minimum level of Shares required to be outstanding, until the minimum number of Shares is again exceeded through the purchase of a new Creation Basket, there can be no more redemptions by an Authorized Purchaser.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash Equivalents

 

Cash equivalents are highly-liquid investments with maturity dates of 90 days or less when acquired. The Fund reported its cash equivalents in the statements of assets and liabilities at market value, or at carrying amounts that approximate fair value, because of their highly-liquid nature and short-term maturities. The Fund has these balances of its assets on deposit with banks. The Fund had a balance of $10,951 and $692,293 in money market funds at June 30, 2017 and December 31, 2016, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities. Effective in the second quarter 2015, the Sponsor invested a portion of the available cash for the Fund in alternative demand-deposit savings accounts, which is classified as cash and not as a cash equivalent. The Fund had a balance of $61,714,501 as of June 30, 2017 and $68,382,027 as of December 31, 2016, in demand-deposit savings accounts. This change resulted in a reduction in the balance held in money market funds. Assets deposited with the bank may, at times, exceed federally insured limits.

 

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Due from/to Broker

 

The amount recorded by the Fund for the amount due from and to the clearing broker includes, but is not limited to, cash held by the broker, amounts payable to the clearing broker related to open transactions and payables for commodities futures accounts liquidating to an equity balance on the clearing broker’s records.

 

Margin is the minimum amount of funds that must be deposited by a commodity interest trader with the trader’s broker to initiate and maintain an open position in futures contracts. A margin deposit acts to assure the trader’s performance of the futures contracts purchased or sold. Futures contracts are customarily bought and sold on initial margin that represents a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margin requirements, price fluctuations occurring in the futures markets may create profits and losses that, in relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

● Taking the current market value of its total assets and

 

● Subtracting any liabilities.

 

The administrator, USBFS, calculates the NAV of the Fund once each trading day. It calculates the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New York time. The NAV for a particular trading day is released after 4:15 p.m. New York time.

 

In determining the value of Corn Futures Contracts, the administrator uses the CBOT closing price. The administrator determines the value of all other Fund investments as of the earlier of the close of the NYSE or 4:00 p.m. New York time. The value of over-the-counter corn interests is determined based on the value of the commodity or futures contract underlying such corn interest, except that a fair value may be determined if the Sponsor believes that the Fund is subject to significant credit risk relating to the counterparty to such corn interest. For purposes of financial statements and reports, the Sponsor will recalculate the NAV where necessary to reflect the “fair value” of a Futures Contract when the Futures Contract closes at its price fluctuation limit for the day. Treasury securities held by the Fund are valued by the administrator using values received from recognized third-party vendors and dealer quotes. NAV includes any unrealized profit or loss on open corn interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.

 

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Sponsor Fee, Allocation of Expenses and Related Party Transactions

 

The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. In addition, the Sponsor arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Trust and the Funds. In addition, the Sponsor elected not to outsource services directly attributable to the Trust and the Funds such as accounting, financial reporting, regulatory compliance and trading activities. In addition, the Fund is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum. 

 

The Fund generally pays for all brokerage fees, taxes and other expenses, including licensing fees for the use of intellectual property, registration or other fees paid to the SEC, FINRA, formerly the National Association of Securities Dealers, or any other regulatory agency in connection with the offer and sale of subsequent Shares after its initial registration and all legal, accounting, printing and other expenses associated therewith. The Fund also pays its portion of the fees and expenses associated with the Trust’s tax accounting and reporting requirements. Certain aggregate expenses common to all Funds within the Trust are allocated by the Sponsor to the respective funds based on activity drivers deemed most appropriate by the Sponsor for such expenses, including but not limited to relative assets under management and creation and redeem order activity. 

  

These aggregate common expenses include, but are not limited to, legal, auditing, accounting and financial reporting, tax-preparation, regulatory compliance, trading activities, and insurance costs, as well as fees paid to the Distributor, which are included in the related line item in the statements of operations. A portion of these aggregate common expenses are related to the Sponsor or related parties of principals of the Sponsor; these are necessary services to the Funds, which are primarily the cost of performing accounting and financial reporting, regulatory compliance, and trading activities that are directly attributable to the Fund. For the three months ended June 30, such expenses, which are primarily recorded as distribution and marketing fees on the statement of operations, totaled $205,618 in 2017 and $198,855 in 2016; of these amounts, $95,746 in 2017 and $0 in 2016 were waived by the Sponsor. For the six months ended June 30, such expenses, totaled $626,190 in 2017 and $510,466 in 2016; of these amounts, $95,746 in 2017 and $0 in 2016 were waived by the Sponsor. All asset-based fees and expenses for the Funds are calculated on the prior day’s net assets.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value - Definition and Hierarchy

 

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

In determining fair value, the Fund uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 financial instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these financial instruments does not entail a significant degree of judgment.

 

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

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Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

The availability of valuation techniques and observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the financial instruments existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for financial instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Fund’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Fund uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a financial instrument to be reclassified to a lower level within the fair value hierarchy. For instance, when Corn Futures Contracts on the CBOT are not actively trading due to a “limit-up” or limit-down” condition, meaning that the change in the Corn Futures Contracts has exceeded the limits established, the Trust and the Fund will revert to alternative verifiable sources of valuation of its assets. When such a situation exists on a quarter close, the Sponsor will calculate the Net Asset Value (“NAV”) on a particular day using the Level 1 valuation, but will later recalculate the NAV for the impacted Fund based upon the valuation inputs from these alternative verifiable sources (Level 2 or Level 3) and will report such NAV in its applicable financial statements and reports. 

  

On June 30, 2017 and December 31, 2016, in the opinion of the Trust and the Fund, the reported value of the Corn Futures Contracts traded on the CBOT fairly reflected the value of the Corn Futures Contracts held by the Fund, and no adjustments were necessary. The determination is made as of the settlement of the futures contracts on the last day of trading for the reporting period. In making the determination of a Level 1 or Level 2 transfer, the Fund considers the average volume of the specific underlying futures contracts traded on the relevant exchange for the periods being reported.

 

For the six months ended June 30, 2017 and for the year ended December 31, 2016, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations. Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT and the ICE, or reported on another national market, are generally categorized in Level 1 of the fair value hierarchy. OTC derivatives contracts (such as forward and swap contracts) which may be valued using models, depending on whether significant inputs are observable or unobservable, are categorized in Levels 2 or 3 of the fair value hierarchy.

 

Expenses

 

Expenses are recorded using the accrual method of accounting.

 

Net Income (Loss) per Share

 

Net income (loss) per share is the difference between the NAV per unit at the beginning of each period and at the end of each period. The weighted average number of units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.

 

New Accounting Pronouncements

 

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323)”. These amendments require disclosure of the impact that recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund. The Sponsor has included the impact of new accounting standards in this section of the Form 10-Q.

 

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The FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures; but, based on our review to date, we do not expect the update will have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-19, “Technical Corrections and Improvements”. The amendments in this update represent changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The amendments are effective for fiscal years, and interim periods with those fiscal years, for all entities beginning after December 15, 2016. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This update is not expected to have a material impact on the financial statements and disclosures of the Trust or the Fund. The Sponsor believes there will be a change in presentation of restricted cash on the statements of cash flows.

 

The FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That are under Common Control”. The amendments in this update alters how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. The new guidance amends ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, issued in February 2015. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund.

  

The FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The amendments provide cash flow statement classification guidance. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures, but do not expect the adoption to have a material impact on the financial statements and disclosures of the Trust or the Fund. The Trust and the Fund do not expect to adopt the guidance until the effective date.

 

The FASB issued ASU 2014-09 in May 2014, “Revenue from Contracts with Customers (Topic 606),” which replaces the revenue recognition requirements of “Revenue Recognition (Topic 605).” This ASU is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 by one year to fiscal years beginning after December 15, 2017. ASU 2015-14 also permits early adoption of ASU 2014-09, but not before the original effective date, which was for fiscal years beginning after December 15, 2016. The Trust and the Fund record income or loss from the recognition and measurement of futures contracts and from interest income under Subtopic 825-10.  Revenue from financial instruments which are valued under Subtopic 825 will not be subject to the application of ASU 2014-09 and 2015-14. Therefore, these standards will not apply or have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”. The amendments make targeted improvements to clarify the principal versus agent assessment and are intended to make the guidance more operable and lead to more consistent application. The Trust and the Fund record income or loss from the recognition and measurement of futures contracts and from interest income under Subtopic 825-10.  Revenue from financial instruments which are valued under Subtopic 825 will not be subject to the application of ASU 2016-11. Therefore, this standard will not apply or have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-02, “Leases (Topic 842).” The amendments in this update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018. This update is not expected to have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

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The FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this update are intended to improve the recognitions measurement and disclosure of financial instruments. The amendments to this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. These amendments are required to be applied prospectively. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures; but based on our review to date we do not expect the update will have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

Note 4 – Fair Value Measurements

 

The Fund’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Fund’s significant accounting policies in Note 2. The following table presents information about the Fund’s assets and liabilities measured at fair value as of June 30, 2017 and December 31, 2016:

 

June 30, 2017

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2017 
Cash equivalents   10,951    —    —    10,951 
Corn futures contracts   934,175    —    —    934,175 
Total  $945,126   $—   $—   $945,126 

 

December 31, 2016                      

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2016 
Cash equivalents  $692,293   $—   $—   $692,293 

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2016 
Corn futures contracts  $1,460,800   $—   $—   $1,460,800 

 

For the six months ended June 30, 2017 and year ended December 31 2016, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

 

See the Fair Value - Definition and Hierarchy section in Note 3 above for an explanation of the transfers into and out of each level of the fair value hierarchy.

 

Note 5 – 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 six months ended June 30, 2017 and year ended December 31, 2016, the Fund invested only in 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 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.

 

37

 

 

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 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 statements of assets and liabilities as derivative contracts, categorized by primary underlying risk and held by the FCM, ED&F Man as of June 30, 2017 and December 31, 2016.

 

Offsetting of Financial Assets and Derivative Assets as of June 30, 2017

 

   (i)   (ii)   (iii) = (i) – (ii)  (iv)  (v) = (iii) – (iv)
              Gross Amount Not Offset in the
Statement of Assets and
Liabilities		   
Description  Gross Amount
of Recognized
Liabilities		   Gross
Amount
Offset in the
Statement of
Assets and
Liabilities		   Net Amount
Presented in
the
Statement of
Assets and
Liabilities		  Futures
Contracts Available for Offset		  Collateral, Due
from Broker		   Net Amount
Commodity price                     
Corn futures contracts  $934,175   $—   $ 934,175  $ —  $—   $ 934,175
                         

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2016

 

   (i)   (ii)   (iii) = (i) – (ii)  (iv)  (v) = (iii) – (iv)
              Gross Amount Not Offset in the
Statement of Assets and
Liabilities		   
Description  Gross Amount
of Recognized
Liabilities		   Gross
Amount
Offset in the
Statement of
Assets and
Liabilities		   Net Amount
Presented in
the
Statement of
Assets and
Liabilities		  Futures
Contracts Available for Offset		  Collateral, Due
from Broker		   Net Amount
Commodity price                     
Corn futures contracts  $1,460,800   $—   $ 1,460,800  $ —  $1,460,800   $ —
                         

The following tables 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:

 

Three months ended June 30, 2017

 

         Net Change in Unrealized Appreciation or  
Primary Underlying Risk    Realized Loss on
Commodity Futures Contracts		    Depreciation on Commodity Futures Contracts  
Commodity Price                
Corn futures contracts    $ (727,988)   $ 1,454,725  
                 

38

 

 

Three months ended June 30, 2016 

           
Primary Underlying Risk     Realized Loss on
Commodity Futures Contracts		     Net Change in Unrealized Appreciation or
Depreciation on Commodity Futures Contracts		  
Commodity Price            
Corn futures contracts     $ (300,213 )   $ 403,163  
                   

Six months ended June 30, 2017 

           
Primary Underlying Risk     Realized Loss on
Commodity Futures Contracts		     Net Change in Unrealized Appreciation or 
Depreciation on Commodity Futures Contracts		  
Commodity Price              
Corn futures contracts     $ (447,212 )   $ 2,394,975  
                   

Six months ended June 30, 2016 

           
Primary Underlying Risk     Realized Loss on
Commodity Futures Contracts		     Net Change in Unrealized Appreciation or 
Depreciation on Commodity Futures Contracts		  
Commodity Price              
Corn futures contracts     $ (2,392,088 )   $ 251,063  
                   

Volume of Derivative Activities

 

The average notional market value categorized by primary underlying risk for the futures contracts held was $67.0 million and $68.8 million for the three and six months ended June 30, 2017 and $65.7 million and $61.8 million for the same periods in 2016.

 

Note 6 – Financial Highlights

 

The following tables present per unit performance data and other supplemental financial data for the three and six months ended June 30, 2017 and 2016. This information has been derived from information presented in the financial statements and is presented with total expenses gross of expenses waived by the Sponsor and with total expenses net of expenses waived by the Sponsor, as appropriate.

 

    Three months ended     Three months ended     Six months ended     Six months ended  
Per Share Operation Performance   June 30, 2017     June 30, 2016     June 30, 2017     June 30, 2016  
Net asset value at beginning of period   $ 19.01     $ 20.19     $ 18.77     $ 21.24  
Income (loss) from investment operations:                                
Investment Income     0.05       0.03       0.09       0.06  
Net realized and unrealized gain (loss) on commodity futures contracts     0.21       0.35       0.59       (0.45 )
Total expenses     (0.18 )     (0.23 )     (0.36 )     (0.51 )
Net increase (decrease) in net asset value     0.08       0.15       0.32       (0.90 )
Net asset value at end of period   $ 19.09     $ 20.34     $ 19.09     $ 20.34  
Total Return     0.42 %     0.74 %     1.70 %     (4.24 )%
Ratios to Average Net Assets (Annualized)                                
Total expenses     4.54 %     4.29 %     4.26 %     4.77 %
Total expense, net     3.75 %     4.29 %     3.78 %     4.77 %
Net investment loss     (2.65 )%     (3.75 )%     (2.83 )%     (4.24 )%

  

The financial highlights per share data are calculated consistent with the methodology used to calculate asset-based fees and expenses.

 

Note 7 – Organizational and Offering Costs 

 

Expenses incurred in organizing of the Trust and the initial offering of the Shares of the Fund, including applicable SEC registration fees were borne directly by the Sponsor. The Fund will not be obligated to reimburse the Sponsor.

 

Note 8 – Subsequent Events

 

Management has evaluated the financial statements for the quarter-ended June 30, 2017 for subsequent events through the date of this filing and noted no material events requiring either recognition through the date of the filing or disclosure herein for the Fund.

 

39

 

 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

   June 30, 2017   December 31, 2016 
   (Unaudited)      
Assets          
Cash and cash equivalents  $10,829,061   $12,300,383 
Interest receivable   90    38 
Restricted cash   35,616    77,616 
Other assets   41,997    4,104 
Equity in trading accounts:          
  Commodity futures contracts   1,912    357,500 
  Due from broker   972,360    170,973 
        Total equity in trading accounts   974,272    528,473 
Total assets   11,881,036    12,910,614 
           
Liabilities          
Management fee payable to Sponsor   9,450    11,891 
Other liabilities   475    4,598 
Equity in trading accounts:          
  Commodity futures contracts   108,600    12,025 
Total liabilities   118,525    28,514 
           
Net assets  $11,762,511   $12,882,100 
           
Shares outstanding   650,004    675,004 
           
Net asset value per share  $18.10   $19.08 
           
Market value per share  $18.05   $19.10 

 

The accompanying notes are an integral part of these financial statements.

 

40

 

 

TEUCRIUM SOYBEAN FUND

SCHEDULE OF INVESTMENTS

June 30, 2017

(Unaudited)

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
  Fidelity Institutional Money Market Funds - Government Portfolio (cost $151,120)  $151,120    1.28%   151,120 
                
              Notional Amount 
             (Long Exposure) 
Commodity futures contracts               
United States soybean futures contracts               
   CBOT soybean futures NOV17 (86 contracts)  $1,912    0.02%  $4,105,425 

 

       Percentage of   Notional Amount 
Description: Liabilities  Fair Value   Net Assets   (Long Exposure) 
             
Commodity futures contracts               
United States soybean futures contracts               
   CBOT soybean futures JAN18 (73 contracts)  $46,388    0.39%  $3,513,125 
   CBOT soybean futures NOV18 (86 contracts)   62,212    0.53    4,126,925 
Total commodity futures contracts  $108,600    0.92%  $7,640,050 
                

The accompanying notes are an integral part of these financial statements.

 

41

 

 

TEUCRIUM SOYBEAN FUND

SCHEDULE OF INVESTMENTS

December 31, 2016

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
   Fidelity Investments Money Market Funds - Government Portfolio (cost $185,661)  $185,661    1.44%   185,661 
                
             Notional Amount 
             (Long Exposure) 
Commodity futures contracts               
United States soybean futures contracts               
   CBOT soybean futures MAR17 (90 contracts)  $107,125    0.83%  $4,518,000 
   CBOT soybean futures NOV17 (91 contracts)   250,375    1.95    4,501,088 
Total commodity futures contracts  $357,500    2.78%  $9,019,088 
                
        Percentage of   Notional Amount 
Description: Liabilities  Fair Value   Net Assets   (Long Exposure) 
                
Commodity futures contracts               
United States soybean futures contracts               
   CBOT soybean futures MAY17 (76 contracts)  $12,025    0.09%  $3,847,500 

 

The accompanying notes are an integral part of these financial statements.

 

42

 

 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized (loss) gain on commodity futures contracts  $(311,413)  $861,575   $31,500   $961,900 
     Net change in unrealized appreciation or depreciation on commodity futures contracts   378,988    1,246,300    (452,163)   1,590,925 
Interest income   31,405    16,167    57,169    27,294 
Total income (loss)   98,980    2,124,042    (363,494)   2,580,119 
                     
Expenses                    
   Management fees   28,996    30,449    60,225    51,818 
   Professional fees   29,731    9,134    66,749    19,921 
   Distribution and marketing fees   40,549    58,944    80,197    95,013 
   Custodian fees and expenses   4,839    7,723    10,570    11,940 
   Business permits and licenses fees   4,889    4,610    9,536    9,146 
   General and administrative expenses   5,846    8,587    10,840    14,403 
   Brokerage commissions   1,740    439    3,399    1,507 
   Other expenses   1,861    2,824    3,735    5,446 
Total expenses   118,451    122,710    245,251    209,194 
                     
Expenses waived by the Sponsor   (12,109)   —    (27,109)   — 
                     
Total expenses, net   106,342    122,710    218,142    209,194 
                     
Net (loss) income  $(7,362)  $2,001,332   $(581,636)  $2,370,925 
                     
Net (loss) income per share  $(0.01)  $3.35   $(0.98)  $4.03 
Net (loss) income per weighted average share  $(0.01)  $3.25   $(0.90)  $4.28 
Weighted average shares outstanding   647,257    616,488    649,452    553,713 

 

 The accompanying notes are an integral part of these financial statements.

 

43

 

 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016 
Operations          
Net (loss) income  $(581,636)  $2,370,925 
Capital transactions          
Issuance of Shares   1,399,787    5,900,450 
Redemption of Shares   (1,937,740)   (1,954,480)
Total capital transactions   (537,953)   3,945,970 
Net change in net assets   (1,119,589)   6,316,895 
           
Net assets, beginning of period  $12,882,100   $6,502,552 
           
Net assets, end of period  $11,762,511   $12,819,447 
           
Net asset value per share at beginning of period  $19.08   $17.34 
           
Net asset value per share at end of period  $18.10   $21.37 
           
Creation of Shares   75,000    325,000 
Redemption of Shares   100,000    100,000 

 

The accompanying notes are an integral part of these financial statements.

 

44

 

 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2017   June 30, 2016 
Cash flows from operating activities:          
Net (loss) income  $(581,636)  $2,370,925 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:          
Net change in unrealized appreciation or depreciation on commodity futures contracts   452,163    (1,590,925)
Changes in operating assets and liabilities:          
Due from broker   (801,387)   604,666 
Interest receivable   (52)   (198)
Restricted cash   42,000    26,000 
Other assets   (37,893)   (62,677)
Due to broker   —    400,004 
Management fee payable to Sponsor   (2,441)   5,108 
Other liabilities   (4,123)   (1,591)
Net cash (used in) provided by operating activities   (933,369)   1,751,312 
           
Cash flows from financing activities:          
Proceeds from sale of Shares   1,399,787    5,900,450 
Redemption of Shares   (1,937,740)   (1,954,480)
Net cash  (used in) provided by financing activities   (537,953)   3,945,970 
           
Net change in cash and cash equivalents   (1,471,322)   5,697,282 
Cash and cash equivalents, beginning of period   12,300,383    5,937,824 
Cash and cash equivalents, end of period  $10,829,061   $11,635,106 

 

The accompanying notes are an integral part of these financial statements.

 

45

 

 

  

NOTES TO FINANCIAL STATEMENTS

 June 30, 2017

 (Unaudited)

 

Note 1 – Organization and Operation

  

Teucrium Soybean Fund (referred to herein as “SOYB” or the “Fund”) is a commodity pool that is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust formed on September 11, 2009. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “SOYB,” to the public at per-Share offering prices that reflect, among other factors, the trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for soybean interests. The Fund’s Shares trade in the secondary market on the NYSE Arca at prices that are lower or higher than their NAV per Share.

  

The investment objective of SOYB is to have the daily changes in percentage terms of the Shares’ Net Asset Value (“NAV”) reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for soybeans (“Soybeans Futures Contracts”) that are traded on the Chicago Board of Trade (“CBOT”):

   

SOYB Benchmark 

CBOT Soybeans Futures Contract Weighting
Second to expire (excluding August & September) 35%
Third to expire (excluding August & September) 30%
Expiring in the November following the expiration of the third-to-expire contract 35%

  

The Fund commenced investment operations on September 19, 2011 and has a fiscal year ending December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009.

  

On June 17, 2011, the Fund’s registration of 10,000,000 shares on Form S-1 was declared effective by the SEC. On September 19, 2011, the Fund listed its shares on the NYSE Arca under the ticker symbol “SOYB.” On the business day prior to that, the Fund issued 100,000 shares in exchange for $2,500,000 at the Fund’s initial NAV of $25 per share. The Fund also commenced investment operations on September 19, 2011 by purchasing soybean commodity futures contracts traded on the CBOT. On December 31, 2010, the Fund had four shares outstanding, which were owned by the Sponsor. On May 1, 2017, a subsequent registration statement for SOYB was declared effective by the SEC.

  

The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the SEC and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K, as well as the most recent Form S-1 filing, as applicable. The operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

  

Subject to the terms of the Trust Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor (“Sponsor”), may terminate a Fund at any time, regardless of whether the Fund has incurred losses, including, for instance, if it determines that the Fund’s aggregate net assets in relation to its operating expenses make the continued operation of the Fund unreasonable or imprudent. However, no level of losses will require the Sponsor to terminate a Fund.

 

46 

 

 

 Note 2 – Principal Contracts and Agreements

 

On August 17, 2015 (the “Conversion Date”), U.S. Bank N.A. replaced The Bank of New York Mellon as the Custodian for the Fund. The principal business address for U.S. Bank N.A. is 1555 North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212.  U.S. Bank N.A. is a Wisconsin state chartered bank subject to regulation by the Board of Governors of the Federal Reserve System and the Wisconsin State Banking Department.  The principal address for U.S. Bancorp Fund Services, LLC (“USBFS”), is 777 East Wisconsin Avenue, Milwaukee, WI, 53202. In addition, effective on the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank, commenced serving as administrator for each Fund, performing certain administrative and accounting services and preparing certain SEC reports on behalf of the Funds, and also became the registrar and transfer agent for each Fund’s Shares. For such services, U.S. Bank and USBFS will receive an asset-based fee, subject to a minimum annual fee. 

 

For custody services, the Funds will pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1 billion, and .0050% of average gross assets over $1 billion, annually, plus certain per-transaction charges. For Transfer Agency, Fund Accounting and Fund Administration services, which are based on the total assets for all the Funds in the Trust, the Funds will pay to USBFS 0.06% of average gross assets on the first $250 million, 0.05% on the next $250 million, 0.04% on the next $500 million and 0.03% on the balance over $1 billion annually. A combined minimum annual fee of up to $64,500 for custody, transfer agency, accounting and administrative services is assessed per Fund. For the three months ended June 30, 2017 and 2016, the Fund recognized $4,839 and $7,723, respectively, for these services, which was recorded in custodian fees and expenses on the statements of operations and was paid for by the Fund. For the six months ended June 30, 2017 and 2016, the Fund recognized $10,570 and $11,940, respectively, for these services, which was recorded in custodian fees and expenses on the statements of operations and was paid for by the Fund.

 

The Sponsor employs Foreside Fund Services, LLC (“Foreside” or the “Distributor”) as the Distributor for the Funds. The Distribution Services Agreement among the Distributor and the Sponsor calls for the Distributor to work with the Custodian in connection with the receipt and processing of orders for Creation Baskets and Redemption Baskets and the review and approval of all Fund sales literature and advertising materials. The Distributor and the Sponsor have also entered into a Securities Activities and Service Agreement (the “SASA”) under which certain employees and officers of the Sponsor are licensed as registered representatives or registered principals of the Distributor, under Financial Industry Regulatory Authority (“FINRA”) rules. For its services as the Distributor, Foreside receives a fee of 0.01% of the Fund’s average daily net assets and an aggregate annual fee of $100,000 for all Teucrium Funds, along with certain expense reimbursements. For its services under the SASA, Foreside receives a fee of $5,000 per registered representative and $1,000 per registered location. For the three months ended June 30, 2017 and 2016, the Fund recognized $2,698 and $4,202, respectively, for these services, which was recorded in distribution and marketing fees on the statements of operations; of these amounts $773 and $0 were waived by the Sponsor in 2017 and 2016. For the six months ended June 30, 2017 and 2016, the Fund recognized $6,806 and $7,799, respectively, for these services, which was recorded in distribution and marketing fees on the statements of operations; of these expenses $773 in 2017 and $0 in 2016 were waived by the Sponsor.

 

ED&F Man Capital Markets, Inc. (“ED&F Man”) serves as the Underlying Funds’ clearing broker to execute and clear the Underlying Funds’ futures and provide other brokerage-related services. ED&F Man is registered as a FCM with the U.S. CFTC and is a member of the NFA.  ED&F Man is also registered as a broker/dealer with the U.S. Securities and Exchange Commission and is a member of the FINRA.  ED&F Man is a clearing member of ICE Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile Exchange, New York Mercantile Exchange, and all other major United States commodity exchanges.  For Corn, Soybean, Sugar and Wheat Futures Contracts ED&F Man is paid $9.00 per round turn. For the three months ended June 30, 2017 and 2016, the Fund recognized $1,740 and $439, respectively, for these services, which was recorded in brokerage commissions on the statements of operations and paid for by the Fund. For the six months ended June 30, 2017 and 2016, the Fund recognized $3,399 and $1,507, respectively, for these services, which was recorded in brokerage commissions on the statements of operations and paid for by the Fund.

 

The sole Trustee of the Trust is Wilmington Trust Company, a Delaware banking corporation.  The Trustee will accept service of legal process on the Trust in the State of Delaware and will make certain filings under the Delaware Statutory Trust Act. For its services, the Trustee receives an annual fee of $3,300 from the Trust. For the three and six months ended June 30, 2017 and 2016, the Fund did not recognize any expense for these services. This expense is recorded in business permits and licenses fees on the statements of operations.

  

Note 3 – Summary of Significant Accounting Policies

  

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s Accounting Standards Codification.

 

47 

 

 

Revenue Recognition

 

Commodity futures contracts are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation or depreciation on commodity futures contracts are reflected in the statements of operations as the difference between the original contract amount and the fair market value as of the last business day of the year or as of the last date of the financial statements. Changes in the appreciation or depreciation between periods are reflected in the statements of operations. Interest on cash equivalents with financial institutions are recognized on the accrual basis. The Funds earn interest on funds held at the custodian and other financial institutions at prevailing market rates for such investments.

  

Brokerage Commissions

  

Brokerage commissions on all open commodity futures contracts are accrued on the trade date and on a full-turn basis.

  

Income Taxes

 

For tax purposes, the Fund will be treated as a partnership. The Fund does not record a provision for income taxes because the shareholders report their share of the Fund’s income or loss on their income tax returns. The financial statements reflect the Fund’s transactions without adjustment, if any, required for income tax purposes.

 

The Fund is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states and foreign jurisdictions. For all tax years 2014 to 2016, the Fund remains subject to income tax examinations by major taxing authorities. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized results in the Fund recording a tax liability that reduces net assets. Based on its analysis, the Fund has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2017 and for the years ended December 31, 2016, 2015 and 2014. However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three and six months ended June 30, 2017 and 2016.

 

The Fund may be subject to potential examination by U.S. federal, U.S. state, or foreign jurisdictional authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with U.S. federal, U.S. state and foreign tax laws. The Fund’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 

Creations and Redemptions

 

Authorized Purchasers may purchase Creation Baskets consisting of 25,000 shares from the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

  

The Fund receives or pays the proceeds from shares sold or redeemed within three business days after the trade date of the purchase or redemption. The amounts due from Authorized Purchasers are reflected in the Fund’s statements of assets and liabilities as receivable for shares sold. Amounts payable to Authorized Purchasers upon redemption are reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed. 

  

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares. If the Fund experienced redemptions that caused the number of Shares outstanding to decrease to the minimum level of Shares required to be outstanding, until the minimum number of Shares is again exceeded through the purchase of a new Creation Basket, there can be no more redemptions by an Authorized Purchaser.

 

48 

 

 

Allocation of Shareholder Income and Losses

  

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

  

Cash Equivalents

 

Cash equivalents are highly-liquid investments with maturity dates of 90 days or less when acquired. The Fund reported its cash equivalents in the statements of assets and liabilities at market value, or at carrying amounts that approximate fair value, because of their highly-liquid nature and short-term maturities. The Fund has these balances of its assets on deposit with banks. The Fund had a balance of $151,120 and $185,661 in money market funds at June 30, 2017 and December 31, 2016, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities. The Sponsor invested a portion of the available cash for the Fund in alternative demand-deposit savings accounts, which is classified as cash and not as a cash equivalent. The Fund had a balance of $10,678,176 as of June 30, 2017 and $12,115,082 as of December 31, 2016 in demand-deposit savings accounts. Assets deposited with the bank may, at times, exceed federally insured limits.

  

Restricted Cash

 

On August 17, 2015 (the “Conversion Date”), U.S. Bank N.A. replaced The Bank of New York Mellon as the Custodian for the Funds.  Per the amended agreement between the Sponsor and The Bank of New York Mellon dated August 14, 2015, certain cash amounts for each Fund, except in the case of TAGS, are to remain at The Bank of New York Mellon until amounts for services and early termination fees are paid.  The amended agreement allows for payments for such amounts owed to be made through December 31, 2017. Cash balances that are held in custody at The Bank of New York Mellon under this amended agreement are reflected on the statements of assets and liabilities of the Fund and the Trust as restricted cash.

  

Due from/to Broker

 

The amount recorded by the Fund for the amount due from and to the clearing broker includes, but is not limited to, cash held by the broker, amounts payable to the clearing broker related to open transactions and payables for commodities futures accounts liquidating to an equity balance on the clearing broker’s records.

 

Margin is the minimum amount of funds that must be deposited by a commodity interest trader with the trader’s broker to initiate and maintain an open position in futures contracts. A margin deposit acts to assure the trader’s performance of the futures contracts purchased or sold. Futures contracts are customarily bought and sold on initial margin that represents a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margin requirements, price fluctuations occurring in the futures markets may create profits and losses that, in relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

  

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

49 

 

  

Calculation of Net Asset Value

  

The Fund’s NAV is calculated by:

  

●Taking the current market value of its total assets and

  

●Subtracting any liabilities.

 

The administrator, USBFS, calculates the NAV of the Fund once each trading day. It calculates the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New York time. The NAV for a particular trading day is released after 4:15 p.m. New York time.

 

In determining the value of Soybean Futures Contracts, the administrator uses the CBOT closing price. The administrator determines the value of all other Fund investments as of the earlier of the close of the NYSE or 4:00 p.m. New York time. The value of over-the-counter soybean interests is determined based on the value of the commodity or futures contract underlying such soybean interest, except that a fair value may be determined if the Sponsor believes that the Fund is subject to significant credit risk relating to the counterparty to such soybean interest. For purposes of financial statements and reports, the Sponsor will recalculate the NAV where necessary to reflect the “fair value” of a Futures Contract when the Futures Contract closes at its price fluctuation limit for the day. Treasury securities held by the Fund are valued by the administrator using values received from recognized third-party vendors and dealer quotes. NAV includes any unrealized profit or loss on open soybean interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.

  

Sponsor Fee, Allocation of Expenses and Related Party Transactions

 

The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. In addition, the Sponsor arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Trust and the Funds. In addition, the Sponsor elected not to outsource services directly attributable to the Trust and the Funds such as accounting, financial reporting, regulatory compliance and trading activities. In addition, the Fund is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum.   

 

The Fund generally pays for all brokerage fees, taxes and other expenses, including licensing fees for the use of intellectual property, registration or other fees paid to the SEC, FINRA, formerly the National Association of Securities Dealers, or any other regulatory agency in connection with the offer and sale of subsequent Shares after its initial registration and all legal, accounting, printing and other expenses associated therewith. The Fund also pays its portion of the fees and expenses associated with the Trust’s tax accounting and reporting requirements. Certain aggregate expenses common to all Funds within the Trust are allocated by the Sponsor to the respective funds based on activity drivers deemed most appropriate by the Sponsor for such expenses, including but not limited to relative assets under management and creation and redeem order activity.

 

These aggregate common expenses include, but are not limited to, legal, auditing, accounting and financial reporting, tax-preparation, regulatory compliance, trading activities, and insurance costs, as well as fees paid to the Distributor, which are included in the related line item in the statements of operations. A portion of these aggregate common expenses are related to the Sponsor or related parties of principals of the Sponsor; these are necessary services to the Funds, which are primarily the cost of performing accounting and financial reporting, regulatory compliance, and trading activities that are directly attributable to the Fund. Such expenses are primarily recorded in distribution and marketing fees on the statements of operations. For the three months ended June 30, 2017 and 2016; such expenses, which are primarily recorded as distribution and marketing fees on the statement of operations, totaled $29,420 in 2017 and $45,844 in 2015; of these amounts, $8,841 in 2017 and $0 in 2016 were waived by the Sponsor. For the six months ended June 30, 2017 and 2016; such expenses, which are primarily included as distribution and marketing fees, totaled $95,404 in 2017 and $102,665 in 2016; of these amounts, $8,841 in 2017 and $0 in 2016 were waived by the Sponsor. All asset-based fees and expenses for the Funds are calculated on the prior day’s net assets.

 

For the three months ended June 30, 2017 and 2016, there were $12,109 and $0, respectively, of expenses identified on the statements of operations of the Fund as expenses that were waived by the Sponsor. The Sponsor has determined that there would be no recovery sought for these amounts in any future period.

 

For the six months ended June 30, 2017 and 2016, there were $27,109 and $0, respectively, of  expenses identified on the statements of operations of the Fund as expenses that were waived by the Sponsor. The Sponsor has determined that there would be no recovery sought for these amounts in any future period.

 

50 

 

 

Use of Estimates

  

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.

  

Fair Value - Definition and Hierarchy

 

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

In determining fair value, the Fund uses various valuation approaches. In accordance with U.S. GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 financial instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these financial instruments does not entail a significant degree of judgment.

 

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

The availability of valuation techniques and observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the financial instruments existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for financial instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Fund’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Fund uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many financial instruments. This condition could cause a financial instrument to be reclassified to a lower level within the fair value hierarchy. When such a situation exists on a quarter close, the Sponsor will calculate the NAV on a particular day using the Level 1 valuation, but will later recalculate the NAV for the impacted Fund based upon the valuation inputs from these alternative verifiable sources (Level 2 or Level 3) and will report such NAV in its applicable financial statements and reports.

 

On June 30, 2017 and December 31, 2016, in the opinion of the Trust and the Fund, the reported value of the Soybean Futures Contracts traded on the CBOT fairly reflected the value of the Soybean Futures Contracts held by the Fund, with no adjustments necessary. The determination is made as of the settlement of the futures contracts on the last day of trading for the reporting period. In making the determination of a Level 1 or Level 2 transfer, the Fund considers the average volume of the specific underlying futures contracts traded on the relevant exchange for the periods being reported.

 

For the six months ended June 30, 2017 and for the year ended December 31, 2016, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

 

51 

 

 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations. Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT and the ICE, or reported on another national market, are generally categorized in Level 1 of the fair value hierarchy. OTC derivatives contracts (such as forward and swap contracts) which may be valued using models, depending on whether significant inputs are observable or unobservable, are categorized in Levels 2 or 3 of the fair value hierarchy.

  

Expenses

 

Expenses are recorded using the accrual method of accounting.

  

Net Income (Loss) per Share

 

Net income (loss) per Share is the difference between the NAV per unit at the beginning of each period and at the end of each period. The weighted average number of Shares outstanding was computed for purposes of disclosing net income (loss) per weighted average Share. The weighted average Shares are equal to the number of Shares outstanding at the end of the period, adjusted proportionately for Shares created or redeemed based on the amount of time the Shares were outstanding during such period.

  

New Accounting Pronouncements

 

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323)”. These amendments require disclosure of the impact that recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund. The Sponsor has included the impact of new accounting standards in this section of the Form 10-Q.

 

The FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures; but, based on our review to date, we do not expect the update will have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-19, “Technical Corrections and Improvements”. The amendments in this update represent changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The amendments are effective for fiscal years, and interim periods with those fiscal years, for all entities beginning after December 15, 2016. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This update is not expected to have a material impact on the financial statements and disclosures of the Trust or the Fund. The Sponsor believes there will be a change in presentation of restricted cash on the statements of cash flows.

 

The FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That are under Common Control”. The amendments in this update alters how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. The new guidance amends ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, issued in February 2015. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The amendments provide cash flow statement classification guidance. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures, but do not expect the adoption to have a material impact on the financial statements and disclosures of the Trust or the Fund. The Trust and the Fund do not expect to adopt the guidance until the effective date.

 

52 

 

 

The FASB issued ASU 2014-09 in May 2014, “Revenue from Contracts with Customers (Topic 606),” which replaces the revenue recognition requirements of “Revenue Recognition (Topic 605).” This ASU is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 by one year to fiscal years beginning after December 15, 2017. ASU 2015-14 also permits early adoption of ASU 2014-09, but not before the original effective date, which was for fiscal years beginning after December 15, 2016. The Trust and the Fund record income or loss from the recognition and measurement of futures contracts and from interest income under Subtopic 825-10.  Revenue from financial instruments which are valued under Subtopic 825 will not be subject to the application of ASU 2014-09 and 2015-14. Therefore, these standards will not apply or have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”. The amendments make targeted improvements to clarify the principal versus agent assessment and are intended to make the guidance more operable and lead to more consistent application. The Trust and the Fund record income or loss from the recognition and measurement of futures contracts and from interest income under Subtopic 825-10.  Revenue from financial instruments which are valued under Subtopic 825 will not be subject to the application of ASU 2016-11. Therefore, this standard will not apply or have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-02, “Leases (Topic 842).” The amendments in this update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018. This update is not expected to have a material impact on the financial statements and disclosures of the Trust or the Fund.

 

The FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this update are intended to improve the recognitions measurement and disclosure of financial instruments. The amendments to this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. These amendments are required to be applied prospectively. The Trust and the Fund are currently evaluating the impact on the financial statements and disclosures; but based on our review to date we do not expect the update will have a material impact on the financial statements and disclosures of the Trust or the Fund. 

  

Note 4 – Fair Value Measurements

  

The Fund’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Fund’s significant accounting policies in Note 2. The following table presents information about the Fund’s assets and liabilities measured at fair value as of June 30, 2017 and December 31, 2016:

 

June 30, 2017

 

Assets:  Level 1   Level 2   Level 3   Balance as of
June 30, 2017		 
Cash equivalents  $151,120   $—   $—   $151,120 
Soybean futures contracts   1,912    —    —    1,912 
 Total  $153,032   $—   $—   $153,032 

  

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2017 
Soybean futures contracts  $108,600   $—   $—   $108,600 

 

53 

 

 

 

December 31, 2016 

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2016 
Cash equivalents  $185,661   $—   $—   $185,661 
Soybean futures contracts   357,500    —    —    357,500 
 Total  $543,161   $—   $—   $543,161 

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2016 
Soybean futures contracts  $12,025   $—   $—   $12,025 
                     

For the six months ended June 30, 2017 and year ended December 31, 2016, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

 

See the Fair Value - Definition and Hierarchy section in Note 3 above for an explanation of the transfers into and out of each level of the fair value hierarchy.

 

Note 5 – 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 the six months ended June 30, 2017 and year ended December 31, 2016, the Fund invested only in 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 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 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 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 statements of assets and liabilities as derivative contracts, categorized by primary underlying risk and held by the FCM, ED&F Man as of June 30, 2017 and December 31, 2016.

 

54

 

 

Offsetting of Financial Assets and Derivative Assets as of June 30, 2017

 

    (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   $ 1,912     $ —     $ 1,912     $ 1,912     $ —     $ —  

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2017

 

    (i)     (ii)     (iii) = (i) – (ii)     (iv)     (v) = (iii) – (iv)  
                               
                      Gross Amount Not Offset in the
Statement of Assets and Liabilities		        
Description   Gross Amount
of Recognized
Liabilities		     Gross Amount
Offset in the
Statement of
Assets and
Liabilities		     Net Amount
Presented in the
Statement of
Assets and
Liabilities		     Futures Contracts
Available for Offset		     Collateral, Due
from Broker		     Net Amount  
Commodity price                                    
Soybean futures contracts   $ 108,600     $ —     $ 108,600     $ 1,912     $ 106,688     $ —  

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 2016

 

    (i)     (ii)     (iii) = (i) – (ii)     (iv)     (v) = (iii) – (iv)  
                               
                      Gross Amount Not Offset in the
Statement of Assets and Liabilities		        
Description   Gross Amount
of Recognized
Assets		     Gross Amount
Offset in the
Statement of
Assets and
Liabilities		     Net Amount
Presented in the
Statement of
Assets and
Liabilities		     Futures Contracts
Available for Offset		     Collateral, Due
to Broker		     Net Amount  
Commodity price                                    
Soybean futures contracts   $ 357,500     $ —     $ 357,500     $ 12,025     $ —     $ 345,475  

 

55

 

 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2016

 

    (i)   (ii)   (iii) = (i) –(ii)   (iv)   (v) = (iii) –(iv)  
                       
                      Gross Amount Not Offset in the
Statement of Assets and Liabilities		        
Description   Gross
Amount
of
Recognized
Liabilities		   Gross
Amount
Offset in the
Statement of
Assets and
Liabilities		   Net Amount
Presented in
the
Statement of
Assets and
Liabilities		   Futures Contracts
Available for Offset		   Collateral,
Due
from Broker		   Net Amount  
Commodity price                                      
Soybean futures contracts   $ 12,025   $ —   $ 12,025   $ 12,025   $ —   $ —  

 

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

 

Three months ended June 30, 2017

 

Primary Underlying Risk  Realized Loss on
Commodity Futures Contracts		   Net Change in Unrealized
Appreciation or Depreciation on
Commodity Futures Contracts		 
Commodity price        
Soybean futures contracts  $(311,413)  $378,988 

 

Three months ended June 30, 2016          

 

Primary Underlying Risk  Realized Gain on
Commodity Futures Contracts		   Net Change in Unrealized
Appreciation or Depreciation on
Commodity Futures Contracts		 
Commodity price        
Soybean futures contracts  $861,575   $1,246,300 

 

Six months ended June 30, 2017            

 

Primary Underlying Risk  Realized Gain on
Commodity Futures Contracts		   Net Change in Unrealized
Appreciation or Depreciation on
Commodity Futures Contracts		 
Commodity price        
Soybean futures contracts  $31,500   $(452,163)

 

Six months ended June 30, 2016

 

Primary Underlying Risk  Realized Gain on
Commodity Futures Contracts		   Net Change in Unrealized
Appreciation or Depreciation on
Commodity Futures Contracts		 
Commodity price        
Soybean futures contracts  $961,900   $1,590,925 

 

Volume of Derivative Activities

 

The average notional market value categorized by primary underlying risk for all futures contracts held was $11.6 million and $11.8 million for the three and six months ended June 30, 2017 and $12.5 million and $11 million for the three and six months ended June 30, 2016.

 

56

 

 

Note 6 – Financial Highlights

 

The following tables present per unit performance data and other supplemental financial data for the three and six months ended June 30, 2017 and 2016. This information has been derived from information presented in the financial statements. This information has been derived from information presented in the financial statements and is presented with total expenses gross of expenses waived by the Sponsor and with total expenses net of expenses waived by the Sponsor, as appropriate.

 

Per Share Operation Performance 

Three months 

ended
June 30, 2017

  

Three months 

ended
June 30, 2016

  

Six months
ended
June 30,
2017

  

Six months

ended
June 30, 2016

 
Net asset value at beginning of period  $18.11   $18.02   $19.08   $17.34 
Income (loss) from investment operations:                    
Investment Income   0.05    0.03    0.09    0.05 
Net realized and unrealized gain (loss) on commodity futures contracts   0.10    3.52    (0.73)   4.36 
Total expenses   (0.16)   (0.20)   (0.34)   (0.38)
Net (decrease) increase in net asset value  $(0.01)  $3.35    (0.98)   4.03 
Net asset value at end of period   18.10    21.37   $18.10   $21.37 
Total Return   (0.06)%   18.59%   (5.14)%   23.24%
Ratios to Average Net Assets (Annualized)                    
Total expenses   4.09%   4.03%   4.07%   4.04%
Total expenses, net   3.67%   4.03%   3.62%   4.04%
Net investment loss   (2.58)%   (3.50)%   (2.67)%   (3.51)%

 

The financial highlights per share data are calculated consistent with the methodology used to calculate asset-based fees and expenses.

 

Note 7 – Organizational and Offering Costs 

 

Expenses incurred in organizing of the Trust and the initial offering of the Shares of the Fund, including applicable SEC registration fees were borne directly by the Sponsor. The Fund will not be obligated to reimburse the Sponsor.

 

Note 8 – Subsequent Events

 

Management has evaluated the financial statements for the quarter-ended June 30, 2017 for subsequent events through the date of this filing and noted no material events requiring either recognition through the date of the filing or disclosure herein for the Fund.

 

57

 

  

TEUCRIUM SUGAR FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

   June 30, 2017   December 31, 2016 
    (Unaudited)      
Assets          
Cash and cash equivalents  $7,367,453   $5,016,531 
Interest receivable   82    51 
Restricted cash   33,068    74,068 
Other assets   32,721    4,435 
Equity in trading accounts:          
Commodity futures contracts   48,317    185,147 
Due from broker   1,502,872    565,281 
Total equity in trading accounts   1,551,189    750,428 
Total assets   8,984,513    5,845,513 
           
Liabilities          
Management fee payable to Sponsor   6,433    — 
Equity in trading accounts:          
Commodity futures contracts   785,669    331,542 
Total liabilities   792,102    331,542 
           
Net assets  $8,192,411   $5,513,971 
           
Shares outstanding   850,004    425,004 
           
Net asset value per share  $9.64   $12.97 
           
Market value per share  $9.63   $13.00 

 

The accompanying notes are an integral part of these financial statements.

 

58

 

 

TEUCRIUM SUGAR FUND 

SCHEDULE OF INVESTMENTS 

June 30, 2017

 

(Unaudited)

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
Fidelity Institutional Money Market Funds - Government Portfolio (cost $4,677)  $4,677    0.06%   4,677 
                
             Notional Amount
(Long Exposure)		 
Commodity futures contracts               
United States sugar futures contracts               
   ICE sugar futures MAY18 (152 contracts)  $48,317    0.59%  $2,468,480 
                
Description: Liabilities  Fair Value    Percentage of
Net Assets		   Notional Amount
(Long Exposure)		 
                
 Commodity futures contracts               
 United States sugar futures contracts               
   ICE sugar futures MAR18 (177 contracts)  $525,706    6.42%  $2,868,533 
   ICE sugar futures MAR19 (164 contracts)   259,963    3.17    2,823,161 
Total commodity futures contracts  $785,669    9.59%  $5,691,694 

  

The accompanying notes are an integral part of these financial statements.

 

59 

 

 

TEUCRIUM SUGAR FUND

SCHEDULE OF INVESTMENTS

December 31, 2016

 

       Percentage of     
Description: Assets  Fair Value   Net Assets   Shares 
             
Cash equivalents               
Money market funds               
Fidelity Investments Money Market Funds - Government Portfolio (cost $125,182)  $125,182   2.27%   125,182 
                
             Notional Amount 
             (Long Exposure) 
Commodity futures contracts               
United States sugar futures contracts               
ICE sugar futures MAR18 (93 contracts)  $185,147    3.36%  $1,935,293 
                
         Percentage of   Notional Amount 
Description: Liabilities   Fair Value    Net Assets   (Long Exposure) 
                
Commodity futures contracts               
United States sugar futures contracts               
ICE sugar futures MAY17 (89 contracts)  $105,829    1.92%  $1,918,840 
ICE sugar futures JUL17 (79 contracts)   225,713    4.09    1,667,848 
Total commodity futures contracts  $331,542    6.01%  $3,586,688 

  

The accompanying notes are an integral part of these financial statements.

 

60

 

 

TEUCRIUM SUGAR FUND 

STATEMENTS OF OPERATIONS

(Unaudited)

  

   Three months ended   Three months ended   Six months
ended		   Six months
ended		 
   June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized (loss) gain on commodity futures contracts  $(1,381,867)  $1,010,632   $(1,588,115)  $1,008,874 
Net change in unrealized appreciation or depreciation on commodity futures contracts   (214,032)   325,998    (590,957)   323,523 
Interest income   19,921    7,671    30,851    13,532 
         Total (loss) income   (1,575,978)   1,344,301    (2,148,221)   1,345,929 
                     
Expenses