Teucrium Commodity Trust 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk   Market Risk   The discussion and analysis which follows may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. Words such as “ anticipate, ” “ expect, ” “ intend, ” “ plan, ” “ believe, ” “ seek, ” “ outlook ” and “ estimate, ” as well as similar words and phrases, signify forward-looking statements. The Trust ’ s forward-looking statements are not guarantees of future results and conditions, and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements.   You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, the Sponsor undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.   Trading in Commodity and Cryptocurrency Interests such as Futures Contracts will involve the Funds entering into contractual commitments to purchase or sell specific amounts of commodities or cryptocurrencies at a specified date in the future. The gross or face amount of the contracts is expected to significantly exceed the future cash requirements of each Fund as each Fund intends to close out any open positions prior to the contractual expiration date. As a result, each Fund’s market risk is the risk of loss arising from the decline in value of the contracts, not from the need to make delivery under the contracts. The Funds consider the “fair value” of derivative instruments to be the unrealized gain or loss on the contracts. The market risk associated with the commitment by the Funds to purchase a specific commodity or cryptocurrency will be limited to the aggregate face amount of the contacts held.   The exposure of the Funds to market risk will depend primarily on the market price of the specific commodities or cryptocurrency held by the Fund. The market price of the commodities or cryptocurrency depends in part on the volatility of interest rates and foreign exchange rates and the liquidity of the commodity or cryptocurrency specific markets. TAGS is subject to the risks of the commodity specific futures contracts of the Underlying Funds as the fair value of its holdings is based on the NAV of each of the Underlying Funds, each of which is directly impacted by the factors discussed above.   The tables below present a quantitative analysis of hypothetical impact of price decreases and increases in each of the commodity or cryptocurrency futures contracts held by each of the Funds, or the Underlying Funds in the case of TAGS, on the actual holdings and NAV per share as of June 30, 2023. For purposes of this analysis, all futures contracts held by the Funds and the Underlying Funds are assumed to change by the same percentage. In addition, the cash held by the Funds and any management fees paid to the Sponsor are assumed to remain constant and not impact the NAV per share. There may be very slight and immaterial differences, due to rounding, in the tables presented below.   CORN:       June 30, 2023 as Reported     10% Decrease     15% Decrease     20% Decrease     10% Increase     15% Increase     20% Increase   Holdings as of June 30, 2023   Number of Contracts Held     Closing Price     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount   CBOT Corn Futures SEP23     1,302     $ 4.8850     $ 31,801,350     $ 28,621,215     $ 27,031,148     $ 25,441,080     $ 34,981,485     $ 36,571,553     $ 38,161,620   CBOT Corn Futures DEC23     1,104     $ 4.9475     $ 27,310,200     $ 24,579,180     $ 23,213,670     $ 21,848,160     $ 30,041,220     $ 31,406,730     $ 32,772,240   CBOT Corn Futures DEC24     1,356     $ 4.9675     $ 33,679,650     $ 30,311,685     $ 28,627,703     $ 26,943,720     $ 37,047,615     $ 38,731,598     $ 40,415,580   Total CBOT Corn Futures                   $ 92,791,200     $ 83,512,080     $ 78,872,521     $ 74,232,960     $ 102,070,320     $ 106,709,881     $ 111,349,440                                                                             Shares outstanding                     4,175,004       4,175,004       4,175,004       4,175,004       4,175,004       4,175,004       4,175,004                                                                             Net Asset Value per Share attributable directly to CBOT Corn Futures                   $ 22.23     $ 20.00     $ 18.89     $ 17.78     $ 24.45     $ 25.56     $ 26.67   Total Net Asset Value per Share as reported                   $ 22.22                                                   Change in the Net Asset Value per Share                           $ (2.22 )   $ (3.33 )   $ (4.45 )   $ 2.22     $ 3.33     $ 4.45                                                                             Percent Change in the Net Asset Value per Share                             -10.00 %     -15.00 %     -20.00 %     10.00 %     15.00 %     20.00 %   50 Table of Contents   SOYB:       June 30, 2023 as Reported     10% Decrease     15% Decrease     20% Decrease     10% Increase     15% Increase     20% Increase   Holdings as of June 30, 2023   Number of Contracts Held     Closing Price     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount   CBOT Soybean Futures NOV23     197     $ 13.4325     $ 13,231,013     $ 11,907,912     $ 11,246,361     $ 10,584,810     $ 14,554,114     $ 15,215,665     $ 15,877,216   CBOT Soybean Futures JAN24     167     $ 13.4675     $ 11,245,363     $ 10,120,827     $ 9,558,559     $ 8,996,290     $ 12,369,899     $ 12,932,167     $ 13,494,436   CBOT Soybean Futures NOV24     206     $ 12.0675     $ 12,429,525     $ 11,186,573     $ 10,565,096     $ 9,943,620     $ 13,672,478     $ 14,293,954     $ 14,915,430   Total CBOT Soybean Futures                   $ 36,905,901     $ 33,215,312     $ 31,370,016     $ 29,524,720     $ 40,596,491     $ 42,441,786     $ 44,287,082                                                                             Shares outstanding                     1,350,004       1,350,004       1,350,004       1,350,004       1,350,004       1,350,004       1,350,004                                                                             Net Asset Value per Share attributable directly to CBOT Soybean Futures                   $ 27.34     $ 24.60     $ 23.24     $ 21.87     $ 30.07     $ 31.44     $ 32.81   Total Net Asset Value per Share as reported                   $ 27.33                                                   Change in the Net Asset Value per Share                           $ (2.73 )   $ (4.10 )   $ (5.47 )   $ 2.73     $ 4.10     $ 5.47                                                                             Percent Change in the Net Asset Value per Share                             -10.00 %     -15.00 %     -20.01 %     10.00 %     15.00 %     20.01 %   CANE:       June 30, 2023 as Reported     10% Decrease     15% Decrease     20% Decrease     10% Increase     15% Increase     20% Increase   Holdings as of June 30, 2023   Number of Contracts Held     Closing Price     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount   ICE #11 Sugar Futures MAR24     317     $ 0.2289     $ 8,126,865     $ 7,314,179     $ 6,907,835     $ 6,501,492     $ 8,939,552     $ 9,345,895     $ 9,752,238   ICE #11 Sugar Futures MAY24     287     $ 0.2164     $ 6,955,962     $ 6,260,366     $ 5,912,568     $ 5,564,770     $ 7,651,558     $ 7,999,356     $ 8,347,154   ICE #11 Sugar Futures MAR25     348     $ 0.2081     $ 8,110,906     $ 7,299,815     $ 6,894,270     $ 6,488,725     $ 8,921,997     $ 9,327,542     $ 9,733,087   Total ICE #11 Sugar Futures                   $ 23,193,733     $ 20,874,360     $ 19,714,673     $ 18,554,987     $ 25,513,107     $ 26,672,793     $ 27,832,479                                                                             Shares outstanding                     1,825,004       1,825,004       1,825,004       1,825,004       1,825,004       1,825,004       1,825,004                                                                             Net Asset Value per Share attributable directly to ICE #11 Sugar Futures                   $ 12.71     $ 11.44     $ 10.80     $ 10.17     $ 13.98     $ 14.62     $ 15.25   Total Net Asset Value per Share as reported                   $ 12.70                                                   Change in the Net Asset Value per Share                           $ (1.27 )   $ (1.91 )   $ (2.54 )   $ 1.27     $ 1.91     $ 2.54                                                                             Percent Change in the Net Asset Value per Share                             -10.01 %     -15.01 %     -20.01 %     10.01 %     15.01 %     20.01 %   51 Table of Contents   WEAT:         June 30, 2023 as Reported     10% Decrease     15% Decrease     20% Decrease     10% Increase     15% Increase     20% Increase   Holdings as of June 30, 2023   Number of Contracts Held     Closing Price     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount   CBOT Wheat Futures SEP23     1,760     $ 6.5100     $ 57,288,000     $ 51,559,200     $ 48,694,800     $ 45,830,400     $ 63,016,800     $ 65,881,200     $ 68,745,600   CBOT Wheat Futures DEC23     1,471     $ 6.6925     $ 49,223,338     $ 44,301,004     $ 41,839,837     $ 39,378,670     $ 54,145,672     $ 56,606,839     $ 59,068,006   CBOT Wheat Futures DEC24     1,622     $ 7.1475     $ 57,966,225     $ 52,169,603     $ 49,271,291     $ 46,372,980     $ 63,762,848     $ 66,661,159     $ 69,559,470   Total CBOT Wheat Futures                   $ 164,477,563     $ 148,029,807     $ 139,805,928     $ 131,582,050     $ 180,925,320     $ 189,149,198     $ 197,373,076                                                                             Shares outstanding                     25,450,004       25,450,004       25,450,004       25,450,004       25,450,004       25,450,004       25,450,004                                                                             Net Asset Value per Share attributable directly to CBOT Wheat Futures                   $ 6.46     $ 5.82     $ 5.49     $ 5.17     $ 7.11     $ 7.43     $ 7.76   Total Net Asset Value per Share as reported                   $ 6.46                                                   Change in the Net Asset Value per Share                           $ (0.65 )   $ (0.97 )   $ (1.29 )   $ 0.65     $ 0.97     $ 1.29                                                                             Percent Change in the Net Asset Value per Share                             -10.00 %     -15.00 %     -20.00 %     10.00 %     15.00 %     20.00 %   TAGS:       June 30, 2023 as Reported     10% Decrease     15% Decrease     20% Decrease     10% Increase     15% Increase     20% Increase   Holdings as of June 30, 2023   Number of Shares Held     Closing NAV     Fair Value     Fair Value     Fair Value     Fair Value     Fair Value     Fair Value     Fair Value   Teucrium Corn Fund     252,559     $ 22.2220     $ 5,612,366     $ 5,051,129     $ 4,770,511     $ 4,489,893     $ 6,173,603     $ 6,454,221     $ 6,734,839   Teucrium Soybean Fund     230,720     $ 27.3292     $ 6,305,393     $ 5,674,854     $ 5,359,584     $ 5,044,314     $ 6,935,932     $ 7,251,202     $ 7,566,472   Teucrium Wheat Fund     903,597     $ 6.4617     $ 5,838,773     $ 5,254,896     $ 4,962,957     $ 4,671,018     $ 6,422,650     $ 6,714,589     $ 7,006,528   Teucrium Sugar Fund     481,279     $ 12.7011     $ 6,112,821     $ 5,501,539     $ 5,195,898     $ 4,890,257     $ 6,724,103     $ 7,029,744     $ 7,335,385   Total value of shares of the Underlying Funds                   $ 23,869,353     $ 21,482,418     $ 20,288,950     $ 19,095,482     $ 26,256,288     $ 27,449,756     $ 28,643,224                                                                             Shares outstanding                     787,502       787,502       787,502       787,502       787,502       787,502       787,502                                                                             Net Asset Value per Share attributable directly to shares of the Underlying Funds                   $ 30.31     $ 27.28     $ 25.76     $ 24.25     $ 33.34     $ 34.86     $ 36.37   Total Net Asset Value per Share as reported                   $ 30.33                                                   Change in the Net Asset Value per Share                           $ (3.03 )   $ (4.55 )   $ (6.06 )   $ 3.03     $ 4.55     $ 6.06                                                                             Percent Change in the Net Asset Value per Share                             -9.99 %     -14.99 %     -19.99 %     9.99 %     14.99 %     19.99 %   52 Table of Contents   DEFI:       June 30, 2023 as Reported     10% Decrease     15% Decrease     20% Decrease     10% Increase     15% Increase     20% Increase   Holdings as of June 30, 2023   Number of Contracts Held     Closing Price     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount     Notional Amount   CME Bitcoin Futures JUL23     6     $ 306.8000     $ 920,400     $ 828,360     $ 782,340     $ 736,320     $ 1,012,440     $ 1,058,460     $ 1,104,480   CME Bitcoin Futures AUG23     7     $ 309.5500     $ 1,083,425     $ 975,083     $ 920,911     $ 866,740     $ 1,191,768     $ 1,245,939     $ 1,300,110   Total CME Bitcoin Futures                   $ 2,003,825     $ 1,803,443     $ 1,703,251     $ 1,603,060     $ 2,204,208     $ 2,304,399     $ 2,404,590                                                                             Shares outstanding                     50,004       50,004       50,004       50,004       50,004       50,004       50,004                                                                             Net Asset Value per Share attributable directly to CME Bitcoin Futures                   $ 40.07     $ 36.07     $ 34.06     $ 32.06     $ 44.08     $ 46.08     $ 48.09   Total Net Asset Value per Share as reported                   $ 38.78                                                   Change in the Net Asset Value per Share                           $ (4.01 )   $ (6.01 )   $ (8.01 )   $ 4.01     $ 6.01     $ 8.01                                                                             Percent Change in the Net Asset Value per Share                             -10.33 %     -15.50 %     -20.67 %     10.33 %     15.50 %     20.67 %   Margin is the minimum amount of funds that must be deposited by a commodity or cryptocurrency 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 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 or cryptocurrency interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. An FCM may impose a financial ceiling on initial margin that could change and become more or less restrictive on a Fund’s activities depending upon a variety of conditions beyond the Sponsor’s control. 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 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.   53 Table of Contents   The Dodd-Frank Act requires the CFTC, the SEC and the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit System and the Federal Housing Finance Agency (collectively, the “Prudential Regulators”) to establish “both initial and variation margin requirements on all swaps that are not cleared by a registered clearing organization” (i.e., uncleared or over the counter swaps). The proposed rules would require swap dealers and major swap participants to collect both variation and initial margin from counterparties known as “financial end-users” such as the Funds or Underlying Funds and in certain circumstances require these swap dealers or major swap participants to post variation margin or initial margin to the Funds or Underlying Funds. The CFTC and the Prudential Regulators finalized these rules in 2016 and compliance became necessary in September 2016.   An “exchange for related position” (“EFRP”) can be used by the Fund as a technique to facilitate the exchanging of a futures hedge position against a creation or redemption order, and thus the Fund may use an EFRP transaction in connection with the creation and redemption of shares. The market specialist/market maker that is the ultimate purchaser or seller of shares in connection with the creation or redemption basket, respectively, agrees to sell or purchase a corresponding offsetting futures position which is then settled on the same business day as a cleared futures transaction by the FCMs. The Fund will become subject to the credit risk of the market specialist/market maker until the EFRP is settled within the business day, which is typically 7 hours or less. The Fund reports all activity related to EFRP transactions under the procedures and guidelines of the CFTC and the exchanges on which the futures are traded.   The Funds, other than TAGS and DEFI, will generally retain cash positions of approximately 95% of total net assets; this balance represents the total net assets less the initial margin requirements held by the FCM. DEFI will generally retain cash positions of approximately 70% of total net assets. These cash assets are either: 1) deposited by the Sponsor in demand deposit accounts of financial institutions which are deemed by the Sponsor to be of investment level quality, 2) held in a money-market fund which is deemed to be a cash equivalent under the most recent SEC definition, or 3) held in a cash equivalent with a maturity of 90 days or less that is deemed by the Sponsor to be of investment level quality.