Grains in a Portfolio

Transcription

1 Grains in a Portfolio

2 Disclosures & Disclaimers The information contained herein reflects the views of Teucrium Trading as of January 1, Investing in a Fund subjects an investor to the risks of the applicable commodity market, which investment could result in substantial fluctuations in the price of Fund shares. Unlike mutual funds, the Funds generally will not distribute dividends to shareholders. The Sponsor has limited experience operating commodity pools; a commodity pool is defined as an enterprise in which several individuals contribute funds in order to trade futures or futures options collectively. Investors may choose to use a Fund as a vehicle to hedge against the risk of loss, and there are risks involved in hedging activities. Commodities and futures generally are volatile, and instruments whose underlying investments include commodities and futures are not suitable for all investors. The Funds are not mutual funds or any other type of investment company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. For a complete description of the risks associated with the Funds, please refer to the applicable prospectus. This material is not an offer or solicitation of any kind to buy or sell any securities outside of the United States of America. Shares of the Funds are not FDIC insured may lose value and have no bank guarantee. Foreside Fund Services, LLC is the distributor for the Teucrium Funds. The Teucrium Funds have a patent on the methodology employed by the Funds. Please read the prospectus carefully before investing or sending money. A copy of the current prospectus for each Teucrium Fund may be accessed at the links below: CORN: CANE: SOYB: WEAT: TAGS: 1

3 Commodities & The S&P 500 Correlation Coefficients of 13 Commodities to the S&P 500 A 20 Year Look 1/1/ /31/2017 Sources: Charts were prepared by Teucrium Trading, LLC, using Bloomberg Professional, January 3 rd, 2018 Note: Commodities values are from futures (generic first) spot continuation charts. See Appendices for more details on Commodities used in this comparison. S&P 500 Index taken from Bloomberg: SPX Index This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2

4 Population Growth Fuels Grain Demand Global population increases by about 2.5 people every second Source: Analysis & corresponding graphics were prepared by Teucrium Trading, LLC Data: Food and Agriculture Organization of the United Nations Projections. 3

5 Visualizing Annual Population Increase Which means an additional 148 people per minute and about 78 million people per year Source: Analysis & corresponding graphics were prepared by Teucrium Trading, LLC, using data from the US Census Bureau PopClock Projections. 4

6 Land Needed to offset 1 Year of Population Increase Which means that the planet needs about an additional 13.8 million acres to be put into production each year That s a little over 1/8 th the size of California and about ½ of the California land currently used for agricultural crops.¹ Source: Analysis & corresponding graphics were prepared by Teucrium Trading, LLC, using data as reported per the USDA on the January 12, 2017 World Agricultural Supply & Demand Report. ¹ 5

7 Wheat / Corn / Soybean Total Combined Consumption & Production Chart: DC Analysis LLC, using data from USDA through September 21, Used with permission from DC Analysis. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. The information and data contained herein do not constitute investment advice offered by Teucrium Trading, LLC and are provided solely for informational purposes. 6

8 The Pervasiveness of Grains Corn in the Gas Station Source: 7

9 The Emerging Middle Class in Developing Countries Source: Kharas, Homi. The Emerging Middle Class in Developing Countries. World Bank. June Brookings Institution. Slide 9. Web. Aug. 20, *Kharas defines the global middle class as those households with daily expenditures between USD10 and USD100 per person in purchasing power parity terms Hence, it is implied that Poor is defined as those households with daily expenditures less than USD10 per person in purchasing power parity terms, and Rich is defined as those households with daily expenditures greater than USD100 per person in purchasing power parity terms. 8

10 The Opportunities in Corn Why Corn? Corn is the largest of U.S. agricultural commodities¹, used throughout global economy as food, fuel, starch, sweeteners and plastics. Corn s largest global use is animal feed, such as livestock. Corn supplies are highly unpredictable, subject to weather and crop failures with only 1 harvest per year The carry-out day s supply* for the U.S. corn crop is estimated to be 61.4 days for the 2017/18 crop year, compared to 59 days for the 2016/17 crop year² Corn inventories are perishable with nearly 100% of the crop consumed each year and only 19% projected excess inventory (carry-out supply) in the U.S. for 2017/18 crop year, compared to 16% for the 2016/17 crop year³ Sources: Graphs: *Carry-out day s supply is defined herein as domestic corn ending stocks divided by domestic demand per day. 1. Agricultural Statistics Service Crop Production 2016 Summary released January 12, & 3. USDA World Agricultural Supply and Demand Estimates released December 12,

11 Why Investment Opportunities Exist in Agriculture Corn/Sugar/Wheat/Soybeans interrelated Increasing usage by global middle class Relative inelasticity of demand Competition for arable land & water Inherent supply uncertainties Corn Livestock Feed Ethanol / Gasoline Starch / Sugars Sugar Ethanol Human Consumption Bio-Plastics Wheat Human Consumption Livestock Feed Ethanol / Alcohol Production Soybeans Human Consumption Livestock Feed Bio-Fuel Source: Analysis & corresponding graphics were prepared by Teucrium Trading, LLC Data: Food and Agriculture Organization of the United Nations Projections. 10

12 The Corn Futures Market - A 20 Year Review Chart: Bloomberg Professional as of 01/03/18, using data through 12/29/2017. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. The information and data contained herein do not constitute investment advice offered by Teucrium Trading, LLC and are provided solely for informational purposes. For this purpose, corn commodity values are representative of the futures (generic first corn futures contract - <C 1 Comdty>) spot continuation chart as defined by and sourced on Bloomberg: Generic contracts, such as C 1, C 2, C 3,..., are constructed by pasting together "rolling" contracts, according to the pre-selected roll types on the commodity default page. The generic contract uses the value of a particular contract month until it "rolls" to the next month in the series. You can access a generic contract by replacing the month/year code with the number 1, i.e. C 1<CMDTY>. Replacing the month/year code with the number 1 will yield the spot contract. Prices are expressed in 1/100 th of $1, i.e /4 = $

13 The Corn Futures Market - A 10 Year Review Chart: Bloomberg Professional as of 01/03/18, using data through 12/29/2017. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. The information and data contained herein do not constitute investment advice offered by Teucrium Trading, LLC and are provided solely for informational purposes. For this purpose, corn commodity values are representative of the futures (generic first corn futures contract - <C 1 Comdty>) spot continuation chart as defined by and sourced on Bloomberg: Generic contracts, such as C 1, C 2, C 3,..., are constructed by pasting together "rolling" contracts, according to the pre-selected roll types on the commodity default page. The generic contract uses the value of a particular contract month until it "rolls" to the next month in the series. You can access a generic contract by replacing the month/year code with the number 1, i.e. C 1<CMDTY>. Replacing the month/year code with the number 1 will yield the spot contract. Prices are expressed in 1/100 th of $1, i.e /4 = $

14 The Soybean Futures Market - A 10 Year Review Chart: Bloomberg Professional as of 01/03/18, using data through 12/29/2017. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. The information and data contained herein do not constitute investment advice offered by Teucrium Trading, LLC and are provided solely for informational purposes. For this purpose, soybean commodity values are representative of the futures (generic first wheat futures contract - <S 1 Comdty>) spot continuation chart as defined by and sourced on Bloomberg: Generic contracts, such as S 1, S 2, S 3,..., are constructed by pasting together "rolling" contracts, according to the pre-selected roll types on the commodity default page. The generic contract uses the value of a particular contract month until it "rolls" to the next month in the series. You can access a generic contract by replacing the month/year code with the number 1, i.e. S 1<CMDTY>. Replacing the month/year code with the number 1 will yield the spot contract. Prices are expressed in 1/100 th of $1, i.e /4 = $

15 The Corn Futures Market - An 12 Year Review Chart: Bloomberg Professional as of 10/17/18, using data through 09/28/2018. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. The information and data contained herein do not constitute investment advice offered by Teucrium Trading, LLC and are provided solely for informational purposes. For this purpose, corn commodity values are representative of the futures (generic first corn futures contract - <C 1 Comdty>) spot continuation chart as defined by and sourced on Bloomberg: Generic contracts, such as C 1, C 2, C 3,..., are constructed by pasting together "rolling" contracts, according to the pre-selected roll types on the commodity default page. The generic contract uses the value of a particular contract month until it "rolls" to the next month in the series. You can access a generic contract by replacing the month/year code with the number 1, i.e. C 1<CMDTY>. Replacing the month/year code with the number 1 will yield the spot contract. Prices are expressed in 1/100 th of $1, i.e /4 = $

16 Seasonal Price Patterns in Corn 20/30 Year Seasonal: CBOT Corn Futures Contract* Data from January 1, 1988 to December 29, 2017 Source: Signal Trading Group ( Used with permission. Past performance is not indicative of future results. *About the Data: The seasonal chart above provides a historic reference of past trends for the corn market. Average prices over the 20 and 30 year periods are reflective of daily 1 st month (spot month) contract data from January 1, 1988 to December 29,

17 Seasonal Price Patterns of December Corn Futures Number of Annual Price Lows for the CBOT December Corn Futures Contract* Data from January 1, 1998 to December 31, 2017 Number of Annual Price Highs for the CBOT December Corn Futures Contract* Data from January 1, 1998 to December 31, 2017 Past performance is not indicative of future results Source: Analysis & corresponding charts were prepared by Teucrium Trading, LLC, using Bloomberg Professional, January 1, 2018 *About the Price Lows Data: The data reflects the total number of calendar year price lows set over a 20-year period, by quarter, for the corn futures contract expiring in December of the following calendar year, i.e. for the December corn futures contract expiring in 2017, we analyze the low price from *About the Price Highs Data: The data reflects the total number of calendar year price highs set over a 20-year period, by quarter, for the December corn futures contract expiring in the calendar year of its own expiration, i.e. for the December corn futures contract expiring in 2017, we analyze the high price from

18 The Wheat Futures Market - A 10 Year Review Chart: Bloomberg Professional as of 01/03/18, using data through 12/29/2017. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. The information and data contained herein do not constitute investment advice offered by Teucrium Trading, LLC and are provided solely for informational purposes. For this purpose, wheat commodity values are representative of the futures (generic first wheat futures contract - <W 1 Comdty>) spot continuation chart as defined by and sourced on Bloomberg: Generic contracts, such as W 1, W 2, W 3,..., are constructed by pasting together "rolling" contracts, according to the pre-selected roll types on the commodity default page. The generic contract uses the value of a particular contract month until it "rolls" to the next month in the series. You can access a generic contract by replacing the month/year code with the number 1, i.e. W 1<CMDTY>. Replacing the month/year code with the number 1 will yield the spot contract. Prices are expressed in 1/100 th of $1, i.e /4 = $

19 Why Hold Agricultural Commodities in a Portfolio? MACROECONOMIC FACTORS ARE AFFECTING AGRICULTURAL COMMODITIES Population driving agricultural demand growth Increased competition for arable land and water Increasing global middle class Relative inelasticity of demand Inherent supply uncertainties AGRICULTURAL COMMODITIES AS PORTFOLIO RISK DIVERSIFIERS Portfolio volatility & risk may be reduced with Agricultural Commodities Historically low correlations to the S&P 500 Time to Evaluate Your Agricultural Commodity Allocation? 18

20 Grains in a Portfolio 21

21 Appendix & Definitions 20

22 Appendix - Definitions Definition of Correlation 1: In the world of finance, a statistical measure of how two securities move in relation to each other. Investopedia defines 'Correlation as: Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. In real life, perfectly correlated securities are rare, rather you will find securities with some degree of correlation. Backwardation 1 : A market condition in which a futures price is lower in the distant delivery months than in the near delivery months. Contango 1 : A condition in which distant delivery prices for futures exceed spot prices, often due to the costs of storing and insuring the underlying commodity. Opposite of backwardation. Futures Curve 2 : A visual representation of the current prices of a commodity at future delivery dates plotted from the front contract out. A futures curve isn t a price forecast of where the price of the commodity is going but a representation of the current market as it shows the today s prices for future delivery points. Also known as a Forward Price Curve. Roll 1 : When an investor replaces an existing futures position with a new one having a later expiration date. Spot Month 1 : The nearest expiration and delivery month for futures contracts. Definition of Regression 1: A statistical measure that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables). Investopedia defines 'Regression as: The two basic types of regression are linear regression and multiple regression. Linear regression uses one independent variable to explain and/or predict the outcome of Y, while multiple regression uses two or more independent variables to predict the outcome. The general form of each type of regression is: S&P 500 Index 3: taken from Bloomberg: SPX Index - This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Stocks in this example are represented by the Standard & Poor's 500, which is an unmanaged group of securities and considered to be representative of the stock market in general. Sources: 1: 2: 3: Bloomberg Professional 21

23 Appendix - Description and Identification of Commodities Used In Correlation Analysis Commodity Exchange Bloomberg Code Generic 1st Sugar No. 11 future Intercontinental Exchange (ICE) SB1 Comdty Generic 1st Gold future Commodity Exchange Inc (COMEX) GC1 Comdty Generic 1st Soybean No. 2 Yellow future Chicago Board of Trade (CBOT) S 1 Comdty Generic 1st Corn No. 2 Yellow future Chicago Board of Trade (CBOT) C 1 Comdty Generic 1st Silver future Commodity Exchange Inc (COMEX) SI1 Comdty Generic 1st Palladium future New York Mercantile Exchange (NYMEX) PA1 Comdty Generic 1st No. 2 Soft Red Winter Wheat future Chicago Board of Trade (CBOT) W 1 Comdty Generic 1st Henry Hub Natural Gas future New York Mercantile Exchange (NYMEX) NG1 Comdty Generic 1st Platinum future New York Mercantile Exchange (NYMEX) PL1 Comdty Generic 1st WTI Crude Oil future New York Mercantile Exchange (NYMEX) CL1 Comdty Generic 1st Heating Oil No. 2 Fuel Oil New York Mercantile Exchange (NYMEX) HO1 Comdty Generic 1st Brent Crude Oil Intercontinental Exchange (ICE) CO1 Comdty Generic 1st Copper future Commodity Exchange Inc (COMEX) HG1 Comdty 22