Teucrium: Investor Education Series
Jake Hanley, Managing Director / Sr. Portfolio Strategist | March 2, 2022
This is the first in a series of short educational commentaries designed to help better educate the investing public at large.
Given the recent volatility in commodity markets in general, and grain markets in particular, we thought that a review of “Futures Price Limits,” would be a good place to start.
We will begin with a brief definition and then move on to explain why it matters to investors.
If you have any questions or if you have ideas for additional educational topics, please feel free to email them to us at contact@teucrium.com
Thank you.
Grain Futures Price Limits
A futures price limit is set by the listing futures exchange and is the maximum range that a futures contract is allowed to move up or down during a trading day. CBOT (Chicago Board of Trade) grain futures, for instance, have fixed daily price limits that are reviewed and established in May or November of each year. Prices cannot trade beyond the established daily price limit. When two consecutive contracts close at the limit price (i.e. they are “locked limit), the exchange can expand the limit for the next trading day. For grains, the expanded limit is generally 150%. The limits will revert back to fixed levels if prices do not lock limit during the session with the expanded range.
Futures contracts in other markets have different types of limit structures such as, Dynamic Price Limits, Circuit breakers, or in the case of ICE #11 Sugar, no daily price limit at all.
Why it Matters (Teucrium Wheat Fund for Example)
The Teucrium Wheat Fund, ticker: WEAT, invests in wheat futures contracts traded on the CME (Chicago Mercantile Exchange). On volatile days it is possible for wheat futures contracts to reach a price limit. If prices reach limit and fail to reverse during the session, the contract is said to be “locked limit.” Note that trade can continue at the limit price for the remainder of the session.
The Teucrium WEAT Fund is traded on the New York Stock Exchange (NYSE). Therefore, if futures prices hit limit(s) during stock market trading hours, you will, under normal circumstances, still be able to transact in WEAT.
Importantly, in such times when futures are locked limit, the net asset value of the fund may not accurately reflect the fair value of the underlying holdings. This is because the net asset value is based on the limit price.
About Teucrium
Our mission is to make it easier for investors to gain price exposure to alternative investments. We believe investors can build more resilient portfolios by diversifying across capital markets and allocating to a variety of different asset classes.
Listed on the New York Stock Exchange, our funds deliver alternative market access through a brokerage account.
Experience Matters
The Teucrium Team has over 70 years of combined trading experience. Since our founding in 2010 Teucrium has exclusively offered access to alternative markets through ETFs. We revolutionized the way commodity ETFs are structured by tailoring our funds according to the unique characteristics of each underlying market.
Financial markets are ever evolving, and investors are constantly seeking better access to diverse markets and strategies. Teucrium continues to research and develop new products to further our mission of making alternative markets more easily accessible.