Derivative Commodity Instruments Derivative Commodity Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Commodity Instruments

Derivative Commodity Instruments

From time to time, the Partnership uses derivative instruments to reduce price volatility risk on commodities, primarily ethane and ethylene. The Partnership does not use derivative instruments to engage in speculative activities.

The Partnership had no derivatives that were designated as fair value hedges during the six months ended June 30, 2020 and 2019.

Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in net sales and cost of sales in the consolidated statements of operations for the six months ended June 30, 2020 and 2019.

The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market price declines below the established fixed price. In such case, the Partnership would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Partnership would continue to receive the market price on the actual volume hedge. The Partnership also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty). The Partnership had non-hedge designated derivatives covering approximately 15.1 million gallons and 36.0 million pounds of commodities as of June 30, 2020 and 39.1 million gallons and 93.0 million pounds of commodities as of December 31, 2019.

At June 30, 2020, the fair values of these derivative instruments recorded as accrued liabilities and accounts receivable, net were $385 and $810, respectively. At December 31, 2019, the fair values of these derivative instruments recorded as accrued liabilities and accounts receivable, net were $1,959 and $597, respectively. The losses recognized in net sales and gains recognized in cost of sales related to derivatives were $1,199 and $1,291, respectively, for the three months ended June 30, 2020 and gains recognized in net sales and losses recognized in cost of sales were $215 and $504, respectively, for the three months ended June 30, 2019. The gains recognized in net sales and losses recognized in cost of sales related to derivatives were $2,155 and $157, respectively, for the six months ended June 30, 2020 and $2,426 and $1,384, respectively, for the six months ended June 30, 2019.

The Partnership's commodity contracts are measured using forward curves supplied by industry recognized sources and unrelated third-party services and classified as Level 2 under the fair value measurement guidance.