Derivative Commodity Instruments Derivative Commodity Instruments

9 Months Ended

Sep. 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 nine months ended September 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 nine months ended September 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 7.6 million gallons and 18.0 million pounds of commodities as of September 30, 2020 and 39.1 million gallons and 93.0 million pounds of commodities as of December 31, 2019.

At September 30, 2020, the fair value of these derivative instruments recorded as accrued liabilities was $1,147. 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 $2,539 and $306, respectively, for the three months ended September 30, 2020 and losses recognized in net sales and cost of sales were $6,801 and $1,294, respectively, for the three months ended September 30, 2019. The losses recognized in net sales and gains recognized in cost of sales related to derivatives were $384 and $150, respectively, for the nine months ended September 30, 2020 and losses recognized in net sales and cost of sales related to derivatives were $4,375 and $2,678, respectively, for the nine months ended September 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.