The Company uses hedging programs to manage price risk associated with commodity purchases and interest rates. These programs utilize futures, swaps, and options contracts to manage the Company’s exposure to market fluctuations. The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged. Effectiveness testing is performed on a quarterly basis to ascertain a high level of effectiveness for cash flow and fair value hedging programs.

Cash Flow Commodity Hedges: The Company designates grain and lean hog futures, swaps, and options used to offset price fluctuations in the Company’s future direct grain and hog purchases as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in Accumulated Other Comprehensive Loss (AOCL) and reclassified into earnings, through Cost of Products Sold, in the periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year.

Fair Value Commodity Hedges: The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges. The intent of the program is to

make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. Changes in the fair value of the futures contracts, along with the gain or loss on the hedged purchase commitment, are marked-to-market through earnings and recorded on the Consolidated Condensed Statements of Financial Position as a Current Asset and Current Liability, respectively. Effective gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the periods in which the hedged transactions affect earnings.

Cash Flow Interest Rate Hedges: In the second quarter of fiscal 2021, the Company designated two separate interest rate locks as cash flow hedges to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters® snack nuts business. The total notional amount of the Company's locks was $1.25 billion. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of seven and thirty years and both locks were lifted (See Note J - Long-term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL. The resulting gain in AOCL is reclassified to Interest Expense in the periods in which the hedged transactions affect earnings.

Fair Value Interest Rate Hedge: In the first quarter of fiscal 2022, the Company entered into an interest rate swap to protect against changes in the fair value of a portion of previously issued senior unsecured notes attributable to the change in the benchmark interest rate. The hedge specifically designates the last $450 million of the notes due June 2024 (the “2024 Notes”). The swap compounds quarterly and settles semi-annually with gains and losses recognized in earnings through interest expense. Mark-to-market changes in the fair value of the interest rate swap and hedged debt are also recognized as interest expense.

Other Derivatives: The Company holds certain futures contract positions as part of a merchandising program and to manage the Company’s exposure to fluctuations in commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.

Gross Fair Value

in thousands

Location on Consolidated Condensed Statements of Financial Position

January 30, 2022

October 31, 2021

Derivatives Designated as Hedges:

Commodity Contracts(1)

Other Current Assets

27,819

21,798

Interest Rate Contracts

Interest and Dividends Payable

(4,949)

—

(1) Amounts represent the gross fair value of commodity derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The amount or timing of cash collateral balances may impact the classification of the commodity derivative in the Consolidated Condensed Statements of Financial Position. The gross asset position as of January 30, 2022 is offset by the obligation to return net cash collateral of $16.8 million contained within the master netting arrangement. The gross asset position as of October 31, 2021 is offset by the obligation to return net cash collateral of $10.8 million. See Note I - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Condensed Statements of Financial Position.

Carrying Amount of Hedged
Assets/(Liabilities)

in thousands

Location on Consolidated Condensed Statements of Financial Position

January 30, 2022

October 31, 2021

Fair Value Hedges:

Commodity Contracts

Accounts Payable(1)

8,262

3,432

Interest Rate Contracts

Long-term Debt - Less Current Maturities(2)

(445,051)

—

(2) Represents the carrying amount of the hedged portion of the "2024 Notes". As of January 30, 2022, a cumulative basis adjustment of $4.9 million has been included in the carrying amount.

Accumulated Other Comprehensive Loss Impact: As of January 30, 2022, the Company included in AOCL hedging gains (before tax) of $43.3 million on commodity contracts and $14.2 million related to interest rate settled positions. The Company expects to recognize the majority of the gains on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the debt instruments.


	Gain/(Loss) Recognized in AOCL (1)				Gain/(Loss) Reclassified from AOCL into Earnings (1)				Location on Consolidated Statements of Operations
	Quarter Ended				Quarter Ended
in thousands	January 30, 2022		January 24, 2021		January 30, 2022		January 24, 2021
Cash Flow Hedges:
Commodity Contracts	$	20,279	$	16,552	$	7,746	$	(50)	Cost of Products Sold
Excluded Component (2)	(1,172)		—		—		—
Interest Rate Contracts	—		—		247		—		Interest Expense

(2) Represents the time value of corn options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.

Consolidated Statements of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax) related to the Company's derivative instruments are:


	Consolidated Statements of Operations Impact
	Quarter Ended
in thousands	January 30, 2022		January 24, 2021
Net Earnings Attributable to Hormel Foods Corporation	$	239,571	$	222,283

Cash Flow Hedges - Commodity Contracts
Gain (Loss) Reclassified from AOCL	7,746		(50)
Amortization of Excluded Component from Options	(825)		—

Fair Value Hedges - Commodity Contracts
Gain (Loss) on Commodity Futures (1)	(3,650)		(2,913)

Total Gain (Loss) on Commodity Contracts (2)	$	3,271	$	(2,963)

Cash Flow Hedges - Interest Rate Locks
Amortization of Gain on Interest Rate Locks	247		—


Fair Value Hedge - Interest Rate Swap
Gain (Loss) on Interest Rate Swap	792		—

Total Gain on Interest Rate Contracts (3)	$	1,039	$	—

Total Gain (Loss) Recognized in Earnings	$	4,310	$	(2,963)

(1) Amounts represent gains or losses on commodity contracts designated as fair value hedges that were closed during the thirteen weeks ended January 30, 2022, which were offset by a corresponding gain or loss on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.