7. Derivative Financial Instruments

3 Months Ended

Mar. 25, 2012

7. DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7.     DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for periods of up to 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate. The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements. Our counterparties require that we post cash collateral for changes in the net fair value of the derivative contracts.

We have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase exposures as cash flow hedges. Therefore, we recognized changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to these derivative financial instruments are included in the line item Cost of sales in the Condensed Consolidated Statements of Operations. The Company recognized net losses of $4.6 million and net gains of $32.0 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended March 25, 2012 and March 27, 2011, respectively.

Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:

	March 25, 2012			December 25, 2011
	(Fair values in thousands)
Fair values:
Commodity derivative assets	$	3,399		$	2,870
Commodity derivative liabilities	(3,745		)	(2,723		)
Cash collateral posted with brokers	3,315			3,271
Derivatives Coverage(a):
Corn	(a)			(a)
Soybean meal	(a)			(a)
Period through which stated percent of needs are covered:
Corn	(a)			(a)
Soybean meal	(a)			(a)
Written put options outstanding(b):
Fair value	$	—		$	(603	)
Number of contracts:
Corn	—			500
Soybean meal	—			—
Expiration dates	—			March 2012
Short positions on outstanding futures derivative instruments(b):
Fair value	$	(1,387	)	$	495
Number of contracts:
Corn	1,590			2,531
Soybean meal	988			96
Soybean oil	37			—

(a) Derivatives coverage is the percent of anticipated corn and soybean meal needs covered by outstanding derivative instruments through a specified date. As of March 25, 2012, the Company had short derivative positions to offset long forward cash purchases, which exceeded open long derivative positions for corn, soybean meal and soybean oil. These positions expire by March 2013.

(b) A written put option is an option that the Company has sold that grants the holder the right, but not the obligation, to sell the underlying asset at a certain price for a specified period of time. When the Company takes a short position on a futures derivative instrument, it agrees to sell the underlying asset in the future at a price established on the contract date. The Company writes put options and takes short positions on futures derivative instruments to minimize the impact of feed ingredients price volatility on its operating results.