Derivatives

The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. These contracts are primarily traded via the regulated Chicago Mercantile Exchange ("CME"). The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

All of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.

Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues. These amounts were previously classified in sales and merchandising revenues but were reclassified starting in the fourth quarter of 2015.

Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.

The following table presents at September 30, 2016, December 31, 2015 and September 30, 2015, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:



	September 30, 2016				December 31, 2015				September 30, 2015
(in thousands)	Net derivative asset position		Net derivative liability position		Net derivative asset position		Net derivative liability position		Net derivative asset position		Net derivative liability position
Collateral paid (received)	$	13,358	$	—	$	3,008	$	—	$	28,585	$	—
Fair value of derivatives	16,258		—		25,356		—		5,733		—
Balance at end of period	$	29,616	$	—	$	28,364	$	—	$	34,318	$	—

The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:



	September 30, 2016
(in thousands)	Commodity derivative assets - current			Commodity derivative assets - noncurrent			Commodity derivative liabilities - current			Commodity derivative liabilities - noncurrent			Total
Commodity derivative assets	$	60,372		$	1,356		$	3,318		$	58		$	65,104
Commodity derivative liabilities	(13,893		)	(10		)	(63,088		)	(2,012		)	(79,003		)
Cash collateral	13,358			—			—			—			13,358
Balance sheet line item totals	$	59,837		$	1,346		$	(59,770	)	$	(1,954	)	$	(541	)



	December 31, 2015
(in thousands)	Commodity derivative assets - current			Commodity derivative assets - noncurrent		Commodity derivative liabilities - current			Commodity derivative liabilities - noncurrent			Total
Commodity derivative assets	$	51,647		$	412	$	371		$	2		$	52,432
Commodity derivative liabilities	(4,829		)	—		(37,758		)	(1,065		)	(43,652		)
Cash collateral	3,008			—		—			—			3,008
Balance sheet line item totals	$	49,826		$	412	$	(37,387	)	$	(1,063	)	$	11,788



	September 30, 2015
(in thousands)	Commodity derivative assets - current			Commodity derivative assets - noncurrent			Commodity derivative liabilities - current			Commodity derivative liabilities - noncurrent			Total
Commodity derivative assets	$	43,892		$	1,591		$	2,306		$	32		$	47,821
Commodity derivative liabilities	(11,512		)	(7		)	(52,217		)	(2,944		)	(66,680		)
Cash collateral	28,585			—			—			—			28,585
Balance sheet line item totals	$	60,965		$	1,584		$	(49,911	)	$	(2,912	)	$	9,726

The gains (losses) included in the Company’s Condensed Consolidated Statements of Operations and the line items in which they are located are as follows:



	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2016			2015			2016			2015
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues	$	(48,620	)	$	(16,910	)	$	(22,679	)	$	34,902

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2016, December 31, 2015 and September 30, 2015:



	September 30, 2016
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	226,492	—	—	—
Soybeans	60,614	—	—	—
Wheat	7,933	—	—	—
Oats	28,939	—	—	—
Ethanol	—	191,906	—	—
Corn oil	—	—	7,153	—
Other	129	—	—	251
Subtotal	324,107	191,906	7,153	251
Exchange traded:
Corn	105,395	—	—	—
Soybeans	35,245	—	—	—
Wheat	39,715	—	—	—
Oats	2,800	—	—	—
Ethanol	—	74,046	—	—
Subtotal	183,155	74,046	—	—
Total	507,262	265,952	7,153	251



	December 31, 2015
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	227,248	—	—	—
Soybeans	13,357	—	—	—
Wheat	13,710	—	—	—
Oats	15,019	—	—	—
Ethanol	—	138,660	—	—
Corn oil	—	—	11,532	—
Other	297	—	—	116
Subtotal	269,631	138,660	11,532	116
Exchange traded:
Corn	106,260	—	—	—
Soybeans	17,255	—	—	—
Wheat	28,135	—	—	—
Oats	3,480	—	—	—
Ethanol	—	840	—	—
Other	—	840	—	—
Subtotal	155,130	1,680	—	—
Total	424,761	140,340	11,532	116



	September 30, 2015
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	331,740	—	—	—
Soybeans	47,208	—	—	—
Wheat	12,631	—	—	—
Oats	19,449	—	—	—
Ethanol	—	131,789	—	—
Corn oil	—	—	10,063	—
Other	572	—	—	123
Subtotal	411,600	131,789	10,063	123
Exchange traded:
Corn	129,810	—	—	—
Soybeans	24,860	—	—	—
Wheat	28,360	—	—	—
Oats	3,285	—	—	—
Ethanol	—	3,192	—	—
Subtotal	186,315	3,192	—	—
Total	597,915	134,981	10,063	123

At September 30, 2016, December 31, 2015 and September 30, 2015, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:



	September 30,			December 31,			September 30,
(in thousands)	2016			2015			2015
Derivatives not designated as hedging instruments
Interest rate contracts included in other long term liabilities	$	(4,774	)	$	(3,133	)	$	—
Total fair value of interest rate derivatives not designated as hedging instruments	$	(4,774	)	$	(3,133	)	$	—
Derivatives designated as hedging instruments
Interest rate contract included in other short term liabilities	$	—		$	(191	)	$	—
Total fair value of interest rate derivatives designated as hedging instruments	$	—		$	(191	)	$	—

The gains and losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for interest rate derivatives not designated as hedging instruments are as follows:



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2016		2015		2016			2015
Interest expense	$	652	$	—	$	(1,642	)	$	—

The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks but which are not designated as accounting hedges. At September 30, 2016, December 31, 2015 and September 30, 2015, the Company had recorded the following amounts for the fair value of the Company's foreign currency derivatives:



	September 30,		December 31,		September 30,
(in thousands)	2016		2015		2015
Derivatives not designated as hedging instruments
Foreign currency contracts included in short term assets	$	1,130	$	—	$	—
Total fair value of foreign currency contract derivatives not designated as hedging instruments	$	1,130	$	—	$	—

The gains and losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for foreign currency contract derivatives not designated as hedging instruments are as follows:



	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2016			2015		2016		2015
Foreign currency derivative gains (losses) included in Other income, net	$	(261	)	$	—	$	1,130	$	—