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.

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 futures, 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 futures, 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 June 30, 2017, December 31, 2016 and June 30, 2016, 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:



	June 30, 2017					December 31, 2016				June 30, 2016
(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)	$	15,452		$	—	$	28,273	$	—	$	38,252	$	(480	)
Fair value of derivatives	(12,835		)	—		1,599		—		13,491		1,480
Balance at end of period	$	2,617		$	—	$	29,872	$	—	$	51,743	$	1,000

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



	June 30, 2017
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	26,101		$	1,201		$	4,404		$	2		$	31,708
Commodity derivative liabilities	(29,934		)	(10		)	(22,508		)	(336		)	(52,788		)
Cash collateral	15,452			—			—			—			15,452
Balance sheet line item totals	$	11,619		$	1,191		$	(18,104	)	$	(334	)	$	(5,628	)



	December 31, 2016
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	36,146		$	140		$	1,447		$	6		$	37,739
Commodity derivative liabilities	(18,972		)	(40		)	(24,614		)	(345		)	(43,971		)
Cash collateral	28,273			—			—			—			28,273
Balance sheet line item totals	$	45,447		$	100		$	(23,167	)	$	(339	)	$	22,041



	June 30, 2016
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	134,504		$	2,095		$	5,925		$	84		$	142,608
Commodity derivative liabilities	(56,832		)	(161		)	(48,628		)	(2,266		)	(107,887		)
Cash collateral	38,252			—			(480		)	—			37,772
Balance sheet line item totals	$	115,924		$	1,934		$	(43,183	)	$	(2,182	)	$	72,493

The gains and 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 June 30,					Six months ended June 30,
(in thousands)	2017			2016		2017			2016
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues	$	(41,873	)	$	34,800	$	(14,848	)	$	25,941

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2017, December 31, 2016 and June 30, 2016:



	June 30, 2017
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	184,197	—	—	—
Soybeans	31,532	—	—	—
Wheat	7,340	—	—	—
Oats	41,526	—	—	—
Ethanol	—	256,518	—	—
Corn oil	—	—	4,658	—
Other	90	500	—	100
Subtotal	264,685	257,018	4,658	100
Exchange traded:
Corn	94,895	—	—	—
Soybeans	27,470	—	—	—
Wheat	43,925	—	—	—
Oats	2,290	—	—	—
Ethanol	—	3,990	—	—
Other	—	840	—	60
Subtotal	168,580	4,830	—	60
Total	433,265	261,848	4,658	160



	December 31, 2016
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	175,549	—	—	—
Soybeans	20,592	—	—	—
Wheat	7,177	—	—	—
Oats	36,025	—	—	—
Ethanol	—	215,081	—	—
Corn oil	—	—	9,358	—
Other	108	1,144	—	110
Subtotal	239,451	216,225	9,358	110
Exchange traded:
Corn	63,225	—	—	—
Soybeans	39,005	—	—	—
Wheat	45,360	—	—	—
Oats	4,120	—	—	—
Ethanol	—	78,120	—	—
Subtotal	151,710	78,120	—	—
Total	391,161	294,345	9,358	110



	June 30, 2016
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	242,269	—	—	—
Soybeans	52,599	—	—	—
Wheat	13,100	—	—	—
Oats	30,722	—	—	—
Ethanol	—	130,464	—	—
Corn oil	—	—	13,800	—
Other	17	—	—	128
Subtotal	338,707	130,464	13,800	128
Exchange traded:
Corn	148,665	—	—	—
Soybeans	46,570	—	—	—
Wheat	22,790	—	—	—
Oats	2,820	—	—	—
Ethanol	—	36,540	—	—
Subtotal	220,845	36,540	—	—
Total	559,552	167,004	13,800	128

At June 30, 2017, December 31, 2016 and June 30, 2016, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:



	June 30, 2017			December 31, 2016			June 30, 2016
(in thousands)	June 30, 2017			December 31, 2016			June 30, 2016
Derivatives not designated as hedging instruments
Interest rate contracts included in other long-term liabilities	$	(2,158	)	$	(2,530	)	$	(5,422	)
Total fair value of interest rate derivatives not designated as hedging instruments	$	(2,158	)	$	(2,530	)	$	(5,422	)

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 June 30,						Six months ended June 30,
(in thousands)	2017			2016			2017		2016
Interest income (expense)	$	(17	)	$	(694	)	$	372	$	(2,294	)

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 June 30, 2017, December 31, 2016 and June 30, 2016, the Company had recorded the following amounts for the fair value of the Company's foreign currency derivatives:



	June 30, 2017		December 31, 2016			June 30, 2016
(in thousands)	June 30, 2017		December 31, 2016			June 30, 2016
Derivatives not designated as hedging instruments
Foreign currency contracts included in short-term assets (liabilities)	$	654	$	(112	)	$	1,391
Total fair value of foreign currency contract derivatives not designated as hedging instruments	$	654	$	(112	)	$	1,391

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 June 30,					Six months ended June 30,
(in thousands)	2017		2016			2017		2016
Foreign currency derivative gains included in Other income, net	$	669	$	(87	)	$	767	$	1,391