Derivatives

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

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 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 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 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, 2018, December 31, 2017 and September 30, 2017, 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, 2018				December 31, 2017				September 30, 2017
(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)	$	14,942	$	—	$	1,351	$	—	$	27,737		$	—
Fair value of derivatives	36,653		—		17,252		—		(999		)	—
Balance at end of period	$	51,595	$	—	$	18,603	$	—	$	26,738		$	—

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

	September 30, 2018
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	69,957		$	767		$	731		$	38		$	71,493
Commodity derivative liabilities	(8,038		)	(1		)	(92,134		)	(2,586		)	(102,759		)
Cash collateral	14,942			—			—			—			14,942
Balance sheet line item totals	$	76,861		$	766		$	(91,403	)	$	(2,548	)	$	(16,324	)

	December 31, 2017
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	36,929		$	311		$	489		$	1		$	37,730
Commodity derivative liabilities	(7,578		)	(1		)	(30,140		)	(826		)	(38,545		)
Cash collateral	1,351			—			—			—			1,351
Balance sheet line item totals	$	30,702		$	310		$	(29,651	)	$	(825	)	$	536

	September 30, 2017
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	33,804		$	288		$	676		$	74		$	34,842
Commodity derivative liabilities	(16,339		)	(43		)	(39,254		)	(976		)	(56,612		)
Cash collateral	27,737			—			—			—			27,737
Balance sheet line item totals	$	45,202		$	245		$	(38,578	)	$	(902	)	$	5,967

The net pre-tax gains and losses on commodity derivatives not designated as hedging instruments included in the Company’s Condensed Consolidated Statements of Operations and the line items in which they are located for the three and nine months ended September 30, 2018 and 2017 are as follows:

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2018			2017			2018			2017
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues	$	(51,059	)	$	(690	)	$	(30,451	)	$	(15,538	)

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2018, December 31, 2017 and September 30, 2017:

	September 30, 2018
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	277,774	—	—	—
Soybeans	45,755	—	—	—
Wheat	7,948	—	—	—
Oats	31,155	—	—	—
Ethanol	—	230,813		—
Corn oil	—	—	2,560	—
Other	—	1,000	—	115
Subtotal	362,632	231,813	2,560	115
Exchange traded:
Corn	123,250	—	—	—
Soybeans	31,855	—	—	—
Wheat	44,130	—	—	—
Oats	1,005	—	—	—
Ethanol	—	92,274	—	—
Subtotal	200,240	92,274	—	—
Total	562,872	324,087	2,560	115

	December 31, 2017
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	218,391			—
Soybeans	18,127	—	—	—
Wheat	14,577	—	—	—
Oats	25,953	—	—	—
Ethanol	—	197,607	—	—
Corn oil	—	—	6,074	—
Other	47	—	—	97
Subtotal	277,095	197,607	6,074	97
Exchange traded:
Corn	82,835	—	—	—
Soybeans	37,170	—	—	—
Wheat	65,640	—	—	—
Oats	1,345	—	—	—
Ethanol	—	39,438	—	—
Other	—	840	—	—
Subtotal	186,990	40,278	—	—
Total	464,085	237,885	6,074	97

	September 30, 2017
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	222,287	—	—	—
Soybeans	44,463	—	—	—
Wheat	8,598	—	—	—
Oats	36,451	—	—	—
Ethanol	—	201,521		—
Corn oil	—	—	5,782	—
Other	51	—		110
Subtotal	311,850	201,521	5,782	110
Exchange traded:
Corn	113,990	—	—	—
Soybeans	45,220	—	—	—
Wheat	61,795	—	—	—
Oats	895	—	—	—
Ethanol	—	22,890	—	—
Other	—	840	—	—
Subtotal	221,900	23,730	—	—
Total	533,750	225,251	5,782	110

Interest Rate and Other Derivatives

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a

counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 

At September 30, 2018, December 31, 2017 and September 30, 2017, the Company had recorded the following amounts for the fair value of the Company's other derivatives:

	September 30, 2018			December 31, 2017			September 30, 2017
(in thousands)
Derivatives not designated as hedging instruments
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	193		$	(1,244	)	$	(1,929	)
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)	(737		)	426			1,605
Derivatives designated as hedging instruments
Interest rate contract included in Other assets	227			—			—

The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2018		2017		2018			2017
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense)	$	521	$	229	$	1,662		$	601
Foreign currency derivative gains (losses) included in Other income, net	372		950		(1,163		)	1,717
Derivatives designated as hedging instruments
Interest rate derivative gains (losses) included in OCI	159		—		226			—
Interest rate derivatives gains (losses) included in Interest income (expense)	54		—		126			—

As of September 30, 2018, the Company had one outstanding interest rate derivative, with a notional amount of $40 million and a maturity date of March 2021, that was designated as a cash flow hedge of interest rate risk. The gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.