Derivatives

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Contracts

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 regulated commodity exchanges. 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 Consolidated Balance Sheets.

The following table presents at December 31, 2018 and 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 Consolidated Balance Sheets:



	December 31, 2018				December 31, 2017
(in thousands)	Net Derivative Asset Position		Net Derivative Liability Position		Net Derivative Asset Position		Net Derivative Liability Position
Collateral paid	$	14,944	$	—	$	1,351	$	—
Fair value of derivatives	22,285		—		17,252		—
Balance at end of period	$	37,229	$	—	$	18,603	$	—

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



	December 31, 2018
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	43,463		$	484		$	706		$	5		$	44,658
Commodity derivative liabilities	(6,986		)	(4		)	(33,353		)	(894		)	(41,237		)
Cash collateral	14,944			—			—			—			14,944
Balance sheet line item totals	$	51,421		$	480		$	(32,647	)	$	(889	)	$	18,365



	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

The net pre-tax gains on commodity derivatives not designated as hedging instruments included in the Company’s Consolidated Statements of Operations and the line items in which they are located for the years ended December 31, 2018, 2017, and 2016 are as follows:



	Year Ended December 31,
(in thousands)	2018		2017	2016
Gains (Losses) on commodity derivatives included in cost of sales and merchandising revenues	$	4,236	5,417	(15,012	)

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



	December 31, 2018
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	250,408			—
Soybeans	22,463	—	—	—
Wheat	14,017	—	—	—
Oats	26,230	—	—	—
Ethanol	—	244,863	—	—
Corn oil	—	—	2,920	—
Other	494	2,000	—	66
Subtotal	313,612	246,863	2,920	66
Exchange traded:
Corn	130,585	—	—	—
Soybeans	26,985	—	—	—
Wheat	33,760	—	—	—
Oats	1,475	—	—	—
Ethanol	—	77,112	—	—
Subtotal	192,805	77,112	—	—
Total	506,417	323,975	2,920	66



	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

Interest Rate and Other Derivatives

The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. While the Company considers all of its interest rate derivative positions to be effective economic hedges of specified risks, these interest rate contracts are recorded on the balance sheet in other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature) and changes in fair value are recognized currently in earnings as a component of interest expense. The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks.

The following table presents the open interest rate contracts at December 31, 2018:



Interest Rate Hedging Instrument	Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Hedged Item	Interest Rate
Long-term
Swap	2014	2023	$	23.0	Interest rate component of debt - not accounted for as a hedge	1.9%
Collar	2013	2021	$	40.0	Interest rate component of debt - not accounted for as a hedge	2.9% to 4.8%
Swap	2018	2021	$	40.0	Interest rate component of debt - accounted for as cash flow hedge	2.6%
Swap	2018	2021	$	25.0	Interest rate component of debt - accounted for as cash flow hedge	2.5%

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



	December 31,
(in thousands)	2018			2017
Derivatives not designated as hedging instruments
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	(353	)	$	(1,244	)
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)	$	(1,122	)	$	426
Derivatives designated as hedging instruments
Interest rate contract included in Other assets (Other long-term liabilities)	$	(168	)	$	—

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



	Year ended December 31,
(in thousands)	2018			2017
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense)	$	1,115		$	1,286
Foreign currency derivative gains (losses) included in Other income, net	$	(1,548	)	$	539
Derivatives designated as hedging instruments
Interest rate derivative gains (losses) included in OCI	$	(168	)	$	—
Interest rate derivative gains (losses) included in Interest income (expense)	$	158		$	—

As of December 31, 2018, the Company had two outstanding interest rate derivatives, with a notional amount of $40 million and $25 million, with maturity dates of March 2021 and August 2021, respectively. These derivatives were designated as a cash flow hedge of interest rate risk. The gain or loss on these derivatives 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.