Derivatives

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

The Company’s operating results are affected by changes to commodity prices. The Trade and Ethanol businesses have established “unhedged” futures 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 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. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

Most 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 primarily 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 commodity 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 June 30, 2020, December 31, 2019 and June 30, 2019, 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, 2020				December 31, 2019				June 30, 2019
(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
Cash collateral paid	$	799	$	—	$	56,005	$	—	$	109,346	$	—
Fair value of derivatives	21,363		—		(10,323)		—		(5,996)		—
Balance at end of period	$	22,162	$	—	$	45,682	$	—	$	103,350	$	—

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

	June 30, 2020
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	142,110	$	2,916	$	5,511	$	124	$	150,661
Commodity derivative liabilities	(30,820)		(214)		(70,697)		(3,813)		(105,544)
Cash collateral paid	799		—		—		—		799
Balance sheet line item totals	$	112,089	$	2,702	$	(65,186)	$	(3,689)	$	45,916

	December 31, 2019
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	92,429	$	1,045	$	7,439	$	18	$	100,931
Commodity derivative liabilities	(40,571)		(96)		(54,381)		(523)		(95,571)
Cash collateral paid	56,005		—		—		—		56,005
Balance sheet line item totals	$	107,863	$	949	$	(46,942)	$	(505)	$	61,365

	June 30, 2019
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	166,652	$	6,748	$	3,360	$	57	$	176,817
Commodity derivative liabilities	(42,983)		(587)		(72,729)		(4,042)		(120,341)
Cash collateral paid	109,346		—		—		—		109,346
Balance sheet line item totals	$	233,015	$	6,161	$	(69,369)	$	(3,985)	$	165,822

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 item in which they are located for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three months ended June 30,				Six months ended June 30, 2020
(in thousands)	2020		2019		2020		2019
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues	$	8,797	$	(13,364)	$	39,757	$	57,291

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2020, December 31, 2019 and June 30, 2019:

	June 30, 2020
(in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	437,275	—	—	—
Soybeans	50,012	—	—	—
Wheat	95,133	—	—	—
Oats	49,053	—	—	—
Ethanol	—	141,549	—	—
Corn oil	—	—	8,098	—
Other	25,005	5,000	415	2,370
Subtotal	656,478	146,549	8,513	2,370
Exchange traded:
Corn	287,840	—	—	—
Soybeans	36,970	—	—	—
Wheat	67,040	—	—	—
Oats	685	—	—	—
Ethanol	—	27,300	—	—
Propane	—	28,602	—	—
Other	—	13,650	340	208
Subtotal	392,535	69,552	340	208
Total	1,049,013	216,101	8,853	2,578

	December 31, 2019
(in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	552,359	—	—	—
Soybeans	34,912	—	—	—
Wheat	100,996	—	—	—
Oats	24,700	—	—	—
Ethanol	—	116,448	—	—
Corn oil	—	—	14,568	—
Other	11,363	4,000	305	2,263
Subtotal	724,330	120,448	14,873	2,263
Exchange traded:
Corn	221,740	—	—	—
Soybeans	39,145	—	—	—
Wheat	68,171	—	—	—
Oats	2,090	—	—	—
Ethanol	—	175,353	—	—
Propane	—	5,166	—	—
Other	—	15	—	232
Subtotal	331,146	180,534	—	232
Total	1,055,476	300,982	14,873	2,495

	June 30, 2019
(in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	648,434	—	—	—
Soybeans	59,594	—	—	—
Wheat	93,621	—	—	—
Oats	40,582	—	—	—
Ethanol	—	211,352	—	—
Corn oil	—	—	8,809	—
Other	23,875	2,532	—	3,179
Subtotal	866,106	213,884	8,809	3,179
Exchange traded:
Corn	317,405	—	—	—
Soybeans	52,762	—	—	—
Wheat	55,150	—	—	—
Oats	1,045	—	—	—
Ethanol	—	82,988	—	—
Propane	—	13,230	—	—
Other	—	35	—	180
Subtotal	426,362	96,253	—	180
Total	1,292,468	310,137	8,809	3,359

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. 

The gains or losses on the derivatives designated as hedging instruments are recorded in Other Comprehensive Income (Loss) 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.

At June 30, 2020, December 31, 2019 and June 30, 2019, the Company had recorded the following amounts for the fair value of the Company's other derivatives:

(in thousands)	June 30, 2020		December 31, 2019		June 30, 2019
Derivatives not designated as hedging instruments
Interest rate contracts included in Accrued expenses and other current liabilities	$	(1,174)	$	—	$	—
Interest rate contracts included in Other long-term liabilities	(553)		(1,007)		(10,750)
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)	791		2,742		(22)
Derivatives designated as hedging instruments
Interest rate contracts included in Accrued expenses and other current liabilities	(8,806)		(3,118)		—
Interest rate contracts included in Other long-term liabilities	$	(24,388)	$	(9,382)	$	(10,587)

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

	Three months ended June 30,				Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense), net	$	186	$	(1,065)	$	(720)	$	(2,055)
Foreign currency derivative losses included in Other income (loss), net	—		(366)		—		(1,833)
Derivatives designated as hedging instruments
Interest rate derivative losses included in Other Comprehensive Income (Loss)	(2,475)		(7,926)		(20,657)		(12,917)
Interest rate derivatives gains (losses) included in Interest income (expense), net	$	(1,917)	$	—	$	(2,700)	$	165

Outstanding interest rate derivatives, as of June 30, 2020, are as follows:

Interest Rate Hedging Instrument	Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Description	Interest Rate
Long-term
Swap	2014	2023	$	23.0	Interest rate component of debt - not accounted for as a hedge	1.9%
Collar	2016	2021	$	40.0	Interest rate component of debt - not accounted for as a hedge	3.5% to 4.8%
Swap	2017	2022	$	20.0	Interest rate component of debt - accounted for as a hedge	1.8%
Swap	2018	2023	$	10.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap	2018	2025	$	20.0	Interest rate component of debt - accounted for as a hedge	2.7%
Swap	2018	2021	$	40.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap	2018	2021	$	25.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap	2019	2021	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap	2019	2025	$	100.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap	2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap	2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap	2020	2023	$	50.0	Interest rate component of debt - accounted for as a hedge	0.8%
Swap	2020	2023	$	50.0	Interest rate component of debt - accounted for as a hedge	0.7%
Swap	2020	2030	$	50.0	Interest rate component of debt - accounted for as a hedge	0.0% to 0.8%
Swap	2020	2030	$	50.0	Interest rate component of debt - accounted for as a hedge	0.0% to 0.8%