Derivatives

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company’s operating results are affected by changes to commodity prices. The Trade and Renewables 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 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 March 31, 2022, December 31, 2021 and March 31, 2021, 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 non-current commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:


(in thousands)	March 31, 2022		December 31, 2021		March 31, 2021
Cash collateral paid	$	409,743	$	165,250	$	95,533
Fair value of derivatives	(144,937)		(36,843)		(76,388)
Net derivative asset position	$	264,806	$	128,407	$	19,145

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


	March 31, 2022
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	637,947	$	15,860	$	34,798	$	1,264	$	689,869
Commodity derivative liabilities	(276,874)		(848)		(252,534)		(5,759)		(536,015)
Cash collateral paid	408,843		—		900		—		409,743
Balance sheet line item totals	$	769,916	$	15,012	$	(216,836)	$	(4,495)	$	563,597


	December 31, 2021
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	339,321	$	4,677	$	23,762	$	1,209	$	368,969
Commodity derivative liabilities	(93,758)		(105)		(152,673)		(2,578)		(249,114)
Cash collateral paid	165,250		—		—		—		165,250
Balance sheet line item totals	$	410,813	$	4,572	$	(128,911)	$	(1,369)	$	285,105


	March 31, 2021
(in thousands)	Commodity Derivative Assets - Current		Commodity Derivative Assets - Noncurrent		Commodity Derivative Liabilities - Current		Commodity Derivative Liabilities - Noncurrent		Total
Commodity derivative assets	$	357,802	$	6,762	$	20,752	$	16	$	385,332
Commodity derivative liabilities	(123,480)		(925)		(124,116)		(1,029)		(249,550)
Cash collateral paid	83,617		—		11,916		—		95,533
Balance sheet line item totals	$	317,939	$	5,837	$	(91,448)	$	(1,013)	$	231,315

The net pre-tax gains and losses on commodity derivatives not designated as hedging instruments are included in the Company’s Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 are as follows:


	Three months ended March 31,
(in thousands)		2022		2021
Gains (losses) on commodity derivatives included in Cost of sales and merchandising revenues		$	33,998	$	166,985

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at March 31, 2022, December 31, 2021 and March 31, 2021:


	March 31, 2022
(in thousands)	Number of Bushels	Number of Gallons	Number of Tons
Non-exchange traded:
Corn	722,719	—	—
Soybeans	133,043	—	—
Wheat	102,690	—	—
Oats	45,967	—	—
Ethanol	—	214,513	—
Dried distillers grain	—	—	435
Soybean meal	—	—	550
Other	8,697	24,565	3,078
Subtotal	1,013,116	239,078	4,063
Exchange traded:
Corn	267,135	—	—
Soybeans	86,410	—	—
Wheat	78,500	—	—
Oats	1,815	—	—
Ethanol	—	47,082	—
Propane	—	13,356	—
Other	110	1,470	547
Subtotal	433,970	61,908	547
Total	1,447,086	300,986	4,610


	December 31, 2021
(in thousands)	Number of Bushels	Number of Gallons	Number of Tons
Non-exchange traded:
Corn	685,681	—	—
Soybeans	77,592	—	—
Wheat	109,547	—	—
Oats	31,627	—	—
Ethanol	—	192,447	—
Dried distillers grain	—	—	507
Soybean meal	—	—	544
Other	57,268	16,092	1,854
Subtotal	961,715	208,539	2,905
Exchange traded:
Corn	226,215	—	—
Soybeans	64,730	—	—
Wheat	65,020	—	—
Oats	1,300	—	—
Ethanol	—	100,884	—
Propane	—	31,542	—
Other	75	798	353
Subtotal	357,340	133,224	353
Total	1,319,055	341,763	3,258


	March 31, 2021
(in thousands)	Number of Bushels	Number of Gallons	Number of Tons
Non-exchange traded:
Corn	745,248	—	—
Soybeans	64,698	—	—
Wheat	110,930	—	—
Oats	48,066	—	—
Ethanol	—	200,232	—
Dried distillers grain	—	—	409
Soybean meal	—	—	383
Other	4,645	1,834	1,103
Subtotal	973,587	202,066	1,895
Exchange traded:
Corn	262,920	—	—
Soybeans	62,020	—	—
Wheat	76,164	—	—
Oats	310	—	—
Ethanol	—	96,978	—

Propane	—	12,894	—
Other	—	423	265
Subtotal	401,414	110,295	265
Total	1,375,001	312,361	2,160

Interest Rate and Other Derivatives

The Company’s objectives for 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 March 31, 2022, December 31, 2021 and March 31, 2021, the Company had recorded the following amounts for the fair value of the Company's other derivatives:


(in thousands)	March 31, 2022		December 31, 2021		March 31, 2021
Derivatives not designated as hedging instruments
Interest rate contracts included in Accrued expenses and other current liabilities	$	—	$	(174)	$	(300)
Interest rate contracts included in Other long-term liabilities	—		—		(364)
Foreign currency contracts included in Other current (liabilities) assets	1,330		(1,069)		2,107
Derivatives designated as hedging instruments
Interest rate contracts included in Other current assets	$	805	$	—	$	—
Interest rate contracts included in Other assets	10,223		4,574		6,622
Interest rate contracts included in Accrued expenses and other current liabilities	(1,596)		(5,206)		(6,773)
Interest rate contracts included in Other long-term liabilities	—		(6,555)		(11,959)

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


	Three months ended March 31,
(in thousands)		2022		2021
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest expense, net		$	9	$	354

Derivatives designated as hedging instruments
Interest rate derivative gains (losses) included in Other comprehensive income (loss)		$	16,540	$	(12,947)
Interest rate derivative gains (losses) included in Interest expense, net		(1,443)		(1,618)

Outstanding interest rate derivatives, as of March 31, 2022, are as follows:


Interest Rate Hedging Instrument	Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Description	Interest Rate
Long-term
Swap	2017	2022	$	20.0	Interest rate component of debt - accounted for as a hedge	1.8%
Swap	2018	2025	$	20.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap	2019	2025	$	100.0	Interest rate component of debt - accounted for as a hedge	2.3%
Swap	2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.4%
Swap	2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.4%
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%