Derivatives

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company’s operations are exposed to market risks relating to commodity prices that affect the Company’s cost of raw materials, finished product prices and energy costs and the risk of changes in interest rates and foreign currency exchange rates. The Company makes limited use of derivative instruments to manage cash flow risks related to natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes.

At December 31, 2022, the Company had foreign currency option and forward contracts, soybean meal forward contracts and corn option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts, soybean meal forward contracts, heating oil options and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

Cash Flow Hedges

In fiscal 2022, fiscal 2021 and fiscal 2020, the Company entered into foreign exchange option and forward contracts that are considered cash flow hedges. Under the terms of the foreign exchange contracts, the Company hedged a portion of its forecasted collagen sales in currencies other than the functional currency through the fourth quarter of fiscal 2024. At December 31, 2022 and January 1, 2022, the aggregate fair value of these foreign exchange contracts was approximately $13.8 million and $0.6 million, respectively. The amounts are included in other current assets, other noncurrent assets, accrued expenses and noncurrent liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022, fiscal 2021 and fiscal 2020, the Company entered into corn option contracts that are considered cash flow hedges. Under the terms of the corn option contracts the Company hedged a portion of its forecasted sales of BBP into the second quarter of fiscal 2023. At December 31, 2022 and January 1, 2022, the aggregate fair value of the corn contracts was $0.9 million and $2.8 million, respectively. The amounts are included in other current assets and accrued expenses on the balance sheet.

In fiscal 2022, fiscal 2021 and fiscal 2020, the Company entered into soybean meal forward contracts to hedge a portion of its forecasted poultry meal sales into the third quarter of fiscal 2023. At December 31, 2022 and January 1, 2022, the aggregate fair value of the soybean meal contracts was $0.6 million and $0.1 million, respectively. The amounts are included in other current assets on the balance sheet.

At December 31, 2022, the Company had the following outstanding forward contract amounts that were entered into to hedge the future payments of intercompany note transactions, foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency (in thousands):


Functional Currency		Contract Currency
Type	Amount	Type	Amount
Brazilian real	627	Euro	110
Brazilian real	3,458,502	U.S. Dollar	807,739
Euro	33,631	U.S. Dollar	35,505
Euro	26,798	Polish zloty	126,500
Euro	12,982	Japanese yen	1,859,840
Euro	18,827	Chinese renminbi	138,363
Euro	17,221	Australian dollar	26,800
Euro	3,398	British pound	2,972
Euro	34	Canadian dollar	50
Polish zloty	38,373	Euro	8,155
Polish zloty	1,212	U.S. dollar	274
British pound	284	Euro	325
British pound	446	U.S. dollar	544
Japanese yen	360,425	U.S. dollar	2,753
U.S. dollar	746	Japanese yen	101,000
U.S. dollar	352	Euro	330
Australian dollar	159	Euro	100

The above foreign currency contracts had an aggregate fair value of approximately $11.7 million and are included in other current assets, noncurrent assets, accrued expenses and noncurrent liabilities at December 31, 2022.

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at December 31, 2022 into earnings over the next 12 months will be approximately $12.2 million. As of December 31, 2022, no amounts have been reclassified into earnings as a result of the discontinuance of cash flow hedges.

The table below summarizes the effect of derivatives not designated as hedges on the Company's consolidated statements of operations for the year ended December 31, 2022, January 1, 2022 and January 2, 2021 (in thousands):


		Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
		For The Year Ended
Derivatives not designated as hedging instruments	Location	December 31, 2022		January 1, 2022		January 2, 2021
Foreign exchange	Foreign currency loss/(gain)	$	42,690	$	21,698	$	(3,840)
Foreign exchange	Net sales	(1,108)		1,178		(778)
Foreign exchange	Cost of sales and operating expenses	(949)		(844)		(664)
Foreign exchange	Selling, general and administrative expense	(4,200)		3,405		4,976
Corn options and futures	Net sales	(2,092)		(3,564)		(1,091)
Corn options and futures	Cost of sales and operating expenses	5,447		5,669		(50)


Heating oil swaps and options	Net sales	—		—		(38)
Heating oil swaps and options	Selling, general and administrative expense	122		—		—
Soybean meal	Net sales	(1,730)		—		—

Total		$	38,180	$	27,542	$	(1,485)

At December 31, 2022, the Company had forward purchase agreements in place for purchases of approximately $243.3 million of natural gas and diesel fuel. The Company intends to take physical delivery of the commodities under the forward purchase agreements and accordingly, these contracts are not subject to the requirements of fair value accounting because they qualify as normal purchases.