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Derivatives
 9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives DerivativesThe Company’s operations are exposed to market risks relating to commodity prices that affect the Company’s cost of raw materials, finished product prices, 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 interest rates, natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Interest rate swaps are entered into with the intent of managing overall borrowing costs by reducing the potential impact of increases in interest rates on floating-rate long-term debt. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices.  Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices.  Soybean meal forwards and options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products (“BBP”) by reducing the impact of changing prices.  Foreign currency forward and option contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the local functional currency. 

At September 30, 2023, the Company had soybean meal forward and option contracts, foreign exchange forward and option contracts and interest rate swaps outstanding that qualified and were designated for hedge accounting as well as corn forward contracts, soybean meal forward and option contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

In the first nine months of fiscal 2023 and 2022, the Company's DGD Joint Venture entered into heating oil derivatives that were deemed to be cash flow hedges. As a result, the Company has accrued the other comprehensive income/(loss) portion belonging to Darling with an offset to the investment in DGD as required by FASB ASC Topic 323.

Cash Flow Hedges

In the first quarter and second quarter of fiscal 2023, the Company entered into interest rate swaps that are designated as cash flow hedges. The notional amount of these swaps totaled $900.0 million. Under the contracts, the Company is obligated to pay a weighted average rate of 4.007% while receiving the 1-month SOFR rate. Under the terms of the interest rate swaps, the Company hedged a portion of its variable rate debt into the first quarter of 2026. At September 30, 2023, the aggregate fair value of these interest rate swaps was approximately $16.4 million. These amounts are included in other current assets and other assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In the first quarter of fiscal 2023, the Company also entered into cross currency swaps that are designated as cash flow hedges. The notional amount of these swaps was €519.2 million. Under the contracts, the Company is obligated to pay a 4.6% euro denominated fixed rate while receiving a weighted average U.S. dollar fixed rate of 5.799%. Under the terms of the cross currency swaps, the Company hedged its intercompany notes receivable into the first quarter of 2025. Accordingly, changes in the fair value of the cash flow hedge are initially recorded as gains and/or losses as a component of accumulated other comprehensive loss. We immediately reclassify from accumulated other comprehensive loss to earnings an amount to offset the remeasurement recognized in earnings associated with the respective intercompany loan. Additionally, we reclassify amounts from accumulated other comprehensive income/(loss) associated with the interest rate differential between the U.S. dollar and a Euro to interest expense. At September 30, 2023, the aggregate fair value of these cross currency swaps was approximately $12.9 million. These amounts are included in other current assets and other assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the second quarter of fiscal 2023. There are not any open designated corn option contracts at September 30, 2023. At September 30, 2023 and December 31, 2022, the aggregate fair value of these corn option contracts was approximately zero and $0.9 million, respectively. The amounts outstanding as of December 31, 2022 are included in other current assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022 and fiscal 2023, the Company entered into foreign exchange forward and option contracts that are designated as 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 September 30, 2023 and December 31, 2022, the aggregate fair value of these foreign exchange contracts was approximately $17.2 million and $13.8 million, respectively. These amounts are included in other current assets,
accrued expenses, other assets and other non-current liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022 and fiscal 2023, the Company entered into soybean meal option contracts to hedge a portion of its forecasted poultry meal sales into the fourth quarter of fiscal 2023. At September 30, 2023 and December 31, 2022, the aggregate fair value of the soybean meal contracts was approximately $0.1 million and $0.6 million, respectively. These amounts are included in other current assets and accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

As of September 30, 2023, the Company had the following designated and non-designated outstanding forward and option contract amounts that were entered into to hedge foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency (in thousands):

Functional CurrencyContract Currency
TypeAmountTypeAmount
Brazilian real154,113 Euro28,202 
Brazilian real3,152,853 U.S. dollar768,550 
Euro49,053 U.S. dollar52,542 
Euro36,246 Polish zloty165,500 
Euro14,300 Japanese yen2,241,486 
Euro25,240 Chinese renminbi196,576 
Euro19,001 Australian dollar31,860 
Euro5,997 British pound5,213 
Euro104 Canadian dollar150 
Polish zloty678 U.S. dollar157 
Polish zloty34,443 Euro7,497 
British pound159 Euro183 
British pound231 U.S. dollar282 
Japanese yen242,161 U.S. dollar1,716 
U.S. dollar440 Japanese yen65,000 
U.S. dollar562,340 Euro519,182 
Australian dollar174 Euro105 
Australian dollar164 U.S. dollar105 

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at September 30, 2023 into earnings over the next 12 months for all cash flow hedges will be approximately $18.6 million. As of September 30, 2023, 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 three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):
Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
Three Months EndedNine Months Ended
Derivatives not designated as hedging instrumentsLocationSeptember 30, 2023October 1, 2022September 30, 2023October 1, 2022
Foreign exchangeForeign currency loss/(gain)$(237)$(3,092)$(1,473)$39,400 
Foreign exchange
Net sales
709 5,348 (268)6,238 
Foreign exchange
Cost of sales and operating expenses
(329)(597)(449)(1,355)
Foreign exchangeSelling, general and administrative expenses1,096 106 (2,962)(2,481)
Corn options and futuresNet sales373 (875)1,755 (2,160)
Corn options and futures
Cost of sales and operating expenses
(35)2,526 (2,643)5,695 
Heating Oil swaps and options
Selling, general and administrative expenses— — 49 — 
Soybean meal
Net sales
179 — 487 — 
Total$1,756 $3,416 $(5,504)$45,337 

At September 30, 2023, the Company had forward purchase agreements in place for purchases of approximately $199.7 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.