Financial Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments Disclosure [Text Block]

FINANCIAL INSTRUMENTS

At March 31, 2020, the company had $1,536 million ($1,293 million and $1,055 million at December 31, 2019 and March 31, 2019, respectively) of held-to-maturity securities (primarily time deposits and money market funds) classified as cash equivalents, as these securities had maturities of three months or less at the time of purchase; and $10 million ($5 million and $5 million at December 31, 2019 and March 31, 2019, respectively) of held-to-maturity securities (primarily time deposits) classified as marketable securities as these securities had maturities of more than three months to less than one year at the time of purchase. The company’s investments in held-to-maturity securities are held at amortized cost, which approximates fair value. These securities are included in cash and cash equivalents, marketable securities, and other current assets in the Condensed Consolidated Balance Sheets.

Derivative Instruments

Objectives and Strategies for Holding Derivative Instruments

In the ordinary course of business, the company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency, interest rate and commodity price risks. The company has established a variety of derivative programs to be utilized for financial risk management. These programs reflect varying levels of exposure coverage and time horizons based on an assessment of risk.

Derivative programs have procedures and controls and are approved by the Corporate Financial Risk Management Committee, consistent with the company's financial risk management policies and guidelines. Derivative instruments used are forwards, options, futures and swaps. The company has not designated any non-derivatives as hedging instruments.

The company's financial risk management procedures also address counterparty credit approval, limits and routine exposure monitoring and reporting. The counterparties to these contractual arrangements are major financial institutions and major commodity exchanges. The company is exposed to credit loss in the event of nonperformance by these counterparties. The company utilizes collateral support annex agreements with certain counterparties to limit its exposure to credit losses. The company anticipates performance by counterparties to these contracts and therefore no material loss is expected. Market and counterparty credit risks associated with these instruments are regularly reported to management.

The notional amounts of the company's derivative instruments were as follows:

Notional Amounts (In millions)	March 31, 2020		December 31, 2019		March 31, 2019
Derivatives designated as hedging instruments:
Foreign currency contracts	$	751	$	—	$	—
Commodity contracts	$	418	$	570	$	351
Derivatives not designated as hedging instruments:
Foreign currency contracts	$	644	$	582	$	1,442
Commodity contracts	$	59	$	—	$	125

Foreign Currency Risk

The company's objective in managing exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign currency rate changes and to mitigate the exposure of certain investments in foreign subsidiaries against changes in the Euro/USD exchange rate. Accordingly, the company enters into various contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency-denominated assets, liabilities, commitments, investments and cash flows.

The company uses forward exchange contracts to offset its net exposures, by currency, related to the foreign currency denominated monetary assets and liabilities of its operations. The primary business objective of this hedging program is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, after related tax effects, are minimized.

Commodity Price Risk

Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of inventory such as corn and soybeans. The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the commodity price risk associated with agricultural commodity exposures.

Derivatives Designated as Cash Flow Hedges

Commodity Contracts

The company enters into over-the-counter and exchange-traded derivative commodity instruments, including options, futures and swaps, to hedge the commodity price risk associated with agriculture commodity exposures.

While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two years. Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction is not probable of occurring.

The following table summarizes the after-tax effect of commodity contract cash flow hedges on accumulated other comprehensive loss:

	Three Months Ended March 31,
(In millions)	2020			2019
Beginning balance	$	2		$	(26	)
Additions and revaluations of derivatives designated as cash flow hedges	(22		)	(4		)
Clearance of hedge results to earnings	5			5
Ending balance	$	(15	)	$	(25	)

At March 31, 2020, an after-tax net loss of $20 million is expected to be reclassified from accumulated other comprehensive loss into earnings over the next twelve months.

Foreign Currency Contracts

The company enters into forward contracts to hedge the foreign currency risk associated with forecasted transactions within certain foreign subsidiaries.

While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two years. Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts earnings. Reclassifications are made sooner if it appears that a forecasted transaction is not probable of occurring.

The following table summarizes the after-tax effect of foreign currency cash flow hedges on accumulated other comprehensive loss:

	Three Months Ended March 31,
(In millions)	2020
Beginning balance	$	—
Additions and revaluations of derivatives designated as cash flow hedges	16
Ending balance	$	16

At March 31, 2020, an after-tax net gain of $16 million is expected to be reclassified from accumulated other comprehensive loss into earnings over the next twelve months.

Derivatives Designated as Net Investment Hedges

Foreign Currency Contracts

The company has designated €450 million of forward contracts to exchange EUR as net investment hedges. The purpose of these forward contracts is to mitigate FX exposure related to a portion of the Company’s euro net investments in certain foreign subsidiaries against changes in Euro/USD exchange rates. These hedges will expire and be settled in 2023, unless terminated early at the discretion of the Company.

The company elected to apply the spot method in testing for effectiveness of the hedging relationship.

Derivatives not Designated in Hedging Relationships

Foreign Currency Contracts

The company uses forward exchange contracts to reduce its net exposure, by currency, related to foreign currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. The netting of such exposures precludes the use of hedge accounting; however, the required revaluation of the forward contracts and the associated foreign currency-denominated monetary assets and liabilities intends to achieve a minimal earnings impact, after taxes.

Commodity Contracts

The company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as corn and soybeans.

Fair Value of Derivative Instruments

Asset and liability derivatives subject to an enforceable master netting arrangement with the same counterparty are presented on a net basis in the interim Condensed Consolidated Balance Sheets. The presentation of the company's derivative assets and liabilities is as follows:

		March 31, 2020
(In millions)	Balance Sheet Location	Gross		Counterparty and Cash Collateral Netting1			Net Amounts Included in the Condensed Consolidated Balance Sheet
Asset derivatives:
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	36	$	—		$	36
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	230		(110		)	120
Total asset derivatives		$	266	$	(110	)	$	156
Liability derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Accrued and other current liabilities	$	108	$	(103	)	$	5
Total liability derivatives		$	108	$	(103	)	$	5

^1.  Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.

		December 31, 2019
(In millions)	Balance Sheet Location	Gross		Counterparty and Cash Collateral Netting1			Net Amounts Included in the Condensed Consolidated Balance Sheet
Asset derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	25	$	(18	)	$	7
Total asset derivatives		$	25	$	(18	)	$	7
Liability derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Accrued and other current liabilities	$	43	$	(16	)	$	27
Total liability derivatives		$	43	$	(16	)	$	27

^1.  Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.

		March 31, 2019
(In millions)	Balance Sheet Location	Gross		Counterparty and Cash Collateral Netting1			Net Amounts Included in the Condensed Consolidated Balance Sheet
Asset derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	45	$	(11	)	$	34
Total asset derivatives		$	45	$	(11	)	$	34
Liability derivatives:
Derivatives not designated as hedging instruments:
Foreign currency contracts	Accrued and other current liabilities	$	10	$	(10	)	$	—
Total liability derivatives		$	10	$	(10	)	$	—

^1.  Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.

Effect of Derivative Instruments

	Amount of (Loss) Gain Recognized in OCI1 - Pre-Tax
	Three Months Ended March 31,
(In millions)	2020			2019
Derivatives designated as hedging instruments:
Net Investment Hedges:
Foreign currency contracts	$	9		$	—
Cash flow hedges:
Foreign currency contracts	19			$	—
Commodity contracts	(34		)	$	1
Total derivatives designated as hedging instruments	(6		)	1
Total derivatives	$	(6	)	$	1

^1.  OCI is defined as other comprehensive income (loss).

	Amount of Gain (Loss) Recognized in Income - Pre-Tax1
(In millions)	Three Months Ended March 31,
	2020			2019
Derivatives designated as hedging instruments:
Cash flow hedges:
Commodity contracts2	$	(7	)	$	(4	)
Total derivatives designated as hedging instruments	(7		)	(4		)
Derivatives not designated as hedging instruments:
Foreign currency contracts3	165			(17		)
Commodity contracts2	9			6
Total derivatives not designated as hedging instruments	174			(11		)
Total derivatives	$	167		$	(15	)

^1.  For cash flow hedges, this represents the portion of the gain (loss) reclassified from accumulated OCI into income during the period.

^2.  Recorded in cost of goods sold.

^3. 

Gain recognized in other income - net was partially offset by the related gain on the foreign currency-denominated monetary assets and liabilities of the company's operations. See Note 7 - Supplementary Information, for additional information.