Derivatives

Commodity Contracts

The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established “unhedged” 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 grain and ethanol 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. The exchange traded contracts are primarily via the regulated CME. 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. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

All 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 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 grain 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 Consolidated Balance Sheets.

The following table presents at December 31, 2015 and 2014, 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 short-term commodity derivative assets (or liabilities) on the Consolidated Balance Sheets:



	December 31, 2015				December 31, 2014
(in thousands)	Net derivative asset position		Net derivative liability position		Net derivative asset position			Net derivative liability position
Collateral paid	$	3,008	$	—	$	79,646		$	—
Fair value of derivatives	25,356		—		(10,981		)	—
Balance at end of period	$	28,364	$	—	$	68,665		$	—

Certain of our contracts allow the Company to post items other than cash as collateral. Grain inventory posted as collateral on our derivative contracts are recorded in Inventories on the Consolidated Balance Sheets. There was no grain inventory posted as collateral as of December 31, 2015 and December 31, 2014.

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



	December 31, 2015
(in thousands)	Commodity derivative assets - current			Commodity derivative assets - noncurrent		Commodity derivative liabilities - current			Commodity derivative liabilities - noncurrent			Total
Commodity derivative assets	$	51,647		$	412	$	371		$	2		$	52,432
Commodity derivative liabilities	(4,829		)	—		(37,758		)	(1,065		)	(43,652		)
Cash collateral	3,008			—		—			—			3,008
Balance sheet line item totals	$	49,826		$	412	$	(37,387	)	$	(1,063	)	$	11,788



	December 31, 2014
(in thousands)	Commodity derivative assets - current			Commodity derivative assets - noncurrent			Commodity derivative liabilities - current			Commodity derivative liabilities - noncurrent			Total
Commodity derivative assets	$	49,847		$	545		$	6,123		$	118		$	56,633
Commodity derivative liabilities	(36,722		)	(38		)	(70,198		)	(3,436		)	(110,394		)
Cash collateral	79,646			—			—			—			79,646
Balance sheet line item totals	$	92,771		$	507		$	(64,075	)	$	(3,318	)	$	25,885

The net pre-tax gains on commodity derivatives not designated as hedging instruments included in the Company’s Consolidated Statements of Operations and the line items in which they are located for the years ended December 31, 2015, 2014, and 2013 are as follows:



	December 31,
(in thousands)	2015		2014		2013
Gains on commodity derivatives included in sales and merchandising revenues	$	—	$	67,579	$	138,787
Gains on commodity derivatives included in cost of sales and merchandising revenues	$	62,541	$	—	$	—

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) as of December 31, 2015 and 2014:



	December 31, 2015
Commodity	Number of bushels (in thousands)	Number of gallons (in thousands)	Number of pounds (in thousands)	Number of tons (in thousands)
Non-exchange traded:
Corn	227,248	—	—	—
Soybeans	13,357	—	—	—
Wheat	13,710	—	—	—
Oats	15,019	—	—	—
Ethanol	—	138,660	—	—
Corn oil	—	—	11,532	—
Other	297	—	—	116
Subtotal	269,631	138,660	11,532	116
Exchange traded:
Corn	106,260	—	—	—
Soybeans	17,255	—	—	—
Wheat	28,135	—	—	—
Oats	3,480	—	—	—
Ethanol	—	840	—	—
Other	—	840	—	—
Subtotal	155,130	1,680	—	—
Total	424,761	140,340	11,532	116



	December 31, 2014
Commodity	Number of bushels (in thousands)	Number of gallons (in thousands)	Number of pounds (in thousands)	Number of tons (in thousands)
Non-exchange traded:
Corn	265,574	—	—	—
Soybeans	23,820	—	—	—
Wheat	14,967	—	—	—
Oats	23,440	—	—	—
Ethanol	—	233,637	—	—
Corn oil	—	—	18,076	—
Other	28	—	—	139
Subtotal	327,829	233,637	18,076	139
Exchange traded:
Corn	159,575	—	—	—
Soybeans	31,265	—	—	—
Wheat	30,360	—	—	—
Oats	7,545	—	—	—
Ethanol	—	41,832	—	—
Other	—	—	2,700	5
Subtotal	228,745	41,832	2,700	5
Total	556,574	275,469	20,776	144

Interest Rate Derivatives

The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. One of the Company's interest rate swaps has been reclassified to other current liabilities at year end as it matures in 2016 and is designated as a cash flow hedge; accordingly, changes in the fair value of this instrument are recognized in other comprehensive income. The terms of the swap match the terms of the underlying debt instrument. The deferred derivative gains and losses on the interest rate swap are reclassified into income over the term of the underlying hedged items. For the years ended December 31, 2015, 2014, and 2013 the Company reclassified $0.4 million, $0.4 million, and $0.5 million, respectively, of gross accumulated other comprehensive income into earnings. The Company expects to reclassify less than $0.2 million of accumulated other comprehensive loss into earnings in the next twelve months.

The Company has other interest rate contracts that are not designated as hedges. While the Company considers all of its interest rate derivative positions to be effective economic hedges of specified risks, these interest rate contracts are recorded on the balance sheet in other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature) and changes in fair value are recognized currently in earnings as a component of interest expense. At December 31, 2015, the Company had several interest rate hedging instruments that are not accounted for as hedges, with notional amounts totaling $91.0 million, of which $28.0 million is short-term.

The following table presents the open interest rate contracts at December 31, 2015:



Interest Rate Hedging Instrument	Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Hedged Item	Interest Rate
Short-term
Swap	2005	2016	$	4.0	Interest rate component of an operating lease - not accounted for as a hedge	5.2%
Cap	2012	2016	$	10.0	Interest rate component of debt - not accounted for as a hedge	1.5%
Swap	2006	2016	$	14.0	Interest rate component of debt - accounted for as cash flow hedge	5.7%
Long-term
Swap	2012	2023	$	23.0	Interest rate component of debt - not accounted for as a hedge	1.9%
Collar	2013	2021	$	40.0	Interest rate component of debt - not accounted for as a hedge	2.9% to 4.8%

At December 31, 2015 and 2014, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:



	December 31,
(in thousands)	2015			2014
Derivatives not designated as hedging instruments
Interest rate contracts included in other assets, net	$	—		$	3
Interest rate contracts included in other long term liabilities	(3,133		)	(2,071		)
Total fair value of interest rate derivatives not designated as hedging instruments	$	(3,133	)	$	(2,068	)
Derivatives designated as hedging instruments
Interest rate contract included in other short term liabilities	(191		)	—
Interest rate contract included in other long term liabilities	—			(597		)
Total fair value of interest rate derivatives designated as hedging instruments	$	(191	)	$	(597	)

The losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for interest rate derivatives not designated as hedging instruments are as follows:



	Year ended December 31,
(in thousands)	2015			2014
Interest expense	$	(1,065	)	$	(2,945	)