Derivatives

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

Commodity Contracts

The Company’s operating results are affected by changes to commodity prices. The Trade 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 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. 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 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, 2019 and 2018, 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 noncurrent commodity derivative assets (or liabilities) on the Consolidated Balance Sheets:

	December 31, 2019					December 31, 2018
(in thousands)	Net Derivative Asset Position			Net Derivative Liability Position		Net Derivative Asset Position		Net Derivative Liability Position
Collateral paid	$	56,005		$	—	$	14,944	$	—
Fair value of derivatives	(10,323		)	—		22,285		—
Balance at end of period	$	45,682		$	—	$	37,229	$	—

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

	December 31, 2019
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	92,429		$	1,045		$	7,439		$	18		$	100,931
Commodity derivative liabilities	(40,571		)	(96		)	(54,381		)	(523		)	(95,571		)
Cash collateral	56,005			—			—			—			56,005
Balance sheet line item totals	$	107,863		$	949		$	(46,942	)	$	(505	)	$	61,365

	December 31, 2018
(in thousands)	Commodity Derivative Assets - Current			Commodity Derivative Assets - Noncurrent			Commodity Derivative Liabilities - Current			Commodity Derivative Liabilities - Noncurrent			Total
Commodity derivative assets	$	43,463		$	484		$	706		$	5		$	44,658
Commodity derivative liabilities	(6,986		)	(4		)	(33,353		)	(894		)	(41,237		)
Cash collateral	14,944			—			—			—			14,944
Balance sheet line item totals	$	51,421		$	480		$	(32,647	)	$	(889	)	$	18,365

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, 2019, 2018, and 2017 are as follows:

	Year Ended December 31,
(in thousands)	2019		2018		2017
Gains (Losses) on commodity derivatives included in Cost of sales and merchandising revenues	$	1,939	$	4,236	$	5,417

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) as of December 31, 2019 and 2018:

 

	December 31, 2019
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	552,359	—	—	—
Soybeans	34,912	—	—	—
Wheat	100,996	—	—	—
Oats	24,700	—	—	—
Ethanol	—	116,448	—	—
Corn oil	—	—	14,568	—
Other	11,363	4,000	305	2,263
Subtotal	724,330	120,448	14,873	2,263
Exchange traded:
Corn	221,740	—	—	—
Soybeans	39,145	—	—	—
Wheat	68,171	—	—	—
Oats	2,090	—	—	—
Ethanol	—	175,353	—	—
Propane	—	5,166	—	—
Other	—	15	—	232
Subtotal	331,146	180,534	—	232
Total	1,055,476	300,982	14,873	2,495

	December 31, 2018
Commodity (in thousands)	Number of Bushels	Number of Gallons	Number of Pounds	Number of Tons
Non-exchange traded:
Corn	250,408	—	—	—
Soybeans	22,463	—	—	—
Wheat	14,017	—	—	—
Oats	26,230	—	—	—
Ethanol	—	244,863	—	—
Corn oil	—	—	2,920	—
Other	494	2,000	—	66
Subtotal	313,612	246,863	2,920	66
Exchange traded:
Corn	130,585	—	—	—
Soybeans	26,985	—	—	—
Wheat	33,760	—	—	—
Oats	1,475	—	—	—
Ethanol	—	77,112	—	—
Subtotal	192,805	77,112	—	—
Total	506,417	323,975	2,920	66

Interest Rate and Other Derivatives

The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. 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. The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks.

At December 31, 2019 and 2018, the Company had recorded the following amounts for the fair value of the Company's other derivatives:

	December 31,
(in thousands)	2019			2018
Derivatives not designated as hedging instruments
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	(1,007	)	$	(353	)
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)	2,742			(1,122		)
Derivatives designated as hedging instruments
Interest rate contracts included in Other current assets (Accrued expenses and other current liabilities)	(3,118		)	—
Interest rate contracts included in Other long-term assets (Other long-term liabilities)	$	(9,382	)	$	(168	)

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

	Year ended December 31,
(in thousands)	2019			2018
Derivatives not designated as hedging instruments
Interest rate derivative gains (losses) included in Interest income (expense)	$	(718	)	$	1,115
Foreign currency derivative gains (losses) included in Other income, net	(437		)	(1,548		)
Derivatives designated as hedging instruments
Interest rate derivative gains (losses) included in Other comprehensive income	(12,398		)	(168		)
Interest rate derivative gains (losses) included in Interest income (expense)	$	(761	)	$	158

The following table presents the open interest rate contracts at December 31, 2019:

Interest Rate Hedging Instrument		Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Hedged Item	Interest Rate
Long-term
Swap		2014	2023	$	23.0	Interest rate component of debt - not accounted for as a hedge	1.9%
Collar		2016	2021	$	40.0	Interest rate component of debt - not accounted for as a hedge	3.5% to 4.8%
Swap	*	2017	2022	$	20.0	Interest rate component of debt - accounted for as a hedge	1.8%
Swap	*	2018	2023	$	10.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap	*	2018	2025	$	20.0	Interest rate component of debt - accounted for as a hedge	2.7%
Swap		2018	2021	$	40.0	Interest rate component of debt - accounted for as a hedge	2.6%
Swap		2019	2021	$	25.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2021	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2025	$	100.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%
Swap		2019	2025	$	50.0	Interest rate component of debt - accounted for as a hedge	2.5%

* Acquired on 1/1/2019 in conjunction with the acquisition of LTG.