4. Derivatives

The margin deposit assets and liabilities which were shown net on the face of the balance sheet in previous periods are now included in short-term commodity derivative assets and liabilities, as appropriate. Prior periods have been reclassified to conform to current year presentation. The change in presentation had no effect on current or total assets and liabilities on the Consolidated Balance Sheets.

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 Chicago Mercantile Exchange. 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 are considered 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 same method it uses to value its grain inventory. 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 sales and merchandising revenues.

The following table presents at December 31, 2011 and December 31, 2010, 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.


	December 31, 2011					December 31, 2010
(in thousands)	Net derivative asset position			Net derivative liability position		Net derivative asset position			Net derivative liability position
Collateral paid	$	66,870		$	—	$	166,589		$	—
Collateral received		—			—		—			—
Fair value of derivatives		(20,480	)		—		(146,330	)		—

Balance at end of period	$	46,390		$	—	$	20,259		$	—

Certain contracts allow the Company to post grain inventory as collateral rather than cash. Grain inventory posted as collateral on derivative contracts are recorded in Inventories on the Condensed Consolidated Balance Sheets and the estimated fair value of such inventory was $1.0 million and $27.3 million as of December 31, 2011 and 2010, respectively.

The following table presents the fair value of the Company's commodity derivatives as of December 31, 2011 and 2010, and the balance sheet line item in which they are located:


	December 31,
(in thousands)	2011			2010
Forward commodity contracts included in Commodity derivative assets - current	$	37,560		$	226,216
Forward commodity contracts included in Commodity derivative assets - noncurrent		2,289			18,113
Forward commodity contracts included in Commodity derivative liabilities - current		(15,874	)		(57,621	)
Forward commodity contracts included in Commodity derivative liabilities - noncurrent		(1,519	)		(3,279	)
Regulated futures and options contracts included in Commodity derivatives (a)		(23,367	)		(105,030	)
Over-the-counter contracts included in Commodity derivatives (a)		2,887			(41,300	)

Total estimated fair value of commodity derivatives	$	1,976		$	37,099

(a)	The fair value of futures, options and over-the-counter contracts are offset by cash collateral posted or received and included as a net amount in the Consolidated Balance Sheets.

The gains included in the Company's Consolidated Statements of Income and the line items in which they are located for the years ended December 31, 2011 and 2010 are as follows:


	December 31,
(in thousands)	2011		2010
Gains (losses) on commodity derivatives included in sales and merchandising revenues	$	131,209	$	(53,942	)

At December 31, 2011, the Company had the following bushels of grain commodity derivative contracts and gallons of ethanol derivative contracts outstanding (on a gross basis):


Commodity	Number of bushels (in thousands)		Number of tons (in thousands)		Number of gallons (in thousands)
Non-exchange traded:
Corn		200,072
Soybeans		10,568
Wheat		6,593
Oats		11,581
Ethanol						239,240
Other				98

Subtotal		228,814		98		239,240

Exchange traded:
Corn		96,500
Soybeans		16,570
Wheat		46,935
Oats		1,715
Ethanol						29,463
Other						10

Subtotal		161,720				29,473

Total		390,534		98		268,713

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 long-term interest rate swaps is recorded in other long-term liabilities 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 each of the years ended December 31, 2011, 2010 and 2009, the Company reclassified less than $0.1 million of accumulated other comprehensive loss into earnings. The Company expects to reclassify less than $0.1 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 income as interest expense

The following table presents the open interest rate contracts at December 31, 2011:


Interest Rate Hedging Instrument	Year Entered	Year of Maturity	Initial Notional Amount (in millions)		Hedged Item	Interest Rate

*Short-term*
Caps	2011	2012	$	80.0	Interest rate component of debt – not accounted for as a hedge	0.60% to 3.42%

*Long-term*
Swap	2005	2016	$	4.0	Interest rate component of an operating lease – not accounted for as a hedge	5.23%
Swap	2006	2016	$	14.0	Interest rate component of debt – accounted for as cash flow hedge	5.95%
Cap	2011	2014	$	20.0	Interest rate component of debt – not accounted for as a hedge	1.36%
Cap	2011	2013	$	40.0	Interest rate component of debt – not accounted for as a hedge	1.62% to 1.65%

At December 31, 2011 and 2010, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:


	December 31,
(in thousands)	2011			2010
*Derivatives not designated as hedging instruments*
Interest rate contracts included in other assets	$	31		$	6
Interest rate contracts included in other long term liabilities		(372	)		(368	)

Total fair value of interest rate derivatives not designated as hedging instruments	$	(341	)	$	(362	)


*Derivatives designated as hedging instruments*
Interest rate contract included in other long term liabilities	$	(1,856	)	$	(1,768	)

Total fair value of interest rate derivatives designated as hedging instruments	$	(1,856	)	$	(1,768	)

The losses included in the Company's Consolidated Statements of Income 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)	2011			2010
Interest expense	$	(232	)	$	(133	)

The losses included in the Company's Consolidated Statements of Equity and the line item in which they are located for interest rate derivatives designated as hedging instruments are as follows:


	Year ended December 31,
(in thousands)	2011			2010
Accumulated other comprehensive loss	$	(88	)	$	(229	)

Foreign Currency Derivatives

The Company holds a zero cost foreign currency collar to hedge the change in conversion rate between the Canadian dollar and the U.S. dollar for railcar leases in Canada. This zero cost collar, which is being accounted for as a cash flow hedge, has an initial notional amount of $6.8 million and places a floor and ceiling on the Canadian dollar to U.S. dollar exchange rate at $0.9875 and $1.069, respectively. Changes in the fair value of this derivative are included as a component of other comprehensive income or loss. The terms of the collar match the underlying lease agreements and therefore any ineffectiveness is considered immaterial.

At December 31, 2011 and 2010, the Company had recorded the following amount for the fair value of the Company's foreign currency derivatives:


	Year ended December 31,
(in thousands)	2011		2010
Foreign currency contract included in other assets	$	—	$	(26	)

The gains (losses) included in the Company's Consolidated Statements of Equity and the line item in which they are located for foreign currency derivatives designated as hedging instruments are as follows:


	Year ended December 31,
(in thousands)	2011		2010
Accumulated other comprehensive loss	$	26	$	(68	)

Swaptions

In 2011, the Company entered into two $10 million swaptions for Rail purchase options on sale leaseback transactions to manage the risk of higher interest rates in the future. The effective dates of the options to enter into a swap are September 28, 2012 and 2013. The swaptions are recorded at fair value and are marked-to-market each reporting period, with the change recorded in income as interest expense.

At December 31, 2011 and 2010, the Company had recorded the following amount for the fair value of the Company's swaptions:


	December 31,
(in thousands)	2011		2010
Swaptions included in other assets	$	19	$	—

The losses included in the Company's Consolidated Statements of Income and the line item in which they are located for swaptions are as follows:


	December 31,
(in thousands)	2011			2010
Interest expense	$	(328	)	$	—