4. Derivatives

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.

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 futures, options 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 Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided or received. 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 March 31, 2012, December 31, 2011 and March 31, 2011, 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:


	March 31, 2012					December 31, 2011					March 31, 2011
(in thousands)	Net derivative asset position		Net derivative liability position			Net derivative asset position			Net derivative liability position		Net derivative asset position		Net derivative liability position
Collateral paid	$	—	$	7,289		$	66,870		$	—	$	—	$	46,305
Fair value of derivatives		—		(19,578	)		(20,480	)		—		—		(87,125	)

Balance at end of period	$	—	$	(12,289	)	$	46,390		$	—	$	—	$	(40,820	)

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 Condensed Consolidated Balance Sheets and the fair value of such inventory was $0.2 million, $1.0 million, and $91.7 million as of March 31, 2012, December 31, 2011, and March 31, 2011, respectively. In addition, there were $20.0 million in treasury bills posted as collateral on our derivative contracts as of March 31, 2012. The treasury bills have maturities greater than 90 days and are classified in Other current assets on the Condensed Consolidated Balance Sheets.

The gains included in the Company's Condensed Consolidated Statements of Income and the line items in which they are located for the three months ended March 31, 2012 and 2011 are as follows:


	Three months ended March 31,
(in thousands)	2012			2011
Gains (losses) on commodity derivatives included in sales and merchandising revenues	$	(3,657	)	$	1,278

At March 31, 2012, the Company had the following volume of commodity derivative contracts outstanding (on a gross basis):


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		249,893		—		—		—
Soybeans		23,214		—		—		—
Wheat		16,179		—		—		—
Oats		10,971		—		—		—
Ethanol		—		176,818		—		—
Corn oil		—		—		66,684		—
Other		—		—		—		62

Subtotal		300,257		176,818		66,684		62

Exchange traded:
Corn		110,250		—		—		—
Soybeans		33,410		—		—		—
Wheat		46,855		—		—		—
Oats		3,035		—		—		—
Bean oil		—		—		18,000		—
Ethanol		—		840		—		—
Other		—		10		—		—

Subtotal		193,550		850		18,000		—

Total		493,807		177,668		84,684		62