Derivative Instruments

12 Months Ended

Sep. 30, 2011

Derivative Instruments [Abstract]

Derivative Instruments

15. DERIVATIVE INSTRUMENTS

We use raw sugar futures and options in our raw sugar purchasing programs and natural gas futures and options to hedge natural gas purchases used in our manufacturing operations. Additionally, we periodically use derivatives to manage interest rate and foreign currency exchange risk. Our objective in the use of derivative instruments is to mitigate commodity price, interest rate or foreign currency exchange risk. Our derivatives hedging activity is supervised by a senior risk management committee which monitors and reports compliance with our risk management policy to the Audit Committee of the Board of Directors.

The majority of our industrial channel sales and a portion of our distributor channel sales are made under fixed price, forward sales contracts. In order to mitigate price risk in raw and refined sugar commitments, we manage the volume of refined sugar sales contracted for future delivery in relation to the volume of raw cane sugar purchased for future delivery by entering into forward purchase contracts to buy raw cane sugar at fixed prices and by using raw sugar futures contracts. Historically, substantially all of our purchases of domestic raw sugar and quota raw sugar imports are priced based on the Intercontinental Exchange (ICE) Sugar No. 16 futures contract. We use these futures contracts to price our physical domestic and quota raw sugar purchase commitments. Certain of these derivative instruments qualify as cash flow hedges and are designated as hedges for accounting purposes. To the extent that derivative instruments do not qualify for hedge accounting treatment, the Company records the effect of those instruments in current earnings. Non-quota imports under the re-export program, which constitutes less than 10% of our raw sugar purchases, are priced based on the ICE Sugar No. 11 futures contract. We use these futures contracts to price our world raw purchase commitments, however, these derivative instruments are not designated as cash flow hedges. We have purchased domestic and world raw sugar futures contracts up to 14 months in advance of the physical purchase.

The pricing of our physical natural gas purchases generally is indexed to a spot market index and we use natural gas futures contracts traded on the New York Mercantile Exchange to hedge the cost of natural gas purchased under these physical contracts. These derivative instruments qualify as cash flow hedges and are designated as hedges for accounting purposes. Additionally, we utilize natural gas futures which are not designated as cash flow hedges to manage the remaining commodity price risk above the volume of derivatives designated as cash flow hedges. We have purchased natural gas futures contracts up to 12 months in advance of the physical purchase of natural gas.

For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative is reported as a component of other comprehensive income and reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses that result from the discontinuance of cash flow hedges because it is probable that the original forecasted transaction will not occur are recognized in current earnings. Gains and losses on derivatives representing hedge ineffectiveness are recognized in current earnings. Gains and losses on derivatives not designated as hedges are recognized in current earnings.

At September 30, 2011 we had the following net futures positions:

Hedge Designation	Domestic Sugar  (cwt)		World Sugar (cwt)		Natural Gas (mmbtu)
Cash Flow		3,513,440		—		—
Not Designated		308,000		22,400		590,000

All of our futures contracts are settled in cash daily with the respective futures exchanges and therefore do not contain credit-risk-related contingent features. The Company has $8.7 million recorded on the balance sheet for cash held on deposit in margin accounts at September 30, 2011 for the futures positions above. At September 30, 2011 there were no derivative positions to mitigate the risk of interest rates or foreign currency exchange. For the twelve month period ended September 30, 2011, we did not engage in trading activity with derivatives.

The table below shows the location and amounts in the consolidated balance sheets for derivative instruments (in thousands):

As of September 30, 2011:

	Hedge Designation	Fair Value		Margin Requirements Settled in Cash			Balance Sheet Total
Current Assets:
No. 16 Domestic Sugar Futures Contracts	Cash Flow	$	7,507	$	(7,507	)		—
Current Liabilities:
No. 11 World Sugar Futures Contracts	Not Designated		10		(10	)		—
No. 16 Domestic Sugar Futures Contracts	Cash Flow		1,458		(1,458	)		—
Natural Gas	Not Designated		337		(337	)		—
No. 16 Domestic Sugar Futures Contracts	Not Designated		1,067		(1,067	)		—
Non-Current Assets:
No. 16 Domestic Sugar Futures Contracts	Cash Flow		190		(190	)		—

As of September 30, 2010:

	Hedge Designation	Fair Value		Margin Requirements Settled in Cash			Balance Sheet Total
Current Assets:
No. 16 Domestic Sugar Futures Contracts	Not Designated	$	22,027	$	(22,027	)		—
No. 11 World Sugar Futures Contracts	Not Designated		333		(333	)		—
Current Liabilities:
No. 11 World Sugar Futures Contracts	Not Designated		194		(194	)		—
Natural Gas	Cash Flow		260		(260	)		—
Natural Gas	Not Designated		73		(73	)		—
Non-Current Assets:
No. 16 Domestic Sugar Futures Contracts	Not Designated		25		(25	)		—
Non-Current Liabilities:
No. 16 Domestic Sugar Futures Contracts	Not Designated		276		(276	)		—

The impact of futures contracts on the consolidated income statement for the twelve months ended September 30, 2011 and 2010 is presented below:

Hedge Designation	Income Statement Line Item	Twelve Months  Ended September 30, 2011								Twelve Months  Ended September 30, 2010
		Domestic Sugar			World Sugar			Natural Gas		Domestic Sugar			World Sugar		Natural Gas
Cash Flow	Cost of Sales(1)	$	(9,449	)	$	—		$	594	$	(225	)	$	—	$	1,731
Cash Flow	Accumulated other comprehensive loss		(19,382	)		—			47		—			—		1,922
Not Designated	Cost of Sales (credit)		(879	)		(4,672	)		473		(49,615	)		5,260		364

(1) Amounts were reclassified from accumulated other comprehensive income.

There were no gains or losses recognized on cash flow hedges for ineffectiveness, nor were there any portion of derivatives excluded from the effectiveness assessment. Approximately $9.8 million of gains on cash flow hedges for raw sugar is expected to be reclassified to earnings over the next twelve months.