Derivatives and Fair Value of Financial Instruments

3 Months Ended

Mar. 30, 2024

Derivatives and Fair Value of Financial Instruments

Derivatives and Fair Value of Financial Instruments

Note 5 – Derivatives and Fair Value of Financial Instruments

The following tables show assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy used to measure each category of assets and liabilities. The trading securities classified as other current assets below are assets held for Seaboard’s deferred compensation plans.

	March 30,
(Millions of dollars)	2024		Level 1		Level 2		Level 3
Assets:
Trading securities – short-term investments:
Domestic equity securities	$	221	$	221	$	—	$	—
Foreign equity securities		100		100		—		—
Domestic debt securities		603		171		432		—
Foreign debt securities		134		3		131		—
Money market funds held in trading accounts		14		14		—		—
Other trading securities		7		—		7		—
Trading securities – other current assets		17		17		—		—
Derivatives		7		6		1		—
Total assets	$	1,103	$	532	$	571	$	—
Liabilities:
Derivatives	$	16	$	14	$	2	$	—
Total liabilities	$	16	$	14	$	2	$	—

	December 31,
(Millions of dollars)	2023		Level 1		Level 2		Level 3
Assets:
Trading securities – short-term investments:
Domestic equity securities	$	143	$	143	$	—	$	—
Foreign equity securities		96		96		—		—
Domestic debt securities		593		173		420		—
Foreign debt securities		120		3		117		—
Money market funds held in trading accounts		17		17		—		—
Other trading securities		4		—		4		—
Trading securities – other current assets		22		22		—		—
Long-term investment – BDC		68		—		68		—
Derivatives		12		9		3		—
Total assets	$	1,075	$	463	$	612	$	—
Liabilities:
Derivatives	$	9	$	4	$	5	$	—
Total liabilities	$	9	$	4	$	5	$	—

Financial instruments consisting of cash and cash equivalents, net receivables, lines of credit and accounts payable are carried at cost, which approximates fair value as a result of the short-term nature of the instruments. The fair value of short-term investments is measured using multiple levels. Debt securities categorized as level 1 in the fair value hierarchy include debt securities held in mutual funds and exchange traded funds.

As of December 31, 2023, Seaboard held a long-term investment in a BDC that primarily lends to and invests in debt securities of privately held companies. During the first quarter of 2024, the BDC completed an IPO, and the investment is included in short-term domestic equity securities as of March 30, 2024. See Note 2 to the condensed consolidated financial statements for further discussion.

The fair value of long-term debt is estimated by comparing interest rates for debt with similar terms and maturities. As Seaboard’s long-term debt is mostly variable-rate, the carrying amount approximates fair value. If Seaboard’s long-term debt was measured at fair value on its condensed consolidated balance sheets, it would have been classified as level 2 in the fair value hierarchy.

Seaboard’s operations are exposed to market risks from changes in commodity prices, foreign currency exchange rates, interest rates and equity prices. Seaboard uses various commodity derivative futures and options to manage some of its risk of price fluctuations for raw materials and other inventories, finished product sales and firm sales commitments. Seaboard also enters into foreign currency exchange agreements to manage the foreign currency exchange rate risk with respect to certain transactions denominated in foreign currencies. From time to time, Seaboard enters into interest rate swap agreements to manage the interest rate risk with respect to certain variable rate long-term debt and enters into equity futures contracts to manage the equity price risk with respect to certain short-term investments. Although management believes its derivatives are primarily economic hedges, Seaboard does not perform the extensive record-keeping required to account for these types of transactions as hedges for accounting purposes. These derivative contracts are recorded at fair value, with any changes in fair value recognized in the condensed consolidated statements of comprehensive income. As the derivative contracts are not accounted for as hedges, fluctuations in the related prices or rates could have a material impact on earnings in any given reporting period. The nature of Seaboard’s market risk exposure has not materially changed since December 31, 2023.

Seaboard had the following aggregated outstanding notional amounts related to derivative financial instruments:

		March 30,	December 31,
(Millions)	Metric	2024	2023
Commodities:
Grain	Bushels	10	19
Hogs and pork products	Pounds	145	133
Soybean oil	Pounds	76	10
Foreign currencies	U.S. dollar	329	152

Credit risks associated with these derivative contracts are not significant because Seaboard minimizes counterparty exposure by dealing with credit-worthy counterparties and using margin accounts for some contracts. As of March 30, 2024, the maximum amount of credit risk, had the counterparties failed to perform according to the terms of the contract, was $1 million.

The following table provides the fair value of each type of derivative held and where each derivative is included in the condensed consolidated balance sheets:

		Asset					Liability
		March 30,		December 31,			March 30,		December 31,
(Millions of dollars)		2024		2023			2024		2023
Commodities	Other current assets	$	6	$	9	Other current liabilities	$	15	$	4
Foreign currencies	Other current assets		1		3	Other current liabilities		1		5

Seaboard’s commodity derivative assets and liabilities are presented in the condensed consolidated balance sheets on a net basis, including netting the derivatives with the related margin accounts. As of March 30, 2024 and December 31, 2023, the commodity derivatives had a margin account balance of $51 million and $19 million, respectively, resulting in a net other current asset in the condensed consolidated balance sheets of $43 million and $24 million, respectively.

The following table provides the amount of gain (loss) recognized in income for each type of derivative and where it was recognized in the condensed consolidated statements of comprehensive income:

		Three Months Ended
		March 30,		April 1,
(Millions of dollars)		2024		2023
Commodities	Cost of sales	$	(34)	$	(3)
Foreign currencies	Cost of sales		(1)		3
Foreign currencies	Foreign currency gains (losses), net		2		(2)