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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)
 3 Months Ended
Mar. 29, 2015
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]
The following table presents the fair values of our open derivative financial instruments on a gross basis.
 
 
Assets
 
Liabilities
 
 
March 29,
2015
 
December 28,
2014
 
March 29,
2015
 
December 28,
2014
 
 
(in millions)
 
(in millions)
Derivatives using the "hedge accounting" method:
 
 
 
 
 
 
 
 
Grain contracts
 
$
3.8

 
$
4.8

 
$
35.5

 
$
24.8

Livestock contracts
 
4.8

 
60.7

 
—

 
—

Interest rate contracts
 
—

 
—

 
0.2

 
0.1

Foreign exchange contracts
 
0.1

 
—

 
1.4

 
0.2

Total
 
8.7

 
65.5

 
37.1

 
25.1

 
 
 
 
 
 
 
 
 
Derivatives using the "mark-to-market" method:
 
 

 
 

 
 

 
 

Grain contracts
 
1.6

 
1.1

 
1.4

 
8.5

Livestock contracts
 
8.4

 
5.9

 
26.4

 
8.6

Energy contracts
 
—

 
—

 
13.5

 
10.1

Foreign exchange contracts
 
0.2

 
0.7

 
0.4

 
0.1

Total
 
10.2

 
7.7

 
41.7

 
27.3

Total fair value of derivative instruments
 
$
18.9

 
$
73.2

 
$
78.8

 
$
52.4
Offsetting Assets [Table Text Block]
The following tables reconcile the gross amounts of derivative assets and liabilities to the net amounts presented in our consolidated condensed balance sheets and the related effects of cash collateral under netting arrangements that provide a legal right of offset of assets and liabilities.

 
 
March 29, 2015
 
 
Gross Amount of Derivative Assets/ Liabilities
 
Netting of Derivative Assets/ Liabilities
 
Net Derivative Assets/Liabilities
 
Cash Collateral
 
Net Amount Presented in the Condensed Consolidated Balance Sheet

 
 
(in millions)
Assets:
 
 
 
 
 
 
 
 
 
 
Commodities
 
$
18.6

 
$
(13.8
)
 
$
4.8

 
$
14.3

 
$
19.1

Foreign exchange contracts
 
0.3

 
(0.3
)
 
—

 
—

 
—

Total
 
$
18.9

 
$
(14.1
)
 
$
4.8

 
$
14.3

 
$
19.1

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodities
 
76.8

 
(13.8
)
 
63.0

 
(55.7
)
 
7.3

Interest rate contracts
 
0.2

 
—

 
0.2

 
—

 
0.2

Foreign exchange contracts
 
1.8

 
(0.3
)
 
1.5

 
—

 
1.5

Total
 
$
78.8

 
$
(14.1
)
 
$
64.7

 
$
(55.7
)
 
$
9.0


 
 
December 28, 2014
 
 
Gross Amount of Derivative Assets/ Liabilities
 
Netting of Derivative Assets/ Liabilities
 
Net Derivative Assets/Liabilities
 
Cash Collateral
 
Net Amount Presented in the Condensed Consolidated Balance Sheet
 
 
(in millions)
Assets:
 
 
 
 
 
 
 
 
 
 
Commodities
 
$
72.5

 
$
(14.6
)
 
$
57.9

 
$
(12.3
)
 
$
45.6

Foreign exchange contracts
 
0.7

 
(0.3
)
 
0.4

 
—

 
0.4

Total
 
$
73.2

 
$
(14.9
)
 
$
58.3

 
$
(12.3
)
 
$
46.0

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodities
 
52.0

 
(14.6
)
 
37.4

 
(32.3
)
 
5.1

Interest rate contracts
 
0.1

 
—

 
0.1

 
—

 
0.1

Foreign exchange contracts
 
0.3

 
(0.3
)
 
—

 
—

 
—

Total
 
$
52.4

 
$
(14.9
)
 
$
37.5

 
$
(32.3
)
 
$
5.2
DERIVATIVES FINANCIAL INSTRUMENTS
NOTE 3:
DERIVATIVE FINANCIAL INSTRUMENTS 
Our meat processing and hog production operations use various raw materials, primarily live hogs, corn and soybean meal, which are actively traded on commodity exchanges. We hedge these commodities when we determine conditions are appropriate to mitigate price risk. While this hedging may limit our ability to participate in gains from favorable commodity fluctuations, it also tends to reduce the risk of loss from adverse changes in raw material prices. We attempt to closely match the commodity contract terms with the hedged item. We also periodically enter into interest rate swaps to hedge exposure to changes in interest rates on certain financial instruments and foreign exchange forward contracts to hedge certain exposures to fluctuating foreign currency rates.
We record all derivatives in the balance sheet as either assets or liabilities at fair value. Accounting for changes in the fair value of a derivative depends on whether it qualifies and has been designated as part of a hedging relationship. For derivatives that qualify and have been designated as hedges for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the "hedge accounting" method). For derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in current period earnings (commonly referred to as the "mark-to-market" method). We may elect either method of accounting for our derivative portfolio, assuming all the necessary requirements are met. We have in the past availed ourselves of either acceptable method and expect to do so in the future. We believe all of our derivative instruments represent economic hedges against changes in prices and rates, regardless of their designation for accounting purposes.
Changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counter-party agreements. Additionally, certain of our derivative contracts contain credit risk-related contingent features, which would require us to post additional cash collateral to cover net losses on open derivative instruments if our credit rating was downgraded. As of March 29, 2015, the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

We are exposed to losses in the event of nonperformance or nonpayment by counter parties under financial instruments. Although our counter parties primarily consist of financial institutions that are investment grade, there is still a possibility that one or more of these companies could default. However, a majority of our financial instruments are exchange traded futures contracts held with brokers and counter parties with whom we maintain margin accounts that are settled on a daily basis, thereby limiting our credit exposure to non-exchange traded derivatives. Determination of the credit quality of our counter parties is based upon a number of factors, including credit ratings and our evaluation of their financial condition. As of March 29, 2015, we had no significant credit exposure on non-exchange traded derivative contracts. No significant concentrations of credit risk existed as of March 29, 2015. 

The size and mix of our derivative portfolio varies from time to time based upon our analysis of current and future market conditions. All derivative contracts are recorded in prepaid expenses and other current assets or accrued expenses and other current liabilities within the consolidated condensed balance sheets, as appropriate.




The following table presents the fair values of our open derivative financial instruments on a gross basis.
 
 
Assets
 
Liabilities
 
 
March 29,
2015
 
December 28,
2014
 
March 29,
2015
 
December 28,
2014
 
 
(in millions)
 
(in millions)
Derivatives using the "hedge accounting" method:
 
 
 
 
 
 
 
 
Grain contracts
 
$
3.8

 
$
4.8

 
$
35.5

 
$
24.8

Livestock contracts
 
4.8

 
60.7

 
—

 
—

Interest rate contracts
 
—

 
—

 
0.2

 
0.1

Foreign exchange contracts
 
0.1

 
—

 
1.4

 
0.2

Total
 
8.7

 
65.5

 
37.1

 
25.1

 
 
 
 
 
 
 
 
 
Derivatives using the "mark-to-market" method:
 
 

 
 

 
 

 
 

Grain contracts
 
1.6

 
1.1

 
1.4

 
8.5

Livestock contracts
 
8.4

 
5.9

 
26.4

 
8.6

Energy contracts
 
—

 
—

 
13.5

 
10.1

Foreign exchange contracts
 
0.2

 
0.7

 
0.4

 
0.1

Total
 
10.2

 
7.7

 
41.7

 
27.3

Total fair value of derivative instruments
 
$
18.9

 
$
73.2

 
$
78.8

 
$
52.4


The majority of our derivatives are exchange traded futures contracts held with brokers, subject to netting arrangements that are enforceable during the ordinary course of business. Additionally, we have a smaller portfolio of over-the-counter derivatives that are held by counterparties under netting arrangements found in typical master netting agreements. These agreements legally allow for net settlement in the event of bankruptcy. We offset the fair values of derivative assets and liabilities, along with the related cash collateral, that are executed with the same counterparty under these arrangements in the consolidated balance sheet. The following tables reconcile the gross amounts of derivative assets and liabilities to the net amounts presented in our consolidated condensed balance sheets and the related effects of cash collateral under netting arrangements that provide a legal right of offset of assets and liabilities.

 
 
March 29, 2015
 
 
Gross Amount of Derivative Assets/ Liabilities
 
Netting of Derivative Assets/ Liabilities
 
Net Derivative Assets/Liabilities
 
Cash Collateral
 
Net Amount Presented in the Condensed Consolidated Balance Sheet

 
 
(in millions)
Assets:
 
 
 
 
 
 
 
 
 
 
Commodities
 
$
18.6

 
$
(13.8
)
 
$
4.8

 
$
14.3

 
$
19.1

Foreign exchange contracts
 
0.3

 
(0.3
)
 
—

 
—

 
—

Total
 
$
18.9

 
$
(14.1
)
 
$
4.8

 
$
14.3

 
$
19.1

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodities
 
76.8

 
(13.8
)
 
63.0

 
(55.7
)
 
7.3

Interest rate contracts
 
0.2

 
—

 
0.2

 
—

 
0.2

Foreign exchange contracts
 
1.8

 
(0.3
)
 
1.5

 
—

 
1.5

Total
 
$
78.8

 
$
(14.1
)
 
$
64.7

 
$
(55.7
)
 
$
9.0


 
 
December 28, 2014
 
 
Gross Amount of Derivative Assets/ Liabilities
 
Netting of Derivative Assets/ Liabilities
 
Net Derivative Assets/Liabilities
 
Cash Collateral
 
Net Amount Presented in the Condensed Consolidated Balance Sheet
 
 
(in millions)
Assets:
 
 
 
 
 
 
 
 
 
 
Commodities
 
$
72.5

 
$
(14.6
)
 
$
57.9

 
$
(12.3
)
 
$
45.6

Foreign exchange contracts
 
0.7

 
(0.3
)
 
0.4

 
—

 
0.4

Total
 
$
73.2

 
$
(14.9
)
 
$
58.3

 
$
(12.3
)
 
$
46.0

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodities
 
52.0

 
(14.6
)
 
37.4

 
(32.3
)
 
5.1

Interest rate contracts
 
0.1

 
—

 
0.1

 
—

 
0.1

Foreign exchange contracts
 
0.3

 
(0.3
)
 
—

 
—

 
—

Total
 
$
52.4

 
$
(14.9
)
 
$
37.5

 
$
(32.3
)
 
$
5.2


See Note 9—Fair Value Measurements for additional information about the fair value of our derivatives.

Hedge Accounting Method 

Cash Flow Hedges 

We enter into derivative instruments, such as futures, swaps and options contracts, to manage our exposure to the variability in expected future cash flows attributable to commodity price risk associated with the forecasted sale of live hogs and fresh pork, and the forecasted purchase of corn, wheat and soybean meal. In addition, we enter into interest rate swaps to manage our exposure to changes in interest rates associated with our variable interest rate debt, and we enter into foreign exchange contracts to manage our exposure to the variability in expected future cash flows attributable to changes in foreign exchange rates associated with the forecasted purchase or sale of assets denominated in foreign currencies. As of March 29, 2015, we had no cash flow hedges for forecasted transactions beyond June 2016. 

When cash flow hedge accounting is applied, derivative gains or losses are recognized as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The ineffective portion of derivative gains and losses is recognized as part of current period earnings. Derivative gains and losses, when reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean hog contracts, interest expense for interest rate contracts and selling, general and administrative expenses (SG&A) for foreign exchange contracts. Gains and losses on derivatives designed to hedge price risk associated with fresh pork sales are recorded in the Hog Production segment. 

During the three months ended March 29, 2015, the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:
 
 
Minimum
 
Maximum
 
Metric
Commodities:
 
 
 
 
 
 
Corn
 
56,855,000

 
71,130,000

 
Bushels
Soybean meal
 
553,300

 
689,000

 
Tons
Lean hogs
 
43,240,000

 
1,006,440,000

 
Pounds
Interest rate
 
18,594,273

 
19,117,326

 
U.S. Dollars
Foreign currency (1)
 
25,071,064

 
40,400,421

 
U.S. Dollars
——————————————
(1) 
Amounts represent the U.S. dollar equivalent of various foreign currency contracts.



The following table presents the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the periods indicated:
 
 
Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion)
 
Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)
 
Gains (Losses) Recognized in Earnings on Derivative (Ineffective Portion)
 
 
Three Months Ended
 
Three Months Ended
 
Three Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
 
 
(in millions)
 
(in millions)
 
(in millions)
Commodity contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Grain contracts
 
$
(31.0
)
 
$
58.3

 
$
(23.8
)
 
$
(1.4
)
 
$
(3.4
)
 
$
2.4

Lean hog contracts
 
132.3

 
(297.6
)
 
83.0

 
(25.7
)
 
1.5

 
(15.5
)
Interest rate contracts
 
(0.1
)
 
—

 
—

 
—

 
—

 
—

Foreign exchange contracts
 
(1.7
)
 
0.3

 
(0.6
)
 
3.0

 
—

 
—

Total
 
$
99.5

 
$
(239.0
)
 
$
58.6

 
$
(24.1
)
 
$
(1.9
)
 
$
(13.1
)
 
For the periods presented, foreign exchange contracts were determined to be highly effective. We have excluded from the assessment of effectiveness differences between spot and forward rates, which we have determined to be immaterial. 
As of March 29, 2015, there were deferred net losses of $51.0 million, net of tax of $32.9 million, in accumulated other comprehensive income (loss). We expect to reclassify $106.5 million ($65.1 million net of tax) of deferred net losses on closed commodity contracts into earnings within the next twelve months. We are unable to estimate the amount of unrealized gains or losses to be reclassified into earnings within the next twelve months related to open contracts as their values are subject to change. 
Fair Value Hedges 
We enter into derivative instruments (primarily futures contracts) that are designed to hedge changes in the fair value of live hog inventories and firm commitments to buy grains. When fair value hedge accounting is applied, derivative gains and losses are recognized in earnings currently along with the change in fair value of the hedged item attributable to the risk being hedged. The gains or losses on the derivative instruments and the offsetting losses or gains on the related hedged items are recorded in cost of sales for commodity contracts.
During the three months ended March 29, 2015, the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:
 
 
Minimum
 
Maximum
 
Metric
Commodities:
 
 
 
 
 
 
Corn
 
3,605,000

 
7,480,000

 
 Bushels

The following table presents the effects on our consolidated condensed statements of income of gains and losses on derivative instruments designated in fair value hedging relationships and the related hedged items for the periods indicated:
 
 
Gains (Losses) Recognized in Earnings on Derivative
 
Gains (Losses) Recognized in Earnings on Related Hedged Item
 
 
Three Months Ended
 
Three Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
 
 
(in millions)
 
(in millions)
Commodity contracts
 
$
2.0

 
$
(0.9
)
 
$
(1.9
)
 
$
1.0

 
We recognized gains of $1.0 million and $0.1 million for the three months ended March 29, 2015 and March 30, 2014, respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

Mark-to-Market Method 
Derivative instruments that are not designated as a hedge, have been de-designated from a hedging relationship, or do not meet the criteria for hedge accounting are marked-to-market with the unrealized gains and losses together with actual realized gains and losses from closed contracts being recognized in current period earnings. Under the mark-to-market method, gains and losses are recorded in cost of sales for commodity contracts and SG&A for foreign exchange contracts.
During the three months ended March 29, 2015, the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:
 
 
Minimum
 
Maximum
 
Metric
Commodities:
 
 
 
 
 
 
Lean hogs
 
142,520,000

 
181,680,000

 
Pounds
Corn
 
3,960,000

 
15,560,000

 
Bushels
Soybean meal
 
8,400

 
12,400

 
Tons
Soybeans
 
640,000

 
2,400,000

 
Bushels
Wheat
 
60,000

 
105,000

 
Bushels
Natural gas
 
9,560,000

 
11,000,000

 
Million BTU
Heating oil
 
2,016,000

 
3,024,000

 
Gallons
Live cattle
 
—

 
4,200,000

 
Pounds
Diesel
 
6,314,000

 
7,112,000

 
Gallons
Crude oil
 
48,000

 
72,000

 
Barrels
Foreign currency (1)
 
12,884,295

 
41,199,245

 
U.S. Dollars
——————————————
(1) 
Amounts represent the U.S. dollar equivalent of various foreign currency contracts.
The following table presents the amount of gains (losses) recognized in the consolidated condensed statements of income on derivative instruments using the "mark-to-market" method by type of derivative contract for the periods indicated:
 
 
 
Three Months Ended
 
 
 
March 29,
2015
 
March 30,
2014
 
 
 
(in millions)
Commodity contracts
 
 
$
(28.3
)
 
$
7.2

Foreign exchange contracts
 
 
(1.2
)
 
0.1

Total
 
 
$
(29.5
)
 
$
7.3

 
The table above reflects gains and losses from both open and closed contracts including, among other things, gains and losses related to contracts designed to hedge price movements that occur entirely within a quarter. The table includes amounts for both realized and unrealized gains and losses. The table is not, therefore, a simple representation of unrealized gains and losses recognized in the income statement during any period presented.
Cash Flow Hedging  
Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block]
During the three months ended March 29, 2015, the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:
 
 
Minimum
 
Maximum
 
Metric
Commodities:
 
 
 
 
 
 
Corn
 
56,855,000

 
71,130,000

 
Bushels
Soybean meal
 
553,300

 
689,000

 
Tons
Lean hogs
 
43,240,000

 
1,006,440,000

 
Pounds
Interest rate
 
18,594,273

 
19,117,326

 
U.S. Dollars
Foreign currency (1)
 
25,071,064

 
40,400,421

 
U.S. Dollars
——————————————
(1) 
Amounts represent the U.S. dollar equivalent of various foreign currency contracts.
Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]
The following table presents the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the periods indicated:
 
 
Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion)
 
Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)
 
Gains (Losses) Recognized in Earnings on Derivative (Ineffective Portion)
 
 
Three Months Ended
 
Three Months Ended
 
Three Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
 
 
(in millions)
 
(in millions)
 
(in millions)
Commodity contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Grain contracts
 
$
(31.0
)
 
$
58.3

 
$
(23.8
)
 
$
(1.4
)
 
$
(3.4
)
 
$
2.4

Lean hog contracts
 
132.3

 
(297.6
)
 
83.0

 
(25.7
)
 
1.5

 
(15.5
)
Interest rate contracts
 
(0.1
)
 
—

 
—

 
—

 
—

 
—

Foreign exchange contracts
 
(1.7
)
 
0.3

 
(0.6
)
 
3.0

 
—

 
—

Total
 
$
99.5

 
$
(239.0
)
 
$
58.6

 
$
(24.1
)
 
$
(1.9
)
 
$
(13.1
)
 
For the periods presented, foreign exchange contracts were determined to be highly effective. We have excluded from the assessment of effectiveness differences between spot and forward rates, which we have determined to be immaterial. 
Fair Value Hedging  
Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block]
During the three months ended March 29, 2015, the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:
 
 
Minimum
 
Maximum
 
Metric
Commodities:
 
 
 
 
 
 
Corn
 
3,605,000

 
7,480,000

 
 Bushels
Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]
The following table presents the effects on our consolidated condensed statements of income of gains and losses on derivative instruments designated in fair value hedging relationships and the related hedged items for the periods indicated:
 
 
Gains (Losses) Recognized in Earnings on Derivative
 
Gains (Losses) Recognized in Earnings on Related Hedged Item
 
 
Three Months Ended
 
Three Months Ended
 
 
March 29,
2015
 
March 30,
2014
 
March 29,
2015
 
March 30,
2014
 
 
(in millions)
 
(in millions)
Commodity contracts
 
$
2.0

 
$
(0.9
)
 
$
(1.9
)
 
$
1.0

 
We recognized gains of $1.0 million and $0.1 million for the three months ended March 29, 2015 and March 30, 2014, respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.
Not Designated as Hedging Instrument [Member]  
Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block]
During the three months ended March 29, 2015, the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:
 
 
Minimum
 
Maximum
 
Metric
Commodities:
 
 
 
 
 
 
Lean hogs
 
142,520,000

 
181,680,000

 
Pounds
Corn
 
3,960,000

 
15,560,000

 
Bushels
Soybean meal
 
8,400

 
12,400

 
Tons
Soybeans
 
640,000

 
2,400,000

 
Bushels
Wheat
 
60,000

 
105,000

 
Bushels
Natural gas
 
9,560,000

 
11,000,000

 
Million BTU
Heating oil
 
2,016,000

 
3,024,000

 
Gallons
Live cattle
 
—

 
4,200,000

 
Pounds
Diesel
 
6,314,000

 
7,112,000

 
Gallons
Crude oil
 
48,000

 
72,000

 
Barrels
Foreign currency (1)
 
12,884,295

 
41,199,245

 
U.S. Dollars
——————————————
(1) 
Amounts represent the U.S. dollar equivalent of various foreign currency contracts.