Derivative Instruments and Hedging Activities

12 Months Ended

Jul. 31, 2020

Derivative Instruments and Hedging Activities

M. Derivative instruments and hedging activities

Ferrellgas is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges.

Derivative instruments and hedging activity

During the year ended July 31, 2020 and 2019, Ferrellgas did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.

The following tables provide a summary of the fair value of derivatives within Ferrellgas’ consolidated balance sheets as of July 31, 2020 and 2019:


	Final	July 31, 2020
	Maturity	Asset Derivatives			Liability Derivatives
Derivative Instrument	Date	Location	Fair value		Location	Fair value
Derivatives designated as hedging instruments	December 2021
Commodity derivatives-propane		Prepaid expenses and other current assets	$	2,846	Other current liabilities	$	5,029
Commodity derivatives-propane		Other assets, net		266	Other liabilities		396
		Total	$	3,112	Total	$	5,425


	Final	July 31, 2019
	Maturity	Asset Derivatives			Liability Derivatives
Derivative Instrument	Date	Location	Fair value		Location	Fair value
Derivatives designated as hedging instruments	December 2021
Commodity derivatives-propane		Prepaid expenses and other current assets	$	910	Other current liabilities	$	14,198
Commodity derivatives-propane		Other assets, net		349	Other liabilities		1,817
		Total	$	1,259	Total	$	16,015

Ferrellgas’ exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of July 31, 2020 and July 31, 2019, respectively:


	July 31, 2020
	Assets			Liabilities
Description	Location	Amount		Location	Amount
Margin Balances	Prepaid expense and other current assets	$	14,398	Other current liabilities	$	510
	Other assets, net		1,433	Other liabilities		—
		$	15,831		$	510


	July 31, 2019
	Assets			Liabilities
Description	Location	Amount		Location	Amount
Margin Balances	Prepaid expense and other current assets	$	25,028	Other current liabilities	$	1,217
	Other assets, net		2,969	Other liabilities		—
		$	27,997		$	1,217

During fiscal 2018, Ferrellgas terminated the interest rate swaps that were designated as a fair value hedging instrument and cash flow hedging instrument. Upon termination, Ferrellgas paid the counterparty $4.2 million. Since the interest rate swap designated as a fair value hedging instrument that was terminated involves a hedge of an interest-bearing liability, the senior notes due May 1, 2021, Ferrellgas capitalized the fair value of the hedge at termination of $4.2 million and will amortize the balance on a straight-line basis to interest expense over the remaining useful life of the hedged item, the 2021 Notes. The following table provides a summary of the effect on Ferrellgas’ consolidated statements of comprehensive income for the years ended July 31, 2020, 2019 and 2018 due to derivatives designated as fair value hedging instruments:


								Amount of Interest Expense
		Amount of Gain Recognized on						Recognized on Fixed-Rated Debt
	Location of Gain	Derivative						(Related Hedged Item)
	Recognized on	For the year ended July 31,						For the year ended July 31,
Derivative Instrument	Derivative	2020		2019		2018		2020		2019		2018
Interest rate swap agreements	Interest expense	$	—	$	—	$	266	$	—	$	—	$	(6,825)

The following tables provide a summary of the effect on Ferrellgas’ consolidated statements of comprehensive income for the years ended July 31, 2020, 2019 and 2018 due to derivatives designated as cash flow hedging instruments:


	For the year ended July 31, 2020
				Amount of Gain (Loss)
	Amount of Gain		Location of Gain (Loss)	Reclassified from
	(Loss) Recognized in		Reclassified from	AOCI into Income
Derivative Instrument	AOCI		AOCI into Income	Effective portion		Ineffective portion
Commodity derivatives	$	(22,872)	Cost of product sold- propane and other gas liquids sales	$	(35,315)	$	—
	$	(22,872)		$	(35,315)	$	—


	For the year ended July 31, 2019
				Amount of Gain (Loss)
	Amount of Gain (Loss)		Location of Gain (Loss)	Reclassified from
	Recognized in		Reclassified from	AOCI into Income
Derivative Instrument	AOCI		AOCI into Income	Effective portion		Ineffective portion
Commodity derivatives	$	(48,184)	Cost of product sold- propane and other gas liquids sales	$	(12,868)	$	—
	$	(48,184)		$	(12,868)	$	—


	For the year ended July 31, 2018
				Amount of Gain (Loss)
	Amount of Gain (Loss)		Location of Gain (Loss)	Reclassified from
	Recognized in		Reclassified from	AOCI into Income
Derivative Instrument	AOCI		AOCI into Income	Effective portion		Ineffective portion
Commodity derivatives	$	30,231	Cost of sales-propane and other gas liquids sales	$	24,714	$	—
Interest rate swap agreements		—			(395)		—
	$	30,231		$	24,319	$	—

The following table provides a summary of the effect on Ferrellgas’ consolidated statements of comprehensive income for the years ended July 31, 2020, 2019 and 2018 due to the change in fair value of derivatives not designated as hedging instruments. There was no effect for the years ended July 31, 2020 and 2019.


	For the year ended July 31, 2018
	Amount of Gain (Loss)		Location of Gain (Loss)
Derivatives Not Designated as Hedging Instruments	Recognized in Income		Reclassified in Income
Commodity derivatives - crude oil	$	(3,470)	Cost of sales - midstream operations

The changes in derivatives included in AOCI for the years ended July 31, 2020, 2019 and 2018 were as follows:


	For the year ended July 31,
Gains and losses on derivatives included in AOCI	2020		2019		2018
Beginning balance	$	(14,756)	$	20,560	$	14,648
Change in value of risk management commodity derivatives		(22,872)		(48,184)		30,231
Reclassification of (gains) losses on commodity hedges to cost of sales - propane and other gas liquids sales, net		35,315		12,868		(24,714)
Reclassification of losses on interest rate hedges to interest expense		—		—		395
Ending balance	$	(2,313)	$	(14,756)	$	20,560

Ferrellgas expects to reclassify net losses of approximately $2.2 million to earnings during the next 12 months. These net losses are expected to be offset by increased margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sale exception.

During the years ended July 31, 2020, 2019 and 2018, Ferrellgas had no reclassifications to operations resulting from discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.

As of July 31, 2020, Ferrellgas had financial derivative contracts covering 4.0 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.

Derivative financial instruments credit risk

Ferrellgas is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas’ counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas maintains credit policies with regard to its counterparties that it believes reduce its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas in the forms of letters of credit, parental guarantees or cash. Ferrellgas has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties. If these counterparties that make up the concentration failed to perform according to the terms of their contracts at July 31, 2020, the maximum amount of loss due to credit risk that Ferrellgas would incur, based upon the gross fair values of the derivative financial instruments, is zero.

From time to time Ferrellgas enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas’ debt rating. There were no open derivative contracts with credit-risk-related contingent features as of July 31, 2020.

Ferrellgas, L.P. [Member]

Derivative [Line Items]

Derivative Instruments and Hedging Activities

M. Derivative instruments and hedging activities

Ferrellgas, L.P. is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas, L.P. utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges.

Derivative instruments and hedging activity

During the year ended July 31, 2020 and 2019, Ferrellgas, L.P. did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.

The following tables provide a summary of the fair value of derivatives within Ferrellgas, L.P.’s consolidated balance sheets as of July 31, 2020 and 2019:


	Final	July 31, 2020
	Maturity	Asset Derivatives			Liability Derivatives
Derivative Instrument	Date	Location	Fair value		Location	Fair value
Derivatives designated as hedging instruments	December 2021
Commodity derivatives-propane		Prepaid expenses and other current assets	$	2,846	Other current liabilities	$	5,029
Commodity derivatives-propane		Other assets, net		266	Other liabilities		396
		Total	$	3,112	Total	$	5,425


	Final	July 31, 2019
	Maturity	Asset Derivatives			Liability Derivatives
Derivative Instrument	Date	Location	Fair value		Location	Fair value
Derivatives designated as hedging instruments	December 2021
Commodity derivatives-propane		Prepaid expenses and other current assets	$	910	Other current liabilities	$	14,198
Commodity derivatives-propane		Other assets, net		349	Other liabilities		1,817
		Total	$	1,259	Total	$	16,015

Ferrellgas, L.P.’s exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas, L.P. for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of July 31, 2020 and July 31, 2019, respectively:


	July 31, 2020
	Assets			Liabilities
Description	Location	Amount		Location	Amount
Margin Balances	Prepaid expense and other current assets	$	14,398	Other current liabilities	$	510
	Other assets, net		1,433	Other liabilities		—
		$	15,831		$	510


	July 31, 2019
	Assets			Liabilities
Description	Location	Amount		Location	Amount
Margin Balances	Prepaid expense and other current assets	$	25,028	Other current liabilities	$	1,217
	Other assets, net		2,969	Other liabilities		—
		$	27,997		$	1,217

During fiscal 2018, Ferrellgas, L.P. terminated the interest rate swaps that were designated as a fair value hedging instrument and cash flow hedging instrument. Upon termination, Ferrellgas, L.P. paid the counterparty $4.2 million. Since the interest rate swap designated as a fair value hedging instrument that was terminated involves a hedge of an interest-bearing liability, the senior notes due May 1, 2021, Ferrellgas, L.P. capitalized the fair value of the hedge at termination of $4.2 million and will amortize the balance on a straight-line basis to interest expense over the remaining useful life of the hedged item, the 2021 Notes. The following table provides a summary of the effect on Ferrellgas, L.P.’s consolidated statements of comprehensive income for the years ended July 31, 2020, 2019 and 2018 due to derivatives designated as fair value hedging instruments:


								Amount of Interest Expense
	Location of Gain	Amount of Gain Recognized on						Recognized on Fixed-Rated Debt
	Recognized on	Derivative						(Related Hedged Item)
Derivative Instrument	Derivative	For the year ended July 31,						For the year ended July 31,
		2020		2019		2018		2020		2019		2018
Interest rate swap agreements	Interest expense	$	—	$	—	$	266	$	—	$	—	$	(6,825)

The following tables provide a summary of the effect on Ferrellgas, L.P.’s consolidated statements of comprehensive income for the years ended July 31, 2020, 2019 and 2018 due to derivatives designated as cash flow hedging instruments:


	For the year ended July 31, 2020
				Amount of Gain (Loss)
			Location of Gain (Loss)	Reclassified from
	Amount of Gain (Loss)		Reclassified from AOCI	AOCI into Income
Derivative Instrument	Recognized in AOCI		into Income	Effective portion		Ineffective portion
Commodity derivatives	$	(22,872)	Cost of product sold- propane and other gas liquids sales	$	(35,315)	$	—
	$	(22,872)		$	(35,315)	$	—


	For the year ended July 31, 2019
				Amount of Gain (Loss)
			Location of Gain (Loss)	Reclassified from
	Amount of Gain (Loss)		Reclassified from AOCI	AOCI into Income
Derivative Instrument	Recognized in AOCI		into Income	Effective portion		Ineffective portion
Commodity derivatives	$	(48,184)	Cost of product sold- propane and other gas liquids sales	$	(12,868)	$	—
	$	(48,184)		$	(12,868)	$	—


	For the year ended July 31, 2018
				Amount of Gain (Loss)
			Location of Gain (Loss)	Reclassified from
	Amount of Gain (Loss)		Reclassified from AOCI	AOCI into Income
Derivative Instrument	Recognized in AOCI		into Income	Effective portion		Ineffective portion
Commodity derivatives	$	30,231	Cost of sales-propane and other gas liquids sales	$	24,714	$	—
Interest rate swap agreements		—			(395)
	$	30,231		$	24,319	$	—

The following table provides a summary of the effect on Ferrellgas, L.P.’s consolidated statements of comprehensive income for the years ended July 31, 2020, 2019 and 2018 due to the change in fair value of derivatives not designated as hedging instruments. There was no effect for the years ended July 31, 2020 and 2019.


	For the year ended July 31, 2018
	Amount of Gain (Loss)		Location of Gain (Loss)
Derivatives Not Designated as Hedging Instruments	Recognized in Income		Reclassified in Income
Commodity derivatives - crude oil	$	(3,470)	Cost of sales - midstream operations

The changes in derivatives included in AOCI for the years ended July 31, 2020, 2019 and 2018 were as follows:


	For the year ended July 31,
Gains and losses on derivatives included in AOCI	2020		2019		2018
Beginning balance	$	(14,756)	$	20,560	$	14,648
Change in value of risk management commodity derivatives		(22,872)		(48,184)		30,231
Reclassification of (gains) losses on commodity hedges to cost of sales - propane and other gas liquids sales, net		35,315		12,868		(24,714)
Reclassification of losses on interest rate hedges to interest expense		—		—		395
Ending balance	$	(2,313)	$	(14,756)	$	20,560

Ferrellgas, L.P. expects to reclassify net losses of approximately $2.2 million to earnings during the next 12 months. These net losses are expected to be offset by increased margins on propane sales commitments Ferrellgas, L.P. has with its customers that qualify for the normal purchase normal sale exception.

During the years ended July 31, 2020, 2019 and 2018, Ferrellgas, L.P. had no reclassifications to operations resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.

As of July 31, 2020, Ferrellgas, L.P. had financial derivative contracts covering 4.0 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.

Derivative Financial Instruments Credit Risk

Ferrellgas, L.P. is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas, L.P.’s counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas, L.P. maintains credit policies with regard to its counterparties that it believes reduce its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas, L.P. in the forms of letters of credit, parent guarantees or cash. Ferrellgas, L.P. has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties. If these counterparties that make up the concentration failed to perform according to the terms of their contracts at July 31, 2020, the maximum amount of loss due to credit risk that Ferrellgas, L.P. would incur, based upon the gross fair values of the derivative financial instruments, is zero.

From time to time Ferrellgas, L.P. enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas, L.P.’s debt rating. There were no open derivative contracts with credit-risk-related contingent features as of July 31, 2020.