Archer Daniels Midland 2009 Annual Report Download - page 57

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51
Notes to Consolidated Financial Statements (Continued)
Note 4.
Inventories, Derivative Instruments & Hedging Activities (Continued)
The Company, from time to time, uses futures or options contracts to fix the purchase price of anticipated volumes
of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the
variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn
processing plants grind approximately 60 million bushels of corn per month. Most of the finished goods produced
from this corn grind are sold at fixed prices and many of these finished goods are unable to be hedged. The
Company will fix the purchase price of the corn that will be used, thereby economically protecting the margin on
these finished goods sales. During the past 12 months, the Company hedged between 25% and 95% of its monthly
anticipated grind. At June 30, 2009, the Company has hedged portions of its anticipated monthly purchases of corn
over the next 18 months, ranging from 1% to 50% of its anticipated monthly grind.
The Company, from time to time, also uses futures, options, and swaps to fix the purchase price of the Company’s
anticipated natural gas requirements for certain production facilities. The objective of this hedging program is to
reduce the variability of cash flows associated with the Company’s forecasted purchases of natural gas. These
production facilities use approximately 3.5 million MMbtus of natural gas per month. During the past 12 months,
the Company hedged between 18% and 65% of the quantity of its anticipated monthly natural gas purchases. At
June 30, 2009, the Company has hedged portions of its anticipated monthly purchases of natural gas over the next
12 months, ranging from 4% to 60% of its anticipated monthly natural gas purchases.
To protect against fluctuations in cash flows due to changes in foreign currency exchange rates, the Company from
time to time will use forward foreign exchange contracts with banks as foreign currency cash flow hedge programs.
Certain production facilities have manufacturing expenses and some sales contracts denominated in non-functional
currency. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional
versus non-functional currency, the Company will hedge some portion of the forecasted foreign currency
expenditures and/or receipts. The fair value of foreign exchange contracts designated as cash flow hedging
instruments as of June 30, 2009 was immaterial.
At June 30, 2009, AOCI included $12 million of after-tax gains related to treasury-lock agreements and interest rate
swaps. The instruments were executed in order to lock in the Company’s interest rate prior to the issuance or
remarketing of debentures. Both the treasury-lock agreements and interest rate swaps are designated as cash flow
hedges of the risk of changes in the future interest payments attributable to changes in the benchmark interest rate.
The objective of the hedges is to protect the Company from changes in the benchmark from the date the Company
decided to issue the debt to the date when the debt will actually be issued. The Company will recognize the $12
million of gains in its consolidated statement of earnings over the terms of the hedged items.
Archer Daniels Midland Company