Hormel Foods 2011 Annual Report Download - page 56

5
4Hormel Foods Corporation
exposure beyond the next two upcoming fiscal years. As of
October 30, 2011, and October 31, 2010, the Com
p
any had the
f
ollowing outstanding commodity
f
utures contracts and swaps
that were entered into to hedge
f
orecasted purchases:
Volu
m
e
C
ommodit
y
O
ctober
30,
20
1
1
O
ctober 31
,
201
0
Co
rn
20
.
8
milli
o
n
bus
h
e
l
s
2
1.1 milli
o
n
bus
h
e
l
s
S
oybean meal
–
1
90,
4
00
ton
s
N
atura
l
ga
s
0
.
5
milli
o
n MMBT
U
’
s
1.
6
m
i
ll
io
n MMBT
U
’
s
As of October 30, 2011, the Company has included in accumu
-
lated other comprehensive loss, hed
g
in
g
g
ains of $27.3 mi
l
-
lion (before tax) relatin
g
to its positions, compared to
g
ains of
$32.9 million (before tax) as of October 31, 2010. The Company
expects to reco
g
nize the majority of these
g
ains over the
next 12 months. The balance as of October
3
0, 2011, includes
gains of
$
6.9 million related to the Company’s soybean meal
f
utures contracts. These contracts were de-designated as
cash flow hedges effective January
3
0, 2011, as they were no
longer highly effective. These gains will remain in AOCL until
the hedged transact
i
ons occur or
i
t
i
s probable the hedged
transactions will not occur. Gains or losses related to these
contracts a
f
ter the date o
f
de-desi
g
nation have been reco
g
-
n
i
zed
i
n earn
i
n
g
s as
i
ncurred.
F
a
i
r Value Hedges: The
C
ompany utilizes futures to minimize
the price risk assumed when forward priced contracts are
offered to the
C
ompany’s commodity suppliers. The intent
of the program is to make the forward priced commodities
cost nearly the same as cash market
p
urchases at the date of
delivery. The futures contracts are designated and accounted
f
or as fair value hedges, and the Company measures the
effectiveness of the hedges on a regular basis. Changes in the
f
air value o
f
the
f
utures contracts, along with the gain or loss
on the hed
g
ed purchase comm
i
tment, are marked-to-market
throu
g
h earnin
g
s and are recorded on the
C
onsolidated
S
tatement of Financial Position as a current asset and liabil
-
ity, respectively. E
ff
ective
g
ains or losses related to these
f
air
v
alue hed
g
es are reco
g
nized throu
g
h cost of products sold in
the period or periods in which the hed
g
ed transactions affect
earnings. Any gains or losses related to hedge ineffectiveness
are recognized in the current period cost of products sold. As
of October
3
0, 2011, and October
3
1, 2010, the Com
p
any had
the
f
ollowing outstanding commodity
f
utures contracts desig
-
nated as
f
air value hedges:
Volu
m
e
C
ommodit
y
O
ctober
30,
20
1
1
O
ctober 31
,
201
0
Co
rn 1
2
.4 milli
o
n
bus
h
e
l
s
9
.
9
milli
o
n
bus
h
e
l
s
L
ean
h
og
s
1
.
3
milli
o
n
c
wt 1.1 m
i
ll
io
n
c
wt
O
ther Derivatives:
D
urin
g
fiscal years 2011 and 2010, the
Company has held certain futures and options contract posi
-
tions as part o
f
a merchandisin
g
pro
g
ram and to mana
g
e the
C
ompany’s exposure to fluctuations in commodity markets
and forei
g
n currencies. The
C
ompany has not applied hed
g
e
accountin
g
to these positions.
Additionally, as of January
3
0, 2011, the Company de-desi
g
-
nated its soybean meal futures contracts that were
p
reviously
designated as cash
fl
ow hedges, as these contracts were no
longer highly e
ff
ective. Hedge accounting is no longer being
applied to these contracts, and gains or losses occurring a
f
ter
the date o
f
de-desi
g
nation have been reco
g
nized in earnin
g
s
as
i
ncurred
.
As of October
3
0, 2011, and October
3
1, 2010, the Company
had the followin
g
outstandin
g
futures and options contracts
related to other pro
g
rams:
Volu
m
e
C
ommodit
y
O
ctober
30
,
20
1
1
O
ctober
3
1
,
201
0
C
orn
–
1
.
5
million bushels
S
o
y
bean meal 4,
300
tons 1,
200
tons