CHS 2014 Annual Report Download - page 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2013
AMOUNTS NOT OFFSET ON OUR CONSOLIDATED BALANCE
SHEET BUT ELIGIBLE FOR OFFSETTING
GROSS AMOUNTS CASH DERIVATIVE NET
(DOLLARS IN THOUSANDS) RECOGNIZED COLLATERAL INSTRUMENTS AMOUNTS
Derivative Assets:
Commodity and freight derivatives $ 468,673 $ — $ 53,107 $ 415,566
Foreign exchange derivatives 7,079 — 957 6,122
Interest rate derivatives—hedge 24,135 — — 24,135
Interest rate derivatives—non-hedge 3 — 3 —
Total $499,890 $ — $54,067 $ 445,823
Derivative Liabilities:
Commodity and freight derivatives $ 458,893 $ 1,591 $ 53,107 $ 404,195
Foreign exchange derivatives 5,925 — 957 4,968
Interest rate derivatives—non-hedge 248 — 3 245
Total $ 465,066 $ 1,591 $54,067 $409,408
The majority of our derivative instruments have not been designated as hedging instruments. The following table sets
forth the pretax gains (losses) on derivatives not designated as hedging instruments that have been included in our
Consolidated Statements of Operations for the years ended August 31, 2014, 2013, and 2012.
(DOLLARS IN THOUSANDS) LOCATION OF GAIN (LOSS) 2014 2013 2012
Commodity and freight derivatives Cost of goods sold $ 210,164 $ (482,352) $ 311,167
Foreign exchange derivatives Cost of goods sold (5,595) (452) (5,219)
Interest rate derivatives Interest, net 114 300 206
Total $ 204,683 $(482,504) $ 306,154
Commodity and Freight Contracts: risks associated with holding fixed price commitments, we
When we enter into a commodity or freight purchase or generally take opposite and offsetting positions by
sales contract, we incur risks related to price changes entering into commodity futures contracts or options in
and performance (including delivery, quality, quantity, order to arrive at a net commodity position within the
and counterparty credit). We are exposed to risk of loss formal position limits we have established and deemed
in the market value of positions held, consisting of prudent for each commodity. These contracts are pur-
inventory and purchase contracts at a fixed or partially chased and sold through regulated commodity futures
fixed price in the event market prices decrease. We are exchanges for grain, and regulated mercantile exchanges
also exposed to risk of loss on fixed or partially fixed for refined products and crude oil. We also use OTC instru-
price sales contracts in the event market prices increase. ments to hedge our exposure to price fluctuations on
commodities and fixed price arrangements. The price risk
Our commodity contracts primarily relate to grain, oil- we encounter for crude oil and most of the grain and
seed, energy (crude, refined products and propane) and oilseed volumes we handle can be hedged. Price risk asso-
fertilizer commodities. Our freight contracts primarily ciated with fertilizer and certain grains cannot be hedged
relate to rail, barge and ocean freight transactions. Our use with futures because there are no futures for these com-
of commodity and freight contracts reduces the effects of modities and, as a result, risk is managed through the use
price volatility, thereby protecting us against adverse of forward sales contracts and other pricing arrange-
short-term price movements, while limiting the benefits of ments and, to some extent, cross-commodity futures
short-term price movements. To reduce the price change hedging. Certain fertilizer and propane contracts are
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Derivatives Not Designated as Hedging Instruments