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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company uses derivative instruments to manage several market risks, such as interest rate, foreign currency, and commodity risk. Some of those hedges the Company enters into qualify for hedge accounting in the financial statements (Hedge Accounting Derivatives) and some, while intended as economic hedges, do not qualify or are not designated for hedge accounting (Economic Hedge Derivatives). As these derivatives impact the financial statements in different ways, they are discussed separately below. Hedge Accounting Derivatives - The Company uses derivatives in qualifying hedge accounting relationships to manage certain of its interest rate, foreign currency, and commodity risks. In executing these hedge strategies, the Company primarily relies on the shortcut and critical terms match methods in designing its hedge accounting strategy, which results in little to no net earnings impact for these hedge relationships. The Company monitors these relationships on a quarterly basis and performs a quantitative analysis to validate the assertion that the hedges are highly effective if there are changes to the hedged item or hedging derivative. Fair value hedges - These derivatives are used to hedge the effect of interest rate and currency exchange rate changes on certain long-term debt. Under fair value hedge accounting, the derivative is measured at fair value and the carrying value of hedged debt is adjusted for the change in value related to the exposure being hedged, with both adjustments offset to earnings. In other words, the earnings effect of an increase in the fair value of the derivative will be substantially offset by the earnings effect of the increase in the carrying value of the hedged debt. The net impact of fair value hedge accounting for interest rate swaps is recognized in Interest expense. For cross currency swaps the changes in currency risk on the derivative are recognized in Foreign exchange gains (losses), and the changes in interest rate risk are recognized in Interest expense. Changes in basis risk are held in Accumulated other comprehensive income (loss) until realized through the coupon. Cash flow hedges of currency risk - The Company manages currency risk on certain forecasted purchases, sales, and selling, general and administrative expenses with currency forwards. The change in the value of the forward is held in Accumulated other comprehensive income (loss) until the transaction affects earnings, at which time the change in value of the currency forward is reclassified to Net sales, Cost of goods sold or Selling, general and administrative expenses. These hedges mature at various times through December 2021. Of the amount currently in Accumulated other comprehensive income (loss), $(3) million of deferred losses is expected to be reclassified to earnings in the next twelve months. Net investment hedges - The Company hedges the currency risk of certain of its foreign subsidiaries with currency forwards and intercompany loans for which the currency risk is remeasured through Accumulated other comprehensive income (loss). For currency forwards, the forward method is used. The change in the value of the forward is classified in Accumulated other comprehensive income (loss) until the transaction affects earnings. The table below provides information about the balance sheet values of hedged items and the notional amount of derivatives used in hedging strategies. The notional amount of the derivative is the number of units of the underlying (for example, the notional principal amount of the debt in an interest rate swap). The notional amount is used to compute interest or other payment streams to be made under the contract and is a measure of the Company’s level of activity. The Company discloses derivative notional amounts on a gross basis.
(US$ in millions) | September 30, 2020 | December 31, 2019 | Unit of Measure
Hedging instrument type: |  |  |
Fair value hedges of interest rate risk |  |  |
| Carrying value of hedged debt | $ | 2,782 |  | $ | 2,279 |  | $ Notional
| Cumulative adjustment to long-term debt from application of hedge accounting | $ | 104 |  | $ | 37 |  | $ Notional
| Interest rate swap | $ | 2,687 |  | $ | 2,249 |  | $ Notional
Fair value hedges of currency risk |  |  |
| Carrying value of hedged debt | $ | 291 |  | $ | 281 |  | $ Notional
| Cross currency swap | $ | 291 |  | $ | 281 |  | $ Notional
Cash flow hedges of currency risk |  |  |
| Foreign currency forward | $ | 159 |  | $ | 99 |  | $ Notional
| Foreign currency option | $ | 115 |  | $ | 75 |  | $ Notional
Net investment hedges |  |  |
| Foreign currency forward | $ | 1,698 |  | $ | 928 |  | $ Notional
| Carrying value of non-derivative hedging instrument | $ | 933 |  | $ | 895 |  | $ Notional
Economic Hedge Derivatives - In addition to using derivatives in qualifying hedge relationships, the Company enters into derivatives to economically hedge its exposure to a variety of market risks it incurs in the normal course of operations. Interest rate derivatives are used to hedge exposures to the Company's financial instrument portfolios and debt issuances. The impact of changes in fair value of these instruments is primarily presented in Interest expense. Currency derivatives are used to hedge the balance sheet and commercial exposures that arise from the Company's global operations. The impact of changes in fair value of these instruments is presented in Cost of goods sold when hedging commercial exposures and Foreign exchange gains (losses) when hedging monetary exposures. Agricultural commodity derivatives are used primarily to manage the Company's inventory and forward purchase and sales contracts. Contracts to purchase agricultural commodities generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of agricultural commodities generally do not extend beyond one future crop cycle. The impact of changes in fair value of these instruments is presented in Cost of goods sold. The Company uses derivative instruments referred to as forward freight agreements ("FFA") and FFA options to hedge portions of its current and anticipated ocean freight costs. The impact of changes in fair value of these instruments is presented in Cost of goods sold. The Company uses energy derivative instruments to manage its exposure to volatility in energy costs. Hedges may be entered into for natural gas, electricity, coal and fuel oil, including bunker fuel. The impact of changes in fair value of these instruments is presented in Cost of goods sold. The Company may also enter into other derivatives, including credit default swaps and equity derivatives to manage exposure to credit risk and broader macroeconomic risks, respectively. The impact of changes in fair value of these instruments is presented in Cost of goods sold. The table below summarizes the volume of economic derivatives as of September 30, 2020 and December 31, 2019. For those contracts traded bilaterally through the OTC markets (e.g., forwards, forward rate agreements ("FRA") and swaps), the gross position is provided. For exchange traded (e.g., futures, FFAs and options) and cleared positions (e.g., energy swaps), the net position is provided.
| September 30, | December 31, |
| 2020 | 2019 | Unit of Measure
(US$ in millions) | Long | (Short) | Long | (Short)
Interest rate |  |  |  |  |
Swaps | $ | 2,236 |  | $ | (625) |  | $ | 4,062 |  | $ | (39) |  | $ Notional
FRAs | $ | 180 |  | $ | (180) |  | $ | 213 |  | $ | (418) |  | $ Notional
Currency |  |  |  |  |
Forwards | $ | 11,780 |  | $ | (13,526) |  | $ | 7,164 |  | $ | (9,983) |  | $ Notional
Swaps | $ | 471 |  | $ | (447) |  | $ | 191 |  | $ | (170) |  | $ Notional
Futures | $ | 28 |  | $ | — |  | $ | — |  | $ | (16) |  | $ Notional
Options | $ | 135 |  | $ | (194) |  | $ | 132 |  | $ | (157) |  | Delta
Agricultural commodities |  |  |  |  |
Forwards | 42,058,200 |  | (43,113,078) |  | 27,914,141 |  | (25,321,595) |  | Metric Tons
Swaps | — |  | — |  | — |  | (1,114,704) |  | Metric Tons
Futures | — |  | (12,165,453) |  | — |  | (1,960,051) |  | Metric Tons
Options | — |  | (574,239) |  | — |  | (115,232) |  | Metric Tons
Ocean freight |  |  |  |  |
FFA | 7,878 |  | — |  | — |  | (133) |  | Hire Days
FFA options | 285 |  | — |  | 42 |  | — |  | Hire Days
Natural gas |  |  |  |  |
Swaps | 525,118 |  | — |  | 215,640 |  | — |  | MMBtus
Futures | 10,985,000 |  | — |  | 2,802,500 |  | — |  | MMBtus
Energy - other |  |  |  |  |
Forwards | 5,534,290 |  | — |  | 5,534,290 |  | — |  | Metric Tons
Futures | 1,074 |  | — |  | — |  | — |  | Metric Tons
Swaps | 429,703 |  | — |  | 239,836 |  | — |  | Metric Tons
Other |  |  |  |  |
Swaps and futures | $ | 20 |  | $ | — |  | $ | 50 |  | $ | (14) |  | $ Notional
The Effect of Derivative Instruments and Hedge Accounting on the Condensed Consolidated Statements of Income The tables below summarize the net effect of derivative instruments and hedge accounting on the condensed consolidated statements of income for the three and nine months ended September 30, 2020 and 2019.
|  | Gain (Loss) Recognized in Income on Derivative Instruments
|  | Three Months Ended September 30,
(US$ in millions) |  | 2020 | 2019
Income statement classification | Type of derivative |  |
Net sales |  |  |
Hedge accounting | Foreign currency | $ | (4) |  | $ | (2) |
Cost of goods sold |  |  |
Hedge accounting | Commodities | $ | — |  | $ | 10 |
Economic hedges | Foreign currency | (344) |  | (20) |
| Commodities | (403) |  | 190 |
| Other (1) | 51 |  | (27) |
Total Cost of goods sold |  | $ | (696) |  | $ | 153 |
Interest expense |  |  |
Hedge accounting | Interest rate | $ | 6 |  | $ | (3) |
Economic hedges | Interest rate | — |  | 1 |
Total Interest expense |  | $ | 6 |  | $ | (2) |
Foreign exchange gains (losses) |  |  |
Hedge accounting | Foreign currency | $ | 13 |  | $ | (1) |
Economic hedges | Foreign currency | 35 |  | (17) |
Total Foreign exchange gains (losses) |  | $ | 48 |  | $ | (18) |
Other comprehensive income (loss) |  |  |
Gains and losses on derivatives used as fair value hedges of foreign currency risk included in other comprehensive income (loss) during the period | $ | (1) |  | $ | — |
Gains and losses on derivatives used as cash flow hedges of foreign currency risk included in other comprehensive income (loss) during the period | $ | (4) |  | $ | (10) |
Gains and losses on derivatives used as cash flow hedges of commodity price risk included in other comprehensive income (loss) during the period | $ | — |  | $ | 12 |
Gains and losses on derivatives used as net investment hedges included in other comprehensive income (loss) during the period | $ | 47 |  | $ | (10) |
Foreign currency gains and losses on intercompany loans used as net investment hedges included in other comprehensive income (loss) during the period | $ | (40) |  | $ | 39 |
Amounts released from accumulated other comprehensive income (loss) during the period |  |
Cash flow hedge of foreign currency risk | $ | 3 |  | $ | (2) |
Cash flow hedge of commodity risk | $ | — |  | $ | (9) |
(1) Other includes the results from freight, energy and other derivatives.
|  | Gain (Loss) Recognized in Income on Derivative Instruments
|  | Nine Months Ended September 30,
(US$ in millions) |  | 2020 | 2019
Income statement classification | Type of derivative |  |
Net sales |  |  |
Hedge accounting | Foreign currency | $ | (10) |  | $ | — |
Cost of goods sold |  |  |
Hedge accounting | Commodities | $ | — |  | $ | 10 |
Economic hedges | Foreign currency | (1,459) |  | 146 |
| Commodities | 583 |  | 84 |
| Other (1) | 9 |  | 1 |
Total Cost of goods sold |  | $ | (867) |  | $ | 241 |
Interest expense |  |  |
Hedge accounting | Interest rate | $ | 8 |  | $ | (11) |
Economic hedges | Interest rate | — |  | (9) |
Total Interest expense |  | $ | 8 |  | $ | (20) |
Foreign exchange gains (losses) |  |  |
Hedge accounting | Foreign currency | $ | 23 |  | $ | 7 |
Economic hedges | Foreign currency | (202) |  | 14 |
Total Foreign exchange gains (losses) |  | $ | (179) |  | $ | 21 |
Other comprehensive income (loss) |  |  |
Gains and losses on derivatives used as fair value hedges of foreign currency risk included in other comprehensive income (loss) during the period | $ | (1) |  | $ | (2) |
Gains and losses on derivatives used as cash flow hedges of foreign currency risk included in other comprehensive income (loss) during the period | $ | (21) |  | $ | (7) |
Gains and losses on derivatives used as cash flow hedges of commodity price risk included in other comprehensive income (loss) during the period | $ | — |  | $ | 20 |
Gains and losses on derivatives used as net investment hedges included in other comprehensive income (loss) during the period | $ | 100 |  | $ | (55) |
Foreign currency gains and losses on intercompany loans used as net investment hedges included in other comprehensive income (loss) during the period | $ | (37) |  | $ | 44 |
Amounts released from accumulated other comprehensive income (loss) during the period |  |
Cash flow hedge of foreign currency risk | $ | 5 |  | $ | — |
Cash flow hedge of commodity risk | $ | — |  | $ | (9) |
(1) Other includes the results from freight, energy and other derivatives.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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