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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The Company recognizes all of its derivative instruments as either assets or liabilities at fair value in its consolidated balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. The majority of the Company’s derivatives have not been designated as hedging instruments. For those derivative instruments that are designated and qualify as hedging instruments, a reporting entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. As of June 30, 2013 and December 31, 2012, the Company has certain derivatives designated as cash flow hedges. Within the Note 5 tables, zeros represent minimal amounts. Derivatives Not Designated as Hedging Instruments The Company generally uses exchange-traded futures, exchange-traded and OTC options contracts, and forward contracts to manage its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional versus non-functional currencies, the Company will economically hedge some portion of its forecasted foreign currency expenditures. For example, certain production facilities have manufacturing expenses and equipment purchases denominated in non-functional currencies. The results of these strategies can be significantly impacted by factors such as the correlation between the value of exchange-traded commodities futures contracts and the value of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Exchange-traded futures and exchange-traded and OTC options contracts, and forward cash purchase and sales contracts of certain merchandisable agricultural commodities accounted for as derivatives by the Company are stated at fair value. Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Inventory is not a derivative and therefore is not included in the tables below. Changes in the market value of inventories of certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures, forward foreign currency exchange contracts, and exchange-traded and OTC options contracts are recognized in earnings immediately. Unrealized gains and unrealized losses on forward cash purchase contracts, forward foreign currency exchange (FX) contracts, forward cash sales contracts, and exchange-traded and OTC options contracts represent the fair value of such instruments and are classified on the Company’s consolidated balance sheets as other current assets and accrued expenses and other payables, respectively. The following table sets forth the fair value of derivatives not designated as hedging instruments as of June 30, 2013 and December 31, 2012.
| June 30, 2013 |  | December 31, 2012
| Assets |  | Liabilities |  | Assets |  | Liabilities
| (In millions) |  | (In millions)
FX Contracts | $ | 152 |  |  | $ | 195 |  |  | $ | 170 |  |  | $ | 215 |
Interest Contracts | 1 |  |  | — |  |  | 1 |  |  | — |
Commodity Contracts | 2,255 |  |  | 2,240 |  |  | 2,504 |  |  | 2,376 |
Total | $ | 2,408 |  |  | $ | 2,435 |  |  | $ | 2,675 |  |  | $ | 2,591 |
The following tables set forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three and six months ended June 30, 2013 and 2012.
| Three months ended June 30,
| 2013 |  | 2012
| (In millions)
Interest Contracts |  |  |
Interest expense | $ | 0 |  |  | $ | 0 |
Other income (expense) – net | 0 |  |  | — |
FX Contracts |  |  |  |  |
Net sales and other operating income | $ | 36 |  |  | $ | 75 |
Cost of products sold | (86 | ) |  | (169 | )
Other income (expense) – net | (10 | ) |  | (93 | )
Commodity Contracts |  |  |  |  |
Cost of products sold | $ | 139 |  |  | $ | (291 | )
Other Contracts |  |  |
Other income (expense) - net | $ | — |  |  | $ | (1 | )
Total gain (loss) recognized in earnings | $ | 79 |  |  | $ | (479 | )
| Six months ended June 30,
| 2013 |  | 2012
| (In millions)
Interest Contracts |  |  |
Interest expense | $ | 0 |  |  | $ | 0 |
Other income (expense) – net | 0 |  |  | — |
FX Contracts |  |  |  |  |
Net sales and other operating income | $ | 109 |  |  | $ | 84 |
Cost of products sold | (87 | ) |  | (139 | )
Other income (expense) – net | (55 | ) |  | 48 |
Commodity Contracts |  |  |  |  |
Cost of products sold | $ | 207 |  |  | $ | (523 | )
Other Contracts |  |  |
Other income (expense) - net | $ | — |  |  | $ | (1 | )
Total gain (loss) recognized in earnings | $ | 174 |  |  | $ | (531 | )
Derivatives Designated as Cash Flow Hedging Strategies For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same line item affected by the hedged transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument that is in excess of the cumulative change in the cash flows of the hedged item, if any (i.e., the ineffective portion), hedge components excluded from the assessment of effectiveness, and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period. For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains/losses arising from the hedge will be reclassified from AOCI to either net sales and other operating income, cost of products sold, interest expense or other income (expense) – net, as applicable. As of June 30, 2013, the Company has $13 million of after-tax losses in AOCI related to gains and losses from commodity cash flow hedge transactions. The Company expects to recognize all of these after-tax losses in its consolidated statement of earnings during the next 12 months . 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 currently grind approximately 76 million bushels of corn per month. During the past 12 months, the Company hedged between 15% and 26% of its monthly anticipated grind. At June 30, 2013, the Company has designated hedges representing between 0.1% and 24% of its anticipated monthly grind of corn for the next 12 months. 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 3.8 million MMbtus of natural gas per month. During the past 12 months, the Company hedged between 11% and 66% of the quantity of its anticipated monthly natural gas purchases. At June 30, 2013, the Company has designated hedges representing between 13% and 20% of its anticipated monthly natural gas purchases for the next 6 months. The Company, from time to time, also uses futures, options, and swaps to fix the sales price of certain ethanol sales contracts. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s sales of ethanol under sales contracts that are indexed to unleaded gasoline prices. During the past 12 months, the Company hedged between 1 million to 15 million gallons of ethanol per month under this program. At June 30, 2013, the Company has designated hedges representing between 1 million to 10 million gallons of contracted ethanol sales per month over the next 9 months. To protect against fluctuations in cash flows due to foreign currency exchange rates, the Company from time to time will use forward foreign exchange contracts as cash flow hedges. For example, certain production facilities have manufacturing expenses and equipment purchases denominated in non-functional currencies. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional versus non-functional currencies, the Company will hedge some portion of its forecasted foreign currency expenditures. During the past 12 months, the Company hedged between $12 million and $25 million of forecasted foreign currency expenditures. As of June 30, 2013, the Company has designated hedges of $12 million of its forecasted foreign currency expenditures. At June 30, 2013, the Company has $1 million of after-tax gains in AOCI related to foreign exchange contracts designated as cash flow hedging instruments. The Company will recognize the $1 million of gains in its consolidated statement of earnings over the life of the hedged transactions. The Company, from time to time, uses treasury-lock agreements and interest rate swaps in order to lock in the Company’s interest rate prior to the issuance or remarketing of its long-term debt. Both the treasury-lock agreements and interest rate swaps were 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 treasury-lock agreements and interest rate swaps was to protect the Company from changes in the benchmark rate from the date of hedge designation to the date when the debt was actually issued. At June 30, 2013, AOCI included $21 million of after-tax gains related to treasury-lock agreements and interest rate swaps. The Company will recognize the $21 million of gains in its consolidated statement of earnings over the terms of the hedged items, which range from 10 to 30 years. The following table sets forth the fair value of derivatives designated as hedging instruments as of June 30, 2013 and December 31, 2012.
| June 30, 2013 |  | December 31, 2012
| Assets |  | Liabilities |  | Assets |  | Liabilities
| (In millions) |  | (In millions)
Commodity Contracts | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 0 |
Total | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 0 |
The following tables set forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the three and six months ended June 30, 2013 and 2012.
|  |  | Three months ended
| Consolidated Statement of Earnings Locations |  | June 30,
|  | 2013 |  | 2012
|  |  | (In millions)
Effective amounts recognized in earnings |  |  |  |  |
FX Contracts | Other income/expense – net |  | $ | 0 |  |  | $ | 0 |
Interest Contracts | Interest expense |  | 0 |  |  | 0 |
Commodity Contracts | Cost of products sold |  | (3 | ) |  | (3 | )
| Net sales and other operating income |  | 6 |  |  | 5 |
Ineffective amount recognized in earnings |  |  |  |  |
Commodity Contracts | Cost of products sold |  | (13 | ) |  | 37 |
Total amount recognized in earnings |  |  | $ | (10 | ) |  | $ | 39 |
|  |  | Six months ended
| Consolidated Statement of Earnings Locations |  | June 30,
|  | 2013 |  | 2012
|  |  | (In millions)
Effective amounts recognized in earnings |  |  |  |  |
FX Contracts | Other income/expense – net |  | $ | 0 |  |  | $ | 0 |
Interest Contracts | Interest expense |  | 0 |  |  | 1 |
Commodity Contracts | Cost of products sold |  | (5 | ) |  | (6 | )
| Net sales and other operating income |  | 5 |  |  | (5 | )
Ineffective amount recognized in earnings |  |  |  |  |
Commodity Contracts | Cost of products sold |  | (55 | ) |  | 10 |
Total amount recognized in earnings |  |  | $ | (55 | ) |  | $ | — |
Hedge ineffectiveness results when the change in the price of the underlying commodity in a specific cash market differs from the change in the price of the derivative financial instrument used to establish the hedging relationship. As an example, if the change in the price of a corn futures contract is strongly correlated to the change in cash price paid for corn, the gain or loss on the derivative instrument is deferred and recognized at the time the corn grind occurs. If the change in price of the derivative does not strongly correlate to the change in the cash price of corn, in the same example, some portion or all of the derivative gains or losses may be required to be recognized in earnings prior to the corn grind occurring. The following tables set forth the changes in AOCI related to derivatives gains (losses) for the three and six months ended June 30, 2013 and 2012.
| Three months ended
| June 30,
| 2013 |  | 2012
| (In millions)
Balance at March 31, 2013 and 2012 | $ | 11 |  |  | $ | 4 |
Unrealized gains (losses) | (7 | ) |  | 76 |
Losses (gains) reclassified to earnings | (3 | ) |  | (2 | )
Tax effect | 5 |  |  | (28 | )
Balance at June 30, 2013 and 2012 | $ | 6 |  |  | $ | 50 |
| Six months ended
| June 30,
| 2013 |  | 2012
| (In millions)
Balance at December 31, 2012 and 2011 | $ | 4 |  |  | $ | 30 |
Unrealized gains (losses) | 2 |  |  | 22 |
Losses (gains) reclassified to earnings | — |  |  | 11 |
Tax effect | — |  |  | (13 | )
Balance at June 30, 2013 and 2012 | $ | 6 |  |  | $ | 50 |

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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