DERIVATIVES AND HEDGING

3 Months Ended

Jan. 24, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses hedging programs to manage price risk associated with commodity purchases. These programs utilize futures contracts to manage the Company’s exposure to price fluctuations in the commodities markets. The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated

by the items hedged. Effectiveness testing is performed on a quarterly basis to ascertain a high level of effectiveness for cash flow and fair value hedging programs.

Cash Flow Hedges: The Company designates corn and lean hog futures and options used to offset price fluctuations in the Company’s future direct grain and hog purchases as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in Accumulated Other Comprehensive Loss (AOCL) and reclassified into earnings, through Cost of Products Sold, in the period or periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year.

Fair Value Hedges: The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. Changes in the fair value of the futures contracts, along with the gain or loss on the hedged purchase commitment, are marked-to-market through earnings and recorded on the Consolidated Statements of Financial Position as a Current Asset and Liability, respectively. Effective gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the period or periods in which the hedged transactions affect earnings.

Other Derivatives: The Company holds certain futures and options contract positions as part of a merchandising program and to manage the Company’s exposure to fluctuations in commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.

Volume: The Company's outstanding commodity futures and options contracts related to its hedging programs include:

Volume

Commodity Contracts

January 24, 2021

October 25, 2020

Corn

30.7 million bushels

26.0 million bushels

Lean Hogs

140.4 million pounds

153.7 million pounds

Fair Value of Derivatives: The fair values of the Company’s derivative instruments are:

Gross Fair Value (1)

(in thousands)

Location on Consolidated Statements

of Financial Position

January 24, 2021

October 25, 2020

Derivatives Designated as Hedges:

Commodity Contracts

Other Current Assets

9,372

(1,330)

(1) Amounts represent the gross fair value of derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The amount or timing of cash collateral balances may impact the classification of the derivative in the Consolidated Statements of Financial Position. The gross asset position as of January 24, 2021 is offset by the obligation to return net cash collateral of $2.6 million contained within the master netting arrangement. The gross liability position as of October 25, 2020 is offset by the right to reclaim net cash collateral of $12.3 million. See Note I - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.

Fair Value Hedge - Assets (Liabilities): The carrying amounts of the Company's fair value hedge assets (liabilities) are:


Location on Consolidated Statements of Financial Position	Carrying Amount(1) of the Hedged Assets/(Liabilities)
(in thousands)	January 24, 2021		October 25, 2020
Accounts Payable	$	7,018	$	4,269

(1) Amounts represent the carrying amount of fair value hedged assets and liabilities which are offset by other assets included in master netting arrangements described above.

Accumulated Other Comprehensive Loss Impact: As of January 24, 2021, the Company included in Accumulated Other Comprehensive Loss hedging gains of $19.4 million (before tax) relating to its positions. The Company expects to recognize the majority of these gains over the next twelve months.

The effect of Accumulated Other Comprehensive Loss for gains or losses (before tax) related to the Company's derivative instruments is as follows:

Gain/(Loss)

Recognized

in AOCL (1)

Location on

Consolidated

Statements

of Operations

Gain/(Loss)

Reclassified from

AOCL into Earnings (1)

Thirteen Weeks Ended

(in thousands)

January 24, 2021

January 26, 2020

January 24, 2021

January 26, 2020

Cash Flow Hedges:

Commodity Contracts

16,552

(8,626)

Cost of Products Sold

(50)

(1,875)

(1) See Note H - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on Net Earnings.

Consolidated Statements of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax) related to the Company's derivative instruments is as follows:


	Cost of Products Sold
	Thirteen Weeks Ended
(in thousands)	January 24, 2021		January 26, 2020
Consolidated Statements of Operations	$	2,010,977	$	1,916,014

Cash Flow Hedges - Commodity Contracts
Gain (Loss) Reclassified from AOCL	(50)		(1,875)


Fair Value Hedges - Commodity Contracts
Gain (Loss) on Commodity Futures (1)	(2,913)		3,186

Total Gain (Loss) Recognized in Earnings	$	(2,963)	$	1,311

(1) Amounts represent gains or losses on commodity contracts designated as fair value hedges that were closed during the thirteen weeks ended January 24, 2021, and January 26, 2020, which were offset by a corresponding gain or loss on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.