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DERIVATIVES AND HEDGING | 9 Months Ended
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Jul. 28, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING | NOTE E - DERIVATIVES AND HEDGING The Company uses hedging programs to manage risk associated with various commodity purchases and interest rates. These programs utilize futures, swaps, and options contracts to manage the Company’s exposure to market fluctuations. 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. If the requirements of hedge accounting are no longer met, hedge accounting is discontinued immediately and any future changes to fair value are recorded directly through earnings. Cash Flow Commodity Hedges: The Company uses futures, swaps, and options contracts to offset price fluctuations in the Company’s future purchases of grain, lean hogs, natural gas, and diesel fuel. These contracts are designated as cash flow hedges; therefore, 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 periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain, natural gas, or diesel fuel exposure beyond the next two upcoming fiscal years and its lean hog exposure beyond the next fiscal year. Fair Value Commodity 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 lean hog and grain suppliers as fair value hedges. The programs are intended 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 and 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 Current Liability, respectively. Gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the periods in which the hedged transactions affect earnings. Cash Flow Interest Rate Hedges: In the second quarter of fiscal 2021, the Company designated two separate interest rate locks as cash flow hedges to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters® snack nuts business. The total notional amount of the Company’s locks was $1.25 billion. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of seven and thirty years and both locks were lifted (See Note J - Long-Term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL. The resulting gain in AOCL is reclassified to Interest Expense in the period in which the hedged transactions affect earnings. Fair Value Interest Rate Hedge: In the first quarter of fiscal 2022, the Company entered into an interest rate swap to protect against changes in the fair value of a portion of previously issued senior unsecured notes attributable to the change in the benchmark interest rate. The hedge specifically designated the last $450 million of the notes due June 2024 (the 2024 Notes). The Company terminated the swap in the fourth quarter of fiscal 2022. The loss related to the swap was recorded as a fair value hedging adjustment to the hedged debt and was amortized through earnings over the remaining life of the debt. In the third quarter of fiscal 2024, the fair value hedging adjustment was completely amortized to correspond with the payment of the 2024 Notes upon maturity. Other Derivatives: The Company holds certain futures and swap contracts to manage the Company’s exposure to fluctuations in grain and pork commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges was immaterial to the consolidated financial statements during the quarter and nine months ended July 28, 2024, and July 30, 2023. Volume: The Company’s outstanding contracts related to its commodity hedging programs include:
In millions | July 28, 2024 |  | October 29, 2023
Corn | 27.6 |  | bushels |  | 30.7 |  | bushels
Lean Hogs | 186.3 |  | pounds |  | 144.2 |  | pounds
Natural Gas | 3.5 |  | MMBtu |  | 3.0 |  | MMBtu
Diesel Fuel | 0.9 |  | gallons |  | — |  | gallons
Fair Value of Derivatives: The gross fair values of the Company’s derivative instruments designated as hedges are:
In thousands | Location on Consolidated Statements of Financial Position | July 28, 2024 |  | October 29, 2023
Commodity Contracts(1) | Other Current Assets | $ | (18,987) |  |  | $ | (13,233) |
(1) Amounts represent the gross fair value of commodity derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its commodity 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 commodity derivative on the Consolidated Statements of Financial Position. The gross liability position as of July 28, 2024 was offset by the right to reclaim net cash collateral of $29.3 million contained within the master netting arrangement. The gross liability position as of October 29, 2023 was offset by the right to reclaim net cash collateral of $32.2 million. See Note H - Fair Value Measurements for a discussion of these net amounts as reported on the Consolidated Statements of Financial Position. Fair Value Hedge - Assets (Liabilities): The carrying amount of the Company’s fair value hedged assets (liabilities) are:
In thousands | Location on Consolidated Statements of Financial Position | July 28, 2024 |  | October 29, 2023
Commodity Contracts | Accounts Payable(1) | $ | (4,160) |  |  | $ | (4,914) |
Interest Rate Contracts | Current Maturities of Long-term Debt(2) | — |  |  | (442,549) |
(1) Represents the carrying amount of fair value hedged assets and liabilities, which are offset by other assets included in master netting arrangements described above. (2) Represents the carrying amount of the hedged portion of the 2024 Notes. The 2024 Notes were paid on June 3, 2024, and there was no cumulative fair value hedging adjustment from discontinued hedges. Accumulated Other Comprehensive Loss Impact: As of July 28, 2024, the Company included in AOCL hedging losses (before tax) of $25.5 million on commodity contracts and gains (before tax) of $11.7 million related to interest rate settled positions. The Company expects to recognize the majority of the losses on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the associated debt instruments. The effect on AOCL for gains or losses (before tax) related to the Company’s derivative instruments are:
| Gain/(Loss) Recognized in AOCL(1) |  | Gain/(Loss) Reclassified from AOCL into Earnings(1) | Location on Consolidated Statements of Operations
| Quarter Ended |  | Quarter Ended
In thousands | July 28, 2024 |  | July 30, 2023 |  | July 28, 2024 |  | July 30, 2023
Cash Flow Hedges |  |  |  |  |  |  |  |
Commodity Contracts | $ | (26,172) |  |  | $ | (2,600) |  |  | $ | (1,541) |  |  | $ | (5,758) |  | Cost of Products Sold
Excluded Component(2) | 299 |  |  | 423 |  |  | — |  |  | — |  |
Interest Rate Contracts | — |  |  | — |  |  | 247 |  |  | 247 |  | Interest Expense
| Gain/(Loss) Recognized in AOCL(1) |  | Gain/(Loss) Reclassified from AOCL into Earnings(1) | Location on Consolidated Statements of Operations
| Nine Months Ended |  | Nine Months Ended
in thousands | July 28, 2024 |  | July 30, 2023 |  | July 28, 2024 |  | July 30, 2023
Cash Flow Hedges |  |  |  |  |  |  |  |
Commodity Contracts | $ | (24,487) |  |  | $ | (34,151) |  |  | $ | (21,297) |  |  | $ | 5,833 |  | Cost of Products Sold
Excluded Component(2) | 2,112 |  |  | (268) |  |  | — |  |  | — |  |
Interest Rate Contracts | — |  |  | — |  |  | 741 |  |  | 741 |  | Interest Expense
(1) See Note G - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on Net Earnings. (2) Represents the time value of commodity options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL. 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 are:
| Quarter Ended |  | Nine Months Ended
In thousands | July 28, 2024 |  | July 30, 2023 |  | July 28, 2024 |  | July 30, 2023
Net Earnings Attributable to Hormel Foods Corporation | $ | 176,701 |  |  | $ | 162,679 |  |  | $ | 584,842 |  |  | $ | 597,637 |
Cash Flow Hedges - Commodity Contracts |  |  |  |  |  |  |
Gain (Loss) Reclassified from AOCL | (1,541) |  |  | (5,758) |  |  | (21,297) |  |  | 5,833 |
Amortization of Excluded Component from Options | (472) |  |  | (1,531) |  |  | (2,478) |  |  | (4,441) |
Fair Value Hedges - Commodity Contracts |  |  |  |  |  |  |
Gain (Loss) on Commodity Futures(1) | 1,139 |  |  | 1,019 |  |  | 5,766 |  |  | (440) |
Total Gain (Loss) on Commodity Contracts(2) | (874) |  |  | (6,271) |  |  | (18,008) |  |  | 952 |
Cash Flow Hedges - Interest Rate Contracts |  |  |  |  |  |  |
Gain (Loss) Reclassified from AOCL | 247 |  |  | 247 |  |  | 741 |  |  | 741 |
Fair Value Hedge - Interest Rate Contracts |  |  |  |  |  |  |
Amortization of Loss Due to Discontinuance of Fair Value Hedge(3) | (1,202) |  |  | (3,125) |  |  | (7,451) |  |  | (9,374) |
Total Gain (Loss) on Interest Rate Contracts(4) | (955) |  |  | (2,878) |  |  | (6,710) |  |  | (8,633) |
Total Gain (Loss) Recognized in Earnings | $ | (1,828) |  |  | $ | (9,148) |  |  | $ | (24,718) |  |  | $ | (7,681) |
(1) Represents gains or losses on commodity contracts designated as fair value hedges that were closed during the quarter and nine months ended July 28, 2024, and July 30, 2023, 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. (2) Total Gain (Loss) on Commodity Contracts is recognized in earnings through Cost of Products Sold. (3) Represents the fair value hedging adjustment amortized through earnings. (4) Total Gain (Loss) on Interest Rate Contracts is recognized in earnings through Interest Expense.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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