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DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 28, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS Our pork production operations use various raw materials, primarily live hogs, corn, soybean meal and wheat, which are actively traded on commodity exchanges. We also use fuel and other energy commodities in our operations. We hedge these commodities when we determine conditions are appropriate to mitigate price risk. While this hedging may limit our ability to participate in gains from favorable commodity fluctuations, it also reduces the risk of loss from adverse changes in raw material prices. We attempt to closely match the commodity contract terms with the hedged item. We also periodically enter into interest rate swaps to hedge exposure to changes in interest rates on certain financial instruments and foreign exchange forward contracts to hedge certain exposures to fluctuating foreign currency rates. We record all derivatives as either assets or liabilities at fair value on the balance sheet, with the exception of contracts that qualify for the normal purchase and normal sale scope exception, which are expected to result in physical delivery. Accounting for changes in the fair value of a derivative depends on whether it qualifies and has been designated as part of a hedging relationship. For derivatives that qualify and have been designated as hedging instruments for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the “hedge accounting” method). For derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in current period earnings (commonly referred to as the “mark-to-market” method). We may elect either method of accounting for our derivative portfolio, assuming all the necessary requirements are met. We have, in the past, availed ourselves of either acceptable method and expect to do so in the future. We believe all of our derivative instruments represent economic hedges against changes in prices and rates, regardless of their designation for accounting purposes. When cash flow hedge accounting is applied, derivative gains or losses are recognized as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The initial fair value of hedge components excluded from the assessment of effectiveness is recognized in earnings on a straight-line basis over the life of the hedging instrument and is presented in the same income statement line item as the hedged item. Any difference between the change in fair value of the hedge components excluded from the assessment of effectiveness and the amounts recognized in earnings is recorded as a component of other comprehensive income (loss). When fair value hedge accounting is applied, derivative gains and losses are recognized in earnings concurrently with the change in fair value of the hedged item attributable to the risk being hedged. A portion of our derivatives are exchange traded futures contracts held with brokers, subject to netting arrangements that are enforceable during the ordinary course of business. Additionally, we have a portfolio of over-the-counter derivatives that are held by counterparties under netting arrangements found in typical master netting agreements. These agreements legally allow for net settlement in the event of bankruptcy. We offset the fair values of derivative assets and liabilities, along with the related cash collateral, that are executed with the same counterparty under these arrangements in the condensed consolidated balance sheets. Changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counterparty agreements. Additionally, certain of our derivative contracts contain credit risk-related contingent features, which would require us to post additional cash collateral to cover net losses on open derivative instruments if our credit rating were sufficiently downgraded. As of September 28, 2025, the net liability position of our open derivative instruments subject to credit risk-related contingent features was $30 million. As of the end of the third quarter of 2025, we were not required to post any collateral to cover losses associated with this net liability position. If our credit rating were sufficiently downgraded, we would be required to post $25 million in collateral. The size and mix of our derivative portfolio vary from time to time based upon our analysis of current and future market conditions. The following table presents the fair values of our open derivative financial instruments on a gross basis.
|  | Assets |  | Liabilities
|  | September 28, 2025 |  | December 29, 2024 |  | September 28, 2025 |  | December 29, 2024
|  | (in millions)
Derivatives using the “hedge accounting” method: |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 9 |  |  | $ | 13 |  |  | $ | 66 |  |  | $ | 37 |
Derivatives using the “mark-to-market” method: |  |  |  |  |  |  |  |
Commodity contracts |  | 1 |  |  | 2 |  |  | 11 |  |  | 7 |
Foreign exchange contracts |  | 1 |  |  | — |  |  | — |  |  | — |
Total fair value of derivative instruments |  | $ | 11 |  |  | $ | 15 |  |  | $ | 76 |  |  | $ | 44 |
The following tables reconcile the gross amounts of derivative assets and liabilities to the net amounts presented in our condensed consolidated balance sheets and the related effects of cash collateral under netting arrangements that provide a legal right of offset of assets and liabilities.
| September 28, 2025
| Gross Amount of Derivative Assets/ Liabilities |  | Netting of Derivative Assets/ Liabilities |  | Net Derivative Assets/Liabilities |  | Netting of Derivative and Cash Collateral |  | Net Amount Presented in the Condensed Consolidated Balance Sheet (1)
| (in millions)
Assets: |  |  |  |  |  |  |  |  |
Commodity contracts | $ | 11 |  |  | $ | (10) |  |  | $ | 1 |  |  | $ | 16 |  |  | $ | 16 |
Foreign exchange contracts | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 1 |
Total | $ | 11 |  |  | $ | (10) |  |  | $ | 1 |  |  | $ | 16 |  |  | $ | 17 |
Liabilities: |  |  |  |  |  |  |  |  |
Commodity contracts | $ | 76 |  |  | $ | (10) |  |  | $ | 66 |  |  | $ | (35) |  |  | $ | 31 |
________________ (1)Net derivative assets are recorded in prepaid expenses and other current assets. Net derivative liabilities are recorded in accrued expenses and other current liabilities. These balances include $50 million in cash collateral paid to and held by our brokers, $16 million of which represents the initial margin and exceeded the related open derivative liability position.
| December 29, 2024
| Gross Amount of Derivative Assets/ Liabilities |  | Netting of Derivative Assets/ Liabilities |  | Net Derivative Assets/Liabilities |  | Netting of Derivative and Cash Collateral |  | Net Amount Presented in the Condensed Consolidated Balance Sheet (1)
| (in millions)
Assets: |  |  |  |  |  |  |  |  |
Commodity contracts | $ | 15 |  |  | $ | (13) |  |  | $ | 2 |  |  | $ | 37 |  |  | $ | 39 |
Liabilities: |  |  |  |  |  |  |  |  |
Commodity contracts | 44 |  |  | (13) |  |  | 31 |  |  | (23) |  |  | 8 |
________________ (1)Net derivative assets are recorded in prepaid expenses and other current assets. Net derivative liabilities are recorded in accrued expenses and other current liabilities. These balances include $60 million of cash collateral paid to and held by one of our brokers, $37 million of which represents the initial margin and exceeded the related open derivative liability position. Hedge Accounting Method Cash Flow Hedges We enter into derivative instruments, such as futures, swaps and options contracts, to manage our exposure to the variability in expected future cash flows attributable to commodity price risk associated with the forecasted sale of fresh pork and the forecasted purchase of grains, hogs, and energy. In addition, we enter into interest rate swaps to manage our exposure to changes in interest rates associated with our variable interest rate debt and the forecasted issuance of fixed rate debt. Lastly, we enter into foreign exchange contracts to manage our exposure to the variability in expected future cash flows attributable to changes in foreign exchange rates associated with the forecasted purchase or sale of assets denominated in foreign currencies. As of September 28, 2025, substantially all of our commodity-related cash flow hedges were for transactions forecasted through April 2026. As of September 28, 2025, the notional volumes associated with open derivative instruments designated in cash flow hedging relationships were as follows:
| Volume |  | Metric
Lean hogs | 767,494,000 |  |  | Pounds
Corn | 21,479,000 |  |  | Bushels
Soybean meal | 168,000 |  |  | Tons
Natural Gas | 2,120,000 |  |  | Million BTU
Diesel | 3,024,000 |  |  | Gallons
The following table presents the effects on our condensed consolidated financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the periods indicated:
| Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative |  | Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings |  |
| Three Months Ended |  | Three Months Ended |  |
| September 28, 2025 |  | September 29, 2024 |  |  |  | September 28, 2025 |  | September 29, 2024 |  |  |  |  |  |  |  |
| (in millions) |  |
Commodity contracts | $ | (33) |  |  | $ | (3) |  |  |  |  | $ | (38) |  |  | $ | 37 |  |  |  |  |  |  |  |  |
| Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative |  | Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings |  |
| Nine Months Ended |  | Nine Months Ended |  |
| September 28, 2025 |  | September 29, 2024 |  |  |  | September 28, 2025 |  | September 29, 2024 |  |  |  |  |  |  |  |
| (in millions) |  |
Commodity contracts | $ | (71) |  |  | $ | (3) |  |  |  |  | $ | (51) |  |  | $ | 11 |  |  |  |  |  |  |  |  |
Interest rate contracts | — |  |  | — |  |  |  |  | (1) |  |  | (1) |  |  |  |  |  |  |  |  |
Foreign currency contracts | — |  |  | 1 |  |  |  |  | — |  |  | 1 |  |  |  |  |  |  |  |  |
Total | $ | (71) |  |  | $ | (2) |  |  |  |  | $ | (52) |  |  | $ | 11 |  |  |  |  |  |  |  |  |
The amounts associated with option contracts as of and for the three and nine months ended September 28, 2025 were not material. In the three and nine months ended September 29, 2024, we recognized $10 million and $48 million in expenses for option premiums, which are excluded from the assessment of hedge effectiveness. As of September 29, 2024, accumulated other comprehensive income included $4 million of net gains associated with options for which the underlying hedged transactions had not yet impacted earnings. This amount represents the difference between the change in the fair value of the options and the amount of option premiums amortized through earnings. We expect to reclassify $7 million ($6 million net of tax) of deferred losses on closed derivative contracts included in accumulated other comprehensive loss as of September 28, 2025. We are unable to estimate the amount of deferred gains or losses related to open derivative contracts to be reclassified into earnings within the next twelve months as their values are subject to change. Fair Value Hedges We enter into derivative instruments (primarily futures contracts) that are designed to hedge changes in the fair value of firm commitments to buy grains and hogs. As of September 28, 2025, the notional volumes associated with open derivative instruments designated in fair value hedging relationships were as follows:
| Volume |  | Metric
Lean hogs | 236,160,000 |  |  | Pounds
Corn | 3,425,000 |  |  | Bushels
Soybeans | 310,000 |  |  | Bushels
The carrying value of hedged firm commitments designated in fair value hedge relationships as of September 28, 2025 was $14 million. The carrying value of hedged firm commitments designated in fair value hedge relationships as of December 29, 2024 was immaterial. When the underlying inventories are acquired, the hedge relationship is discontinued and the fair value hedge adjustment is reclassified to inventories. The amount of fair value hedge gains remaining in inventories for which hedge accounting has been discontinued were immaterial as of September 28, 2025 and December 29, 2024. Mark-to-Market Method As of September 28, 2025, the notional volumes associated with open derivative instruments using the “mark-to-market” method were as follows:
| Volume |  | Metric
Commodity contracts: |  |  |
Lean hogs | 91,898,000 |  |  | Pounds
Corn | 9,795,000 |  |  | Bushels
Soybean meal | 157,000 |  |  | Tons
Soybeans | 915,000 |  |  | Bushels
Natural gas | 104,000 |  |  | Million BTU
Diesel | 1,008,000 |  |  | Gallons
Foreign currency contracts | 26,185,092 |  |  | U.S. Dollars
Derivative Impact on the Condensed Consolidated Statements of Income The following table presents the effect of derivatives on the condensed consolidated statements of income for the periods indicated.
|  | Three Months Ended |  | Nine Months Ended |  |
|  | September 28, 2025 |  | September 29, 2024 |  | September 28, 2025 |  | September 29, 2024 |  |
|  | (in millions) |  | (in millions) |  |
Sales: |  |  |  |  |  |  |  |  |  |
Cash flow hedging—commodity contracts |  | $ | (39) |  |  | $ | 47 |  |  | $ | (53) |  |  | $ | 34 |  |  |
Mark-to-market—commodity contracts |  | 2 |  |  | (3) |  |  | (11) |  |  | (7) |  |  |
Total derivative gain (loss) recognized in sales |  | (37) |  |  | 44 |  |  | (65) |  |  | 27 |  |  |
Cost of sales: |  |  |  |  |  |  |  |  |  |
Cash flow hedging—commodity contracts |  | 1 |  |  | (10) |  |  | 2 |  |  | (23) |  |  |
Fair value hedging—commodity contracts: |  |  |  |  |  |  |  |  |  |
Change in fair value of open derivatives |  | (7) |  |  | 1 |  |  | (20) |  |  | 5 |  |  |
Change in fair value of related hedged items |  | 7 |  |  | (1) |  |  | 20 |  |  | (5) |  |  |
Gain (loss) on closed derivatives (1) |  | (4) |  |  | 2 |  |  | (4) |  |  | 8 |  |  |
Mark-to-market—commodity contracts |  | 7 |  |  | (5) |  |  | 15 |  |  | (8) |  |  |
Total derivative gain (loss) recognized in cost of sales |  | 4 |  |  | (13) |  |  | 12 |  |  | (23) |  |  |
Selling, general and administrative expenses: |  |  |  |  |  |  |  |  |  |
Mark-to-market—foreign currency contracts |  | 1 |  |  | — |  |  | (1) |  |  | 1 |  |  |
Interest expense: |  |  |  |  |  |  |  |  |  |
Cash flow hedging—interest rate contracts |  | — |  |  | — |  |  | (1) |  |  | (1) |  |  |
Discontinued operations: |  |  |  |  |  |  |  |  |  |
Cash flow hedging - foreign exchange contracts |  | — |  |  | — |  |  | — |  |  | 1 |  |  |
Mark to market - foreign exchange contracts |  | — |  |  | 3 |  |  | — |  |  | 3 |  |  |
Total derivative gain recognized in discontinued operations |  | — |  |  | 3 |  |  | — |  |  | 4 |  |  |
Total derivative gain (loss) |  | $ | (33) |  |  | $ | 33 |  |  | $ | (54) |  |  | $ | 9 |  |  |
________________ (1)Represents the amount of fair value hedge adjustment applied to the carrying amount of hedged assets that is recognized in cost of sales as the underlying hedged assets are relieved from inventories and charged to cost of sales.

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