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Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 6. Derivative Instruments and Hedging Activities We are exposed to market risk stemming from changes in commodity prices (primarily corn and natural gas), foreign currency exchange rates and interest rates. In the normal course of business, we actively manage our exposure to these market risks by entering various hedging transactions authorized under established policies that place controls on these activities. These transactions utilize exchange-traded derivatives or over-the-counter derivatives with investment grade counterparties. We use derivative financial instruments that consist of commodity-related futures, options and swap contracts, foreign currency-related forward contracts, interest rate swaps and treasury locks (“T-Locks”). Commodity price hedging: Our principal use of derivative financial instruments is to manage commodity price risk relating to anticipated purchases of corn and natural gas that we intend to use in the manufacturing process, generally over the next 12 to 24 months. We maintain a commodity-price risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility. To manage price risk related to corn purchases primarily in North America, we use corn futures and option contracts that trade on regulated commodity exchanges to lock in corn costs associated with fixed-priced customer sales contracts. We use soybean oil and soybean meal futures contracts in North America that trade on regulated commodity exchanges to hedge sales of our co-products. We also use over-the-counter natural gas swaps primarily in North America to hedge a portion of our natural gas usage. These derivative financial instruments limit the impact that volatility resulting from fluctuations in market prices will have on corn and natural gas purchases, as well as co-product sales. Our natural gas, soybean meal and the majority of our corn and soybean oil derivatives have been designated as cash flow hedging instruments. For certain corn derivative instruments that are not designated as hedging instruments for accounting purposes, all realized and unrealized gains and losses from these instruments are recognized in cost of sales during each accounting period. We enter these derivative instruments to further mitigate commodity price risk related to anticipated purchases of corn. During the three and nine months ended September 30, 2023, we recognized an insignificant amount and a $1 million gain, respectively, on non-designated commodity contracts. During the three and nine months ended September 30, 2022, we recognized a $3 million gain and $2 million gain, respectively, on non-designated commodity contracts. For commodity hedges designated as cash flow hedges, unrealized gains and losses associated with marking the commodity hedging contracts to market (fair value) are recorded as a component of other comprehensive loss (“OCL”) and included in the equity section of the Condensed Consolidated Balance Sheets as part of accumulated other comprehensive loss (“AOCL”). These amounts, as well as their related tax effects, are subsequently 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, or in the period a hedge is determined to be ineffective. We assess the effectiveness of a commodity hedge contract based on changes in the contract’s fair value. The changes in the market value of such contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in the price of the hedged items. Gains and losses from cash flow hedging instruments reclassified from AOCL to earnings are reported as Cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. We had outstanding futures and option contracts that hedged the forecasted purchase of approximately 58 million and 120 million bushels of corn as of September 30, 2023 and December 31, 2022, respectively. We also had outstanding swap contracts that hedged the forecasted purchase of approximately 30 million and 31 million mmbtus of natural gas as of September 30, 2023 and December 31, 2022, respectively. Foreign currency hedging: Due to our global operations, including operations in many emerging markets, we are exposed to fluctuations in foreign currency exchange rates. As a result, we have exposure to translational foreign-exchange risk when the results of our foreign operations are translated to U.S. dollars and to transactional foreign-exchange risk when transactions not denominated in the functional currency are revalued. Our foreign-exchange risk management strategy uses derivative financial instruments such as foreign currency forward contracts, swaps and options to manage our transactional foreign exchange risk. We enter into foreign currency derivative instruments that are designated as cash flow hedging instruments as well as instruments not designated as hedging instruments for accounting purposes in order to mitigate transactional foreign-exchange risk. Gains and losses from derivative financial instruments not designated as hedging instruments for accounting purposes are marked to market in earnings during each period. We hedge certain assets using foreign currency derivatives not designated as hedging instruments, which had a notional value of $463 million and $405 million as of September 30, 2023 and December 31, 2022, respectively. We also hedge certain liabilities using foreign currency derivatives not designated as hedging instruments, which had a notional value of $238 million and $239 million as of September 30, 2023 and December 31, 2022, respectively. We hedge certain assets using foreign currency cash flow hedging instruments, which had a notional value of $594 million and $668 million as of September 30, 2023 and December 31, 2022, respectively. We also hedge certain liability positions using foreign currency cash flow hedging instruments, which had a notional value of $769 million and $840 million as of September 30, 2023 and December 31, 2022, respectively. Interest rate hedging: We assess our exposure to variability in interest rates by identifying and monitoring changes in interest rates that may adversely impact future cash flows and the fair value of existing debt instruments and by evaluating hedging opportunities. Our risk management strategy is to monitor interest rate risk attributable to our outstanding and forecasted debt obligations as well as our offsetting hedge positions. Derivative financial instruments that we have used to manage our interest rate risk consist of interest rate swaps and T-Locks. We periodically enter into T-Locks to hedge our exposure to interest rate changes. The T-Locks are designated as hedges of the variability in cash flows associated with future interest payments caused by market fluctuations in the benchmark interest rate until the fixed interest rate is established and are accounted for as cash flow hedges. Accordingly, changes in the fair value of the T-Locks are recorded to AOCL until the consummation of the underlying debt offering, at which time any realized gain (loss) is amortized to earnings over the life of the debt. We have settled T-Locks associated with the issuance of our senior notes due in 2030 and 2050. The realized loss upon settlement of these T-Locks was recorded in AOCL and is amortized into earnings over the term of the senior notes. We did not have unsettled T-Locks as of September 30, 2023 and December 31, 2022. The derivative instruments designated as cash flow hedges included in AOCL as of September 30, 2023 and December 31, 2022 are reflected below:
Derivatives in Cash Flow Hedging Relationships |  | Gains (Losses) included in AOCL as of
(in millions) |  | September 30, 2023 |  | December 31, 2022
Commodity contracts, net of income tax effect of $19 and $3, respectively |  | $ | (56) |  |  | $ | 8 |
Foreign currency contracts, net of income tax effect of $1 and $—, respectively |  | (1) |  |  | 1 |
Interest rate contracts, net of income tax effect of $1 |  | (3) |  |  | (3) |
Total |  | $ | (60) |  |  | $ | 6 |
As of September 30, 2023, AOCL included $59 million of net losses (net of income taxes of $20 million) on commodities-related derivative instruments, T-Locks and foreign currency hedges designated as cash flow hedges that are expected to be reclassified into earnings during the next 12 months. The fair value and balance sheet location of our derivative instruments, presented gross in the Condensed Consolidated Balance Sheets, are reflected below:
|  | Fair Value of Hedging Instruments as of September 30, 2023
|  | Designated Hedging Instruments (in millions) |  | Non-Designated Hedging Instruments (in millions)
Balance Sheet Location |  | Commodity Contracts |  | Foreign Currency Contracts |  | Total |  | Commodity Contracts |  | Foreign Currency Contracts |  | Total
Accounts receivable, net |  | $ | 5 |  |  | $ | 14 |  |  | $ | 19 |  |  | $ | 1 |  |  | $ | 8 |  |  | $ | 9 |
Other assets |  | 1 |  |  | 11 |  |  | 12 |  |  | — |  |  | — |  |  | — |
Assets |  | 6 |  |  | 25 |  |  | 31 |  |  | 1 |  |  | 8 |  |  | 9 |
Accounts payable and accrued liabilities |  | 56 |  |  | 19 |  |  | 75 |  |  | 2 |  |  | 7 |  |  | 9 |
Non-current liabilities |  | 2 |  |  | 4 |  |  | 6 |  |  | — |  |  | 1 |  |  | 1 |
Liabilities |  | 58 |  |  | 23 |  |  | 81 |  |  | 2 |  |  | 8 |  |  | 10 |
Net Assets/(Liabilities) |  | $ | (52) |  |  | $ | 2 |  |  | $ | (50) |  |  | $ | (1) |  |  | $ | — |  |  | $ | (1) |
|  | Fair Value of Hedging Instruments as of December 31, 2022
|  | Designated Hedging Instruments (in millions) |  | Non-Designated Hedging Instruments (in millions)
Balance Sheet Location |  | Commodity Contracts |  | Foreign Currency Contracts |  | Total |  | Commodity Contracts |  | Foreign Currency Contracts |  | Total
Accounts receivable, net |  | $ | 28 |  |  | $ | 20 |  |  | $ | 48 |  |  | $ | — |  |  | $ | 5 |  |  | $ | 5 |
Other assets |  | 1 |  | 6 |  | 7 |  | — |  | — |  |  | — |
Assets |  | 29 |  | 26 |  | 55 |  | — |  | 5 |  | 5
Accounts payable and accrued liabilities |  | 22 |  | 23 |  | 45 |  | 1 |  | 6 |  | 7
Non-current liabilities |  | 3 |  | 9 |  | 12 |  | — |  | — |  |  | — |
Liabilities |  | 25 |  | 32 |  | 57 |  | 1 |  | 6 |  | 7
Net Assets/(Liabilities) |  | $ | 4 |  |  | $ | (6) |  |  | $ | (2) |  |  | $ | (1) |  |  | $ | (1) |  |  | $ | (2) |
Additional information relating to our derivative instruments is presented below:
Derivatives in Cash Flow |  | Gains (Losses) Recognized in AOCL on Derivatives |  |  |  | Gains (Losses) Reclassified from AOCL into Income
Hedging Relationships |  | Three Months Ended September 30, |  | Income Statement |  | Three Months Ended September 30,
(in millions) |  | 2023 |  | 2022 |  | Location |  | 2023 |  | 2022
Commodity contracts |  | $ | (10) |  |  | $ | 72 |  |  | Cost of sales |  | $ | (37) |  |  | $ | 72 |
Foreign currency contracts |  | 4 |  |  | 3 |  |  | Net sales/Cost of sales |  | 3 |  |  | 1 |
Total |  | $ | (6) |  |  | $ | 75 |  |  |  |  | $ | (34) |  |  | $ | 73 |
Derivatives in Cash Flow |  | Gains (Losses) Recognized in AOCL on Derivatives |  |  |  | Gains (Losses) Reclassified from AOCL into Income
Hedging Relationships |  | Nine Months Ended September 30, |  | Income Statement |  | Nine Months Ended September 30,
(in millions) |  | 2023 |  | 2022 |  | Location |  | 2023 |  | 2022
Commodity contracts |  | $ | (132) |  |  | $ | 240 |  |  | Cost of sales |  | $ | (46) |  |  | $ | 197 |
Foreign currency contracts |  | 9 |  |  | 14 |  |  | Net sales/Cost of sales |  | 10 |  |  | 4 |
Total |  | $ | (123) |  |  | $ | 254 |  |  |  |  | $ | (36) |  |  | $ | 201 |

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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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