Derivatives

The Company’s operations are exposed to market risks relating to commodity prices that affect the Company’s cost of raw materials, finished product prices and energy costs and the risk of changes in interest rates and foreign currency exchange rates.

The Company makes limited use of derivative instruments to manage cash flow risks related to natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Soybean meal options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products (“BBP”) by reducing the impact of changing prices. Foreign currency forward contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the local functional currency. At March 30, 2019, the Company had foreign exchange forward and option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

Entities are required to report all derivative instruments in the statement of financial position at fair value. 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, if so, on the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows or foreign currencies. If the hedged exposure is a cash flow exposure, the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside of earnings) and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness are reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change.

Cash Flow Hedges

In fiscal 2018 and the first three months of fiscal 2019, the Company entered into foreign exchange forward and option contracts that are considered cash flow hedges. Under the terms of the foreign exchange contracts, the Company hedged a portion of its forecasted peptan sales in currencies other than the functional currency through the fourth quarter of fiscal 2022. At March 30, 2019 and December 29, 2018, the aggregate fair value of these foreign exchange contracts was approximately $4.0 million and $1.6 million, respectively. The March 30, 2019 amounts are included in other current assets, accrued expense, other assets and noncurrent liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss. The December 29, 2018 amounts are included in other current assets, accrued expense and noncurrent liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

As of March 30, 2019, the Company had the following outstanding forward and option contract amounts that were entered into to hedge foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency (in thousands):



Functional Currency		Contract Currency
Type	Amount	Type	Amount
Brazilian real	49,321	Euro	10,988
Brazilian real	1,171,313	U.S. dollar	330,455
Euro	44,675	U.S. dollar	51,207
Euro	22,121	Polish zloty	95,280
Euro	6,098	Japanese yen	768,000
Euro	38,245	Chinese renminbi	294,273
Euro	13,632	Australian dollar	21,850
Euro	4,573	British pound	3,961
Polish zloty	22,168	Euro	5,156
British pound	276	Euro	322
Japanese yen	296,912	U.S. dollar	2,710
U.S. dollar	821	Japanese yen	90,000

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at March 30, 2019 into earnings over the next 12 months will be approximately $2.1 million. As of March 30, 2019, no amounts have been reclassified into earnings as a result of the discontinuance of cash flow hedges.

The table below summarizes the effect of derivatives not designated as hedges on the Company's consolidated statements of operations for the three ended March 30, 2019 and March 31, 2018 (in thousands):



		Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
		Three Months Ended
Derivatives not designated as hedging instruments	Location	March 30, 2019			March 31, 2018

Foreign exchange	Foreign currency loss	$	1,871		$	1,654
Foreign exchange	Net sales	296			—
Foreign exchange	Cost of sales and operating expenses	(245		)	—
Foreign exchange	Selling, general and administrative expense	873			489
Corn options and futures	Net sales	350			(309		)
Corn options and futures	Cost of sales and operating expenses	(873		)	512
Heating Oil swaps and options	Cost of sales and operating expenses	(506		)	—
Total		$	1,766		$	2,346

At March 30, 2019, the Company had forward purchase agreements in place for purchases of approximately $16.6 million of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery of the underlying product. Accordingly, the forward purchase agreements are not subject to the requirements of fair value accounting because they qualify and the Company has elected to account for these as normal purchases as defined in the FASB authoritative guidance.