8. DERIVATIVE FINANCIAL INSTRUMENTS

At June 30, 2018, the company’s consolidated balance sheet reflected unrealized losses of $4.2 million, net of tax, in accumulated other comprehensive income. The company expects these losses will be reclassified to operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount realized in operating income will differ as commodity prices change.

Fair Values of Derivative Instruments

The fair values of the company’s derivative financial instruments and the line items on the consolidated balance sheets where they are reported are as follows (in thousands):


	Asset Derivatives'				Liability Derivatives'
	Fair Value				Fair Value
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Derivative financial instruments (1)	$	18,969	$	12,045	$	-	$	12,884
Accrued and other liabilities		-		-		22,868		-
Other liabilities		-		-		84		92
Total	$	18,969	$	12,045	$	22,952	$	12,976

(1) At June 30, 2018, derivative financial instruments, as reflected on the balance sheet, include net unrealized gains on exchange traded futures and options contracts of $11.7 million, which included $1.1 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments. At December 31, 2017, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $8.5 million, which included $0.3 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.

Refer to Note 4 - Fair Value Disclosures, which contains fair value information related to derivative financial instruments.

Effect of Derivative Instruments on Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income

The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):


Location of Gain or (Loss)	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Reclassified from Accumulated Other	Three Months Ended June 30,				Six Months Ended June 30,
Comprehensive Income into Income	2018		2017		2018		2017
Revenues	$	(313)	$	2,825	$	1,448	$	6,977
Cost of goods sold		1,079		(648)		101		182
Net gain recognized in earnings before tax	$	766	$	2,177	$	1,549	$	7,159


	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
Gain or (Loss) Recognized in	Three Months Ended June 30,				Six Months Ended June 30,
Other Comprehensive Income on Derivatives	2018		2017		2018		2017
Commodity contracts	$	(5,422)	$	(5,444)	$	16,844	$	(2,834)


		Amount of Gain or (Loss)
		Recognized in Income on Derivatives
Derivatives Not Designated	Location of Gain or (Loss) Recognized in	Three Months Ended June 30,				Six Months Ended June 30,
as Hedging Instruments	Income on Derivatives	2018		2017		2018		2017
Commodity contracts	Revenues	$	7,027	$	(5,215)	$	7,963	$	(10,263)
Commodity contracts	Costs of goods sold		7,121		3,284		123		15,220
		$	14,148	$	(1,931)	$	8,086	$	4,957

As of June 30, 2018, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):

As of December 31, 2017, no amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items.

Effect of Cash Flow and Fair Value Hedge Accounting on the Statement of Financial Performance

The effect of cash flow and fair value hedges and the line items on the consolidated statements of operations where they are reported are as follows (in thousands):


	Location and Amount of Gain or (Loss) Recognized in
	Income on Cash Flow and Fair Value Hedging Relationships
	for the Three Months Ended June 30,
		2018				2017
		Revenue		Cost of Goods Sold		Revenue		Cost of Goods Sold
Gain (loss) on cash flow hedging relationships:

Commodity contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	$	(313)	$	1,079	$	2,825	$	(648)

Gain (loss) on fair value hedging relationships:

Commodity contracts:
Hedged item		-		1,103		(31)		(2,526)
Derivatives designated as hedging instruments		-		(446)		(578)		2,406

Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow or fair value hedges are recorded	$	(313)	$	1,736	$	2,216	$	(768)


	Location and Amount of Gain or (Loss) Recognized in
	Income on Cash Flow and Fair Value Hedging Relationships
	for the Six Months Ended June 30,
		2018				2017
		Revenue		Cost of Goods Sold		Revenue		Cost of Goods Sold
Gain on cash flow hedging relationships:

Commodity contracts:
Amount of gain reclassified from accumulated other comprehensive income into income	$	1,448	$	101	$	6,977	$	182

Gain (loss) on fair value hedging relationships:

Commodity contracts:
Hedged item		-		10,496		1,390		(4,454)
Derivatives designated as hedging instruments		-		(8,878)		(1,673)		5,445

Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow or fair value hedges are recorded	$	1,448	$	1,719	$	6,694	$	1,173

There were no gains or losses from discontinuing cash flow or fair value hedge treatment during the three and six months ended June 30, 2018 and 2017.

The open commodity derivative positions as of June 30, 2018, are as follows (in thousands):


June 30, 2018
	Exchange Traded		Non-Exchange Traded
Derivative Instruments	Net Long & (Short) (1)		Long (2)	(Short) (2)	Unit of Measure	Commodity

Futures	(52,345)				Bushels	Corn, Soybeans and Wheat
Futures	500	(3)			Bushels	Corn
Futures	(4,750)	(4)			Bushels	Corn
Futures	(36,313)				Gallons	Ethanol
Futures	(18,270)	(3)			Gallons	Ethanol
Futures	10,050				MmBTU	Natural Gas
Futures	(9,765)	(4)			MmBTU	Natural Gas
Futures	(18,390)				Pounds	Livestock
Futures	(292,280)	(3)			Pounds	Cattle
Futures	(11)				Barrels	Crude Oil
Futures	(43)	(4)			Barrels	Crude Oil
Futures	2,814	(3)			Gallons	Natural Gasoline
Options	5,304				Bushels	Corn, Soybeans and Wheat
Options	9,467				Gallons	Ethanol
Options	(1,898)				MmBTU	Natural Gas
Options	(3,732)				Pounds	Livestock
Options	67				Barrels	Crude Oil
Forwards			50,708	(555)	Bushels	Corn and Soybeans
Forwards			32,986	(289,259)	Gallons	Ethanol
Forwards			368	(638)	Tons	DDG
Forwards			23,463	(122,826)	Pounds	Corn Oil
Forwards			17,086	(1,931)	MmBTU	Natural Gas
Forwards			44	(44)	Barrels	Crude Oil

(1)

Exchange traded futures and options are presented on a net long and (short) position basis. Options are presented on a delta-adjusted basis.

(2)

Non-exchange traded forwards are presented on a gross long and (short) position basis including both fixed-price and basis contracts.

(3)

Futures used for cash flow hedges.

(4)

Futures used for fair value hedges.

Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Included in revenues are net gains on energy trading contracts of $4.1 million and $10.8 million for the three and six months ended June 30, 2018, respectively, and net gains of $6.8 million and $15.1 million for the three and six months ended June 30, 2017, respectively.

Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included

Carrying Amount of the Hedged Assets

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets

Inventories