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Derivatives (Policies) | 12 Months Ended
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Aug. 31, 2015
Derivatives Policy [Abstract] |
Derivatives, Policy | Derivative Financial Instruments and Hedging Activities Our derivative instruments primarily consist of commodity and freight futures and forward contracts and, to a lesser degree, may include foreign currency and interest rate swap contracts. These contracts are economic hedges of price risk, but we do not apply hedge accounting under ASC Topic 815, Derivatives and Hedging, except with respect to certain interest rate swap contracts which are accounted for as cash flow hedges or fair value hedges. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value. See Note 12, Derivative Financial Instruments and Hedging Activities and Note 13, Fair Value Measurements for additional information. Even though we have netting arrangements for our exchange-traded futures and options contracts and certain over-the-counter ("OTC") contracts, we report our derivatives on a gross basis on our Consolidated Balance Sheets. Our associated margin deposits are also reported on a gross basis. Derivative Financial Instruments and Hedging Activities Our derivative instruments primarily consist of commodity and freight futures and forward contracts and, to a minor degree, may include foreign currency and interest rate swap contracts. These contracts are economic hedges of price risk, but we do not apply hedge accounting under ASC Topic 815, Derivatives and Hedging, except with respect to certain interest rate swap contracts which are accounted for as cash flow hedges or fair value hedges as described below. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value as described in Note 13, Fair Value Measurements. The following tables present the gross fair values of derivative assets, derivative liabilities, and margin deposits (cash collateral) recorded on our Consolidated Balance Sheets along with the related amounts permitted to be offset in accordance with U.S. GAAP. We have elected not to offset derivative assets and liabilities when we have the right of offset under ASC Topic 210-20, Balance Sheet - Offsetting; or when the instruments are subject to master netting arrangements under ASC Topic 815-10-45, Derivatives and Hedging - Overall.
| August 31, 2015
|  |  | Amounts Not Offset on the Consolidated Balance Sheet but Eligible for Offsetting |  |
| Gross Amounts Recognized |  | Cash Collateral |  | Derivative Instruments |  | Net Amounts
| (Dollars in thousands)
Derivative Assets: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 476,071 |  |  | $ | — |  |  | $ | 58,401 |  |  | $ | 417,670 |
Foreign exchange derivatives | 23,154 |  |  | — |  |  | 11,682 |  |  | 11,472 |
Interest rate derivatives - hedge | 14,216 |  |  | — |  |  | — |  |  | 14,216 |
Total | $ | 513,441 |  |  | $ | — |  |  | $ | 70,083 |  |  | $ | 443,358 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 427,052 |  |  | $ | 11,482 |  |  | $ | 58,401 |  |  | $ | 357,169 |
Foreign exchange derivatives | 37,598 |  |  | — |  |  | 11,682 |  |  | 25,916 |
Interest rate derivatives - hedge | 6,058 |  |  | — |  |  | — |  |  | 6,058 |
Interest rate derivatives - non-hedge | 61 |  |  | — |  |  | — |  |  | 61 |
Total | $ | 470,769 |  |  | $ | 11,482 |  |  | $ | 70,083 |  |  | $ | 389,204 |
| August 31, 2014
|  |  | Amounts Not Offset on the Consolidated Balance Sheet but Eligible for Offsetting |  |
| Gross Amounts Recognized |  | Cash Collateral |  | Derivative Instruments |  | Net Amounts
| (Dollars in thousands)
Derivative Assets: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 597,210 |  |  | $ | — |  |  | $ | 42,229 |  |  | $ | 554,981 |
Foreign exchange derivatives | 2,523 |  |  | — |  |  | 1,174 |  |  | 1,349 |
Interest rate derivatives - hedge | 4,200 |  |  | — |  |  | — |  |  | 4,200 |
Total | $ | 603,933 |  |  | $ | — |  |  | $ | 43,403 |  |  | $ | 560,530 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 597,612 |  |  | $ | 2,504 |  |  | $ | 42,229 |  |  | $ | 552,879 |
Foreign exchange derivatives | 2,248 |  |  | — |  |  | 1,174 |  |  | 1,074 |
Interest rate derivatives - non-hedge | 130 |  |  | — |  |  | — |  |  | 130 |
Total | $ | 599,990 |  |  | $ | 2,504 |  |  | $ | 43,403 |  |  | $ | 554,083 |
Derivatives Not Designated as Hedging Instruments The majority of our derivative instruments have not been designated as hedging instruments. The following table sets forth the pretax gains (losses) on derivatives not accounted for as hedging instruments that have been included in our Consolidated Statements of Operations for the years ended August 31, 2015, 2014, and 2013. We have revised the information that we have historically included in this table below to correct for errors in the previously disclosed amounts. Although such gains and losses have been and continue to be appropriately recorded in the Consolidated Statements of Operations, the previous disclosures did not accurately reflect the derivative gains and losses in each period. These revisions did not materially impact our consolidated financial statements.
| Location of Gain (Loss) |  | 2015 |  | 2014 |  | 2013
|  |  | (Dollars in thousands)
Commodity and freight derivatives | Cost of goods sold |  | $ | 143,314 |  |  | $ | 128,992 |  |  | $ | (97,373 | )
Foreign exchange derivatives | Cost of goods sold |  | 12,551 |  |  | (5,926 | ) |  | 37,555 |
Interest rate derivatives | Interest expense, net |  | 107 |  |  | 114 |  |  | 300 |
Total |  |  | $ | 155,972 |  |  | $ | 123,180 |  |  | $ | (59,518 | )
Commodity and Freight Contracts: When we enter into a commodity or freight purchase or sales contract, we incur risks related to price changes and performance (including delivery, quality, quantity, and counterparty credit). We are exposed to risk of loss in the market value of positions held, consisting of inventory and purchase contracts at fixed- or partially-fixed prices in the event market prices decrease. We are also exposed to risk of loss on fixed or partially fixed-price sales contracts in the event market prices increase. Our commodity contracts primarily relate to grain, oilseed, energy (crude, refined products and propane) and fertilizer commodities. Our freight contracts primarily relate to rail, barge and ocean freight transactions. Our use of commodity and freight contracts reduces the effects of price volatility, thereby protecting us against adverse short-term price movements, while limiting the benefits of short-term price movements. To reduce the price change risks associated with holding fixed-price commitments, we generally take opposite and offsetting positions by entering into commodity futures contracts or options in order to arrive at a net commodity position within the formal position limits we have established and deemed prudent for each commodity. These contracts are purchased and sold through regulated commodity futures exchanges for grain, and regulated mercantile exchanges for refined products and crude oil. We also use OTC instruments to hedge our exposure to price fluctuations on commodities and fixed-price arrangements. The price risk we encounter for crude oil and most of the grain and oilseed volumes we handle can be hedged. Price risk associated with fertilizer and certain grains cannot be hedged with futures because there are no futures for these commodities and, as a result, risk is managed through the use of forward sales contracts and other pricing arrangements and, to some extent, cross-commodity futures hedging. Certain fertilizer and propane contracts are accounted for as normal purchase and normal sales transactions. We expect all normal purchase and normal sales transactions to result in physical settlement. When a futures contract is entered into, an initial margin deposit must be sent to the applicable exchange or broker. The amount of the deposit is set by the exchange and varies by commodity. If the market price of a short futures contract increases, then an additional maintenance margin deposit would be required. Similarly, if the price of a long futures contract decreases, a maintenance margin deposit would be required and sent to the applicable exchange. Subsequent price changes could require additional maintenance margins or could result in the return of maintenance margins. Our policy is to primarily maintain hedged positions in grain and oilseed. Our profitability from operations is primarily derived from margins on products sold and grain merchandised, not from hedging transactions. At any one time, inventory and purchase contracts for delivery to us may be substantial. Our risk management policies and procedures include net position limits. These limits are defined for each commodity and include both trader and management limits. The policy and procedures in our grain marketing operations require a review by operations management when any trader is outside of position limits and also a review by senior management if operating areas are outside of position limits. A similar process is used in energy and wholesale crop nutrients operations. Position limits are reviewed, at least annually, with management and the Board of Directors. We monitor current market conditions and may expand or reduce our net position limits or procedures in response to changes in conditions. In addition, all purchase and sales contracts are subject to credit approvals and appropriate terms and conditions. Hedging arrangements do not protect against nonperformance by counterparties to contracts. We primarily use exchange traded instruments which minimize exposure to counterparties' nonperformance. We evaluate exposure by reviewing contracts and adjusting the values to reflect potential nonperformance. Risk of nonperformance by counterparties includes the inability to perform because of the counterparty’s financial condition and also the risk that the counterparty will refuse to perform on a contract during periods of price fluctuations where contract prices are significantly different than current market prices. We manage risks by entering into fixed-price purchase and sales contracts with preapproved producers and by establishing appropriate limits for individual suppliers. Fixed-price contracts are entered into with customers of acceptable creditworthiness, as internally evaluated. Historically, we have not experienced significant events of nonperformance on open contracts. Accordingly, we only adjust the estimated fair values of specifically identified contracts for nonperformance. Although we have established policies and procedures, we make no assurances that historical nonperformance experience will carry forward to future periods. As of August 31, 2015 and 2014, we had outstanding commodity and freight futures that were used as economic hedges, as well as fixed-price forward contracts related to physical purchases and sales of commodities. The table below presents the notional volumes for all outstanding commodity and freight contracts accounted for as derivative instruments. We have made revisions to the information that we have historically included in this table below to correct for errors in the previously disclosed amounts. We previously disclosed volume information for physically-settled forward purchase and sale contracts, including some contracts not accounted for as derivatives. As a result, we have corrected the derivative volume disclosure presented below to include information on the notional amounts for contracts accounted for as derivatives in accordance with ASC Topic 815, Derivatives and Hedging. These revisions did not materially impact our previously issued consolidated financial statements.
| 2015 |  | 2014
| Long |  | Short |  | Long |  | Short
| (Units in thousands)
Grain and oilseed - bushels | 711,066 |  |  | 895,326 |  | 655,799 |  |  | 802,479
Energy products - barrels | 17,238 |  |  | 11,676 |  | 20,191 |  |  | 16,431
Soy products - tons | 706 |  |  | 2,741 |  | 749 |  |  | 3,047
Crop nutrients - tons | 48 |  |  | 116 |  | 59 |  |  | 126
Ocean and barge freight - metric tons | 5,916 |  |  | 1,962 |  | 5,727 |  |  | 4,250
Rail freight - rail cars | 297 |  |  | 122 |  | 364 |  |  | 186
Livestock - pounds | 10,480 |  |  | 1,280 |  | 11,960 |  |  | 46,520
Foreign Exchange Contracts: We conduct a substantial portion of our business in U.S. dollars, but we are exposed to some risk relating to foreign currency fluctuations primarily due to grain marketing transactions in South America and Europe, and purchases of products from Canada. We use foreign currency derivative instruments to mitigate the impact of exchange rate fluctuations. Although our overall risk relating to foreign currency transactions is not significant, exchange rate fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply. The notional amounts of our foreign exchange derivative contracts were $1.3 billion and $784.4 million as of August 31, 2015 and August 31, 2014, respectively. Interest Rate Contracts: CHS Capital, our wholly-owned finance subsidiary, has interest rate swaps that lock the interest rates of the underlying loans with a combined notional amount of $2.5 million expiring at various times through fiscal 2018, with $0.4 million of the notional amount expiring during fiscal 2016. None of CHS Capital’s interest rate swaps qualify for hedge accounting and as a result, changes in fair value are recorded in earnings within interest expense, net in our Consolidated Statements of Operations. Long-term debt used to finance non-current assets carries various fixed interest rates and is payable at various dates to minimize the effects of market interest rate changes. The weighted-average interest rate on fixed rate debt outstanding on August 31, 2015 was approximately 5.8%. Derivatives Designated as Cash Flow or Fair Value Hedging Strategies As of August 31, 2015 and 2014, we have certain derivatives designated as cash flow and fair value hedges. Interest Rate Contracts: We have outstanding interest rate swaps with an aggregate notional amount of $420.0 million designated as fair value hedges of portions of our fixed-rate debt. Our objective in entering into these transactions is to offset changes in the fair value of the debt associated with the risk of variability in the 3-month U.S. dollar LIBOR interest rate, in essence converting the fixed-rate debt to variable-rate debt. Offsetting changes in the fair values of both the swap instruments and the hedged debt are recorded contemporaneously each period and only create an impact to earnings to the extent that the hedge is ineffective. During the years ended August 31, 2015 and 2014, we recorded offsetting fair value adjustments of $8.0 million and $4.2 million, respectively, with no ineffectiveness recorded in earnings. We have outstanding interest rate swaps with an aggregate notional amount of $300.0 million designated as cash flow hedges of the expected variability of future interest payments on our anticipated issuance of fixed-rate debt. The swaps expire in fiscal 2016 with no material amounts expected to be included in earnings during the next 12 months. In fiscal 2013, we entered into derivative contracts designated as cash flow hedging instruments that were terminated in February 2014 as the issuance of the underlying debt was no longer probable. As a result, a $13.5 million gain was reclassified from accumulated other comprehensive loss into net income. This pre-tax gain is included as a component of interest expense, net in our Consolidated Statement of Operations for the year ended August 31, 2014. The following table presents the pretax gains (losses) recorded in other comprehensive income relating to cash flow hedges for the years ended August 31, 2015, 2014, and 2013:
|  | 2015 |  | 2014 |  | 2013
|  | (Dollars in thousands)
Interest rate derivatives |  | $ | (4,078 | ) |  | $ | (10,580 | ) |  | $ | 24,135 |
The following table presents the pretax gains (losses) relating to cash flow hedges that were reclassified from accumulated other comprehensive loss into income for the years ended August 31, 2015, 2014, and 2013:
| Location of Gain (Loss) |  | 2015 |  | 2014 |  | 2013
|  |  | (Dollars in thousands)
Interest rate derivatives | Interest expense, net |  | $ | (792 | ) |  | $ | 12,727 |  |  | $ | (907 | )

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