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Derivative Financial Instruments and Hedging Activities
 6 Months Ended
Feb. 28, 2015
Derivative Financial Instruments and Hedging Activities [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
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 are not designated or accounted for as hedging instruments for accounting purposes, with the exception of certain interest rate swap contracts which are accounted for as cash flow or fair value hedges. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value as discussed in Note 12, Fair Value Measurements.

The following tables present the gross fair values of derivative assets, derivative liabilities, and margin deposits (cash collateral) recorded on the Consolidated Balance Sheets along with the related amounts permitted to be offset in accordance with GAAP. We have elected not to offset derivative assets and liabilities when we have the right of offset under FASB 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.
 
February 28, 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
$
595,994

 
$
—

 
$
131,627

 
$
464,367

Foreign exchange derivatives
5,620

 
—

 
787

 
4,833

Interest rate derivatives - hedge
12,390

 
—

 
—

 
12,390

Total
$
614,004

 
$
—

 
$
132,414

 
$
481,590

Derivative Liabilities:
 
 
 
 
 
 
 
Commodity and freight derivatives
$
464,985

 
$
1,279

 
$
131,627

 
$
332,079

Foreign exchange derivatives
13,215

 
—

 
787

 
12,428

Interest rate derivatives - hedge
4,296

 
—

 
—

 
4,296

Interest rate derivatives - non-hedge
94

 
—

 
—

 
94

Total
$
482,590

 
$
1,279

 
$
132,414

 
$
348,897



 
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 three and six months ended February 28, 2015 and 2014.

 
 
 
For the Three Months Ended February 28,
 
For the Six Months Ended February 28,
 
Location of
Gain (Loss)
 
2015
 
2014
 
2015
 
2014
 
 
 
(Dollars in thousands)
Commodity and freight derivatives
Cost of goods sold
 
$
208,794

 
$
81,210

 
$
212,793

 
$
61,421

Foreign exchange derivatives
Cost of goods sold
 
(12,525
)
 
(1,581
)
 
(10,114
)
 
(2,003
)
Interest rate derivatives
Interest, net
 
45

 
52

 
74

 
51

Total
 
$
196,314

 
$
79,681

 
$
202,753

 
$
59,469



Commodity and Freight Contracts:
    
As of February 28, 2015 and August 31, 2014, we had the following outstanding purchase and sales contracts:
 
February 28, 2015
 
August 31, 2014
 
Purchase
Contracts
 
Sales
Contracts
 
Purchase
Contracts
 
Sales
Contracts
 
(Units in thousands)
Grain and oilseed - bushels
716,952

 
1,380,157
 
665,690

 
938,140
Energy products - barrels
57,686

 
55,030
 
27,754

 
50,450
Soy products - tons
4,192

 
3,660
 
37

 
1,212
Crop nutrients - tons
134

 
3,091
 
1,613

 
1,607
Ocean and barge freight - metric tons
5,006

 
3,308
 
5,423

 
4,005
Rail freight - rail cars
202

 
117
 
321

 
186
Livestock - pounds
21,320

 
200
 
—

 
46,280


Foreign Exchange Contracts:

We conduct a substantial portion of our business in U.S. dollars, except for some grain marketing transactions primarily in South America and Europe, and purchases of products from Canada. We have minimal risk relating to foreign currency fluctuations, as substantially all international sales are denominated in U.S. dollars. From time to time, we enter into foreign currency futures contracts to mitigate currency fluctuations. Although our overall risk relating to foreign currency fluctuations is minimal, these 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. As of February 28, 2015, we had $5.6 million included in derivative assets and $13.2 million included in derivative liabilities associated with foreign currency contracts.

Interest Rate Contracts:

CHS Capital, our wholly-owned finance subsidiary, has interest rate swaps that lock the interest rates of underlying loans with a combined notional amount of $3.9 million expiring at various times through fiscal 2018, with $0.1 million of the notional amount expiring during fiscal 2015. 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, net in our Consolidated Statements of Operations.

Derivatives Designated as Cash Flow or Fair Value Hedging Strategies

As of February 28, 2015 and August 31, 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 six months ended February 28, 2015, we recorded offsetting fair value adjustments of $8.2 million, with no ineffectiveness recorded in earnings.

During the six months ended February 28, 2015, we entered into 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 amounts expected to be included in earnings during the next 12 months.

In fiscal 2013, we entered into interest rate swaps designated as cash flow hedges of the expected variability of future interest payments on the forecasted issuance of fixed-rate debt. Gains and losses related to these swaps were initially recorded in accumulated other comprehensive income. In February 2014, the swaps were terminated as the issuance of the underlying debt was no longer probable and, as a result, a $13.5 million pre-tax gain was reclassified into net income in that period.

The following table presents the pretax gains (losses) recorded in other comprehensive income relating to cash flow hedges for the three and six months ended February 28, 2015 and 2014.
 
 
For the Three Months Ended February 28,
 
For the Six Months Ended February 28,
 
 
2015
 
2014
 
2015
 
2014
 
 
(Dollars in thousands)
Interest rate derivatives
 
$
(3,702
)
 
$
(5,299
)
 
$
(4,296
)
 
$
(10,580
)

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 three and six months ended February 28, 2015 and 2014.
 
 
 
For the Three Months Ended February 28,
 
For the Six Months Ended February 28,
 
Location of
Gain (Loss)
 
2015
 
2014
 
2015
 
2014
 
 
 
(Dollars in thousands)
Interest rate derivatives
Interest income (expense)
 
$
(199
)
 
$
13,360

 
$
(402
)
 
$
13,143