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Derivatives (Policies) | 12 Months Ended
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Aug. 31, 2017
Derivatives Policy [Abstract] |
Derivatives, Policy | Derivative Financial Instruments and Hedging Activities We enter into various derivative instruments to manage our exposure to movements primarily associated with agricultural commodity prices and freight costs, and to a lesser degree, foreign currency exchange rates and interest rates. Except for certain interest rate swap contracts, which are accounted for as cash flow hedges or fair value hedges, our derivative instruments represent economic hedges of price risk for which hedge accounting under Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging, is not applied. Rather, the derivative instruments are recorded on our Consolidated Balance Sheets at fair value with changes in fair value being recorded directly to earnings, primarily within cost of goods sold in our Consolidated Statements of Operations. See Note 12, Derivative Financial Instruments and Hedging Activities and Note 13, Fair Value Measurements for additional information. Although we have certain netting arrangements for our exchange-traded futures and options contracts and certain over-the-counter ("OTC") contracts, we have elected to report our derivative instruments on a gross basis on our Consolidated Balance Sheets under ASC Topic 210-20, Balance Sheet - Offsetting. 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, 2017
|  |  | 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 | $ | 384,648 |  |  | $ | — |  |  | $ | 35,080 |  |  | $ | 349,568 |
Foreign exchange derivatives | 8,771 |  |  | — |  |  | 3,636 |  |  | 5,135 |
Interest rate derivatives - hedge | 9,978 |  |  | — |  |  | — |  |  | 9,978 |
Embedded derivative asset | 25,533 |  |  | — |  |  | — |  |  | 25,533 |
Total | $ | 428,930 |  |  | $ | — |  |  | $ | 38,716 |  |  | $ | 390,214 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 309,762 |  |  | $ | 3,898 |  |  | $ | 35,080 |  |  | $ | 270,784 |
Foreign exchange derivatives | 19,931 |  |  | — |  |  | 3,636 |  |  | 16,295 |
Interest rate derivatives - hedge | 707 |  |  | — |  |  | — |  |  | 707 |
Total | $ | 330,400 |  |  | $ | 3,898 |  |  | $ | 38,716 |  |  | $ | 287,786 |
| August 31, 2016
|  |  | 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 | $ | 500,192 |  |  | $ | — |  |  | $ | 23,689 |  |  | $ | 476,503 |
Foreign exchange derivatives | 21,551 |  |  | — |  |  | 9,187 |  |  | 12,364 |
Interest rate derivatives - hedge | 22,078 |  |  | — |  |  | — |  |  | 22,078 |
Total | $ | 543,821 |  |  | $ | — |  |  | $ | 32,876 |  |  | $ | 510,945 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 491,302 |  |  | $ | 811 |  |  | $ | 23,689 |  |  | $ | 466,802 |
Foreign exchange derivatives | 22,289 |  |  | — |  |  | 9,187 |  |  | 13,102 |
Interest rate derivatives - non-hedge | 8 |  |  | — |  |  | — |  |  | 8 |
Total | $ | 513,599 |  |  | $ | 811 |  |  | $ | 32,876 |  |  | $ | 479,912 |
Derivative assets and liabilities with maturities of less than 12 months are recorded in derivative assets and derivative liabilities, respectively, on the Consolidated Balance Sheets. Derivative assets and liabilities with maturities greater than 12 months are recorded in other assets and other liabilities, respectively, on the Consolidated Balance Sheets. The amount of long-term derivative assets recorded on the Balance Sheet at August 31, 2017, was $196.9 million. The amount of long-term derivative liabilities recorded on the Consolidated Balance Sheet at August 31, 2017, was $14.4 million. Long-term derivatives as of August 31, 2016, were not material. 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, 2017, 2016, and 2015. We have revised the information that we have historically included in this table below to correct for errors in the previously disclosed amounts for fiscal 2015. Although such gains and losses have been and continue to be appropriately recorded in the Consolidated Statements of Operations, the previous disclosures for fiscal 2015 did not accurately reflect the derivative gains and losses in each period. These revisions did not materially impact our consolidated financial statements for fiscal 2015.
| Location of Gain (Loss) |  | 2017 |  | 2016 |  | 2015
|  |  | (Dollars in thousands)
Commodity and freight derivatives | Cost of goods sold |  | $ | 208,199 |  |  | $ | (49,975 | ) |  | $ | 143,314 |
Foreign exchange derivatives | Cost of goods sold |  | (13,140 | ) |  | (10,904 | ) |  | 8,962 |
Foreign exchange derivatives | Marketing, general and administrative |  | (1,604 | ) |  | (97 | ) |  | 3,589 |
Interest rate derivatives | Interest expense |  | 8 |  |  | (6,292 | ) |  | 107 |
Embedded derivative | Other income (loss) |  | 30,538 |  |  | — |  |  | — |
Total |  |  | $ | 224,001 |  |  | $ | (67,268 | ) |  | $ | 155,972 |
Commodity and Freight Contracts: When we enter a commodity purchase or sales commitment, we are exposed to risks related to price changes and performance including delivery, quality, quantity and shipment period. If market prices decrease, we are exposed to risk of loss in the market value of inventory and purchase contracts with a fixed or partially fixed price. Conversely, we are exposed to risk of loss on our fixed or partially fixed price sales contracts if market prices increase. Our use of hedging reduces the exposure to price volatility by protecting against adverse short-term price movements, but it also limits the benefits of favorable short-term price movements. To reduce the price risk associated with fixed price commitments, we generally enter into commodity derivative contracts, to the extent practical, to achieve a net commodity position within the formal position limits we have established and deemed prudent for each commodity. These contracts are primarily transacted on regulated commodity futures exchanges but may also include over-the-counter derivative instruments when deemed appropriate. For commodities where there is no liquid derivative contract, risk is managed using forward sales contracts, other pricing arrangements and, to some extent, futures contracts in highly correlated commodities. These contracts are economic hedges of price risk, but are not designated as hedging instruments for accounting purposes. The contracts are recorded on our Consolidated Balance Sheets at fair values based on quotes listed on regulated commodity exchanges or the market prices of the underlying products listed on the exchanges, except that fertilizer and propane contracts are accounted for as normal purchase and normal sales transactions. Unrealized gains and losses on these contracts are recognized in cost of goods sold in our Consolidated Statements of Operations. When a futures position is established, initial margin must be deposited with the applicable exchange or broker. The amount of margin required varies by commodity and is set by the applicable exchange at its sole discretion. If the market price relative to a short futures position increases, an additional margin deposit would be required. Similarly, a margin deposit would be required if the market price relative to a long futures position decreases. Conversely, if the market price increases relative to a long futures position or decreases relative to a short futures position, margin deposits may be returned by the applicable exchange or broker. Our policy is to manage our commodity price risk exposure according to internal polices and in alignment with our tolerance for risk. 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. We have risk management policies and procedures that include established net position limits. These limits are defined for each commodity and business unit, and may include both trader and management limits as appropriate. The limits policy is overseen at a high level by our corporate compliance team, with day to day monitoring procedures managed within each individual business unit to ensure any limits overage is explained and exposures reduced or a temporary limit increase is established if needed. The position limits are reviewed, at least annually, with senior leadership 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 those conditions. In addition, all purchase and sales contracts are subject to credit approvals and appropriate terms and conditions. The use of hedging instruments does not protect against nonperformance by counterparties to cash contracts. We evaluate counterparty exposure by reviewing contracts and adjusting the values to reflect potential nonperformance. Risk of nonperformance by counterparties includes the inability to perform because of a counterparty’s financial condition and the risk that the counterparty will refuse to perform on a contract during periods of price fluctuations where contract prices are significantly different than the current market prices. We manage these 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. Regarding our use of derivatives, we primarily transact in exchange traded instruments or enter into over-the-counter derivatives that clear through a designated clearing organization, which limits our counterparty exposure relative to hedging activities. 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, 2017, and 2016, we had outstanding commodity futures, options and freight contracts 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.
| 2017 |  | 2016
| Long |  | Short |  | Long |  | Short
| (Units in thousands)
Grain and oilseed - bushels | 570,673 |  | 768,540 |  |  | 774,279 |  |  | 995,396 |
Energy products - barrels | 15,072 |  | 18,252 |  |  | 14,740 |  |  | 6,470 |
Processed grain and oilseed - tons | 299 |  | 2,347 |  |  | 541 |  |  | 2,060 |
Crop nutrients - tons | 9 |  | 15 |  |  | 108 |  |  | 135 |
Ocean and barge freight - metric tons | 2,777 |  | 1,766 |  |  | 4,406 |  |  | 877 |
Rail freight - rail cars | 176 |  | 75 |  |  | 205 |  |  | 79 |
Natural gas - MMBtu | 500 |  | — |  |  | 3,550 |  |  | 300 |
Foreign Exchange Contracts We conduct a substantial portion of our business in U.S. dollars, but we are exposed to immaterial risks 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 $776.7 million and $802.2 million as of August 31, 2017, and August 31, 2016, respectively. Embedded Derivative Asset Under the terms of our strategic investment in CF Nitrogen, if CF Industries' credit rating is reduced below certain levels by two of three specified credit ratings agencies, we are entitled to receive a non-refundable annual payment of $5.0 million from CF Industries. The payment would continue on an annual basis until the date that CF Industries' credit rating is upgraded to or above certain levels by two of the three specified credit ratings agencies or February 1, 2026, whichever is earlier. During the three months ended November 30, 2016, CF Industries' credit rating was reduced below the specified levels and we recorded a gain of $29.1 million in other income (loss) in our Consolidated Statement of Operations. During November 2016, we received a $5.0 million payment from CF Industries, which reduced the fair value of the associated embedded derivative asset to $24.1 million as of November 30, 2016. CF Industries' credit rating has not changed from November 30, 2016. In addition, during fiscal 2017, we recorded adjustments of $1.4 million in other income (loss) in our Consolidated Statement of Operations to reflect the $25.5 million fair value of the embedded derivative asset on our Consolidated Balance Sheet as of August 31, 2017. The current and long-term portions of the embedded derivative asset are included in derivative assets and other assets on our Consolidated Balance Sheet, respectively. See Note 13, Fair Value Measurements for more information on the valuation of the embedded derivative. Derivatives Designated as Cash Flow or Fair Value Hedging Strategies As of August 31, 2017, and 2016, 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 $495.0 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, 2017, and 2016, we recorded offsetting fair value adjustments of $12.8 million and $9.8 million, respectively, with no ineffectiveness recorded in earnings. In fiscal 2015, we entered into forward-starting 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. During the first quarter of fiscal 2016, we determined that certain of the anticipated debt issuances would be delayed; and we consequently recorded an immaterial amount of losses on the ineffective portion of the related swaps in earnings. Additionally, we paid $6.4 million in cash to settle two of the interest rate swaps upon their scheduled termination dates. During the second quarter of fiscal 2016, we settled an additional two interest rate swaps, paying $5.3 million in cash upon their scheduled termination. In January 2016, we issued the fixed-rate debt associated with these swaps and will amortize the amounts which were previously deferred to other comprehensive income into earnings over the life of the debt. The amounts to be included in earnings are not expected to be material during any 12-month period. During the third quarter of fiscal 2016, we settled the remaining two interest rate swaps, paying $5.1 million in cash upon their scheduled termination. We did not issue additional fixed-rate debt as previously planned, and we reclassified all amounts previously recorded to other comprehensive income into earnings. As of August 31, 2017, and 2016, we had no outstanding cash flow hedges. The following table presents the pretax gains (losses) recorded in other comprehensive income relating to cash flow hedges for the years ended August 31, 2017, 2016, and 2015:
|  | 2017 |  | 2016 |  | 2015
|  | (Dollars in thousands)
Interest rate derivatives |  | $ | — |  |  | $ | (10,070 | ) |  | $ | (4,078 | )
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, 2017, 2016, and 2015:
| Location of Gain (Loss) |  | 2017 |  | 2016 |  | 2015
|  |  | (Dollars in thousands)
Interest rate derivatives | Interest expense |  | $ | (1,742 | ) |  | $ | (5,071 | ) |  | $ | (792 | )

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