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Derivative Financial Instruments and Hedging Activities | 3 Months Ended
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Nov. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities Disclosure | 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 or fair value hedges. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value as described in Note 11, 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 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.
| November 30, 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 | $ | 364,218 |  |  | $ | — |  |  | $ | 24,504 |  |  | $ | 339,714 |
Foreign exchange derivatives | 20,335 |  |  | — |  |  | 5,270 |  |  | 15,065 |
Interest rate derivatives - hedge | 10,444 |  |  | — |  |  | — |  |  | 10,444 |
Embedded derivative asset | 24,106 |  |  | — |  |  | — |  |  | 24,106 |
Total | $ | 419,103 |  |  | $ | — |  |  | $ | 29,774 |  |  | $ | 389,329 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 300,167 |  |  | $ | 237 |  |  | $ | 24,504 |  |  | $ | 275,426 |
Foreign exchange derivatives | 15,690 |  |  | — |  |  | 5,270 |  |  | 10,420 |
Interest rate derivatives - hedge | 1,642 |  |  | — |  |  | — |  |  | 1,642 |
Interest rate derivatives - non-hedge | 6 |  |  | — |  |  | — |  |  | 6 |
Total | $ | 317,505 |  |  | $ | 237 |  |  | $ | 29,774 |  |  | $ | 287,494 |
| 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 |
Derivatives Not Designated as Hedging Instruments The majority of our derivative instruments have not been designated as hedging instruments for accounting purposes. 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 months ended November 30, 2016, and 2015.
|  |  | For the Three Months Ended November 30
| Location of Gain (Loss) |  | 2016 |  | 2015
|  |  | (Dollars in thousands)
Commodity and freight derivatives | Cost of goods sold |  | $ | 18,410 |  |  | $ | 35,046 |
Foreign exchange derivatives | Cost of goods sold |  | 6,024 |  |  | 683 |
Foreign exchange derivatives | Marketing, general and administrative |  | 145 |  |  | 7,523 |
Interest rate derivatives | Interest expense |  | 2 |  |  | (704 | )
Embedded derivative | Other Income |  | 29,106 |  |  | — |
Total |  | $ | 53,687 |  |  | $ | 42,548 |
Commodity and Freight Contracts: As of November 30, 2016, and August 31, 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.
| November 30, 2016 |  | August 31, 2016
| Long |  | Short |  | Long |  | Short
| (Units in thousands)
Grain and oilseed - bushels | 698,853 |  |  | 992,878 |  |  | 774,279 |  |  | 995,396 |
Energy products - barrels | 12,666 |  |  | 5,767 |  |  | 14,740 |  |  | 6,470 |
Processed grain and oilseed - tons | 502 |  |  | 1,958 |  |  | 541 |  |  | 2,060 |
Crop nutrients - tons | 65 |  |  | 209 |  |  | 108 |  |  | 135 |
Ocean and barge freight - metric tons | 6,571 |  |  | 1,422 |  |  | 4,406 |  |  | 877 |
Rail freight - rail cars | 195 |  |  | 77 |  |  | 205 |  |  | 79 |
Natural gas - MMBtu | 3,706 |  |  | 50 |  |  | 3,550 |  |  | 300 |
Foreign Exchange Contracts: We are exposed to risk regarding foreign currency fluctuations even though a substantial amount of international sales are denominated in U.S. dollars. In addition to specific transactional exposure, foreign currency fluctuations can 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. From time to time, we enter into foreign currency hedge contracts to minimize the impact of currency fluctuations on our transactional exposures. The notional amounts of our foreign exchange derivative contracts were $789.1 million and $802.2 million as of November 30, 2016, 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 received a $5.0 million payment from CF Industries, which was recorded as a gain in our Consolidated Statement of Operations. Additionally, we recorded a $24.1 million embedded derivative asset on our Consolidated Balance Sheet and a corresponding gain in our Consolidated Statement of Operations for the fair value of the embedded derivative. See Note 11, 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 November 30, 2016, and August 31, 2016, we had 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 three months ended November 30, 2016, and 2015, we recorded offsetting fair value adjustments of $13.3 million and $2.3 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 November 30, 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 three months ended November 30, 2016, and 2015.
|  | For the Three Months Ended November 30
|  | 2016 |  | 2015
|  | (Dollars in thousands)
Interest rate derivatives |  | $ | — |  |  | $ | (6,818 | )
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 months ended November 30, 2016, and 2015.
|  |  | For the Three Months Ended November 30
| Location of Gain (Loss) |  | 2016 |  | 2015
|  |  | (Dollars in thousands)
Interest rate derivatives | Interest expense |  | $ | (440 | ) |  | $ | (191 | )

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