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Derivative Financial Instruments and Hedging Activities | 3 Months Ended
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Nov. 30, 2017
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 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 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, 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 | $ | 324,867 |  |  | $ | — |  |  | $ | 36,052 |  |  | $ | 288,815 |
Foreign exchange derivatives | 4,297 |  |  | — |  |  | 2,741 |  |  | 1,556 |
Interest rate derivatives - hedge | 3,596 |  |  | — |  |  | — |  |  | 3,596 |
Embedded derivative asset | 22,271 |  |  | — |  |  | — |  |  | 22,271 |
Total | $ | 355,031 |  |  | $ | — |  |  | $ | 38,793 |  |  | $ | 316,238 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity and freight derivatives | $ | 224,656 |  |  | $ | 10,358 |  |  | $ | 36,052 |  |  | $ | 178,246 |
Foreign exchange derivatives | 7,556 |  |  | — |  |  | 2,741 |  |  | 4,815 |
Interest rate derivatives - hedge | 2,641 |  |  | — |  |  | — |  |  | 2,641 |
Total | $ | 234,853 |  |  | $ | 10,358 |  |  | $ | 38,793 |  |  | $ | 185,702 |
| 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 |
The amount of long-term derivative assets and liabilities recorded on the Consolidated Balance Sheet at November 30, 2017, were $71.8 million and $8.6 million, respectively. The amount of long-term derivative assets and liabilities recorded on the Consolidated Balance Sheet at August 31, 2017, were $196.9 million and $14.4 million, respectively. 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, 2017, and 2016.
|  |  | For the Three Months Ended November 30,
| Location of Gain (Loss) |  | 2017 |  | 2016
|  |  | (Dollars in thousands)
Commodity and freight derivatives | Cost of goods sold |  | $ | 27,752 |  |  | $ | 18,410 |
Foreign exchange derivatives | Cost of goods sold |  | 6,766 |  |  | 6,024 |
Foreign exchange derivatives | Marketing, general and administrative |  | (495 | ) |  | 145 |
Interest rate derivatives | Interest expense |  | (1 | ) |  | 2 |
Embedded derivative | Other income |  | 1,738 |  |  | 29,106 |
Total |  | $ | 35,760 |  |  | $ | 53,687 |
Commodity and Freight Contracts As of November 30, 2017, and August 31, 2017, 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, 2017 |  | August 31, 2017
| Long |  | Short |  | Long |  | Short
| (Units in thousands)
Grain and oilseed - bushels | 588,263 |  |  | 805,041 |  |  | 570,673 |  |  | 768,540 |
Energy products - barrels | 16,254 |  |  | 19,300 |  |  | 15,072 |  |  | 18,252 |
Processed grain and oilseed - tons | 196 |  |  | 1,700 |  |  | 299 |  |  | 2,347 |
Crop nutrients - tons | 25 |  |  | 4 |  |  | 9 |  |  | 15 |
Ocean and barge freight - metric tons | 4,785 |  |  | 3,144 |  |  | 2,777 |  |  | 1,766 |
Rail freight - rail cars | 151 |  |  | 68 |  |  | 176 |  |  | 75 |
Natural gas - MMBtu | 1,500 |  |  | — |  |  | 500 |  |  | — |
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 $646.3 million and $776.7 million as of November 30, 2017, and August 31, 2017, 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 in November of each year 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. We also recorded an embedded derivative asset of $24.1 million on our Consolidated Balance Sheet and a corresponding gain in our Consolidated Statement of Operations for the fair value of the embedded derivative asset during the three months ended November 30, 2016. During the three months ended November 30, 2017, we received a second $5.0 million payment from CF Industries. The fair value of the embedded derivative asset recorded on our Consolidated Balance Sheet as of November 30, 2017, was equal to $22.3 million. The current and long-term portions of the embedded derivative asset are included in derivative assets and other assets on our Consolidated Balance Sheets, respectively. See Note 11, Fair Value Measurements for more information on the valuation of the embedded derivative asset. Derivatives Designated as Fair Value Hedging Strategies As of November 30, 2017, and August 31, 2017, 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 three-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, 2017, and 2016, we recorded offsetting fair value adjustments of $8.3 million and $13.3 million, respectively, with no ineffectiveness recorded in earnings.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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