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Derivative Financial Instruments and Hedging Activities | 6 Months Ended
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Feb. 29, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities Disclosure | Derivative Financial Instruments and Hedging Activities We enter into various derivative instruments to manage our exposure to movements primarily associated with agricultural and energy commodity prices and, to a lesser degree, foreign currency exchange rates and interest rates. Except for certain cash-settled swaps related to future crude oil purchases and refined product sales, which are accounted for as cash flow hedges, our derivative instruments represent economic hedges of price risk for which hedge accounting under ASC Topic 815 is not applied. Rather, the derivative instruments are recorded on our Condensed Consolidated Balance Sheets at fair value with changes in fair value being recorded directly to earnings, primarily within cost of goods sold in our Condensed Consolidated Statements of Operations. See Note 12, Fair Value Measurements, for additional information. The majority of our exchange-traded agricultural commodity futures are settled daily through CHS Hedging, LLC, our wholly-owned FCM. Derivatives Not Designated as Hedging Instruments The following tables present the gross fair values of derivative assets, derivative liabilities and related margin deposits (cash collateral) recorded on our Condensed Consolidated Balance Sheets, along with related amounts permitted to be offset in accordance with U.S. GAAP. 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 Condensed Consolidated Balance Sheets under ASC Topic 210-20, Balance Sheet-Offsetting.
| February 29, 2024
|  |  | Amounts Not Offset on Condensed Consolidated Balance Sheet but Eligible for Offsetting |  |
| Gross Amount Recognized |  | Cash Collateral |  | Derivative Instruments |  | Net Amount
Derivative assets | (Dollars in thousands)
Commodity derivatives | $ | 251,437 |  |  | $ | — |  |  | $ | 12,052 |  |  | $ | 239,385 |
Foreign exchange derivatives | 16,880 |  |  | — |  |  | 3,796 |  |  | 13,084 |
Total | $ | 268,317 |  |  | $ | — |  |  | $ | 15,848 |  |  | $ | 252,469 |
Derivative liabilities |  |  |  |  |  |  |
Commodity derivatives | $ | 274,317 |  |  | $ | 1,574 |  |  | $ | 12,052 |  |  | $ | 260,691 |
Foreign exchange derivatives | 4,179 |  |  | — |  |  | 3,796 |  |  | 383 |
Total | $ | 278,496 |  |  | $ | 1,574 |  |  | $ | 15,848 |  |  | $ | 261,074 |
| August 31, 2023
|  |  | Amounts Not Offset on Condensed Consolidated Balance Sheet but Eligible for Offsetting |  |
| Gross Amount Recognized |  | Cash Collateral |  | Derivative Instruments |  | Net Amount
Derivative assets | (Dollars in thousands)
Commodity derivatives | $ | 280,440 |  |  | $ | — |  |  | $ | 4,866 |  |  | $ | 275,574 |
Foreign exchange derivatives | 32,402 |  |  | — |  |  | 12,330 |  |  | 20,072 |
Total | $ | 312,842 |  |  | $ | — |  |  | $ | 17,196 |  |  | $ | 295,646 |
Derivative liabilities |  |  |  |  |  |  |
Commodity derivatives | $ | 349,131 |  |  | $ | 1,505 |  |  | $ | 4,866 |  |  | $ | 342,760 |
Foreign exchange derivatives | 13,799 |  |  | — |  |  | 12,330 |  |  | 1,469 |
Total | $ | 362,930 |  |  | $ | 1,505 |  |  | $ | 17,196 |  |  | $ | 344,229 |
Derivative assets and liabilities with maturities of less than 12 months are recorded in other current assets and other current liabilities, respectively, on our Condensed Consolidated Balance Sheets. Derivative assets and liabilities with maturities greater than 12 months are recorded in other assets and other liabilities, respectively, on our Condensed Consolidated Balance Sheets. The amount of long-term derivative assets recorded on our Condensed Consolidated Balance Sheets as of February 29, 2024, and August 31, 2023, was $1.5 million and $1.1 million, respectively. The amount of long-term derivative liabilities recorded on our Condensed Consolidated Balance Sheets as of February 29, 2024, and August 31, 2023, was $1.6 million and $12.6 million, respectively. The following table sets forth the pretax gains (losses) on derivatives not accounted for as hedging instruments that have been included in our Condensed Consolidated Statements of Operations for the three and six months ended February 29, 2024, and February 28, 2023:
|  |  | Three Months Ended |  | Six Months Ended
| Location of Gain (Loss) |  | February 29, 2024 |  | February 28, 2023 |  | February 29, 2024 |  | February 28, 2023
|  |  | (Dollars in thousands)
Commodity derivatives | Cost of goods sold |  | $ | 30,703 |  |  | $ | 31 |  |  | $ | 38,887 |  |  | $ | (135,655) |
Foreign exchange derivatives | Cost of goods sold |  | (1,001) |  |  | 17,414 |  |  | (5,608) |  |  | (2,039) |
Foreign exchange derivatives | Marketing, general and administrative expenses |  | (849) |  |  | 11 |  |  | (29) |  |  | 248 |
Total |  | $ | 28,853 |  |  | $ | 17,456 |  |  | $ | 33,250 |  |  | $ | (137,446) |
Commodity Contracts As of February 29, 2024, and August 31, 2023, we had outstanding commodity futures and options 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 contracts:
| February 29, 2024 |  | August 31, 2023
| Long |  | Short |  | Long |  | Short
| (Units in thousands)
Grain and oilseed (bushels) | 381,999 |  |  | 545,845 |  |  | 506,654 |  | 630,803
Energy products (barrels) | 10,099 |  |  | 11,137 |  |  | 11,839 |  | 8,085
Processed grain and oilseed (tons) | 866 |  |  | 2,017 |  |  | 7,380 |  | 9,437
Crop nutrients (tons) | 57 |  |  | — |  |  | 70 |  | 10
Ocean freight (metric tons) | — |  |  | — |  |  | 40 |  | —
Natural gas (metric million Btu) | 1,400 |  |  | 500 |  |  | 460 |  | —
Foreign Exchange Contracts We conduct a substantial portion of our business in U.S. dollars, but we are exposed to risks relating to foreign currency fluctuations, primarily due to global grain marketing transactions in South America, the Asia Pacific region and Europe and purchases of products from Canada. We use foreign currency derivative instruments to mitigate the impact of exchange rate fluctuations. Although CHS has some risk exposure relating to foreign currency transactions, a larger impact with exchange rate fluctuations is 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 amount of our foreign exchange derivative contracts was $1.2 billion and $1.9 billion as of February 29, 2024, and August 31, 2023, respectively. Interest Rate Contracts In the second quarter of fiscal 2024, we entered into forward-starting interest rate swaps with an aggregate notional amount of $150.0 million as an economic hedge for the expected variability of future interest payments on our anticipated issuance of fixed-rate debt. Derivatives Designated as Cash Flow Hedging Strategies Certain pay-fixed, receive-variable, cash-settled swaps are designated as cash flow hedges of future crude oil purchases in our Energy segment. We also designate certain pay-variable, receive-fixed, cash-settled swaps as cash flow hedges of future refined energy product sales. These hedging instruments and the related hedged items are exposed to significant market price risk and potential volatility. As part of our risk management strategy, we look to hedge a portion of our expected future crude oil needs and the resulting refined product output based on prevailing futures prices, management's expectations about future commodity price changes and our risk appetite. We may also elect to dedesignate certain derivative instruments previously designated as cash flow hedges as part of our risk management strategy. Amounts recorded in other comprehensive income for these dedesignated derivative instruments remain in other comprehensive income and are recognized in earnings in the period in which the underlying transactions affect earnings. As of February 29, 2024, and August 31, 2023, the aggregate notional amounts of cash flow hedges were 3.6 million and 4.1 million barrels, respectively. The following table presents the fair value of our commodity derivative instruments designated as cash flow hedges and the locations on our Condensed Consolidated Balance Sheets in which they are recorded:
|  | Derivative Assets |  |  |  | Derivative Liabilities
Balance Sheet Location |  | February 29, 2024 |  | August 31, 2023 |  | Balance Sheet Location |  | February 29, 2024 |  | August 31, 2023
|  | (Dollars in thousands) |  |  |  | (Dollars in thousands)
Other current assets |  | $ | 5,518 |  |  | $ | 8,395 |  |  | Other current liabilities |  | $ | 845 |  |  | $ | 5,345 |
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 29, 2024, and February 28, 2023:
|  | Three Months Ended |  | Six Months Ended
|  | February 29, 2024 |  | February 28, 2023 |  | February 29, 2024 |  | February 28, 2023
|  | (Dollars in thousands)
Commodity derivatives |  | $ | 7,932 |  |  | $ | 20,830 |  |  | $ | 1,622 |  |  | $ | (8,759) |
The following table presents the pretax gains (losses) relating to our existing cash flow hedges that were reclassified from accumulated other comprehensive loss into our Condensed Consolidated Statements of Operations for the three and six months ended February 29, 2024, and February 28, 2023:
|  |  | Three Months Ended |  | Six Months Ended
| Location of Gain (Loss) |  | February 29, 2024 |  | February 28, 2023 |  | February 29, 2024 |  | February 28, 2023
|  |  | (Dollars in thousands)
Commodity derivatives | Cost of goods sold |  | $ | 2,585 |  |  | $ | (9,129) |  |  | $ | 10,667 |  |  | $ | (16,058) |

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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/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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