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FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
 9 Months Ended
Sep. 30, 2021
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

For the year ended December 31, 2020, the Income (loss) from discontinued operations was null.

 

23.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
23.1.Overview

In the ordinary course of business, the Company is exposed to credit, liquidity and market risks, which are actively managed in compliance with the Financial Risk Management Policy (“Risk Policy”) and internal guidelines and strategic documents subject to such policy, executing the formal designation of its hedge accounting relations, as disclosed in the financial statements for the year ended on December 31, 2020.

23.2.Credit risk management

The Company is exposed to the credit risk related to the financial assets held: trade and non-trade accounts receivable, marketable securities, derivative instruments and cash and equivalents. The Company’s credit risk exposure can be assessed in notes 4, 5 and 6.

On September 30, 2021, the Company held financial investments over R$100,000 at the following financial institutions: Banco Bradesco, Banco do Brasil, Banco BTG Pactual, Banco Itaú, Banco Safra, Banco Santander, Banco XP, Caixa Econômica Federal, Citibank, HSBC, J.P. Morgan Chase Bank, T.Garanti Bankasi A.Ş. and Vakiflar Bankasi.

 

 

The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco do Brasil, Banco Itaú, Banco Santander, Banco Votorantim, Bank of America Merrill Lynch, Banco BNP Paribas, Citibank, Goldman Sachs, J.P. Morgan Chase Bank, Morgan Stanley, Rabobank, T.Garanti Bankasi A.Ş. and Banco XP.

23.3.Capital management and liquidity risk

On September 30, 2021, the long-term consolidated gross debt represented 87.51% (93.66% as of December 31, 2020) of the total gross indebtedness, which has an average term higher than nine years.

The Company monitors the gross debt and net debt as set forth below:

 

               
  09.30.21   12.31.20
   Current     Non-current     Total     Total 
Foreign currency loans and borrowings  (2,334,507)    (13,931,707)    (16,266,214)   (15,739,134)
Local currency loans and borrowings (526,743)    (7,385,645)    (7,912,388)   (6,665,292)
Derivative financial liabilities  (186,147)   (36,077)   (222,224)    (385,696)
Gross debt  (3,047,397)    (21,353,429)    (24,400,826)   (22,790,122)
               
Marketable securities and cash and cash equivalents 7,233,026    375,906   7,608,932    8,235,360
Derivative financial assets  83,144    2,139    85,283   377,990
Restricted cash  24,529    1    24,530   24,358
Net debt          (16,682,081)   (14,152,414)

 

The table below summarizes the significant commitments and contractual obligations that may impact the Company’s liquidity:

                               
  09.30.21
  Book
value		   Contractual cash flow   Up to 12 months   Oct - Dec 2022   2023   2024   2025   2026 onwards
Non derivative financial liabilities                              
Loans and borrowings  24,178,602    39,715,036    3,441,569   530,504    3,948,651    3,011,583    1,812,210    26,970,519
Principal      26,996,059    2,226,146   400,000    2,839,213    2,054,081   907,058    18,569,561
Interest      12,718,977    1,215,423   130,504    1,109,438   957,502   905,152    8,400,958
Trade accounts payable  11,089,196    11,195,643    11,183,638    3,272    5,778    2,849   106   -
Supply chain finance  1,889,219    1,917,319    1,917,319   -   -   -   -   -
Lease liabilities  2,555,210    3,214,065   519,189   144,233   515,998   405,335   311,068    1,318,242
Derivative financial liabilities                              
Financial instruments designated as cash flow hedge                              
Interest rate derivatives  36,077    36,077   -   -   -   -   -    36,077
Currency derivatives  82,654    82,654    82,654   -   -   -   -   -
Commodities derivatives  94,094    94,094    94,094   -   -   -   -   -
Financial instruments not designated as cash flow hedge                              
Currency derivatives  9,399    9,399    9,399   -   -   -   -   -

 

The Company does not expect that the cash outflows to fulfill the obligations shown above will be significantly influenced by factors unrelated to its best interests, or substantially modified outside the normal course of business.

23.4.Market risk management
23.4.1.Interest rate risk

The indebtedness is essentially linked to fixed coupon (R$, USD, EUR e TRY), Interbank Deposit Certificate (“CDI”), Broad Consumer Price Index (“IPCA”) and London Interbank Offered Rate (“LIBOR”). In situations of adverse market changes that result in an increase in these rates, the cost of floating-rate debt rises and on the other hand, the cost of fixed-rate debt decreases in relative terms.

Regarding the marketable securities, the Company holds, mainly, instruments indexed by the CDI for investments in Brazil and fixed coupon in USD for investments in the foreign market.

The Company’s exposure to interest rates can be assessed in notes 5 and 14.

The derivative financial instruments used to hedge the exposure to interest rates as of September 30, 2021 are presented in the table below:

 

 

                               
09.30.21
                          Fair value (R$)
Fair value hedge - Derivative instruments   Hedged Object   Maturity   Asset   Liability   Notional   Instrument   Object (1)
Interest rate swap    Debenture - 2nd Issue - 1st series - IPCA + 5.30% p.a     3rd Qtr. 2027    IPCA + 5.30% p.a    CDI + 2.16% p.a.     705,000  BRL    (2,351)   27,316
Interest rate swap    Debenture - 2nd Issue - 2nd series - IPCA + 5.60% p.a     3rd Qtr. 2030    IPCA + 5.60% p.a    CDI + 2.32% p.a.     1,495,000  BRL    (31,528)   71,026
Interest rate swap    Debenture - 3rd Issue - single series - IPCA + 4.78% p.a     2nd Qtr. 2031    IPCA + 4.78% p.a    CDI + 0.60% p.a.     200,000  BRL     (59)   (1,376)
                          (33,938)   96,966

 

(1)Corresponds to the accumulated amount of fair value hedge adjustments on the hedged items, included in the carrying amount of the debentures.

 

23.4.2.Foreign exchange risk

This risk is the one that may cause unexpected losses to the Company resulting from volatility of the FX rates, reducing its assets and revenues, or increasing its liabilities and costs. The Company’s exposure is managed in three dimensions: statement of financial position exposure, operating income exposure and investments exposure.

i.Statement of financial position exposure

Assets and liabilities denominated in foreign currency for which the exchange variations are recognized in the Financial Results are as follows, summarized in Brazilian Reais:

 

         
    09.30.21   12.31.20
Cash and cash equivalents   1,562,136   2,855,979
Trade accounts receivable   6,567,534   5,765,753
Trade accounts payable    (1,144,743)   (859,790)
Loans and borrowings    (15,274,760)    (14,947,793)
Other assets and liabilities, net    12,934    225,694
Exposure of assets and liabilities in foreign currencies    (8,276,899)    (6,960,157)
Derivative financial instruments (hedge)   7,764,347   6,849,947
Exposure in result, net   (512,552)   (110,210)

 

The net P&L exposure is mainly composed of the following currencies:

 

Net P&L Exposure   09.30.21   12.31.20
Argentinian Peso (ARS)    (5,804)    (5,310)
Angolan kwanza (AOA)    263,009   - 
Euros (EUR)   (57,530)    112,672
Yen (JPY)    82,372    29,976
Turkish Liras (TRY)   (241,033)    178,906
U.S. Dollars (USD)   (553,566)   (426,454)
Total   (512,552)   (110,210)

 

The Company is exposed to other currencies, although they have been grouped in the currencies above due to its high correlation or for not being individually significant.

The derivative financial instruments acquired to hedge the foreign currency statement of financial position exposure on September 30, 2021 are not designated as hedge accounting and are set forth below:

 

09.30.21
Derivative instruments not designated   Asset   Liability   Maturity   Notional   Exercise rate   Fair value (R$)
Non-deliverable forward    EUR     BRL    4th Qtr. 2021    EUR   265,000   6.4336   (8,522)
Non-deliverable forward    USD     BRL    4th Qtr. 2021    USD   715,000   5.4864    12,727
Futures - B3    USD     BRL    4th Qtr. 2021    USD   358,000   5.4672    6,462
Currency swap    USD + 1.29% p.a.     CDI + 0.80% p.a.    1st Qtr. 2022    USD   47,583    -    8,450
Non-deliverable forward    EUR     JPY    4th Qtr. 2021    EUR   19,230   130.0080    (877)
Non-deliverable forward    USD     EUR    4th Qtr. 2021    EUR   34,133   1.1719    2,225
Total                           20,465

 

 

ii.Operating income exposure

The derivative and non-derivative financial instruments designated as cash flow hedges for foreing exchange operating income exposure on September 30, 2021 are set forth below:

 

09.30.21
Cash flow hedge - Derivative instruments   Hedged object   Asset   Liability   Maturity   Notional   Designation rate   Fair value
Non-deliverable forward    USD Exports     BRL     USD    4th Qtr. 2021    USD  313,000   5.3157    (48,724)
Non-deliverable forward    USD Exports     BRL     USD    1st Qtr. 2022    USD  63,000   5.4348    (8,220)
Non-deliverable forward    USD Exports     BRL     USD    2nd Qtr. 2022    USD  5,000   5.5782    (365)
Collar    USD Exports     BRL     USD    4th Qtr. 2021    USD  44,000   5.5772   3,204
Collar    USD Exports     BRL     USD    1st Qtr. 2022    USD  30,000   5.7162   1,869
Collar    USD Exports     BRL     USD    2nd Qtr. 2022    USD  10,000   5.7125    (187)
                               (52,423)
                               
                               
09.30.21
Cash flow hedge - Non-derivative instruments   Hedged object       Liability   Maturity   Notional   Designation rate   Fair value (1)
Bond BRF SA BRFSBZ 5 7/8 (2)    USD Exports         USD    2nd Qtr. 2022    USD  70,928   2.0213    (426,732)
Bond BRF SA BRFSBZ 3.95    USD Exports         USD    2nd Qtr. 2023    USD  150,000   2.0387    (510,105)
                               
                               (936,837)

 

(1)Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.
(2)For this instrument, the initial designation was of USD150,000, however there were repurchases with corresponding revocation of the designation in the amounts of USD31,338 at the rate of 3.2408, USD9,350 at the rate of 4.1827, USD27,190 at the rate of 5.1889 e USD11,194 at the rate of 5.5714. The accumulated exchange rate variation of the revoked portions is fixed and reserved in Other Comprehensive Income until the recognition of the hedge object in the second quarter of 2022.
iii.Investments exposure

The Company holds investments abroad in functional currencies different than the Brazilian Real, which generate currency exposure that affects directly the Company’s Equity, in Other Comprehensive Income.

The non-derivative financial instruments designated as net investment hedge instruments on September 30, 2021 are set forth below:

 

09.30.21
Net investment hedge -
Non-derivative instruments		   Object (Investment)   Liability   Maturity   Notional   Rate   Fair value (1)
Bond - BRF SA BRFSBZ 4.35   Federal Foods LLC    USD    3rd Qtr. 2026    USD  75,673   3.7649    (127,395)
Bond - BRF SA BRFSBZ 4.35   BRF Al Yasra Food    USD    3rd Qtr. 2026    USD  108,757   3.7649    (169,128)
Bond - BRF SA BRFSBZ 4.35   Al Khan Foodstuff LLC    USD    3rd Qtr. 2026    USD  65,570   3.7649    (109,230)
                           (405,753)

 

(1)Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.

 

 

23.4.3.Commodities price risk

The financial instruments designated as cash flow hedges and fair value hedges for the commodities price exposure on September 30, 2021 are set forth below:

09.30.21
Cash flow hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise price (1)   Fair value
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     4th Qtr. 2021    32,977  ton    417.29   (9,400)
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     1st Qtr. 2022    85,963  ton    412.66   (21,089)
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     2nd Qtr. 2022    184,877  ton    395.96   (22,888)
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     3rd Qtr. 2022    30,946  ton    387.86   (1,943)
Collar - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     4th Qtr. 2021    9,989  ton    421.11   (2,156)
Collar - buy    Soybean purchase - floating price     Soybean - CBOT     4th Qtr. 2021    19,999  ton    458.84   172
Non-deliverable forward - buy    Corn purchase - floating price     Corn - B3     3rd Qtr. 2022    2,025  ton     1,333.16    (33)
Collar - buy    Corn purchase - floating price     Corn - B3     4th Qtr. 2021    13,230  ton     1,587.07   126
Collar - buy    Corn purchase - floating price     Corn - B3     1st Qtr. 2022    17,037  ton     1,683.33    (303)
Collar - buy    Corn purchase - floating price     Corn - B3     2nd Qtr. 2022    7,992  ton     1,616.67    (97)
Collar - buy    Soybean oil purchase - floating price     Soybean oil - CBOT    4th Qtr. 2021   2,994  ton    794.77    7,069
                          (50,542)

 

(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

 

09.30.21
Cash flow hedge -
Derivative instruments		   Protection object   Assets   Liabilities   Maturity   Notional   Exercise price   Fair value (R$)
Non-deliverable forward    Cost in USD     USD     TRY     4th Qtr. 2021     USD  7,098   8.8251   998
                              998

 

09.30.21
Fair value hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise price (1)   Fair value
Non-deliverable forward - sell    Soybean purchase - fixed price     Soybean - CBOT    1st Qtr. 2022   15,000  ton    503.65    2,956
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    4th Qtr. 2021   179,299  ton    202.24   (8,839)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    1st Qtr. 2022   63,077  ton    200.41   (4,783)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    2nd Qtr. 2022   170,790  ton    216.20   59
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    3rd Qtr. 2022   39,995  ton    184.67   (5,034)
Corn future - sell    Corn purchase - fixed price     Corn - B3    4th Qtr. 2021   7,803  ton     1,562.51   186
Corn future - sell    Corn purchase - fixed price     Corn - B3    1st Qtr. 2022   104,571  ton     1,631.40    2,488
Corn future - sell    Corn purchase - fixed price     Corn - B3    2nd Qtr. 2022   9,882  ton     1,537.49   124
Corn future - sell    Corn purchase - fixed price     Corn - B3    3rd Qtr. 2022   176,985  ton     1,339.50    1,459
Corn future - sell    Corn purchase - fixed price     Corn - B3    4th Qtr. 2022   14,985  ton     1,350.41   -
Collar - sell    Corn purchase - fixed price     Corn - B3    4th Qtr. 2021   62,910  ton     1,649.32    4,350
Collar - sell    Corn purchase - fixed price     Corn - B3    1st Qtr. 2022   25,380  ton     1,567.91   248
Put - Buy    Corn purchase - fixed price     Corn - B3    4th Qtr. 2021   5,994  ton     1,616.67   583
                          (6,203)

 

(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.
09.30.21
Fair value hedge -
Derivative instruments		   Protection object   Assets   Liabilities   Maturity   Notional   Exercise price   Fair value
Non-deliverable forward    Cost in USD     BRL     USD     4th Qtr. 2021     USD  36,262   5.3508   (5,001)
Non-deliverable forward    Cost in USD     BRL     USD     1st Qtr. 2022     USD  20,196   5.3666   (4,335)
Non-deliverable forward    Cost in USD     BRL     USD     2nd Qtr. 2022     USD  36,924   5.6119   (4,575)
Non-deliverable forward    Cost in USD     BRL     USD     3rd Qtr. 2022     USD  7,386   5.6278   (1,387)
                              (15,298)

 

 

23.5.Effects of hedge instruments on financial information

The effects of financial instruments for hedging exchange rate, commodities price and interest rates in the condensed consolidated statement of income (loss) for the period, in Other Comprehensive Income and in the condensed consolidated statement of financial position are set forth below:

Income for the period                    
Jul - Sep 2021   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
Net Sales                12,349,193   -   -    12,349,193
Derivatives result        Operating Results     Cash flow    40,792   -   -    40,792
Net Revenue   25            12,389,985   -   -    12,389,985
                             
Cost of Sales               -    (9,757,320)   -    (9,757,320)
Derivatives result        Operating Results     Cash flow / Fair value    -   (7,983)   -   (7,983)
Cost of Sales               -    (9,765,303)   -    (9,765,303)
                             
Interests on loans and borrowings               -   -   (361,115)   (361,115)
Interest Rate Derivatives result        Interest expenses     Fair value    -   -   (40,065)   (40,065)
Foreign Exchange variation on assets and liabilities               (625,672)   -   -   (625,672)
Foreign Exchange Derivatives result        Financial Position     Not designated    594,162   -   -   594,162
Effects on Financial Result   27           (31,510)   -   (401,180)   (432,690)
                             
                     
Other Comprehensive Income                    
Jul - Sep 2021       Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results     Cash flow    (183,860)   (169,440)   -   (353,300)
Non-derivative Instruments – current        Operating Results     Cash flow    (31,010)   -   -   (31,010)
Non-derivative Instruments – non-current        Operating Results     Cash flow    (65,580)   -   -   (65,580)
Non-derivative Instruments - non-current        Foreign investments     Net investment    (106,955)   -   -   (106,955)
Other Comprehensive Income (1)               (387,405)   (169,440)   -   (556,845)
                             
                     
Income for the period                    
Jan - Sep 2021   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Net Sales                34,539,353   -   -    34,539,353
Derivatives result        Operating Results     Cash flow    79,510   -   -    79,510
Net Revenue   25            34,618,863   -   -    34,618,863
                             
Cost of Sales               -   (27,388,645)   -   (27,388,645)
Derivatives result        Operating Results     Cash flow / Fair value    -   (184,594)   -   (184,594)
Cost of Sales               -   (27,573,239)   -   (27,573,239)
                             
Interests on loans and borrowings               -   -    (1,216,925)    (1,216,925)
Interest Rate Derivatives result        Interest expenses     Fair value    -   -   (35,025)   (35,025)
Foreign Exchange variation on assets and liabilities               (359,457)   -   -   (359,457)
Foreign Exchange Derivatives result        Financial Position     Not designated    178,101   -   -   178,101
Effects on Financial Result   27           (181,356)   -    (1,251,950)    (1,433,306)
                             
                     
Other Comprehensive Income                    
Jan - Sep 2021       Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results     Cash flow    (100,366)   (209,373)   -   (309,739)
Non-derivative Instruments – current        Operating Results     Cash flow    (17,214)   -   -   (17,214)
Non-derivative Instruments – non-current        Operating Results     Cash flow    (36,405)   -   -   (36,405)
Non-derivative Instruments - non-current        Foreign investments     Net investment    (61,079)   -   -   (61,079)
Other Comprehensive Income (1)               (215,064)   (209,373)   -   (424,437)

 

(1)All effects are presented gross of taxes.

 

 

Statement of financial position                    
09.30.21   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Designated derivatives        Operating Results     Cash flow / Fair value    (66,723)   (56,745)   (33,938)   (157,406)
Not designated derivatives        Financial Position     Not designated    20,465   -   -    20,465
Asset / (Liability) net               (46,258)   (56,745)   (33,938)   (136,941)
                             
Derivative Instruments - current (2)        Operating Results     Cash flow    (52,423)   (38,067)   -   (90,490)
Non-derivative instruments – current        Operating Results     Cash flow    (426,732)   -   -   (426,732)
Non-derivative instruments – non-current        Operating Results     Cash flow    (510,105)   -   -   (510,105)
Non-derivative Instruments - non-current        Foreign investments     Net investment    (405,753)   -   -   (405,753)
Other Comprehensive Income (1)               (1,395,013)   (38,067)   -    (1,433,080)
                             
Derivatives result        Operating Results     Cash flow / Fair value    -   538,512   -   538,512
Inventories   7           -   538,512   -   538,512

 

(1)All effects are presented gross of taxes.
(2)Includes R$(2,192) related to the time value of the foreign exchange option contracts, and R$(234) related to the time value of the commodity options contracts.
Statement of financial position                    
12.31.20   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Designated derivatives        Operating Results     Cash flow / Fair value    95,558    (144,057)     -   (48,499)
Not designated derivatives        Financial Position     Not designated    55,442    -    (14,649)    40,793
Asset / (Liability) net                151,000    (144,057)    (14,649)     (7,706)
                             
Derivative Instruments - current        Operating Results     Cash flow    47,942   171,306     -   219,248
Non-derivative instruments – non-current        Operating Results     Cash flow    (883,218)    -     -    (883,218)
Non-derivative Instruments - non-current        Foreign investments     Net investment    (344,674)    -     -    (344,674)
Other Comprehensive Income               (1,179,950)   171,306     -    (1,008,644)
                             
Derivatives result        Operating Results     Cash flow / Fair value    -   442,398     -   442,398
Inventories   7           -   442,398     -   442,398

 

In the statement of cash flows, the effect of the derivative financial instruments designated as hedge accounting is presented in the line item in which the hedged object is recorded. For the instruments not designated, the effects are presented in the Derivative Financial Instruments line item.

Summarized financial position of derivative financial instruments:

               
          09.30.21   12.31.20
Assets              
Designated as hedge accounting              
Currency derivatives          15,931    177,208
Commodities derivatives          37,349    125,304
Interest rate derivatives          2,139   -
Not designated as hedge accounting              
Currency derivatives          29,864    75,478
           85,283    377,990
               
Current assets          83,144    377,756
Non-current assets          2,139   234
               
Liabilities              
Designated as hedge accounting              
Currency derivatives         (82,654)   (81,650)
Commodities derivatives         (94,094)   (269,361)
Interest rate derivatives         (36,077)   -
Not designated as hedge accounting              
Currency derivatives         (9,399)   (20,036)
Interest rate derivatives         -   (14,649)
          (222,224)   (385,696)
               
Current liabilities         (186,147)   (384,969)
Non-current liabilities         (36,077)   (727)

 

 

23.6.Sensitivity analysis

The Management believes that the most relevant risks that may affect the Company’s results are the volatility of commodities prices and foreign exchange rates. Currently the fluctuation of the interest rates does not affect significantly the Company’s results since Management has chosen to keep at fixed rates a considerable portion of its debts.

The amounts below represent the possible impacts (incremental results) of the hedging instruments and their respective hedged positions, considering situations of increase and decrease in the selected risk factors.

The information used in the preparation of the analysis is based on the position as of September 30, 2021, which has been described in the items above. The future results may diverge significantly of the estimated values if the reality presents different than the assumptions used. Positive values indicate gains and negative values indicate losses.

 

    Scenario
Exchange rate - Balance   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.4394   2.7197   4.0796   4.8955   5.9833   6.7993   8.1591
                             
Monetary Assets and Liabilities        3,433,220    1,716,610   686,644    (686,644)   (1,716,610)   (3,433,220)
Derivative Instruments - Not designated       (3,156,437)   (1,578,218)    (631,287)   631,287    1,578,218    3,156,437
Net effect       276,783   138,392   55,357    (55,357)    (138,392)    (276,783)
                             
EUR   6.2983   3.1492   4.7237   5.6685   6.9281   7.8729   9.4475
                             
Monetary Assets and Liabilities       820,571   410,286   164,114    (164,114)    (410,286)    (820,571)
Derivative Instruments - Not designated        (786,712)    (393,356)    (157,342)   157,342   393,356   786,712
Net effect       33,859   16,930   6,772   (6,772)    (16,930)    (33,859)
                             
JPY   0.0488   0.0244   0.0366   0.0439   0.0537   0.0610   0.0732
                             
Monetary Assets and Liabilities        (102,161)    (51,080)    (20,432)   20,432   51,080   102,161
Derivative Instruments - Not designated       60,975   30,488   12,195    (12,195)    (30,488)    (60,975)
Net effect        (41,186)    (20,592)   (8,237)   8,237   20,592   41,186
                             
TRY   0.6124   0.3062   0.4593   0.5512   0.6736   0.7655   0.9186
                             
Monetary Assets and Liabilities       120,516   60,258   24,103    (24,103)    (60,258)    (120,516)
Net effect       120,516   60,258   24,103    (24,103)    (60,258)    (120,516)
                             
                             
AOA   0.0091   0.0045   0.0068   0.0082   0.0100   0.0113   0.0136
                             
Monetary Assets and Liabilities        (131,504)    (65,752)    (26,301)   26,301   65,752   131,504
Net effect        (131,504)    (65,752)    (26,301)   26,301   65,752   131,504

 

                             
    Scenario
Exchange rate - Operating results   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.4394   2.7197   4.0796   4.8955   5.9833   6.7993   8.1591
                             
Revenue in USD       (1,865,518)    (932,759)    (373,104)   373,104   932,759    1,865,518
NDF        1,036,206   518,103   207,241    (207,241)    (518,103)   (1,036,206)
Collar       222,657   108,429   39,893    (23,342)    (88,388)    (202,615)
Loans - Designated       600,858   300,429   120,172    (120,172)    (300,429)    (600,858)
Net effect       (5,797)   (5,798)   (5,798)   22,349   25,839   25,839

 

 

    Scenario
Exchange rate - Operating results   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.4394   2.7197   4.0796   4.8955   5.9833   6.7993   8.1591
                             
Cost of Sales        (274,059)    (137,030)    (54,812)   54,812   137,030   274,059
NDF       274,059   137,030   54,812    (54,812)    (137,030)    (274,059)
Net effect        -     -     -     -     -     - 
                             
                             
                             
    Scenario
Operating results - Commodities   Base (1)   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
Soy Grain - CBOT    464    232    348    418    510    580    696
                             
Cost of Sales       1,160    580    232    (232)    (580)   (1,160)
Collar       (4,139)   (1,832)    (447)    554   1,938   4,246
NDF       3,505   1,753    701    (701)   (1,753)   (3,505)
Net effect        526    501    486    (379)    (395)    (419)
                             
Soybean Meal - CBOT    371    185    278    334    408    464    556
                             
Cost of Sales       63,940   31,970   12,788    (12,788)    (31,970)    (63,940)
Collar       (1,810)    (905)    (362)    238    537   1,369
NDF        (62,130)    (31,065)    (12,426)   12,426   31,065   62,130
Net effect        -     -     -     (124)    (368)    (441)
                             
Soybean Oil - CBOT   1,294    647    970   1,165   1,423   1,617   1,941
                             
Cost of Sales       1,937    968    387    (387)    (968)   (1,937)
Collar       (1,547)    (968)    (387)    387    968   1,937
Net effect        390    -     -     -     -     - 
                             
Corn - CBOT    213    107    160    192    235    267    320
                             
Cost of Sales        (48,318)    (24,159)   (9,664)   9,664   24,159   48,318
NDF       48,318   24,159   9,664   (9,664)    (24,159)    (48,318)
Net effect        -     -     -     -     -     - 
                             
Corn - B3   1,445    722   1,084   1,300   1,589   1,806   2,167
                             
Cost of Sales        (266,037)    (133,018)    (53,207)   53,207   133,018   266,037
Collar       40,052   20,741   9,025   (5,087)    (13,216)    (32,528)
NDF       219,671   109,835   43,934    (43,934)    (109,835)    (219,671)
Put       4,594   2,297    919    (502)    (502)    (502)
Net effect       (1,720)    (145)    671   3,684   9,465   13,336

 

(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

 

 

23.7.Financial instruments by category
               
  09.30.21
  Amortized cost   Fair value through other comprehensive income Fair value through profit and loss   Total
    Equity instruments    
Assets              
Cash and bank  2,203,097    -   -    2,203,097
Cash equivalents -    -    4,686,747    4,686,747
Marketable securities 347,650   13,290    358,148   719,088
Restricted cash  24,530    -   -    24,530
Trade accounts receivable  3,236,504    -    315,657    3,552,161
Other receivables  76,476    -   -    76,476
Derivatives not designated -    -    29,864    29,864
Derivatives designated as hedge accounting (1) -    -    55,419    55,419
               
Liabilities              
Trade accounts payable (11,089,196)    -   -   (11,089,196)
Supply chain finance  (1,889,219)    -   -    (1,889,219)
Loans and borrowings (2) (21,782,488)    -    (2,396,114)   (24,178,602)
Derivatives not designated -    -   (9,399)   (9,399)
Derivatives designated as hedge accounting (1) -    -   (212,825)   (212,825)
Written option– business combination -    -   (471,738)   (471,738)
  (28,872,646)   13,290    2,355,759   (26,503,597)

 

(1)All derivatives are classified at fair value through profit and loss. Those designated as hedge accounting instruments have their gains and losses also affecting Equity and Inventories.
(2)The part of the loans and borrowings the is object in a fair value hedge is classified as Fair value through profit and loss. The rest of the loans and borrowings balance is classified as amortized cost and those designated as cash flow or net investment hedge accounting instruments have their gains and losses also affecting Equity.

 

               
  12.31.20
  Amortized cost   Fair value through other comprehensive income Fair value through profit and loss   Total
    Equity instruments    
Assets              
Cash and bank  2,439,072    -   -    2,439,072
Cash equivalents -    -    5,137,553    5,137,553
Marketable securities 287,504   42,029    329,202   658,735
Restricted cash  24,358    -   -    24,358
Trade accounts receivable  3,789,616    -    310,265    4,099,881
Other receivables  86,404    -   -    86,404
Derivatives not designated -    -    75,478    75,478
Derivatives designated as hedge accounting -    -    302,512   302,512
               
Liabilities              
Trade accounts payable  (9,009,987)    -   -    (9,009,987)
Supply chain finance  (1,452,637)    -   -    (1,452,637)
Loans and borrowings (22,404,426)    -   -   (22,404,426)
Derivatives not designated -    -   (34,685)   (34,685)
Derivatives designated as hedge accounting -    -   (351,011)   (351,011)
Written option– business combination -    -   (185,401)   (185,401)
  (26,240,096)   42,029    5,583,913   (20,614,154)

 

 

23.8.Fair value of financial instruments

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Depending on the inputs used for measurement, the financial instruments at fair value may be classified into 3 hierarchy levels:

»Level 1 – Uses quoted prices (unadjusted) for identical instruments in active markets. In this category are classified investments in stocks, savings accounts, overnights, term deposits, Financial Treasury Bills (“LFT”) and investment funds;
»Level 2 – Uses prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable. In this level are classified the investments in Bank Deposit Certificates (“CDB”) and derivatives, which are measured by well-known pricing models: discounted cash flows and Black-Scholes. The observable inputs are interest rates and curves, volatility factors and foreign exchange rates;
»Level 3 – Instruments for which significant inputs are non-observable. The Company has a financial liability arising from a put option written in the context of a business combination.

The table below presents the overall classification of financial instruments measured at fair value by measurement hierarchy. For the nine-month period ended on September 30, 2021, there were no changes among the 3 levels of hierarchy.

 

                               
  09.30.21   12.31.20
  Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total
Financial Assets                              
Fair value through other comprehensive income                              
Stocks  13,290   -   -    13,290   42,029   -   -   42,029
Fair value through profit and loss                              
Savings account and overnight  600,449   -   -    600,449    1,220,232   -   -    1,220,232
Term deposits -   -   -   -   250,189   -   -   250,189
Bank deposit certificates -    4,082,178   -    4,082,178   -    3,662,448   -    3,662,448
Financial treasury bills  318,893   -   -    318,893   312,515   -   -   312,515
Investment funds  43,375   -   -    43,375   21,371   -   -   21,371
Trade accounts receivable -    315,657   -    315,657   -   310,265   -   310,265
Derivatives -    85,283   -    85,283   -   377,990   -   377,990
Financial Liabilities                              
Fair value through profit and loss                              
Derivatives -   (222,224)   -   (222,224)   -   (385,696)   -   (385,696)
Loans and borrowings -    (2,396,114)   -    (2,396,114)   -   -   -   -
Written option– business combination -   -   (471,738)   (471,738)   -   -   (185,401)   (185,401)
   976,007    1,864,780   (471,738)    2,369,049    1,846,336    3,965,007   (185,401)    5,625,942

 

Except for the items set forth below, the fair value of all other financial instruments is approximate to their book value. The fair value of the bonds set forth below is based on prices observed in active markets, level 1 of the fair value hierarchy, while the debentures are based on level 2 and are measured by discounted cash flows.

 

                         
            09.30.21   12.31.20
    Currency   Maturity   Book
value		   Fair
value		   Book
value		   Fair
value
BRF S.A.                        
BRF SA BRFSBZ 5 7/8   USD   2022   (392,757)   (405,968)   (367,714)   (389,611)
BRF SA BRFSBZ 4 3/4   USD   2024   (1,633,188)   (1,726,110)   (1,538,086)   (1,659,891)
BRF SA BRFSBZ 3.95   USD   2023   (1,283,410)   (1,329,486)   (1,207,468)   (1,275,598)
BRF SA BRFSBZ 2 3/4   EUR   2022   (1,060,043)   (1,072,548)   (1,081,404)   (1,105,478)
BRF SA BRFSBZ 4 7/8   USD   2030   (3,760,174)   (3,817,461)   (3,951,539)   (4,333,054)
BRF SA BRFSBZ 5 3/4   USD   2050   (4,234,323)   (4,182,534)   (4,106,115)   (4,705,851)
Debenture - 1st Issue   BRL   2026   (815,842)   (817,075)   (771,138)   (778,016)
Debenture - 2nd Issue   BRL   2030   (2,292,024)   (2,297,006)   (2,250,867)   (2,225,796)
Debenture - 3rd Issue   BRL   2031   (1,018,992)   (882,766)   -   -
BRF GmbH                        
BRF SA BRFSBZ 4.35   USD   2026   (2,676,797)   (2,813,142)   (2,577,667)   (2,779,574)
            (19,167,550)   (19,344,096)   (17,851,998)   (19,252,869)

 

23.8.1.Level 3 measurement

The Company holds a financial liability arising from a put option written in the context of a business combination. This option gives the non-controlling shareholder the right to sell its equity stake in the subsidiary for an amount equivalent, in Turkish Liras, to a multiple of the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of the economic group of this subsidiary in the last 12 months prior to the exercise. The exercise period is comprised of the six-month period beginning on May 25, 2021. This liability is measured at the present value of redemption amount using internal assumptions regarding the results of that economic group.

The effects of the subsequent measurement resulted in a loss in financial results of R$278,618 in the nine-month ended on September 30, 2021 (gain of R$533,774 in the same period of the prior year) and a loss of R$352,790 for the three-month period ended on September 30, 2021 (gain of R$143,421 in the same period of the prior year), as per note 28.