Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments, Measured at Fair Value, Hedging Activities, and Concentrations of Credit Risk

v3.20.2
Financial Instruments, Measured at Fair Value, Hedging Activities, and Concentrations of Credit Risk
9 Months Ended
Sep. 30, 2020
Text Block [Abstract]  
Financial Instruments, Measured at Fair Value, Hedging Activities, and Concentrations of Credit Risk

2. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE, HEDGING ACTIVITIES, AND CONCENTRATIONS OF CREDIT RISK

Financial Instruments Measured at Fair Value and Financial Statement Presentation

Financial instruments including cash and cash equivalents, restricted cash, due from related parties, accounts payable, due to related parties and all other current liabilities have carrying values that approximate fair value. We measure short-term investments and commodity derivative contracts at fair value on a recurring basis. The accounting guidance establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as of the measurement date as follows:

Level 1: Fair values are based on unadjusted quoted prices in active trading markets for identical assets and liabilities.

Level 2: Fair values are based on observable quoted prices other than those in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3: Fair values are based on at least one significant unobservable input for the asset or liability.

Fair Value Measurements and Financial Statement Presentation

The fair values of our financial instruments measured at fair value and their respective levels in the fair value hierarchy as of September 30, 2020, and December 31, 2019, were as follows:

 

 

September 30, 2020

 

September 30, 2020

 

 

Fair Values of Assets

 

Fair Values of Liabilities

 

In Thousands

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Other items reported at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

$

20,802

 

 

$

 

 

$

 

 

$

20,802

 

$

 

 

$

 

 

$

 

 

$

 

Commodity derivative contracts

 

132

 

 

 

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

20,934

 

 

$

 

 

$

 

 

$

20,934

 

$

 

 

$

 

 

$

 

 

$

 

 

 

December 31, 2019

 

December 31, 2019

 

 

Fair Values of Assets

 

Fair Values of Liabilities

 

In Thousands

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Other items reported at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

62

 

 

$

 

 

$

 

 

$

62

 

$

 

 

$

 

 

$

 

 

$

 

Total

$

62

 

 

$

 

 

$

 

 

$

62

 

$

 

 

$

 

 

$

 

 

$

 

The non-current portion of our financing lease obligations are also considered a financial instrument, which we measure at fair value for disclosure purposes. It is a Level 2 liability and had a fair value of $15.2 million as of September 30, 2020, and a fair value of $15.7 million as of December 31, 2019.

The composition of our short-term investments as of September 30, 2020, and December 31, 2019 were as follows:

 

 

As of September 30,

 

 

As of December 31,

 

In Thousands

2020

 

 

2019

 

Corporate debt securities

$

17,803

 

 

$

 

Commercial paper

 

2,999

 

 

 

 

Total

$

20,802

 

 

$

 

 

Commodity Price Risk

We enter into seed and grain production agreements (Forward Purchase Contracts) with settlement values based on commodity futures market prices. These Forward Purchase Contracts allow the counterparty to fix their sales prices at various times as defined in the contract. Because we intend to take physical delivery under the Forward Purchase Contracts, we have grain inventory we will need to sell. We intend to sell these inventories at then-current market prices. As a result, when the Forward Purchase Contract counterparty fixes their grain prices, we enter hedging arrangements by selling futures contracts which converts our exposure to these fixed prices to floating prices. We expect to maintain these hedging relationships until such grain inventory is sold to help stabilize our margins. We do not account for these economic hedges as accounting hedges. We expect any gains or losses from these hedging arrangements to be offset by gains or losses on the grain inventories when such grain inventories are sold. We have recognized $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts to floating prices for the three and nine-month periods ended September 30, 2020. As of September 30, 2020, we held commodity contracts with a notional amount of $15.1 million.

We previously designated all our commodity derivative contracts as cash flow hedges based on the nature of our business activities under the prior go-to-market strategy. As a result, all gains or losses associated with recording those commodity derivative contracts at fair value were recorded as a component of accumulated other comprehensive income (loss) (AOCI). We reclassify amounts from AOCI to cost of goods sold when we sell the underlying products to which those hedges relate. As of September 30, 2020, we expect the entire AOCI balance to be reclassified into earnings within the next three months.

Certain amounts related to our hedging activities are as follows:

 

 

Amount of Gain (Loss)

Recognized in AOCI

 

 

Amount of Gain (Loss)

Reclassified to Earnings

 

 

For the Nine Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

In thousands

2020

 

 

2019

 

 

2020

 

 

2019

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

8

 

 

$

 

 

$

(28

)

 

$

 

 

Foreign Exchange Risk

Foreign currency fluctuations affect our foreign currency cash flows related primarily to payments to Cellectis. Our principal foreign currency exposure is to the euro. We do not hedge these exposures, and we do not believe that the current level of foreign currency risk is significant to our operations.

Concentrations of Credit Risk

We invest our cash, cash equivalents and restricted cash in highly liquid securities and investment funds and until late December 2019, also held deposits at a financial institution that exceeded insured limits. In the first quarter of 2020, we diversified this risk by shifting our investments to a diverse portfolio of short-dated, high investment-grade securities we classify as short-term investments that are recorded at fair value in our consolidated financial statements. We ensure the credit risk in this portfolio is in accordance with our internal policies and if necessary, make changes to investments to ensure credit risk is minimized. We have not experienced any counterparty credit losses.