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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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Fresh fruit firm reports bunker hedging loss

28 Oct 2009 07:22 GMT

Leading fruit distributor enters into bunker fuel hedging agreements which result in unrealized loss.



Fresh Del Monte Produce Inc. - a world leader in the production distribution and marketing of fresh produce - has announced that it entered into bunker fuel hedging agreeements last month which resulted in a net unrealized loss of $1.3 million.

The company said it entered into bunker fuel derivatives in September 2009, of which the fair valuation comprised $1.3 million of the net liability as of September 25, 2009. Fresh Del Monte commented that it expects that $1.2 million net assets outstanding will be transferred to earnings in 2009, offset by $3.3 million in net liability outstanding, which will be transferred to earnings in 2010, along with the earnings effect of the related forecasted transaction for each year.

Commenting on its bunker hedging strategy, the company said "We are exposed to fluctuations in bunker fuel prices on our results of operations and financial condition and mitigate that exposure by entering into bunker fuel swap agreements, which permit us to lock in bunker fuel purchase prices for up to one year. One of our subsidiaries has entered into bunker fuel swap agreements in order to hedge fuel costs incurred via our owned and chartered vessels. We designate our bunker fuel swap agreements as cash flow hedges.

Fresh Del Monte had the following outstanding foreign currency forward contracts and bunker fuel swap agreements that were entered into to hedge forecasted cash flows as of September 25, 2009:

Bunker Fuel Hedges:

3% U.S. Gulf Coast - 168,910 barrels
3.5% Rotterdam Barges - 29,000 metric tons
Singapore - 16,300 metric tons

Fair Value of Derivative Instruments

"We mitigate the risk of fluctuations in currency exchange rates and bunker fuel prices on our results of operations and financial condition by entering into foreign currency cash flow hedges and bunker fuel hedges, respectively. We account for the fair value of the related forward contracts as either an asset in other current assets or a liability in accrued expenses," Fresh Del Monte said in its most recent financial report.

With regard to its income approach, the company said "We use an income approach to value our outstanding foreign currency and bunker fuel cash flow hedges. An income approach consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the measurement date such as foreign currency and bunker fuel spot and forward rates. Additionally, an element of default risk based on observable inputs was built into the fair value calculation."

Fresh Del Monte's products are marketed throughout the world under the DEL MONTE brand name. The major products are bananas pineapples deciduous fruit and melons. The deciduous fruit the company sells includes primarily grapes, plums, nectarines, peaches, apricots, cherries, apples, pears and citrus. Fresh Del Monte Produce Inc. has a market capitalization of $1.39 billion.






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