Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Eric Katzman - Deutsche Bank
Eric Katzman - Deutsche Bank
I’ve talked to a few investors already this morning and I was wondering if you could just kind of walk through the mark to market charge, what that means for the P&L going forward and how we should think about that for those who may be investing in the food industry for the first time given everything that’s going on in the world.
Mark Belgya
Certainly it was a large number and let me walk through and I’ll go into some things assuming that you know a little bit around the accounting treatment. The biggest point is we’ve talked to all our investors is that Smuckers uses a hedging philosophy to basically align costs with our pricing. That’s the underlying point.
In terms to what happened this quarter, as we entered into the quarter we saw a decline primarily in soybean oil and wheat in terms of the costs, a pretty significant decline and based on that and our positions we were required to write down to fair value the impact of that decline in those two specific commodities.
The accounting rules require us to take that as a period charge in the second quarter, that’s different than what we would have done at certain times with other hedges where it’s matched in the future. What will happen is that we took this negative charge as a hedging charge this period but would expect that to reverse going forward. That will reverse, however, not as a gain from hedging but rather from the lower costs as we take physical delivery and use of those inventories.
It will still affect cost of goods sold but you will not see us turn around with a favorable $24 million gain for example.
Eric Katzman - Deutsche Bank
Over a given period of time the loss this quarter will reverse itself even though it won’t be as evident as a period item it will just be flowing through cost of goods is that we should take away?
Mark Belgya
That is correct.
Eric Katzman - Deutsche Bank
On another subject you talked about the movement from out of home to in home those of us who are focused on the food industry are kind of aware of that but a lot of the questions I get also are the growth in private label in terms of at home consumption. Maybe you could discuss across some of your categories the tailwind you saw from out of home to in home versus maybe share losses from in home branded to him home private label.
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