14. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Bunge's various financial instruments include certain components of working capital such as cash and cash equivalents, trade accounts receivable and trade accounts payable. Additionally, Bunge uses short and long-term debt to fund operating requirements. Cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt are stated at their carrying value, which is a reasonable estimate of fair value. See Note 3 for trade structured finance program, Note 17 for deferred purchase price receivable related to sales of trade receivables, Note 11 for long-term receivables from farmers in Brazil, net and other long-term investments, Note 16 for long-term debt, Note 9 for other non-recurring fair value measurements and Note 18 for employee benefit plans. Bunge's financial instruments also include derivative instruments and marketable securities, which are stated at fair value.

Fair value is the expected price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Bunge determines the fair values of its readily marketable inventories, derivatives, and certain other assets based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs based on market data obtained from sources independent of Bunge that reflect the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are inputs that are developed based on the best information available in circumstances that reflect Bunge's own assumptions based on market data and on assumptions that market participants would use in pricing the asset or liability. The fair value standard describes three levels within its hierarchy that may be used to measure fair value.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange traded derivative contracts.

Level 2: Observable inputs, including Level 1 prices (adjusted), quoted prices for similar assets or liabilities, quoted prices in markets that are less active than traded exchanges and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include readily marketable inventories and over-the-counter ("OTC") commodity purchase and sale contracts and other OTC derivatives whose value is determined using pricing models with inputs that are generally based on exchange traded prices, adjusted for location specific inputs that are primarily observable in the market or can be derived principally from or corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, Bunge gives consideration to items that individually or when aggregated with other inputs, generally represent more than 10% of the fair value of the assets or liabilities. For such identified inputs, judgments are required when evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification and disclosure. Level 3 assets and liabilities include assets and liabilities whose value is determined using proprietary pricing models, discounted cash flow methodologies or similar techniques; as well as, assets and liabilities for which the determination of fair value requires significant management judgment or estimation. Bunge believes a change in these inputs would not result in a significant change in the fair values.

The majority of Bunge's exchange traded agricultural commodity futures are settled daily generally through its clearing subsidiary and, therefore, such futures are not included in the table below. Assets and liabilities are classified in their entirety based on the lowest level of input that is a significant component of the fair value measurement. The lowest level of input is considered Level 3.

The following table sets forth, by level, Bunge's assets and liabilities that were accounted for at fair value on a recurring basis.

	Fair Value Measurements at Reporting Date
	December 31, 2016								December 31, 2015
(US$ in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Readily marketable inventories (Note 4)	$	—	$	3,618	$	237	$	3,855	$	—	$	3,421	$	245	$	3,666
Trade accounts receivable(1)		—		6		—		6		—		6		—		6
Unrealized gain on designated derivative contracts(2):
Interest Rate		—		1		—		1		—		—		—		—
Foreign exchange		—		29		—		29		—		30		—		30
Unrealized gain on undesignated derivative contracts(2):
Interest rate		—		1		—		1		—		—		—		—
Foreign exchange		—		312		—		312		9		176		—		185
Commodities		421		431		96		948		252		696		220		1,168
Freight		16		—		—		16		65		—		—		65
Energy		23		1		—		24		7		—		1		8
Deferred purchase price receivable (Note 17)		—		87		—		87		—		79		—		79
Other(3)		18		108		—		126		68		176		—		244

Total assets	$	478	$	4,594	$	333	$	5,405	$	401	$	4,584	$	466	$	5,451


Liabilities:
Trade accounts payable(1)	$	—	$	478	$	44	$	522	$	—	$	399	$	44	$	443
Unrealized loss on designated derivative contracts(4):
Interest rate		—		18		—		18		—		3		—		3
Foreign exchange		—		—		—		—		—		15		—		15
Unrealized loss on undesignated derivative contracts(4):
Foreign exchange		—		233		—		233		1		605		—		606
Commodities		356		444		144		944		402		304		52		758
Freight		14		—		1		15		56		—		—		56
Energy		9		—		2		11		31		—		2		33

Total liabilities	$	379	$	1,173	$	191	$	1,743	$	490	$	1,326	$	98	$	1,914


(1)	Trade accounts receivable and payable are generally stated at historical amounts, net of write-offs and allowances, with the exception of $6 million and $522 million, at December 31, 2016 and $6 million and $443 million at December 31, 2015, respectively, related to certain delivered inventory for which the receivable and payable, respectively, fluctuate based on changes in commodity prices. These receivables and payables are hybrid financial instruments for which Bunge has elected the fair value option.
(2)	Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. There were $5 million and nil included in other non-current assets at December 31, 2016 and December 31, 2015, respectively.
(3)	Other includes the fair values of marketable securities and investments in other current assets and other non-current assets.
(4)	Unrealized losses on designated and undesignated derivative contracts are generally included in other current liabilities. There were $18 million and nil included in other non-current liabilities at December 31, 2016 and December 31, 2015, respectively.

Derivatives—Exchange traded futures and options contracts and exchange cleared contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunge's forward commodity purchase and sale contracts are classified as derivatives along with other OTC derivative instruments relating primarily to freight, energy, foreign exchange and interest rates, and are classified within Level 2 or Level 3 as described below. Bunge estimates fair values based on exchange quoted prices, adjusted as appropriate for differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, or market transactions in either the listed or OTC markets. In such cases, these derivative contracts are classified within Level 2.

OTC derivative contracts include swaps, options and structured transactions that are valued at fair value generally determined using quantitative models that require the use of multiple market inputs including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets which are not highly active, other observable inputs relevant to the asset or liability, and market inputs corroborated by correlation or other means. These valuation models include inputs such as interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives trade in less active markets with less availability of pricing information and certain structured transactions can require internally developed model inputs that might not be observable in or corroborated by the market. When unobservable inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.

Exchange traded or cleared derivative contracts are classified in Level 1, thus transfers of assets and liabilities into and/or out of Level 1 occur infrequently. Transfers into Level 1 would generally only be expected to occur when an exchange cleared derivative contract historically valued using a valuation model as the result of a lack of observable inputs becomes sufficiently observable, resulting in the valuation price being essentially the exchange traded price. There were no significant transfers into or out of Level 1 during the periods presented.

Readily marketable inventories—RMI reported at fair value are valued based on commodity futures exchange quotations, broker or dealer quotations, or market transactions in either listed or OTC markets with appropriate adjustments for differences in local markets where Bunge's inventories are located. In such cases, the inventory is classified within Level 2. Certain inventories may utilize significant unobservable data related to local market adjustments to determine fair value. In such cases, the inventory is classified as Level 3.

If Bunge used different methods or factors to determine fair values, amounts reported as unrealized gains and losses on derivative contracts and RMI at fair value in the consolidated balance sheets and consolidated statements of income could differ. Additionally, if market conditions change subsequent to the reporting date, amounts reported in future periods as unrealized gains and losses on derivative contracts and RMI at fair value in the consolidated balance sheets and consolidated statements of income could differ.

Level 3 Measurements—Transfers in and/or out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Bunge's policy regarding the timing of transfers between levels is to record the transfers at the beginning of the reporting period.

Level 3 Derivatives—Level 3 derivative instruments utilize both market observable and unobservable inputs within the fair value measurements. These inputs include commodity prices, price volatility, interest rates, volumes and locations. In addition, with the exception of the exchange cleared instruments, Bunge is exposed to loss in the event of the non-performance by counterparties on OTC derivative instruments and forward purchase and sale contracts. Adjustments are made to fair values on occasions when non-performance risk is determined to represent a significant input in Bunge's fair value determination. These adjustments are based on Bunge's estimate of the potential loss in the event of counterparty non-performance. Bunge did not have significant adjustments related to non-performance by counterparties at December 31, 2016 and 2015, respectively.

Level 3 Readily marketable inventories and other—The significant unobservable inputs resulting in Level 3 classification for RMI, physically settled forward purchase and sale contracts, and trade accounts receivable and payable, net, relate to certain management estimations regarding costs of transportation and other local market or location-related adjustments, primarily freight related adjustments in the interior of Brazil and the lack of market corroborated information in Canada. In both situations, Bunge uses proprietary information such as purchase and sale contracts and contracted prices for freight, premiums and discounts to value its contracts. Movements in the price of these unobservable inputs alone would not have a material effect on Bunge's financial statements as these contracts do not typically exceed one future crop cycle.

The tables below present reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2016 and 2015. These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.

	Level 3 Instruments
	Fair Value Measurements
(US$ in millions)	Derivatives, Net(1)			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net(2)			Total
Balance, January 1, 2016	$	167		$	245		$	(44	)	$	368
Total gains and losses (realized/unrealized) included in cost of goods sold		(88	)		162			24			98

Purchases		—			1,107			(222	)		885
Sales		—			(1,400	)		—			(1,400	)
Issuances		(1	)		—			—			(1	)
Settlements		(133	)		—			206			73
Transfers into Level 3		(4	)		760			(78	)		678
Transfers out of Level 3		8			(637	)		70			(559	)

Balance, December 31, 2016	$	(51	)	$	237		$	(44	)	$	142


(1)	Derivatives, net include Level 3 derivative assets and liabilities.
(2)	Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

	Level 3 Instruments
	Fair Value Measurements
(US$ in millions)	Derivatives, Net(1)			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net(2)			Total
Balance, January 1, 2015	$	(2	)	$	255		$	(33	)	$	220
Total gains and losses (realized/unrealized) included in cost of goods sold		389			135			(6	)		518

Purchases		1			1,329			(12	)		1,318
Sales		—			(1,982	)		—			(1,982	)
Issuances		(1	)		—			(327	)		(328	)
Settlements		(219	)		—			610			391
Transfers into Level 3		5			845			(204	)		646
Transfers out of Level 3		(6	)		(337	)		(72	)		(415	)

Balance, December 31, 2015	$	167		$	245		$	(44	)	$	368


(1)	Derivatives, net include Level 3 derivative assets and liabilities.
(2)	Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

The tables below summarize changes in unrealized gains or (losses) recorded in earnings during the years ended December 31, 2016 and 2015 for Level 3 assets and liabilities that were held at December 31, 2016 and 2015.

	Level 3 Instruments
	Fair Value Measurements
(US$ in millions)	Derivatives, Net(1)			Readily Marketable Inventories			Trade Accounts Receivable and Payable, Net(2)			Total
Changes in unrealized gains and (losses) relating to assets and liabilities held at December 31, 2016
Cost of goods sold	$	(1	)	$	(41	)	$	1		$	(48	)


Changes in unrealized gains and (losses) relating to assets and liabilities held at December 31, 2015
Cost of goods sold	$	37		$	(13	)	$	(2	)	$	22


(1)	Derivatives, net include Level 3 derivative assets and liabilities.
(2)	Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

Derivative Instruments and Hedging Activities

Interest rate derivatives—Bunge from time-to-time uses interest rate derivatives, including interest rate swaps, interest rate basis swaps, interest rate options or interest rate futures. Bunge has entered into interest rate swap agreements for the purpose of managing certain of its interest rate exposures. The interest rate swaps used by Bunge as hedging instruments have been recorded at fair value in the consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. These swap agreements have been designated as fair value hedges. Additionally, the carrying amount of the associated hedged debt is adjusted through earnings for changes in the fair value arising from changes in benchmark interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset.

As of December 31, 2016, Bunge had fixed-to-variable interest rate swap agreements. Below is a summary of Bunge's current interest rate swap agreements designated as fair value hedge agreements as of December 31, 2016.

Notional Amount of Hedged Obligation	Notional Amount of Derivative		Maturity Date	Payment Weighted Average Rate Payable	Fixed Rate Receivable
$500	$	500	November 24, 2020	3 month LIBOR plus 1.91%		3.50	%
euro 800	euro	800	June 16, 2023	6 month EURIBOR plus 1.64%		1.85	%
$550	$	550	August 15, 2026	3 month LIBOR plus 1.12%		3.25	%

Additionally, on various dates in 2016, Bunge entered into interest rate futures, one year interest rate swap agreements and forward rate agreements that do not qualify for hedge accounting, and therefore Bunge has not designated these as hedge instruments for accounting purposes. The interest rate futures, interest rate swaps and forward rate agreements have been recorded at fair value in the consolidated condensed balance sheets with changes in fair value recorded contemporaneously in earnings. Below is a summary of Bunge's outstanding interest rate swap agreements and forward rate agreements.

	December 31, 2016
	Exchange Traded
	Exchange Traded		Non-exchange Traded
	Net (Short) & Long(1)		Non-exchange Traded					Unit of Measure
(US$ in millions)	Net (Short) & Long(1)		(Short)(2)			Long(2)		Unit of Measure
Interest Rate
Futures	$	5	$	—		$	—	Notional
Swaps		—		(500	)		569	Notional
Forward Rate Agreements		—		(68	)		979	Notional


(1)	Exchange traded derivatives are presented on a net (short) and long position basis.
(2)	Non-exchange traded derivatives are presented on a gross (short) and long position basis.

Foreign exchange derivatives and hedging activities—Bunge uses a combination of foreign exchange forward, swap and option contracts in certain of its operations to mitigate the risk from exchange rate fluctuations in connection with certain commercial and balance sheet exposures. The foreign exchange forward and option contracts may be designated as cash flow hedges. Bunge may also use net investment hedges to partially offset the translation adjustments arising from the remeasurement of its investment in certain of its foreign subsidiaries.

Foreign exchange risk is also managed through the use of foreign currency debt. Bunge has 800 million euro senior unsecured euro-denominated notes of which 797 million euro is designated as, and effective as, a net investment hedge of euro denominated assets. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.

Bunge assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedge transactions are highly effective in offsetting changes in the hedged items.

The table below summarizes the notional amounts of open foreign exchange positions.

	December 31, 2016
	Exchange Traded
	Exchange Traded		Non-exchange Traded
	Net (Short) & Long(1)		Non-exchange Traded					Unit of Measure
(US$ in millions)	Net (Short) & Long(1)		(Short)(2)			Long(2)		Unit of Measure
Foreign Exchange
Options	$	—	$	(126	)	$	268	Delta
Forwards		—		(8,889	)		6,126	Notional
Swaps		—		(129	)		157	Notional


(1)	Exchange traded derivatives are presented on a net (short) and long position basis.
(2)	Non-exchange traded derivatives are presented on a gross (short) and long position basis.

Commodity derivatives—Bunge uses commodity derivative instruments to manage its exposure to movements associated with agricultural commodity prices. Bunge generally uses exchange traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agricultural commodity inventories and forward purchase and sale contracts, but may also from time-to-time enter into OTC commodity transactions, including swaps, which are settled in cash at maturity or termination based on exchange-quoted futures prices. Forward purchase and sale contracts are primarily settled through delivery of agricultural commodities. While Bunge considers these exchange traded futures and forward purchase and sale contracts to be effective economic hedges, Bunge does not designate or account for the majority of its commodity contracts as hedges. The forward contracts require performance of both Bunge and the contract counterparty in future periods. Contracts to purchase agricultural commodities generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of agricultural commodities generally do not extend beyond one future crop cycle.

The table below summarizes the volumes of open agricultural commodities derivative positions.

	December 31, 2016
	Exchange Traded
	Exchange Traded			Non-exchange Traded
	Net (Short) & Long(1)			Non-exchange Traded					Unit of Measure
	Net (Short) & Long(1)			(Short)(2)			Long(2)		Unit of Measure
Agricultural Commodities
Futures		(6,914,908	)		—			—	Metric Tons
Options		(334,494	)		—			—	Metric Tons
Forwards		—			(35,672,883	)		25,960,476	Metric Tons
Swaps		—			(3,326,874	)		1,442,144	Metric Tons


(1)	Exchange traded derivatives are presented on a net (short) and long position basis.
(2)	Non-exchange traded derivatives are presented on a gross (short) and long position basis.

Ocean freight derivatives—Bunge uses derivative instruments referred to as freight forward agreements (FFAs) and FFA options to hedge portions of its current and anticipated ocean freight costs. Changes in the fair values of ocean freight derivatives that are not designated as hedges are recorded in earnings. There were no designated hedges at December 31, 2016 and 2015, respectively.

The table below summarizes the open ocean freight positions.

	December 31, 2016
	Exchange Cleared
	Exchange Cleared			Non-exchange Cleared
	Net (Short) & Long(1)			Non-exchange Cleared				Unit of Measure
	Net (Short) & Long(1)			(Short)(2)		Long(2)		Unit of Measure
Ocean Freight
FFA		(3,165	)		—		—	Hire Days
FFA Options		(467	)		—		—	Hire Days


(1)	Exchange cleared derivatives are presented on a net (short) and long position basis.
(2)	Non-exchange cleared derivatives are presented on a gross (short) and long position basis.

Energy derivatives—Bunge uses energy derivative instruments for various purposes including to manage its exposure to volatility in energy costs. Bunge's operations use energy, including electricity, natural gas, coal, and fuel oil, including bunker fuel.

The table below summarizes the open energy positions.

	December 31, 2016
	Exchange Traded
	Exchange Traded			Non-exchange Cleared
	Net (Short) & Long(1)			Non-exchange Cleared				Unit of Measure(3)
	Net (Short) & Long(1)			(Short)(2)		Long(2)		Unit of Measure(3)
Natural Gas(3)
Futures		3,930,000			—		—	MMBtus
Swaps		—			—		1,351,351	MMBtus
Energy—Other
Futures		1,777			—		—	Metric Tons
Forwards		—			—		6,048,869	Metric Tons
Swaps		215,100			—		—	Metric Tons
Options		(1,285	)		—		—	Metric Tons


(1)	Exchange traded and cleared derivatives are presented on a net (short) and long position basis.
(2)	Non-exchange cleared derivatives are presented on a gross (short) and long position basis.
(3)	Million British Thermal Units ("MMBtus") are standard units of measurement used to denote an amount of electricity and natural gas, respectively.

The Effect of Financial Instruments on the Consolidated Statements of Income

The table below summarizes the effect of derivative instruments that are designated as fair value hedges and also derivative instruments that are undesignated on the consolidated statements of income for the years ended December 31, 2016 and 2015.

		Gain or (Loss) Recognized in Income on Derivative Instruments
		December 31,
(US$ in millions)	Location	2016			2015
Designated Derivative Contracts:
Interest Rate	Interest income/Interest expense	$	5		$	—

Total		$	5		$	—


Undesignated Derivative Contracts:
Interest Rate	Interest income/Interest expense	$	(4	)	$	—
Interest Rate	Other income (expense)-net		—			(2	)
Foreign Exchange	Foreign exchange gains (losses)		267			(302	)
Foreign Exchange	Cost of goods sold		772			(620	)
Commodities	Cost of goods sold		(618	)		1,062
Freight	Cost of goods sold		8			6
Energy	Cost of goods sold		19			(25	)

Total		$	444		$	119

The table below summarizes the effect of financial instruments that are designated and qualify as cash flow and net investment hedges on the consolidated statement of income.

	Year Ended December 31, 2016
						Gain or (Loss) Reclassified from Accumulated OCI into Income(1)
			Gain or (Loss) Recognized in Accumulated OCI(1)						Gain or (Loss) Recognized in Income on Derivatives
	Notional Amount								Gain or (Loss) Recognized in Income on Derivatives
(US$ in millions)	Notional Amount					Location	Amount		Location	Amount(2)
Cash Flow Hedge:
Foreign Exchange(3)	$	181	$	48		Foreign exchange gains (losses)	$	16	Foreign exchange gains (losses)	$	—

Total	$	181	$	48			$	16		$	—


Net Investment Hedge:
Foreign Currency denominated debt(4)	$	881	$	41		Foreign currency denominated debt	$	—	Foreign currency denominated debt	$	—

Foreign Exchange(3)	$	—	$	(394	)	Foreign exchange gains (losses)	$	—	Foreign exchange gains (losses)	$	—

Total	$	881	$	(353	)		$	—		$	—


(1)	The gain (loss) recognized relates to the effective portion of the hedging relationship. At December 31, 2016, Bunge expects to reclassify into income in the next 12 months $44 million of after-tax loss related to its foreign exchange cash flow hedges and nil for net investment hedges.
(2)	There was no gain or loss recognized in income relating to the ineffective portion of the hedging relationships or relating to amounts excluded from the assessment of hedge effectiveness.
(3)	The foreign exchange contracts mature at various dates through January 2018.
(4)	The euro loans mature in 2023.

The table below summarizes the effect of financial instruments that are designated and qualify as cash flow hedges on the condensed consolidated statement of income for the year ended December 31, 2015.

	Year Ended December 31, 2015
					Gain or (Loss) Reclassified from Accumulated OCI into Income(1)
			Gain or (Loss) Recognized in Accumulated OCI(1)						Gain or (Loss) Recognized in Income on Derivatives
	Notional Amount								Gain or (Loss) Recognized in Income on Derivatives
(US$ in millions)	Notional Amount				Location	Amount			Location	Amount(2)
Cash Flow Hedge:
Foreign Exchange(3)	$	238	$	76	Foreign exchange gains (losses)	$	(76	)	Foreign exchange gains (losses)	$	—

Total	$	238	$	76		$	(76	)		$	—


Net Investment Hedge:
Foreign Exchange(3)	$	1,878	$	223	Foreign exchange gains (losses)	$	—		Foreign exchange gains (losses)	$	—

Total	$	1,878	$	223		$	—			$	—


(1)	The gain or (loss) recognized relates to the effective portion of the hedging relationship. At December 31, 2015, Bunge expected to reclassify into income in the next 12 months approximately $76 million of after-tax gains (losses) related to its foreign exchange cash flow hedges and nil for net investment hedges.
(2)	There was no gain or loss recognized in income relating to the ineffective portion of the hedging relationships or to amounts excluded from the assessment of hedge effectiveness.
(3)	The foreign exchange contracts matured at various dates through November 2020.