Note 4.

Fair Value Measurements

The Company determines the fair value of certain of its inventories of agricultural commodities, derivative contracts, and marketable securities based on the fair value definition and hierarchy levels established in the guidance of ASC Topic 820, Fair Value Measurements and Disclosures. Three levels are established within the 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, U.S. treasury securities and certain publicly traded equity securities.

Level 2: Observable inputs, including Level 1 prices that have been 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 substantially corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity or a limited number of third-party quotes and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, the Company generally classifies assets or liabilities as Level 3 when their fair value is determined using unobservable inputs that individually or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the assets or liabilities. Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. Level 3 amounts can include assets and liabilities whose value is determined using 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.

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of input that is a significant component of the fair value measurement determines the placement of the entire fair value measurement in the hierarchy. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment that may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.

The Company's policy regarding the timing of transfers between levels, including both transfers into and transfers out of Level 3, is to measure and record the transfers at the end of the reporting period. For the period ended March 31, 2012, the Company had no transfers between Levels 1 and 2. Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.

The following tables set forth, by level, the Company's assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2012 and June 30, 2011.


	Fair Value Measurements at March 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)

Assets:
Inventories carried at market	$	–	$	5,604	$	1,725	$	7,329
Unrealized derivative gains:
Commodity contracts		1,270		1,006		232		2,508
Foreign exchange contracts		–		180		–		180
Marketable securities		1,936		50		–		1,986
Deferred receivables consideration		–		710		–		710
Total Assets	$	3,206	$	7,550	$	1,957	$	12,713

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	1,511	$	845	$	184	$	2,540
Foreign exchange contracts		–		188		–		188
Inventory-related payables		–		311		137		448
Total Liabilities	$	1,511	$	1,344	$	321	$	3,176


	Fair Value Measurements at June 30, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)

Assets:
Inventories carried at market	$	–	$	5,153	$	762	$	5,915
Unrealized derivative gains:
Commodity contracts		1,198		1,457		112		2,767
Foreign exchange contracts		–		237		–		237
Interest rate contracts		–		3		–		3
Marketable securities		1,628		328		–		1,956
Total Assets	$	2,826	$	7,178	$	874	$	10,878

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	1,317	$	1,193	$	44	$	2,554
Foreign exchange contracts		–		178		–		178
Inventory-related payables		–		278		45		323
Total Liabilities	$	1,317	$	1,649	$	89	$	3,055

The Company uses the market approach valuation technique to measure the majority of its assets and liabilities carried at fair value. Estimated fair values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets, broker or dealer quotations or market transactions in either listed or over-the-counter (OTC) markets. Market valuations for the Company's inventories are adjusted for location and quality because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. Generally, the valuations are based on price information that is observable by market participants, or rely only on insignificant unobservable information. In such cases, the inventory is classified in Level 2. Certain inventories may require management judgment or estimation for a more significant component of the fair value amount. For these inventories, the availability of sufficient third-party information is limited. In such cases, the inventory is classified as Level 3. Changes in the fair value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold.

The Company's derivative contracts that are measured at fair value include forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts, and OTC instruments related primarily to agricultural commodities, ocean freight, energy, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the Company's exchange-traded futures and options contracts are cash-settled on a daily basis and, therefore, are not included in the fair value tables. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact on the measurement of fair value, the contract is classified in Level 3. Based on historical experience with the Company's suppliers and customers, the Company's own credit risk and knowledge of current market conditions, the Company does not view nonperformance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. However, in certain cases, if the Company believes the nonperformance risk to be a significant input, the Company records estimated fair value adjustments, and classifies the contract in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of net sales and other operating income, cost of products sold, and other (income) expense – net. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.

The Company's marketable securities are comprised of U.S. Treasury securities, obligations of U.S. government agencies, corporate and municipal debt securities, and equity investments. U.S. Treasury securities and certain publicly traded equity investments are valued using quoted market prices and are classified in Level 1. U.S. government agency obligations, corporate and municipal debt securities and certain equity investments are valued using third-party pricing services and substantially all are classified in Level 2. Security values that are determined using pricing models are classified in Level 3. Unrealized changes in the fair value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of AOCI unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings.

The Company has deferred consideration under its accounts receivable securitization program (the "Program") which represents a note receivable from the purchasers under the Program. This amount is reflected in other current assets on the consolidated balance sheet (see Note 16). The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received. The fair value is principally based on observable inputs (a Level 2 measurement) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the program which have historically been insignificant.

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2012.


	Level 3 Fair Value Asset Measurements at March 31, 2012
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, December 31, 2011	$	1,624		$	198		$	1,822
Total increase (decrease) in unrealized gains included in cost of products sold		41			165			206
Purchases		1,286			–			1,286
Sales		(285	)		–			(285	)
Settlements		–			(100	)		(100	)
Transfers into Level 3		72			19			91
Transfers out of Level 3		(1,013	)		(50	)		(1,063	)
Ending balance, March 31, 2012	$	1,725		$	232		$	1,957

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2012.


	Level 3 Fair Value Liability Measurements at March 31, 2012
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, December 31, 2011	$	196		$	192		$	388
Total increase (decrease) in unrealized losses included in cost of products sold		–			159			159
Purchases		(1	)		–			(1	)
Sales		82			–			82
Settlements		–			(141	)		(141	)
Transfers into Level 3		–			12			12
Transfers out of Level 3		(140	)		(38	)		(178	)
Ending balance, March 31, 2012	$	137		$	184		$	321

The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2011.


	Level 3 Fair Value Measurements at March 31, 2011
	Inventories Carried at Market, Net			Commodity Derivative Contracts, Net			Total
	(In millions)

Balance, December 31, 2010	$	306		$	92		$	398
Total gains (losses), realized or unrealized, included in earnings before income taxes*		236			4			240
Purchases, issuances and settlements		(46	)		(4	)		(50	)
Transfers into Level 3		142			13			155
Transfers out of Level 3		–			(10	)		(10	)
Ending balance, March 31, 2011	$	638		$	95		$	733

*Includes gains of $79 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at March 31, 2011.

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2012.


	Level 3 Fair Value Asset Measurements at March 31, 2012
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, June 30, 2011	$	762		$	112		$	874
Total increase (decrease) in unrealized gains included in cost of products sold		23			500			523
Purchases		2,381			4			2,385
Sales		(1,509	)		–			(1,509	)
Settlements		–			(344	)		(344	)
Transfers into Level 3		1,145			103			1,248
Transfers out of Level 3		(1,077	)		(143	)		(1,220	)
Ending balance, March 31, 2012	$	1,725		$	232		$	1,957

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2012.


	Level 3 Fair Value Liability Measurements at March 31, 2012
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, June 30, 2011	$	45		$	44		$	89
Total increase (decrease) in unrealized losses included in cost of products sold		4			465			469
Purchases		(3	)		1			(2	)
Sales		78			–			78
Settlements		–			(280	)		(280	)
Transfers into Level 3		153			31			184
Transfers out of Level 3		(140	)		(77	)		(217	)
Ending balance, March 31, 2012	$	137		$	184		$	321

The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2011.


	Level 3 Fair Value Measurements at March 31, 2011
	Inventories Carried at Market, Net			Derivative Contracts, Net			Total
	(In millions)

Balance, June 30, 2010	$	427		$	13		$	440
Total gains (losses), realized or unrealized, included in earnings before income taxes*		240			102			342
Purchases, issuances and settlements		68			(1	)		67
Transfers into Level 3		150			13			163
Transfers out of Level 3		(247	)		(32	)		(279	)
Ending balance, March 31, 2011	$	638		$	95		$	733

* Includes gains of $248 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at March 31, 2011.

Fair values for inventories and commodity purchase and sale contracts are generally estimated based on observable, exchange-quoted futures prices adjusted as needed to arrive at prices in local markets. Exchange-quoted futures prices represent quotes for contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. In some cases, the price components that result in differences between the exchange-traded prices and the local prices are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments will be referred to as Basis.

The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices will also impact the movement of these unobservable price components.

The following table sets forth the weighted average percentage of the unobservable price components included in the Company's Level 3 valuations as of March 31, 2012. The Company's Level 3 measurements may include Basis only, transportation cost only, or both price components. As an example, for Level 3 commodity derivative contracts with Basis, the unobservable component is a weighted average 15.1% of the total price for assets and 24.1% for liabilities.


	Weighted Average % of Total Price
Component Type	Assets			Liabilities

Commodity Derivative Contracts
Basis		15.1	%		24.1	%
Transportation cost		9.7	%		12.1	%

Inventories
Basis		10.5	%		4.8	%
Transportation cost		6.2	%		9.1	%

In certain of the Company' principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, the Company considers these price quotes as 100 percent unobservable and, therefore, the fair value of these items is reported in Level 3.