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Fair Value Measurements
6 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

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 June 30, 2016 and December 31, 2015.
 
 
Fair Value Measurements at June 30, 2016
 

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
$

 
$
3,072

 
$
1,099

 
$
4,171

Unrealized derivative gains:
 
 
 
 
 
 
 
Commodity contracts

 
967

 
153

 
1,120

Foreign exchange contracts

 
109

 

 
109

Interest rate contracts

 
41

 

 
41

Cash equivalents
40

 

 

 
40

Marketable securities
810

 
72

 

 
882

Segregated investments
1,633

 

 

 
1,633

Deferred receivables consideration

 
403

 

 
403

Total Assets
$
2,483

 
$
4,664

 
$
1,252

 
$
8,399

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Unrealized derivative losses:
 
 
 
 
 
 
 
Commodity contracts
$

 
$
690

 
$
500

 
$
1,190

Foreign exchange contracts
7

 
240

 

 
247

Inventory-related payables

 
245

 
12

 
257

Total Liabilities
$
7

 
$
1,175

 
$
512

 
$
1,694



 
Fair Value Measurements at December 31, 2015
 
 
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
$

 
$
3,062

 
$
1,004

 
$
4,066

Unrealized derivative gains:
 
 
 
 
 
 
 
Commodity contracts

 
403

 
243

 
646

Foreign exchange contracts
1

 
92

 

 
93

Interest rate contracts

 
19

 

 
19

Cash equivalents
328

 

 

 
328

Marketable securities
698

 
175

 

 
873

Segregated investments
1,938

 

 

 
1,938

Deferred receivables consideration

 
513

 

 
513

Total Assets
$
2,965

 
$
4,264

 
$
1,247

 
$
8,476

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Unrealized derivative losses:
 
 
 
 
 
 
 
Commodity contracts
$

 
$
306

 
$
113

 
$
419

Foreign exchange contracts

 
186

 

 
186

Inventory-related payables

 
705

 
16

 
721

Total Liabilities
$

 
$
1,197

 
$
129

 
$
1,326



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. When unobservable inputs have a significant impact on the measurement of fair value, the inventory is classified in 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.

Derivative contracts include exchange-traded commodity futures and options contracts, forward commodity purchase and sale contracts, and OTC instruments related primarily to agricultural commodities, 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 these 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. 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 revenues, cost of products sold, or other (income) expense – net depending upon the purpose of the contract. 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 cash equivalents are comprised of money market funds valued using quoted market prices and are classified as Level 1.

The Company’s marketable securities are comprised of equity investments, U.S. Treasury securities, corporate debt securities, and other debt securities.  Publicly traded equity investments and U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.  Corporate debt and other debt securities are valued using third-party pricing services and substantially all are classified in Level 2. 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’s segregated investments are comprised of U.S. Treasury securities. U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.

The Company has deferred consideration under its accounts receivable securitization programs (the “Programs”) which represents notes receivable from the purchasers under the Programs (see Note 16). This amount is reflected in other current assets on the consolidated balance sheet (see Note 8). 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 Programs, 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 June 30, 2016.

 
Level 3 Fair Value Asset Measurements at
 
June 30, 2016
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 
(In millions)
 
 
 
 
 
 
Balance, March 31, 2016
$
969

 
$
218

 
$
1,187

Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
(105
)
 
32

 
(73
)
Purchases
2,686

 

 
2,686

Sales
(2,506
)
 

 
(2,506
)
Settlements

 
(120
)
 
(120
)
Transfers into Level 3
79

 
34

 
113

Transfers out of Level 3
(24
)
 
(11
)
 
(35
)
Ending balance, June 30, 2016
$
1,099

 
$
153

 
$
1,252


* Includes decrease in unrealized gains of $3 million relating to Level 3 assets still held at June 30, 2016.

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 June 30, 2016.

 
Level 3 Fair Value Liability Measurements at
 
June 30, 2016
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 
(In millions)
 
 
 
 
 
 
Balance, March 31, 2016
$
23

 
$
111

 
$
134

Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
(11
)
 
417

 
406

Purchases
1

 

 
1

Sales
(1
)
 

 
(1
)
Settlements

 
(73
)
 
(73
)
Transfers into Level 3

 
67

 
67

Transfers out of Level 3

 
(22
)
 
(22
)
Ending balance, June 30, 2016
$
12

 
$
500

 
$
512


* Includes increase in unrealized losses of $419 million relating to Level 3 liabilities still held at June 30, 2016.

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 June 30, 2015.

 
Level 3 Fair Value Asset Measurements at
 
June 30, 2015
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 
(In millions)
 
 
 
 
 
 
Balance, March 31, 2015
$
1,039

 
$
178

 
$
1,217

Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
17

 
40

 
57

Purchases
2,851

 

 
2,851

Sales
(2,890
)
 

 
(2,890
)
Settlements

 
(117
)
 
(117
)
Transfers into Level 3
74

 
58

 
132

Transfers out of Level 3
(65
)
 
(5
)
 
(70
)
Ending balance, June 30, 2015
$
1,026

 
$
154

 
$
1,180


* Includes increase in unrealized gains of $180 million relating to Level 3 assets still held at June 30, 2015.

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 June 30, 2015.

 
Level 3 Fair Value Liability Measurements at
 
June 30, 2015
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 
(In millions)
 
 
 
 
 
 
Balance, March 31, 2015
$
20

 
$
218

 
$
238

Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
(6
)
 
215

 
209

Purchases
6

 

 
6

Sales
(6
)
 

 
(6
)
Settlements

 
(114
)
 
(114
)
Transfers into Level 3

 
54

 
54

Transfers out of Level 3
(1
)
 
(10
)
 
(11
)
Ending balance, June 30, 2015
$
13

 
$
363

 
$
376


* Includes increase in unrealized losses of $215 million relating to Level 3 liabilities still held at June 30, 2015.

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2016.

 
Level 3 Fair Value Asset Measurements at
 
June 30, 2016
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2015
$
1,004

 
$
243

 
$
1,247

Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
(155
)
 
94

 
(61
)
Purchases
5,042

 

 
5,042

Sales
(4,743
)
 

 
(4,743
)
Settlements

 
(217
)
 
(217
)
Transfers into Level 3
79

 
66

 
145

Transfers out of Level 3
(128
)
 
(33
)
 
(161
)
Ending balance, June 30, 2016
$
1,099

 
$
153

 
$
1,252



* Includes increase in unrealized gains of $14 million relating to Level 3 assets still held at June 30, 2016.

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2016.

 
Level 3 Fair Value Liability Measurements at
 
June 30, 2016
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2015
$
16

 
$
113

 
$
129

Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
2

 
496

 
498

Purchases
2

 

 
2

Sales
(8
)
 

 
(8
)
Settlements

 
(146
)
 
(146
)
Transfers into Level 3

 
83

 
83

Transfers out of Level 3

 
(46
)
 
(46
)
Ending balance, June 30, 2016
$
12

 
$
500

 
$
512



* Includes increase in unrealized losses of $498 million relating to Level 3 liabilities still held at June 30, 2016.



The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2015.

 
Level 3 Fair Value Asset Measurements at
 
June 30, 2015
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2014
$
1,491

 
$
203

 
$
1,694

Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
(275
)
 
109

 
(166
)
Purchases
5,668

 

 
5,668

Sales
(5,693
)
 

 
(5,693
)
Settlements

 
(261
)
 
(261
)
Transfers into Level 3
73

 
113

 
186

Transfers out of Level 3
(238
)
 
(10
)
 
(248
)
Ending balance, June 30, 2015
$
1,026

 
$
154

 
$
1,180



* Includes increase in unrealized gains of $205 million relating to Level 3 assets still held at June 30, 2015

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2015.
 
Level 3 Fair Value Liability Measurements at
 
June 30, 2015
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2014
$
40

 
$
212

 
$
252

Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
(11
)
 
279

 
268

Purchases
12

 

 
12

Sales
(28
)
 

 
(28
)
Settlements

 
(249
)
 
(249
)
Transfers into Level 3

 
136

 
136

Transfers out of Level 3

 
(15
)
 
(15
)
Ending balance, June 30, 2015
$
13

 
$
363

 
$
376



* Includes increase in unrealized losses of $270 million relating to Level 3 liabilities still held at June 30, 2015
.

For all periods presented, the Company had no transfers between Level 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.

In some cases, the price components that result in differences between exchange-traded prices and local prices for inventories and commodity purchase and sale contracts 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 are 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 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 June 30, 2016 and December 31, 2015. The Company’s Level 3 measurements may include Basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with Basis, the unobservable component as of June 30, 2016 is a weighted average 15.9% of the total price for assets and 80.4% of the total price for liabilities.

 
Weighted Average % of Total Price
 
June 30, 2016
 
December 31, 2015
Component Type
Assets
 
Liabilities
 
Assets
 
Liabilities
Inventories and Related Payables
 
 
 
 
 
 
 
Basis
15.9
%
 
80.4
%
 
10.0
%
 
53.5
%
Transportation cost
2.5
%
 
1.9
%
 
1.8
%
 

 
 
 
 
 
 
 
 
Commodity Derivative Contracts
 
 
 
 
 
 
 
Basis
18.0
%
 
15.1
%
 
17.7
%
 
17.9
%
Transportation cost
5.1
%
 
4.3
%
 
6.6
%
 
10.4
%


In certain of the Company’s 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, absent other corroborating evidence, the Company considers these price quotes as 100% unobservable and, therefore, the fair value of these items is reported in Level 3.