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.