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 December 31, 2016 and 2015.



	Fair Value Measurements at December 31, 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	$	—	$	3,102	$	1,322	$	4,424
Unrealized derivative gains:
Commodity contracts	—		371		140		511
Foreign exchange contracts	—		102		—		102
Interest rate contracts	—		11		—		11
Cash equivalents	286		—		—		286
Marketable securities	408		69		—		477
Segregated investments	1,613		—		—		1,613
Deferred consideration	—		540		—		540
Total Assets	$	2,307	$	4,195	$	1,462	$	7,964
Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	419	$	142	$	561
Foreign exchange contracts	—		90		—		90
Inventory-related payables	—		491		30		521
Total Liabilities	$	—	$	1,000	$	172	$	1,172



	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 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 option 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 (more than 10%) 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, 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) 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, obligations of U.S. government agencies, 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. U.S. government agency obligations and corporate and municipal 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 accumulated other comprehensive income (loss) 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 a note receivable from the purchasers under the Programs. This amount is reflected in other current assets on the consolidated balance sheet (see Notes 6 and 19). 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 tables present a rollforward of the activity of all 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.



	Level 3 Fair Value Assets Measurements at December 31, 2016
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total
	(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⁽¹⁾	44			192			236
Purchases	9,900			—			9,900
Sales	(9,567		)	—			(9,567		)
Settlements	—			(420		)	(420		)
Transfers into Level 3	70			168			238
Transfers out of Level 3	(129		)	(43		)	(172		)
Ending balance, December 31, 2016	$	1,322		$	140		$	1,462

⁽¹⁾ Includes gains of $138 million that are attributable to the change in unrealized gains relating to Level 3 assets still held at December 31, 2016.



	Fair Value Liabilities Measurements at December 31, 2016
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total
	(In millions)
Balance, December 31, 2015	$	16		$	113		$	129
Total increase (decrease) in net realized/unrealized losses included in cost of products sold⁽¹⁾	13			566			579
Purchases	16			—			16
Sales	(15		)	—			(15		)
Settlements	—			(476		)	(476		)
Transfers into Level 3	—			158			158
Transfers out of Level 3	—			(219		)	(219		)
Ending balance, December 31, 2016	$	30		$	142		$	172

⁽¹⁾ Includes losses of $578 million that are attributable to the change in unrealized losses relating to Level 3 liabilities still held at December 31, 2016.



	Fair Value Assets Measurements at December 31, 2015
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total
	(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⁽¹⁾	(320		)	265			(55		)
Purchases	10,459			—			10,459
Sales	(10,534		)	—			(10,534		)
Settlements	—			(378		)	(378		)
Transfers into Level 3	146			195			341
Transfers out of Level 3	(238		)	(42		)	(280		)
Ending balance, December 31, 2015	$	1,004		$	243		$	1,247

⁽¹⁾ Includes gains of $297 million that are attributable to the change in unrealized gains relating to Level 3 assets still held at December 31, 2015.



	Fair Value Liabilities Measurements at December 31, 2015
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total
	(In millions)
Balance, December 31, 2014	$	40		$	212		$	252
Total increase (decrease) in net realized/unrealized losses included in cost of products sold⁽¹⁾	(10		)	315			305
Purchases	17			—			17
Sales	(31		)	—			(31		)
Settlements	—			(566		)	(566		)
Transfers into Level 3	—			177			177
Transfers out of Level 3	—			(25		)	(25		)
Ending balance, December 31, 2015	$	16		$	113		$	129

⁽¹⁾ Includes losses of $328 million that are attributable to the change in unrealized losses relating to Level 3 liabilities still held at December 31, 2015.

For all periods presented, 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.

In some cases, the price components of 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 December 31, 2016 and 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 is a weighted average 16.5% of the total price for assets and 67.1% for liabilities.



	Weighted Average % of Total Price
	December 31, 2016		December 31, 2015
Component Type	Assets	Liabilities	Assets	Liabilities
Inventories
Basis	16.5%	67.1%	10.0%	53.5%
Transportation cost	8.3%	—%	1.8%	—%
Commodity Derivative Contracts
Basis	16.9%	27.0%	17.7%	17.9%
Transportation cost	11.6%	13.4%	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 percent unobservable and, therefore, the fair value of these items is reported in Level 3.