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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

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 September 30, 2019 and December 31, 2018.



	Fair Value Measurements at September 30, 2019
	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	$	—	$	2,613	$	1,430	$	4,043
Unrealized derivative gains:
Commodity contracts	—		263		161		424
Foreign currency contracts	—		171		—		171
Interest rate contracts	—		4		—		4
Cash equivalents	490		—		—		490
Marketable securities	35		1		—		36
Segregated investments	777		—		—		777
Deferred receivables consideration	—		330		—		330
Total Assets	$	1,302	$	3,382	$	1,591	$	6,275

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	331	$	140	$	471
Foreign currency contracts	—		128		—		128
Interest rate contracts	—		43		—		43
Inventory-related payables	—		577		41		618
Total Liabilities	$	—	$	1,079	$	181	$	1,260



	Fair Value Measurements at December 31, 2018
	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	$	—	$	3,032	$	1,515	$	4,547
Unrealized derivative gains:
Commodity contracts	—		306		155		461
Foreign currency contracts	—		175		—		175
Cash equivalents	1,288		—		—		1,288
Marketable securities	12		1		—		13
Segregated investments	1,044		—		—		1,044
Deferred receivables consideration	—		379		—		379
Total Assets	$	2,344	$	3,893	$	1,670	$	7,907

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	344	$	245	$	589
Foreign currency contracts	—		152		—		152
Interest rate contracts	—		20		—		20
Inventory-related payables	—		579		18		597
Total Liabilities	$	—	$	1,095	$	263	$	1,358

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 (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, or other (income) expense - net depending upon the purpose of the contract. The 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 U.S. Treasury securities and corporate debt securities. U.S. Treasury securities are valued using quoted market prices and are classified in Level 1. Corporate 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 debt 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 17 for more information). This amount is reflected in other current assets on the consolidated balance sheet (see Note 8 for more information). 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 rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2019.



	Level 3 Fair Value Asset Measurements at
	September 30, 2019
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, June 30, 2019	$	1,388		$	159		$	1,547
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	27			91			118
Purchases	2,772			—			2,772
Sales	(2,643		)	—			(2,643		)
Settlements	—			(106		)	(106		)
Transfers into Level 3	213			21			234
Transfers out of Level 3	(327		)	(4		)	(331		)
Ending balance, September 30, 2019	$	1,430		$	161		$	1,591

* Includes increase in unrealized gains of $165 million relating to Level 3 assets still held at September 30, 2019.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2019.



	Level 3 Fair Value Liability Measurements at
	September 30, 2019
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, June 30, 2019	$	22		$	216		$	238
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*	(3		)	82			79
Purchases	26			—			26
Sales	(4		)	—			(4		)
Settlements	—			(167		)	(167		)
Transfers into Level 3	—			13			13
Transfers out of Level 3	—			(4		)	(4		)
Ending balance, September 30, 2019	$	41		$	140		$	181

* Includes increase in unrealized losses of $81 million relating to Level 3 liabilities still held at September 30, 2019.

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2018.



	Level 3 Fair Value Asset Measurements at
	September 30, 2018
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, June 30, 2018	$	1,378		$	208		$	1,586
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	183			130			313
Purchases	3,518			—			3,518
Sales	(3,282		)	—			(3,282		)
Settlements	—			(150		)	(150		)
Transfers into Level 3	235			38			273
Transfers out of Level 3	(233		)	(9		)	(242		)
Ending balance, September 30, 2018	$	1,799		$	217		$	2,016

* Includes increase in unrealized gains of $243 million relating to Level 3 assets still held at September 30, 2018.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2018.



	Level 3 Fair Value Liability Measurements at
	September 30, 2018
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, June 30, 2018	$	22		$	200		$	222
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*	4			114			118
Purchases	30			—			30
Sales	(12		)	—			(12		)
Settlements	—			(130		)	(130		)
Transfers into Level 3	—			30			30
Transfers out of Level 3	—			(11		)	(11		)
Ending balance, September 30, 2018	$	44		$	203		$	247

* Includes increase in unrealized losses of $118 million relating to Level 3 liabilities still held at September 30, 2018.

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2019.



	Level 3 Fair Value Asset Measurements at
	September 30, 2019
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, December 31, 2018	$	1,515		$	155		$	1,670
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	148			319			467
Purchases	8,118			—			8,118
Sales	(8,425		)	—			(8,425		)
Settlements	—			(346		)	(346		)
Transfers into Level 3	213			54			267
Transfers out of Level 3	(139		)	(21		)	(160		)
Ending balance, September 30, 2019	$	1,430		$	161		$	1,591

* Includes increase in unrealized gains of $656 million relating to Level 3 assets still held at September 30, 2019.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2019.



	Level 3 Fair Value Liability Measurements at
	September 30, 2019
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, December 31, 2018	$	18		$	245		$	263
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*	(2		)	254			252
Purchases	41			—			41
Sales	(16		)	—			(16		)
Settlements	—			(354		)	(354		)
Transfers into Level 3	—			37			37
Transfers out of Level 3	—			(42		)	(42		)
Ending balance, September 30, 2019	$	41		$	140		$	181

* Includes increase in unrealized losses of $258 million relating to Level 3 liabilities still held at September 30, 2019.

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2018.



	Level 3 Fair Value Asset Measurements at
	September 30, 2018
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, December 31, 2017	$	1,486		$	111		$	1,597
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	559			302			861
Purchases	7,890			—			7,890
Sales	(8,264		)	—			(8,264		)
Settlements	—			(294		)	(294		)
Transfers into Level 3	235			123			358
Transfers out of Level 3	(107		)	(25		)	(132		)
Ending balance, September 30, 2018	$	1,799		$	217		$	2,016

* Includes increase in unrealized gains of $523 million relating to Level 3 assets still held at September 30, 2018.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2018.



	Level 3 Fair Value Liability Measurements at
	September 30, 2018
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, December 31, 2017	$	39		$	103		$	142
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*	12			360			372
Purchases	54			—			54
Sales	(61		)	—			(61		)
Settlements	—			(348		)	(348		)
Transfers into Level 3	—			136			136
Transfers out of Level 3	—			(48		)	(48		)
Ending balance, September 30, 2018	$	44		$	203		$	247

* Includes increase in unrealized losses of $364 million relating to Level 3 liabilities still held at September 30, 2018.

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 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 September 30, 2019 and December 31, 2018. 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 September 30, 2019 is a weighted average 78.0% of the total price for assets and 28.1% of the total price for liabilities.



	Weighted Average % of Total Price
	September 30, 2019				December 31, 2018
Component Type	Assets		Liabilities		Assets		Liabilities
Inventories and Related Payables
Basis	78.0	%	28.1	%	18.5	%	125.0	%
Transportation cost	30.5	%	31.4	%	25.9	%	39.4	%

Commodity Derivative Contracts
Basis	23.4	%	31.2	%	21.6	%	19.1	%
Transportation cost	61.7	%	46.7	%	29.5	%	35.1	%

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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