Fair Value Measurements

9 Months Ended

Sep. 30, 2020

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, 2020 and December 31, 2019.



	Fair Value Measurements at September 30, 2020
	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	$	—	$	3,572	$	2,092	$	5,664
Unrealized derivative gains:
Commodity contracts	—		894		580		1,474
Foreign currency contracts	—		292		—		292
Interest rate contracts	—		32		—		32
Cash equivalents	496		—		—		496
Marketable securities	9		—		—		9
Segregated investments	1,158		—		—		1,158
Deferred receivables consideration	—		272		—		272
Total Assets	$	1,663	$	5,062	$	2,672	$	9,397

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	592	$	796	$	1,388
Foreign currency contracts	—		547		—		547
Interest rate contracts	—		34		—		34
Debt conversion option	—		—		32		32
Inventory-related payables	—		482		7		489
Total Liabilities	$	—	$	1,655	$	835	$	2,490



	Fair Value Measurements at December 31, 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	$	—	$	3,227	$	1,477	$	4,704
Unrealized derivative gains:
Commodity contracts	—		277		201		478
Foreign currency contracts	—		138		—		138
Interest rate contracts	—		3		—		3
Cash equivalents	505		—		—		505
Marketable securities	5		—		—		5
Segregated investments	628		—		—		628
Deferred receivables consideration	—		446		—		446
Total Assets	$	1,138	$	4,091	$	1,678	$	6,907

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	375	$	199	$	574
Foreign currency contracts	—		125		—		125
Interest rate contracts	—		43		—		43
Inventory-related payables	—		702		27		729
Total Liabilities	$	—	$	1,245	$	226	$	1,471

Estimated fair values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets and quality, referred to as basis. Market valuations for the Company’s inventories are adjusted for location and quality (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using the inputs from broker or dealer quotations or market transactions in either the listed or over the counter (OTC) markets and are considered observable. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. 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. Market valuations for the Company’s forward commodity purchase and sale contracts are adjusted for location (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets and are considered observable. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. 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 effective 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 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 program (the “First Program”) which represents notes receivable from the purchasers under the First Program (see Note 16 for more information). This amount is reflected in other current assets on the consolidated balance sheets (see Note 7 for more information). The Company carries the deferred receivables 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 receivables consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the First Program, 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, 2020.



	Level 3 Fair Value Asset Measurements at
	September 30, 2020
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, June 30, 2020	$	1,399		$	442		$	1,841
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	258			286			544
Purchases	3,181			—			3,181
Sales	(2,703		)	—			(2,703		)
Settlements	—			(96		)	(96		)
Transfers into Level 3	290			13			303
Transfers out of Level 3	(333		)	(65		)	(398		)
Ending balance, September 30, 2020	$	2,092		$	580		$	2,672

* Includes increase in unrealized gains of $392 million relating to Level 3 assets still held at September 30, 2020.

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, 2020.



	Level 3 Fair Value Liability Measurements at
	September 30, 2020
	Inventory- related Payables			Commodity Derivative Contracts Losses			Debt Conversion Option		Total Liabilities
	(In millions)

Balance, June 30, 2020	$	14		$	363		$	—	$	377
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*	(3		)	618			15		630
Purchases and issuance of debt conversion option	3			—			17		20
Sales	(7		)	—			—		(7		)
Settlements	—			(188		)	—		(188		)
Transfers into Level 3	—			24			—		24
Transfers out of Level 3	—			(21		)	—		(21		)
Ending balance, September 30, 2020	$	7		$	796		$	32	$	835

* Includes increase in unrealized losses of $635 million relating to Level 3 liabilities still held at September 30, 2020.

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 nine months ended September 30, 2020.



	Level 3 Fair Value Asset Measurements at
	September 30, 2020
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, December 31, 2019	$	1,477		$	201		$	1,678
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	626			732			1,358
Purchases	9,600			—			9,600
Sales	(9,838		)	—			(9,838		)
Settlements	—			(331		)	(331		)
Transfers into Level 3	290			57			347
Transfers out of Level 3	(63		)	(79		)	(142		)
Ending balance, September 30, 2020	$	2,092		$	580		$	2,672

* Includes increase in unrealized gains of $1.2 billion relating to Level 3 assets still held at September 30, 2020.

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, 2020.



	Level 3 Fair Value Liability Measurements at
	September 30, 2020
	Inventory- related Payables			Commodity Derivative Contracts Losses			Debt Conversion Option		Total Liabilities
	(In millions)

Balance, December 31, 2019	$	27		$	199		$	—	$	226
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*	1			1,070			15		1,086
Purchases and issuance of debt conversion option	11			—			17		28
Sales	(32		)	—					(32		)
Settlements	—			(521		)			(521		)
Transfers into Level 3	—			79					79
Transfers out of Level 3	—			(31		)			(31		)
Ending balance, September 30, 2020	$	7		$	796		$	32	$	835

* Includes increase in unrealized losses of $1.1 billion relating to Level 3 liabilities still held at September 30, 2020.

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.

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, 2020 and December 31, 2019. 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, 2020 is a weighted average 20.6% of the total price for assets and 56.4% of the total price for liabilities.



	Weighted Average % of Total Price
	September 30, 2020				December 31, 2019
Component Type	Assets		Liabilities		Assets		Liabilities
Inventories and Related Payables
Basis	20.6	%	56.4	%	28.2	%	14.7	%
Transportation cost	15.8	%	—	%	24.7	%	—	%

Commodity Derivative Contracts
Basis	12.6	%	18.7	%	16.0	%	20.2	%
Transportation cost	5.2	%	4.3	%	9.7	%	3.1	%

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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